Abstract
The Punjab Information Technology Board (PITB) had been given the task of constructing a Software Technology Park (STP) by the Chief Minister of Punjab. The STP was a project of national importance with a budgeted cost of PKR 3.42 billion (USD 57 million), a seventeen storey tower and an aggressive construction timeline of eighteen months due to the national elections to be held in November 2007. The Chief Minister wanted to build a robust infrastructure and create a success story in the IT sector for the next elections. The upcoming elections also created a sense of urgency within the Punjab government to build an IT infrastructure in Punjab and show progress to the IT industry as well as the general public. Therefore, the Chairman PITB had to make two quick decisions if he wanted to meet the demanding schedule of the project. The decisions included: the selection of the contract type and the contractor for construction of the seventeen storey STP.
‘What a week’, Jasem Al Naqbi had said to himself whilst pulling out of the Chief Minister Secretariat’s parking lot at 90 Sharah-Quaid-e-Azam, in Lahore, in June 2006.
Jasem was the Chairman of the Punjab Information Technology Board (PITB) and the Chief Minister Punjab (Chaudhry Pervaiz Elahi) had assigned PITB the task of constructing a state-of-the-art Software Technology Park (STP) on Ferozepur Road, in Lahore. Jasem realized that the STP was a project of national importance and he had to make two quick decisions if he wanted to meet the demanding schedule of the project. The decisions included: the selection of contract type and the contractor for construction of the seventeen storey STP.
Background
The Punjab Information Technology Board (PITB) was formed in March 1999 with an objective to promote Information Technology (IT) throughout the province of Punjab. PITB was run by a Chairman who as the Chief Executive of the organization, worked under the Board which was headed by the Chief Minister (Chief Executive of the province). At various times PITB had Chairmen selected from both the private and public sectors (Exhibit 1).
The PML (Q) government was elected in 2002 and Chaudhry Pervaiz Elahi became the Chief Minister and Chief Executive of the province of Punjab. In 2004, the Punjab Government started to focus on IT potential. It was realized by the government that the absence of a robust and purpose-built IT infrastructure was a major impediment to the growth of the IT industry. Therefore, the government decided to construct a state-of-the-art STP in Lahore. The Chief Minister wanted to build a robust infrastructure and create a success story in the IT sector for the next elections, which were scheduled to be held in November 2007. The upcoming elections in 2007 also created a sense of urgency within the Punjab government to build an IT infrastructure in Punjab to depict progress to the IT industry, as well as the general public.
Since Punjab was the largest province in Pakistan with a population of 80 million, it made sense to have a sustainable IT infrastructure to cater to local demands as well as to attract foreign direct investment (FDI) into Pakistan. The Punjab government decided to hire an IT professional from the private sector with extensive foreign exposure to help formulate and implement its IT vision.
Jasem was hired by the Punjab government in December 2004 as Chairman PITB. He held a B.Sc. in Information Systems from Ohio State University and an MBA from Cleveland State University. He had over fifteen years of IT and management consulting (Deloitte Consulting) experience of working in the US, UK, Germany, Finland, Denmark, and Mexico. He had also served as an Assistant Professor at the Lahore University of Management Sciences (LUMS) prior to joining the Punjab government.
The STP Project
According to the project charter that was also known as PC-I (Exhibit 2), the STP on Ferozepur Road, Lahore, was conceived to be the first high-tech, purpose-built, and iconic building for the IT industry in Pakistan.
A purpose-built building for the IT industry with state-of-the-art IT infrastructure, including high speed internet, triple source power generation, biometric security systems, central heating and cooling (HVAC), and 24-hour security surveillance did not exist at that time in 2005–2006. The contemporary architecture was selected by the government to give it an iconic look. The seventeen storey building with 475,000 square feet of covered area had an estimated cost of Pakistani Rupee - PKR 3.42 billion (USD 57 million 1 ) with a completion timeline of eighteen months. The contemporary and high-tech architecture and design was a joint effort developed by the PITB, Project Management Office (PMO), Directorate General Monitoring & Evaluation (DGM&E) of Planning & Development (P&D) Department and Jurong Consultants of Singapore.
The original concept of STP was developed on the vision of the Chief Minister of Punjab by Jasem and Khalid Ahmad Khan (DGM&E) in consultation with the IT industry. Khalid was a Chemical Engineer by profession and held an M.Sc. in Chemical Engineering from Northwestern University and was a certified Project Management Professional (PMP) from Project Management Institute (PMI), USA. He had over twenty-two years of IT, management consulting and project management experience.
Given the size of the project and the tightness of government finances, the project team was asked by the Chief Minister of Punjab to manage the triple constraints (scope, time and budget) in a way that would bring the project to completion within the stipulated time without exceeding the approved funding by over ten percent.
Origins of the STP Project
As soon as Jasem took over as Chairman PITB in December 2004, he focused on implementing the IT infrastructure vision given by the government. In the first thirty days of taking over PITB, he started developing the idea of constructing a state-of-the-art STP in Lahore. He also held discussions with CEOs of the top ten IT companies in Pakistan and sought their feedback on the construction of STP. The consensus was that constructing an STP in Lahore would help to tap into the tremendous local and international demand for call centres, off-shore software development, business process outsourcing (BPO) and IT outsourcing (ITO) businesses.
As part of the research and study tour, Jasem and Khalid visited science and technology parks in Singapore, India, China and Dubai in order to find out the requirements of an international software technology park that would attract FDI into Pakistan. They also held meetings with CEOs of IT companies as well as construction companies that developed science and technology parks in these countries. Some of the key findings of their research were: provision of open and flexible space for call centres including halls of 5,000–10,000 square feet of open space, dual or triple sources of power generation for uninterruptable power supply to call centres and IT companies, twenty-four hour security and video surveillance, wireless LAN/WAN, high-speed internet connectivity, incubation centres for young entrepreneurs, central heating and cooling, building management system (BMS), state-of-the-art conference rooms and an auditorium.
Another key finding that came out during the study tour of various STPs was one-window operation. Meaning, foreign IT and call centre companies could come to STP and quickly setup their offices without any red tape and hassle of unnecessary government approvals. Upon their return, Jasem and Khalid proposed to the government that the STP facility should be a one-window operation to attract FDI into Pakistan. It would allow the foreign investors to start IT and IT-enabled businesses in an expeditious manner.
After completing the study tour of various STPs, conducting secondary research and seeking the local IT industry’s feedback, it was decided that the STP would have 475,000 square feet of total covered area on seventeen floors and a car park block. The approved and budgeted construction cost of the project was PKR 3.42 billion (USD 57 million). The estimated cost of the four-acre land was about PKR 0.55 billion (USD 9.16 million). STP was designed to accommodate up to 10,000 IT and service related professionals on a two shift basis. As per the feasibility study document, PC-II (Exhibit 3), the estimated potential for economic activity was about PKR 9 billion (USD 150 million) annually. The task of constructing the STP was assigned to PITB.
The key objectives of STP as defined in the project charter (PC-I document) were: to have all IT and IT-enabled services under one roof by building a state-of-the-art and purpose-built building for the IT and telecom industry, to generate economic activity in Punjab, and to attract FDI into Pakistan. In addition, it was decided by the Punjab Government to give STP a contemporary and an iconic look (Exhibit 4). This initiative also helped to send a clear message to the IT industry in Pakistan as well as abroad that the Punjab government was committed to the growth of IT industry in Punjab.
As per the PC-I document, a high-tech and high-rise building like STP did not exist in Pakistan at that time in 2006. The PITB management wanted to make sure that a qualified architect and designer with experience in high-rise and high-tech buildings was selected. The PITB management decided to follow an International Competitive Bidding (ICB) process for the selection of a qualified architect, designer, and construction supervisor. The advertisements were placed in key newspapers nationwide and also mailed to Pakistani embassies overseas.
Proposals were invited for architecture, design and construction supervision of the technology park. As per the P&D Department’s consultant selection guidelines, a consultant selection committee (CSC) comprising seven members was formed. The CSC members included Chairman PITB, General Manager PITB, DGM&E, and representatives of Finance, P&D, Irrigation & Power and Communication & Works (C&W) department not below the rank of a deputy secretary (BPS 18). The CSC devised an evaluation criterion under which 60 per cent weight was given to technical qualifications and 40 per cent weight was assigned to the professional fee of the consultant. As per the instructions of the CSC, each bidder was required to submit technical and financial proposals separately. This was known as a two-envelope bidding process and was also followed by the World Bank for procurement of consultants. The CSC first evaluated all technical proposals and then opened the financial proposals of consultants who were declared technically qualified by the CSC. A total of five firms submitted proposals in response to the advertisement. After scrutinizing and applying the 60/40 criteria to all the proposals, the CSC selected Messers Jurong Consultants of Singapore as the most qualified consultants for the architecture, design, and construction supervisor of the STP project.
There were a number of key challenges that PITB senior management faced from concept-to-design-to-execution of the project. Direct challenges included selection of a qualified architect and designer, constructing a state-of-the-art building using archaic government processes and procedures, limited high-tech design and contracting capacity in the local market, and developing a project team. In addition to these were graver, external challenges in the form of possible changes in government priorities (compounded by the fact that general elections were scheduled to be held next year), economic conditions, terrorism, and government bureaucracy.
One of the government officers made the following comments:
These IT people go on foreign study tours and do nothing. They look at fancy buildings abroad and think they can construct a building like that in Pakistan. They are out of their minds. They don’t know that we don’t have the technology and resources to construct high-tech buildings in Pakistan. Let them dream about the fancy buildings.
Another government officer said:
These young IT guys think they can do everything including construction of such a complex building. What does the PITB know about construction? They have no idea what it is like to deal with thakaydars (contractors) and mazdoors (labourers). We did not get grey hair by sitting out in the sun. Nobody has ever constructed a high-tech building like this and the government has never signed a lump sum contract.
The Project Approval Process
PITB prepared a proposal for feasibility study funding and design of STP. The feasibility study document to hire design and construction supervision consultants, also known as PC-II (see Exhibit 3), was presented to the P&D Board for review and formal approval. The PC-II was approved by the government on 20 June, 2005 with a notional budget of PKR 30 million (USD 0.50 million). This was later modified to cover supervision during construction and was enhanced by the government in June 2006 to PKR 63.888 million (USD 1.064 million).
After the approval of PC-II for design and construction supervision consultants, Jasem and his team started to work on the PC-I. As part of the preparation work during May 2006, Jasem and Khalid engaged with the various stakeholders to ensure that all necessary conditions for approval would be met.
A key challenge in this work was identifying the agency that would execute the project. Typically, all building projects launched in the government were handled by the C&W department. Unfortunately, the C&W department had neither the experience nor the expertise to execute a complex project like STP.
STP PMO
After extensive discussions, the decision was taken to create a dedicated PMO under PITB to execute the project. The PMO would be staffed with professionals from the industry who had the experience to plan and build large modern buildings using the latest management techniques. This represented a major departure from standard government practices and it was only possible because of the involvement of the Chairman of the P&D Board who saw this project as a model for executing major projects through dedicated units to achieve quality, timely, and on budget completion.
The PMO for STP started operating and worked under the guidance of Chairman PITB to complete the preparation of the project charter (PC-I) for review and approval of the project by a committee called Provincial Development Working Party (PDWP), which was headed by Chairman P&D Board at the P&D department of the Punjab government. The project was approved by the PDWP on 06 September 2006, with a cost of PKR 2.194 billion (USD 35.8 million). The PC-I was later modified to cover additional finishing items. It was enhanced and approved by the PDWP on 21 April, 2007, with a cost of PKR 3.42 billion (USD 55 million).
All STP PMO employees including the project director, managers, engineers and staff were hired at market salaries, which was unprecedented in the government at that time in 2006. The STP project organization chart is shown in Exhibit 5.
The Planning and Design of STP
STP had a very tight timeframe which could only be achieved by creating an effective planning and monitoring mechanism. The PITB management made the decision to follow a structured approach for managing the STP project. Considering an aggressive project timeline, the PITB management had decided at the onset of the project to use PMI’s Project Management Body of Knowledge (PMBOK) for planning, design, execution, monitoring and control of the project. All key STP managers went through extensive PMP and Primavera training within the first sixty days of joining the project. Jasem became the first certified PMP at PITB followed by all key STP managers.
The PITB, the STP project team, DGM&E, and Jurong Consultants spent over 10,000 hours on planning to meet the challenge of detailed scoping and design. The project performance baseline was created using the Primavera software. A project schedule with 1,100 activities was incorporated into the PC-I document. This baseline schedule was created to be used by the Project Steering Committee (PSC) to evaluate contractor bids for the construction of the seventeen storey tower and car park block. It was also used to plan, monitor and control key elements of the project including cost, timeline and performance. Each STP Manager was tasked to update his portion of the schedule on a weekly basis while the planning manager coordinated all the key activities and ensured that a consolidated schedule was also updated weekly.
In addition, the decision was made to follow earned value approach (EVA) to manage, monitor and control the project. Once developed, the project schedule was used to plan, monitor and control key elements of the project including cost, timeline and performance. Performance was gauged on the basis of earned value analysis on a weekly basis to ensure that eighteen month project timeline was being followed by the contractor. A monthly progress report with earned value calculations and a consolidated schedule was prepared by the STP project team and shared with all key stakeholders.
As part of the project communication plan, the monthly progress report was also posted on the PITB site to keep stakeholders from the IT Industry and the public aware of project progress in an open and transparent manner.
The PITB management and STP project team along with Jurong Consultants worked closely on the design and technical specifications of the project. The brand name, country of origin and technical specifications of all major components (i.e., lifts, wiring, gen sets, etc.) were clearly defined. For example, the external glass of the building was an item costing about PKR 0.5 billion (USD 8.3 million). The STP project team conducted research through the internet on worldwide top quality brands of building glass and mentioned top four (4) brands in the tender documents.
PITB tried to include Pakistani brands, but unfortunately high-tech glass with the quality and specifications required for the STP project was not available in Pakistan at that time.
The international brand names that met the project specifications included Saint-Gobain of France, Guardian of USA, Asahi of Japan and Viracon of USA. As per the contract agreement, the contractor was only allowed to pick from these four brands along with the detailed technical specifications that were made part of the tender document and contract agreement. The glass colour, thickness, UV rating, heat tolerance factors and country of manufacture (origin) were also defined. See Exhibit 6 for a sample of building glass specifications.
Similarly, detailed research was conducted through the internet by the STP project team on worldwide brands and quality of elevators and escalators. The project team decided on top three brands for elevators and escalators. The brands included OTIS, Schindler and Mitsubishi. Detailed specifications including lift capacity, speed, after-sale service, country of origin, etc., were also defined and made part of the contract agreement. The cost of the lifts and escalators was about PKR 0.765 billion (about USD 12.75 million). See Exhibit 7 for a sample of lift specifications.
Examples of detailed technical specifications include the diesel power generation sets, which were also known as DG Sets. Again, the project team conducted a detailed research on auxiliary power generation as electricity outage was one of the major concerns of the prospective tenants of this building. See Exhibit 7 for a sample of DG Sets specifications.
The PITB engaged a number of Subject Matter Experts (SME) as individual consultants to review various design and specification documents. During design meetings the consultant architect pointed out to the PITB management that the local building regulations allowed PITB to build more floors either on the tower or the car park block and optimize the use of land.
The PITB management held detailed design review meetings with the STP project team, the consultant architect and Jurong Consultants on the viability of adding two more floors. It became quite clear that adding two more floors on the car park block would optimize the use of land and could give an extra 50,000 square feet of office space. The project team also realized that two floors could be added to the car park block at one-third of the cost of adding them onto the seventeen storey tower. However, it had implications on the overall project cost and might also impact the project timeline. After a lengthy debate, the PITB management and the project team made the decision to add two more floors to the car park block and asked Jurong to revise the design of the car park block.
Selecting the Contract Type
Historically, construction contracts were structured as unit rate contracts by the Punjab government. In this type of contract, the rates for various works were fixed but the actual quantities could vary, and hence it was not possible to predict final project costs. These contracts were generally preferred because projects could be started without completing the detailed design as the quantities could always be adjusted.
Since the STP project had a tight budget, Chairman PITB wanted to explore all other contract types before making the final decision. As per PMBOK, the project procurement management process included four key phases: planning, conducting, administering and closing procurements.
One of the key decisions that PITB had to make was to select the contract type. Following the PMBOK methodology, the Chairman of PITB presented the following options to the Punjab government on selecting the contract type:
Firm Fixed Price (FFP): Under the firm fixed price the PITB and the contractor would have to agree to a firm fixed price as well as the scope of the project. The contractor would not make any change unless the scope was changed. If the scope was changed, the contractor could increase the contract price significantly. Fixed Price Incentive Fee (FPIF): Under this option, financial incentives would be tied to achieving certain metrics. The PITB would have to define those metrics and the contractor would have to agree to them before starting the work. Furthermore, targets and milestones would be established, but the contract price would be determined after completion of the project. However, the price ceiling would be agreed upon between the PITB and the contractor. Any costs above the ceiling would be the contractor’s responsibility. Fixed Price with Economic Price Adjustment Contracts (FP-EPA): This type of contract was often used for long-term contracts. It was aimed at protecting both the buyer and the seller from external conditions beyond their control. This option could allow the PITB to sign a fixed price contract with special provisions allowing for pre-defined final adjustments, such as inflation, increase or decrease in price of materials, and foreign currency exchange fluctuations.
Cost Plus Fixed Fee (CPFF): Under this option, the PITB would reimburse the contractor all allowable costs plus a fixed fee calculated as a percentage of the initial estimated project cost. The fee amounts would not change unless the project scope changed. Cost Plus Incentive Fee (CPIF): The PITB would reimburse all allowable costs to the contractor. In addition, the contractor would get a predetermined incentive fee based on achieving certain performance targets. If the contractor did not meet pre-determined targets, he would be reimbursed for the actual costs but a pre-determined percentage would be deducted from his fee for not meeting the targets. Cost Plus Award Fee (CPAF) Contract: The contractor would be reimbursed for all legitimate costs, but the majority of the fee was only earned based on the satisfaction of certain broad subjective performance criteria defined and incorporated into the contract. The determination of the fee would solely be on the subjective determination of the contractor’s performance by the PITB, and would not be subject to appeals.
Selecting the Contractor
While contemplating on the type of contract to use for the construction of STP, the PITB had to start working on the selection of a contractor because of the tight project completion deadline given by the Punjab government. The Chairman of PITB and the STP project team conducted a survey of local contractors and found out that there were no contractors in the local market that had constructed a high-tech, high-rise (seventeen storey or higher) building in Pakistan at that time in 2006. This posed a challenge, since the team wanted to hire a contractor with experience of constructing high-rise and high-tech buildings.
Another challenge was that none of the international contractors were willing to sign the standard Punjab government’s construction contract as it did not follow international contracting standards and practices. International contractors wanted to sign a contract that followed Geneva conventions and protected the interests of both the client (government) and the contractor. Therefore, Jasem had to go back to the Board and the Punjab government for allowing the PITB to use international contracting standards like International Federation of Consulting Engineers (FIDIC, the acronym stands for the French version of the name) along with Pakistan Engineering Council’s contracting standards.
FIDIC globally represented the consulting engineering industry. As such, the federation promoted the business interest of firms supplying technology-based intellectual services for the built and natural environment. It was the international federation of national associations of independent consulting engineers. It was founded in 1913 by the national associations of three European countries, now with membership from over sixty countries. Preparation of standard forms of contract and other documents was one of the major activities of FIDIC.
The use of FIDIC contract was new to the Punjab government at that time and Jasem faced quite a bit of resistance from various government departments. One of the government officers in the C&W department said:
We have always used Bill-of-Quantities (BOQs) to gauge construction progress. What is this FIDIC contract? How can you measure progress with a lump sum contract? The PITB personnel don’t have a clue what they are doing.
Jasem sought the approval of the Punjab government to split the project into two phases and contracts in order to save time and without impacting the overall timeline of the project. He wanted the STP project team to work in parallel on piling foundations and detailed design of the main tower and car park block. The government approved the execution of the project into two contracts: one for construction of the piling foundation and second for the construction of the main seventeen storey tower and car park block. The piling contract was awarded to Condrill (Pvt) Ltd through national competitive bidding (NCB). Condrill constructed the piling foundations on time, within budget and as per technical specifications. Their contract ran from 27 November, 2006 through 25 April, 2007.
The NCB was a process under which firms from all over Pakistan were invited to bid on the project. Firms were prequalified based upon their experience, technical expertise and financial strength. Once the firms were prequalified, they were invited to submit technical and financial proposals, which were reviewed and approved by a committee. The contract was awarded to the lowest qualified bidder.
While Condrill was constructing the piling foundations, the STP project team along with Jurong consultants and Directorate General M&E kept working on the design, detailed technical specifications, engineering drawings, and international bidding documents for the construction of the main seventeen storey tower and car park block.
Once the detailed design and engineering drawings were completed, PITB had to make the decision on selecting the contractor for the seventeen storey and car park block. The Chairman of PITB presented the following options to the Punjab government for selection of the contractor:
Deciding the Right Contract Type and Contractor
While Jasem understood the importance and urgency of the STP project, he wanted to make sure that the right decisions were made on the selection of the contract type and the contractor. He wanted to ensure all options were explored before making the final decision. Therefore, some key questions that kept cropping up in Jasem’s mind were: What was the right contract type? What type of contractor should the PITB select for the construction of STP? What could the PITB do to ensure the selection of the right contract type and a qualified contractor?
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