Apple Healthcare Project

Background of the Case project

The project into consideration Apple healthcare within the aim of building a health care facility. With in increasing competition facing the Tech giant, the company has decided to have a different line of diversification far from its core activities (Apple Inc. 2019).  The company is getting into the health industry slowly by the production of medical devices, the release of Apple Health records, and Apple watch with single-lead ECG. These are indicators that the tech giant has already entered the healthcare industry. The firm main project speculated is to have a healthcare facility with the center with patient health records as the pillar for a positioning strategy. Further, the firm believes that there is so much in the health care industry, and it is a worthy investment.

Project delivery method

The project of constructing a facility requires the owner or the agency acting behalf of the owner to organize and finance the design, construction, and maintenance services for the structure by getting into legal agreements with one or more parties. Careful selection of the best method help in saving time and avoiding challenges down the road with the project (Tsegaye, 2018, p. 12). The contract states the method of delivery to produce and deliver on the owner’s specifications. There are three approaches that Apple company can use in achieving its dream in delivery of a health care facility, which includes Design-Bid-Build (DBB), Design-Build (DB), and Construction Manager at Risk (CM@R).

In the Design-Bid-Build, the owner or the Agency gets into a contract with the architectural firm and the contractor separately (Charoenphol et al., 2016, p.182). In the contracts prepared, the contractor and the architect are now legally bound to one another. Therefore, it gives the owner control of the whole project. This approach is not the best for Apple, mainly through the diversification in unrelated business. Also, Apple is not an expert in the health care industry and will require that they mitigate the risk of the firm carrying all the risk by themselves. Further, this type of approach raises considerations of the owner taking risks if the contractors make an error. Also, construction is not known until the award is provided, and it requires the firm to have all inputs in design, planning, and value engineering. Based on the owner taking roles in controlling the project, the delivery design is not fit for the company.

The Design-Build and Construction manager at risk is a better option for Apple to consider, since the transfer the control to contractors (Charoenphol et al., 2016, p.182). That means that the firm will still have time to concentrate on their core values. But indeed, the firm needs to settle with one approach that should be stated in the contract. The design-build contract, the owner, can enter a legal agreement with the contractor or the architect who takes the roles of the client until the construction is done. The importance is that approach is that a single party does all the management process, design, and development, the building can start before designing is complete, there is an emphasis on cost control and transfer of risk from the owner (Tsegaye, 2018, p. 12). Due to the contractor assuming all the roles of the project, the tendering process may not be fair and based on competitive bidding.

The best choice for apple to use is the construction manager at risk. Holding to the assumption that Apple Company has a fixed budget for the project, the price set is what the company will offer, and a high preference for price certainty will guide the action of the project. Also, assuming that Apple Company wants to proceed with its core activities without interruptions of the ongoing project. In all the project, the client focus on getting services and achieving their goals at lower costs and attaining high-quality standards at a specified time frame. In any project, the key factors that any business considers include time, schedule, and scope. The change of any element can lead to changes in the rest.

The advantage that Apple will gain from the constructor manager at-risk approach is that there is high price certainty through good estimation during the early age (Charoenphol et al., 2016, p.187). The constructor is based on qualification and then on price. When the company issues a tender, they provide all the specifications, design, and all the deliverables. Then the contractors engage in competitive bidding. The one with the lower price is contracted to offer the services and deliver on the project.  Besides, the construction manager acts as a consultant to the firm and work to manage the construction costs. The manager provides the guaranteed maximum price, and in case the costs exceed what is quoted, they cater to such liability.

Financial contract type

By identifying the best time of the project delivery approach, compensation needs to be done for the services rendered. In this case, the Apple company project to build a health facility suits the construct manager at-risk approach to delegate the role of monitoring and controlling. It requires that there is a financial contract type that supplements the selected method in ensuring delivery of services is competent and meet the owners’ specification. A business contract type gives a legal binding for both the owner and the constructor that authorizes how much amount of compensation will be distributed (Tran et al., 2018, p.50). Due to the advantages of different types of contract types, some are highly preferred by professionals. Apple needs the best compensation method they can fully comply with since failure to honor the agreement can lead to legal action taken against them.

Between the three types of financial contracts, Guaranteed Maximum Price matches the Constructor manager at-risk project delivery method. Therefore, Apple requires these methods since they need to hold costs low without compromising quality. The Guaranteed Maximum Price contract, the constructor, is compensated for the actual expenses incurred and a fixed fee subject to the ceiling price (Tran et al., 2018, p. 56). This requires that there is a proper estimation of both direct and indirect costs before giving the owner a budget. The contractor can put the ceiling price for each of the costs to ensure that there are no costs overruns since they will be the ones to bear the liabilities. Apple requires to have a fixed budget from the investment so that it can help determine the net present value for the project. So, using the GMP will help project the estimated cash flows from running a healthcare facility to determine the expected income (Tran et al., 2018, p.45). Further, this is unrelated diversification, which requires cautiousness while holding costs as low as possible. If the contractor is paid for the actual expenses incurred plus a fee subject to the ceiling price, the owner can get the remaining cash if the costs turn to be lower than estimated. If costs exceed the budget, they transferred to the contractor unless there is a formal change between the two parties.

Also, the Lump-sum seems to be a better deal for Apple Company since it requires developing a fixed price. Further, all the risks are assigned to the contractor, and the owner bears no risk until the completion of the project (Chen, 2016, p. 12). As a result of the project manager assuming all the danger, they ask for higher mark up as a way to shield against unforeseen risks during the project phases. Proper job execution lies in the contractor who provides the means and methods of accomplishing it. The labor costs, material costs, and amount to cover overhead and profit margin are added. This may result in a higher price than actually paying the costs incurred. To ensure that profit is high, the contractor ensures that estimated costs are higher, and in case the actual damages are lower, and they retain the cash. For that reason, Apple would not opt for the lump sum financial contract method, since it may turn out to be more expensive and hinder the goal of lowering cost.

Lastly, the cost-plus contract is hard to be adopted in this kind of scenario. The method better used when the scope is not clear (Ding, 2019, p. 9). But in this case, it is assumed that Apple has a well-defined range for the project for price estimation purposes. There are no price controls in such kind of payment plan since the price can increase or decrease (Ding, 2019, p. 9). In the event, there is an increase in cost value, the firm will end up using more funds that were not planned.  Any investment project requires all deliverables outlined before the commencement to ensure accurate compensation determination. Therefore, lack of price control and lack of clear scope makes it less a choice for Apple Inc.

Best procurement method

The procurement process involves placing tender and waiting for suppliers to place bids so that a firm can acquire services from an external source (Naoum and Egbu, 2016). In the project, Apple, the procurement process starts with the procurement department to identify whether they need to buy, make, or lease the building to set up the facility. All these options are determined by the costs incurred and the benefits expected from either decision. Acquiring services from external parties requires that the award of tenders is done since it affects the construction process. There are several ways that procurement can be done, including competitive bidding, the best value, and negotiated contracting.

The importance of apple using a competitive bid to award tenders requires issuing a public request so that companies can give their proposals (Semaan and Salem, 2017, p. 44). It is a way to create a transparent environment that open and fair. It is good since it offers a variety of options and provides the firm with the lowest bidder who helps deliver the project at a lower cost. On the other hand, the negotiated contracting is just a direct agreement with the contractor without going through competitive bidding (Laryea, 2017, p. 803). In this case, it helps save time since, in some cases, it may take time to place a public bid then waiting for contractors to make bids then awarding the tender.

In some cases, the competitive process can last for days, weeks, or months which delay the implementation of the project. The negotiated contracting is better when the project needs to deliver fast and has a strict deadline meet. Apple is known for quality service and product delivery and would require that construction project reflects their position in the eyes of their customers, even in healthcare services. For that reason, the best value is highly suitable and more appropriate in this case. The firm requires to look for other factors like quality and expertise other than price (Laryea, 2017, p. 803).  In this case, there will be a variety of bidders who will be pre-qualified with the submission of the best value evaluation questionnaire. The bidder with the highest points of best value evaluation is awarded the tender and allowed to do the construction.

Risk Management Plan

The contractor is required to prepare for risks and estimates the impact on the project. Then they will be required to develop mitigation and responses to the identified risks. In the project risk management process requires five phases that include determining the risk, analyzing, evaluating and rank, treat or mitigation plan, and monitoring and review (Aghapour et al., 2017p.80). The risk of hospital construction can emerge from

Risk

Mitigation Plan

After the treatment of various risks through routine planning, the residual risk needs to be mitigated to reduce extreme adverse effects on the project. The mitigation plan will include risk avoidance, acceptance, transference, and limitation (Aghapour, 2017, p.112). For climate risks, they have a high impact when they happen; therefore, risk avoidance can be the way to mitigate, and that is constructing during the favorable climate period. Some risks like noise, transport risks can be treated, and the residual risks can be accepted since they have little value change in the project. Apple has used the strategy of transferring the project management to a contract manager who assumes some risks such as economy-related risks and health and safety risk. Through expertise and transfer of control to the best value of the contractor, Apple Company can transfer most of the risks. Lastly, limitation on the effect is done on those risks that have a high ranking ad high value on the project and cannot be mitigated or treated.

References

Apple Inc. 2019. The future of healthcare is in your hands. https://www.apple.com/healthcare/

Aghapour, A.H., Marthandan, G., Fie, D.Y.G., and Zailani, S., 2017. Risk management process towards operation performance in supply chain management: a survey of manufacturing SMEs. International Journal of Logistics Systems and Management, 27(1), pp.78-114.

Charoenphol, D., Stuban, S.M., and Dever, J.R., 2016. Using Robust Statistical Methodology to Evaluate the Cost Performance of Project Delivery Systems: A Case Study of Horizontal Construction. Journal of Cost Analysis and Parametrics, 9(3), pp.181-200.

Chen, Q., Xia, B., Jin, Z., Wu, P., and Hu, Y., 2016. Choosing appropriate contract methods for design-build projects. Journal of Management in Engineering, 32(1), p.04-15.

Ding, J., Zhai, W., Wang, Z., Zhang, K., and Cai, J., 2019, September. Modeling and Design Analysis of Contract Payment Methods in Civil Engineering Projects. In IOP Conference Series: Earth and Environmental Science (Vol. 304, No. 3, p. 032001). IOP Publishing.

Johansen, D., 2019. Shipbuilding Projects in Norway: Joint Risk Management in Shipbuilding Projects (Master’s thesis, University of South-Eastern Norway).

Laryea, S., 2017, August. Impact of tendering procedure on price formation in construction contracts: a case study of the competitive negotiation procedure. In Procs 7th West Africa Built Environment Research (WABER) Conference (pp. 853-869). Ghana: Accra.

Naoum, S.G., and Egbu, C., 2016. New selection criteria for procurement methods in construction. International Journal of Managing Projects in Business.

Semaan, N., and Salem, M., 2017. A deterministic contractor selection decision support system for competitive bidding. Engineering, construction, and architectural management.

Tran, D.Q., Brihac, A., Nguyen, L.D., and Hoon Kwak, Y., 2018. Project cost implications of competitive guaranteed maximum price contracts. Journal of Management in Engineering, 34(2), p.050-180.

Tsegaye, F., 2018. Assessment Of Project Delivery Methods (Case Study Bahirdar-Zema River Bridge Design-Bid-Build Road Project And Koka-Adulala Design-Build Road Project) (Doctoral dissertation, Addis Ababa University).