London plans to have more than 100,000 hotel rooms available by the start of the 2012 Olympics. To meet demand a significant number of new hotels will need to be built.
The construction of a new hotel is a complex undertaking. Extensive organisation is necessary to co-ordinate construction of the building and the installation of furniture, fittings and equipment. Prior to the scheduled opening date, the hotel operator will also need to train staff and test systems such as the computer and control rooms.
Construction completion dates are particularly critical in the hospitality industry. Hotels block-sell rooms and conference facilities well in advance of the opening date and face financial consequences and adverse publicity if there is any delay.
In deciding how a new hotel is to be procured, the developer’s concerns will essentially focus on construction time, cost and quality and which of these aspects is of greatest importance to the developer. For example, a shorter construction programme will allow the hotel to begin trading earlier.
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London plans to have more than 100,000 hotel rooms available by the start of the 2012 Olympics. To meet demand a significant number of new hotels will need to be built.
The construction of a new hotel is a complex undertaking. Extensive organisation is necessary to co-ordinate construction of the building and the installation of furniture, fittings and equipment. Prior to the scheduled opening date, the hotel operator will also need to train staff and test systems such as the computer and control rooms.
Construction completion dates are particularly critical in the hospitality industry. Hotels block-sell rooms and conference facilities well in advance of the opening date and face financial consequences and adverse publicity if there is any delay.
In deciding how a new hotel is to be procured, the developer’s concerns will essentially focus on construction time, cost and quality and which of these aspects is of greatest importance to the developer. For example, a shorter construction programme will allow the hotel to begin trading earlier.
Some of the key design and construction issues for new hotel developments are explored below.
Hotel Design
Hotel operators’ requirements of the hotel will range from the number of guestrooms, conference and leisure facilities, the unit cost per guestroom and comfort and design levels to the completion date and building lifetime costs. The emphasis on these factors will depend on the target market. Cost and time will be of fundamental importance for a budget hotel, with a lesser focus on high quality but expensive finishes.
Whilst a hotel developer may know what the operator requires of the completed building, it will rarely have the in-house expertise to develop its brief into a detailed specification that a building contractor will be able to carry out and complete. Consequently, the developer will engage a team of external designers to provide the technical expertise to achieve this. For the procurement of a new-build hotel the developer’s design team would typically include an architect, interior designer, structural engineer, services engineer, acoustic engineer, kitchen designer, landscape architect and environmental efficiency assessor. The developer will need to appoint certain non-design professionals including a cost consultant. For hotel projects in the UK, a CDM Co-ordinator will be required to advise in relation to the management of construction health and safety risks.
These professionals may also be required to advise on the financial viability and buildability of the developer’s plans.
Hotel Construction
Once the design has been sufficiently developed the developer will invite contractors to tender for the construction contract. Criteria such as price, resources and track record will help determine which contractor is selected.
The main forms of contracting are traditional contracting, construction management and design and build. The choice of form used is linked to the developer’s time, cost and quality requirements.
Traditional contracting
The developer’s design team is usually responsible for all design of the project and the contractor carries out the development in accordance with the supplied design. There is a clear division of risk between the developer and the contractor, with the design team being responsible for design and the contractor being liable for construction. The architect will generally fulfill the role of project manager responsible for seeing that the time, cost and quality requirements of the project are achieved.
With the contractor building to a complete design, it should be easier for the developer to minimise time and cost overruns. As the contractor has limited or no input into the design, traditional contracting may be particularly suited for luxury hotels as the contractor does not have the discretion to institute design changes in order to save on costs. However, there is less flexibility for the developer to institute design variations once construction has begun and, generally speaking, the overall timescale from design stage to completion of construction is likely to be longer than the alternatives.
Construction management
A construction manager is tasked to ensure that the hotel is designed and completed. Several trade contractors are engaged by the developer, each responsible for a particular trade package. The construction manager is responsible for instructing and co-ordinating the professionals and the trade contractors.
This procurement method is advantageous for a developer emphasizing quality as it has the flexibility to instruct changes throughout the development and it allows for early commencement of construction since the development does not need to be fully designed at such point. As each package of works is being tendered to specialists by the developer, construction management should lead to the lowest development cost. However, in construction management the developer takes a great deal of the construction risk and there is less cost and programme certainty. Conran’s Great Eastern Hotel project where the construction cost almost doubled, may have eroded some of the market confidence in this form of procurement.
Management contracting is a variation of construction management where a management contractor (rather than a construction manager) employs the trade contractors, with the professionals being retained by the developer. This is primarily suited to sophisticated hotel projects.
Design and build
Commonly the contractor is made responsible for all design and construction in the project, referred to as "single-point responsibility". In terms of liability for defects, the developer need not establish who is responsible for the defect nor whether or not the defect stems from defective design or construction. The contractor will be liable. It is therefore a relatively low risk process for the developer, although the contractor will usually seek to uplift its price for the risk it is taking.
Design and build is frequently used for budget and business hotels (where the highest level of quality is not required) as it offers the benefits of cost and programme certainty. However, the developer will have less opportunity to control development once construction has begun.
Design and build contracting is occasionally referred to as "package" or "turnkey" contracting. This is slightly inaccurate as a true package or turnkey contract is generally considered to be one where the developer has little or no input into the design. This route should perhaps be avoided unless a developer is highly experienced.
The developer needs to fully understand the risks involved and ensure that these are allocated and documented accordingly. Whichever procurement route is chosen, strong teamwork will be required for the hotel to be designed and built to budget and schedule, and in accordance with performance objectives.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 26/10/2007.