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E L E CT R I C AL CONNE CT I ON
W I NT E R 2 01 5
CONSIDERATION
For a contract to be binding it must be
supported by ‘valuable consideration’.
That is, one party promises to do
something in return for a promise from the
other party to provide a benefit of value
(the consideration).
Consideration is what each party gives
to the other as the agreed price for the
other’s promises.
Usually the consideration is the payment
of money, but it need not be; it can be
anything of value, including the promise
not to do something, or to refrain from
exercising some right.
FEASIBILITY STUDIES
Companies and estimators use a feasibility
study to find out whether a project is feasible
before investing real resources and dollars.
The feasibility process is completed
before the initial estimate, or it can often
be used to see whether a set of processes
or procedures will enhance or harm the
project outcomes.
The prerequisites for successful
tendering are:
>
Assessing the fit
– Is the project viable
and does it fit with the company’s core
business strategy?
>
Analysing the competition
–What are
the company’s realistic chances of success?
>
Understanding the client –
How
do you position yourself to better
understand a project’s goals, budgets
and risks?
>
Reviewing delivery
– Does the
company have the resources and
capability to achieve project success?
>
Evaluating commitment
– Does
the company have the corporate
commitment and resources to submit a
winning bid?
The following steps are used in this
assessment:
>
Project description
– identify the project
name and purpose, include details including
stakeholders, and result expected;
>
Goals
– list long and short-term goals and
what processes will be needed to achieve
those goals;
>
Timeline
– the estimated time until
project completion; and
>
Costs and budgeting
– all costs incurred
for the project, including the cost of the
feasibility study itself.
COMMERCIAL RISK
Many electrical contractors have gone
into receivership due to not observing or
understanding the commercial clauses
in the specifications, such as ‘liquidated
damages’ and ‘payment’ clauses.
Although they may have made a great
take-off and included all the works for the
installation, a couple of commercial clauses
have sent them to the poorhouse.
Risk assessment is a critical function of the
estimator’s role, and the prerequisites for
profitable and successful tenders include:
>
analysing the company’s ability to
successfully prepare the tender submission;
>
undertaking a strategic review of current
and future economic conditions to
accurately predict commercial viability;
>
creating a realistic outline of the workforce
required to successfully complete the
project;
>
developing a realistic forecast of the
organisations strengths and weaknesses;
>
diagnosing key areas of commercial risk
that can effect productivity and profitability;
>
uncovering the long and short-term
economic risk factors capable of derailing
the tender;
>
conducting relevant internal commercial
checks to mitigate often overlooked risk
factors; and,
>
analysing the most effective insurance
strategies to mitigate commercial risk
exposure
At the time of assessing the tender for
viability, the estimator needs to identify
possible risks before starting the take-off
– the job may not be viable enough to
submit a price. Identifying these risks and
the range of possible outcomes includes:
>
probability;
>
impact; and,
>
response.
For each major risk, one of the following
approaches must be selected to address it:
>
Avoid
– eliminate the threat by
eliminating the cause;
>
Mitigate
– identify ways of reducing the
probability or effect of the risk;
>
Accept
– nothing will be done; or
>
Transfer
–make another party responsible
for the risk (buy insurance, outsourcing, etc).
Based on the estimator’s assessment, the
project manager – working with the project
team and project sponsors – will ensure that
risks are actively identified, analysed and
managed throughout the life of the project.
Identifying these risks at the time of the
initial estimate will minimise their effect.
THE KEY ELEMENTS
>
Initiate.
>
Plan.
>
Execute.
>
Monitor.
>
Close.
VALUING FINISHED WORK
A well-prepared estimate will set out
project phases so that it can be used as a
benchmark against the progress of the job.
This will show up any problems early,
allowing time to address any glitch in the
system.
It is in the estimator’s interest to value
completed work, and specific phases of the
project, as a guide to future projects of a
similar kind.
Cost management during the installation
phase is essential for budget control. The cost
management approach involves the following:
>
assess and negotiate progress claims and
variations in a fair and reasonable manner;
>
comprehensively monitor all variations
against contingency; and,
>
provide early advice on anticipated
variations.