• Posted on October 28, 2020
• Unique Submission Team

BUDGET & COMMERCIAL MANAGEMENT (BUDCOM) Assignment

Introduction

The constructions projects undertaken hold immense value in terms of their purpose and functionality as well as commercial significance. The construction projects are resource-intensive in terms of cost and time and require proper management and supervision to ensure proper allocation and usage of resources to accomplish the project.

This study is based on the assessment of budget and commercial management of the Lower Thames Crossing construction project. The report examines the project and its requirement of funding and criteria of evaluation of commercial viability.

The buyer-supplier relationship and the current and future trends have been of such projects have been presented along with the framework of Contracting/tendering and negotiation in construction.

Examination of the business case of Lower Thames Crossing

The construction project is undertaken by Highways England to construct two tunnels crossingeach of 2.5 miles beneath the Thames River length for establishing a linkage amongst the county of Essex with Kent through Thurrock(Highwaysengland, 2020).

The route had been approved for alieving the pressure from the A282 Dartford Crossing. The project is estimated to cost £6.8 billion but was obstructive during its initial draft. The crossing has been extended with the M2 motorway junction 1.

The sections of the crossing route are the crossing itself and the southern region of the river situated in Kent along with a northern portion of the river in Essex and Thurrock.

Highways England has undertaken the project for unlocking new opportunities in the area and facilitating the economic growth of the area as well as the entire UK by offering a better journey taking the lesser time and new connections.

The construction project has a direct contribution tothe creation of thousands of employment opportunities and apprenticeships. The project is feasible, as it would enhance the road capacity by more than 90% in the eastern region of London across the Thames while also having the scope of attracting investment in billions of pounds for regeneration.

Figure 1: Location of the project. Source:(Highwaysengland, 2020).

The construction project has the scope of improvising the journey time of the people around M20 and A127 while also benefitting by reducing congestion on the roads which lead up to Dartford Crossing. The project would enhance the flow of traffic to cross the Thames by double(Highwaysengland, 2020).

The project would add new roads spanning 14.5 miles and three lanes in the existing network of roads, which would have a maximum limit of 70mph speed. The project would enable the drivers to pay remotely and not have to stop due to the free flow charging system.

The requirement of funding for projects

Figure 2: Lower Thames Crossing. Source: (Highwaysengland, 2020).

Funding is crucial for all sorts of projects to be executed and finished in time with the requisite quality and specifications. The requirements for funding of a project depends on the scope and duration of the project as well as its scale.

The project of Lower Thames Crossing would require a fund of £6.8 billion, which can be procured from grant funders in the UK. Investment appraisal is considered for funding for a project based on the assessment of profitability based on the life of the asset along with the strategic importance and affordability(Berg & Edquist, 2017).

Project funding is essential for accumulating the money required for undertaking a project and allocated as and when required.The funding for projects can be secured from investors from multiple sources or a single source.

The investors take the investment decision by assessing the ROI of being able to achieve a suitable return and overall economic benefit. In this case, the project of Lower Thames Crossing is of regional and nationwide importance due to its ability to provide a greater macroeconomic return.

Hence, the project would attract funding based on the ability to provide long-term returns by the collection of tolls as well as advertising and reducing traffic congestion over the years(Amidu, 2017).

The project is quite large and complex and would require extensive feasibility assessment before funding. Highways England had sought funding for the project by enhancing engagement for the wider market through a Bidder’s day.

The Kent Country Council has sought to fund for the project due to being directly benefitted. The project is to be undertaken based on a public-private partnership for funding due to its complexity and large stature. The department of transport in the UK would have to take the responsibility of acquiring funding for the project from the public and private based models.

SPV financing benefits and pitfalls for large projects

Special purpose vehicle funding has to be created for the project of Lower Thames Crossing project as it is undertaken for the specific purpose of creating better journeys, connecting regions and increasing traffic flow over the Thames.

The companies create a subsidiary for segregating the financial risk for securing the obligations in case the parent firm faces bankruptcy do SPV financing(Chowdhury & Chen, 2017).

Due to the project being very large in magnitude and requiring extensive time for completion, there is the possibility of an increase in the incremental cost of the project due to various macroeconomic factors like inflation and changes of scope.

The department of transport of the UK has the choice to set up a special purpose entity for financing the infrastructure projects to create an institution with the well-defined purpose of financing the project and being obligated legally while also working to raise funds from the market.

The SPV has to be created by adhering to all the norms to be followed by a real company(Gomez & Gambo, 2016). The benefits of SPV finning for such large projects include minimising the risk from Highways England and the Department of Transport for freeing the capital.

The SPV provides legal protection to the parent company in charge of the construction in addition to promoting single asset ownership. However, the pitfalls of SPV financing for this project is the complexity as it can make it difficult for the investors and members to monitor risk. There is also a reputational risk for the parent company if they create an SPV as it might influence the quality of credit.

Assessment of evaluation of commercial viability of the projects

The project that has been undertaken in this report is Lower Thames Crossing, the proposed project is based upon developing a new road crossing of the River Thames. The construction project is focused on linking the country of Kent to Essex through Thurrock.

The project was initiated in the year 12^th April 2017 by the Transportation Department of the UK. The total cost that has been identified within the project is £ 6.8 billion, once the project is completed it will help in dealing with the increasing traffics within the area(Highwaysengland, 2020).

Examining the project based on Lower Thames Crossing it has been noticed that there will be three junctions that include Orsett on A13, Thong on the A2 and M25 at junction 29. Examining the commercial viability of the projects it has been noticed that Highways England is investigating the potentiality commercial along with the financial structures that could be used to make the project successful.

The critical information has also been gathered that includes public funding and private financed structures that are considered as the commercial viability for the project. The commercial viability of the project associated with financed contacts includes designing and maintaining the project requirements.

While considering the project the project manager associated with the task also keeps in mind that designing and maintenance of the structures needs to be accessed so that challenges associated with the task can be minimised(Gov, 2020).

Moreover, to sustain the commercial and financial viability of the project contractual along with finance structures for each of the packages are being designed and delivered through schemes that ensure value for money(Highwaysengland, 2020).

Highways England is also preparing for the developing phase of the project where they are undermining the most preferred route that the government is looking for making the project commercial and financially viable.

Furthermore, it has also been understanding that the government of England is also eying to use the Development Consent Order that has been undertaken to design and enable the construction supply chain that uplifts the commercial viability of the project.

The financial viability of the project includes developing and designing financial budgets to identify the capital cost that is associated with the project.

Capital costs

The financials have been determined by Highways England while using the internal standards which includes the development costs along with the time frame for the project.

Construction starts along with actual costs of the constructions has also been determined in regards to new crossing and link roads. The estimated capital cost for the project has been underlaid below.

Figure 1: Estimated capital cost (Numbers in £), Source: (Highwaysengland, 2020)

Operating costs

The development of the project has also helped in preparing the financial operational cost that is directly linked with the project. Additional costs have also been included in the new crossing over 25 years, where the average annual nominal cost is round £ 50 million(Gov, 2020).

Therefore, considering the overall factors in mind it becomes easier for the Hingway of England to sustain both commercial and financial viability of the project.

Buyer/supplier relationship development in the commercial environment

Examining the supplier’s relationship with the commercial environment includes strengthening the supply chain unit of the project. The role of the supplier is to acquire resources that are necessary to carry out the project task.

The Highway of England has taken up the decision of constructing Lower Thames Crossing where different types of resources are being put to use that includes of aggregates, bituminous materials, cement and miscellaneous materials which are being used to construct the project with the best quality of materials and increase the durability of the highways(Frödell, 2014).

Suppliers help the project managers involved in the project to maintain the higher and integrated form of supply chain units that not only helps in maintaining an adequate amount of resource flow but also it helps in understanding the external business environment.

Suppliers also benefit in carrying out the task that helps in completing the project in a successful manner that includes conducting the PRA system of classification that is used for testing of soil and determining its nature as should the project be viable.

The textural classification which helps the project managers in understanding the particle size of the soil that ranges in different grain sizes. Examining the relationship development in the commercial environment crucial information has been gathered which includes suppliers helps in developing a relationship with stakeholders and shareholders.

It has been noticed that big multinational construction industries prefer to join their hands with government organisations to carry out the project in a successful manner(Ağan, et al., 2016).

Suppliers act as the bridge of communication between the public organisation and the government administration. Fundings, resources, and manpower are being exchanged among the parties so that the project can be carried upon with the highest accountability and responsibility.

Moreover, it has also been noticed that the role of suppliers within the projects is much more vast and important because they perform a quick scan of the purchasing maturity tool which is being undertaken by the project manager or the administrator to design and develop scientific research method.

Moreover, the helping hands of suppliers are also considered to be more than useful as because it opens up the door for the project administrator to identify the gaps which they need to fulfill to make the project much more successful.

There are also other ways through which suppliers’ relationships within the commercial environment are being developed that include developing suppliers’ technical capabilities along with supervising their activities.

Sharing of critical information with the project manager and concerned authority helps them in implementing changes within the project that not only increases the viability of the project but also contain cost(Scmdojo, 2020).

Therefore, suppliers’ relationship development within the commercial environment helps in sustaining along with maintaining the viability of the project Lower Thames Crossing.

Current and future trends

The current trend of construction sector comprises technology integration and advancement, application of green technology, rise in the prefabricated and modular construction project, rise in material cost, decreased labour forces, equipment of better security and sustainability.

Due to the improvement in technical aspects, the designing of the constriction process has become simplified with maintaining accuracy. The construction project of A1 (M) J 6-8 Smart Motorway has begun in 2020 which is considered as one of the busiest section with solving the issue of existing capacity concern.

The flow of traffic has processed through the smart motorway scheme which has justified the technical development in construction. The rise in material cost would also raise the final cost for the project which depends on the current market price.

Moreover, the concern of technical development would also simplify the approaches of designing and construction(Siddiqui, et al., 2016). For example, the up gradation of Transpennine route project comprises the development of route which has covered 8 tunnels, 13 viaducts, 76 track miles and 25 stations.

The works are approached to improve the journey time, capacity along with reliability which comprises improvement of interchange and railway line electrification.

The future trend of construction project is reflected from the concern of environment which has ensured the management to cover the sustainability concern.

Channel Tunnel Interconnector Project or Eleclink project comprises the connection of energy system of Belgium and UK which is recognised as the interconnector of new generation.

The European countries has aimed to transit major energy for reduction of CO2 emission and generate the electricity from alternative renewable sources(Fengler, et al., 2008). On the other hand, the barking riverside rail development project has focused on the development of railway station in London borough which has been completed in one year.

The planning of the work process has been developed in such a manner that it will be completed consistently(Gupta, et al., 2017).

Suppliers help the project managers involved in the project to maintain the higher and integrated form of supply chain units that not only helps in maintaining an adequate amount of resource flow but also it helps in understanding the external business environment(Ghanbaripour, et al., 2015).

For sustaining the financial and commercial viability of the project, contractual and finance structures for each of the packages are designed and delivered through schemes that ensure value for money. So, the future trend of the construction is demonstrated through inclining the project into the direction of cost-effective approaches.

Contracting/tendering framework and negotiation in construction sector

The tender refers to the submission which is made by the prospective supplier in response to the invitation of tender. It has made an offer regarding the goods or service supply.

In the construction field, the key tender process is adapted for the contractor selection which has constructed the work process. The tendency of the suppliers has aggregated into single contracts which corpuses designers, main contractors, suppliers, sub-contractors and facility managers(Gomez & Gambo, 2016).

The different aspects of tendering focused on open tendering, selective tendering, serial tendering, negotiated tendering, framework tendering, two stage and single stage tendering along with public procurement.

The open tendering has allowed the individual for submitting the tender to supply the services and goods required. Open tendering has provided highest competition which comprises the greatest deal of effort, money and time.

The selective tendering has allowed the suppliers to submit the tenders through innovation(Ağan, et al., 2016). The selective tendering has provide the clients higher confidence regarding meeting the requirement and minimise the involved efforts of open tendering.

The experienced clients or consultants has maintained the approved list of suppliers which has reviewed the performance of suppliers.

The negotiation contract has also addressed for construction work process. Suppliers help the project managers involved in the project to maintain the higher and integrated form of supply chain units that not only helps in maintaining an adequate amount of resource flow but also it helps in understanding the external business environment(Chowdhury & Chen, 2017).

Moreover, it has also been noticed that the role of suppliers within the projects is much more vast and important because they perform a quick scan of the purchasing maturity tool which is being undertaken by the project manager or the administrator to design and develop scientific research method.

The planning of the work process has been developed in such a manner that it will be completed consistently(Gupta, et al., 2017). The relationship development in the commercial environment crucial information has been gathered which includes suppliers helps in developing a relationship with stakeholders and shareholders.

Conclusion

Highways England has undertaken the project for unlocking new opportunities in the area and facilitating the economic growth of the area as well as the entire UK by offering a better journey taking the lesser time and new connections.

The funding for projects can be secured from investors from multiple sources or a single source. Due to the project being very large in magnitude and requiring extensive time for completion, there is the possibility of an increase in the incremental cost of the project due to various macroeconomic factors like inflation and changes of scope.

The SPV provides legal protection to the parent company in charge of the construction in addition to promoting single asset ownership.

References

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Amidu, A., 2017. A review of funding and its implications for construction clients. In: In Clients and users in construction . London: Routledge, pp. 87-102.

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