Construction Procurement Methods

Module 2: Procurement Methods

• Code: CMGCOY3/CMGCO3Y
• Lecturer: Ms Z Matsane
• Topics include Procurement criteria, The design process, Procurement options, Traditional procurement, Design and Build, Management contracting, Construction management, The role of the project manager, Private finance initiative, Framework contracting, Prime contracting, and Partnering.
• At the end of this lecture, students will be able to explain all possible procurement options available to the client.
• Students will also be able to apply the procurement criteria in selecting a procurement method.
• Students will also be able to advise a client on the best option of procurement based on the advantages and disadvantages
• Students will understand the different circumstances where each procurement method would apply.

Introduction to Procurement

• The construction industry attracts a wide variety of clients with objectives and priorities for their particular project.
• When a client is considering the decision to build, several important decisions need to be made to achieve a successful outcome.
• CIB (1997a) suggests developing a strategy for the project based on the client's needs.
• The first priority is to decide how to procure the skills and resources needed for the design and construction of the project.
• Turner (1997) suggests that an appropriate procurement route will develop.
• The 3 main considerations are Time, Quality and Cost
• Time: The overall timing of the project from inception to completion.
• Quality: The client's required standards of design and workmanship as expressed in the specification.
• Cost: The certainty of the market price at the bid submission and final account stages.
• Other client considerations include the choice of procurement route that includes Complexity, Controllable variation, Degree of competition, and Client responsibility
• Complexity is the complexity of building design, layout, and services provision
• Controllable variation is how sure the client of their requirements.
• The cost of variations to the contract may prove difficult to agree and assess

Factors in appropriate project strategy management

• Choosing an appropriate procurement strategy.
• Selecting the client's principal advisor/lead consultant such as architect, engineer, or project manager.
• The appointment of other consultants
• Establishing the client's brief and assessing the project's feasibility.
• Obtaining the required project finance
• Choosing how to procure and manage the design and construction.
• Establishing a realistic time period for the overall project.

Procurement Assessment Criteria

• A detailed overview of procurement assessment criteria is outlined by Turner (1997), Seeley (1997), Morledge et al. (2006), and Masterman (2002).
• According to Morledge (2006), projects are needed within a timeframe or by a specific date.
• Projects can be completed as quickly as possible because time is money.
• Projects can be completed by a specific date that must be achieved
• Projects can also be completed on time once it commences with no time slippage.

The Design Process

• The procurement of design services is a crucial element in choosing the procurement route for a project.
• Decisions have to be made such as who will prepare the design, who will bear the design risk and when, if at all, the contractor will be involved in the design.
• The design process for construction projects is complex and evolves through several stages with different professional disciplines involved.
• Feasibility stages A-B
• Pre-construction stages C-H
• Construction stages J-L
• Detailed Plan on page 25.

Procurement Options

• The procurement of a construction project requires a balance between time, quality and cost constraints.
• A critical eye needs to be kept on the client's requirements and the forecast budget.
• Effective briefing, design, and cost control is necessary in relation to the final choice of procurement route.
• Procurement methodology concerns not only the contractual arrangement for the construction work.
• Procurement methodology also concerns the sourcing of professional services for design, project administration, and health and safety management.
• Common procurement options available to clients are outlined.

Traditional Procurement

• Despite procurement trends and fashions, traditional procurement routes remain popular, and in many cases, the client's lead consultant is an architect/designer.
• It separates design from construction with an intervening 'tendering' period.
• By value of turnover excluding civil engineering, maintenance, and repair work
• Traditional 37%
• Design & build 43%
• Target 12%
• Partnering 6%
• Management contracting 1%
• Construction management 1%
• A variety of contractual arrangements are available with traditional procurement.
• A lump sum contract is based on drawings and specification where the builder prepares the quantities.
• Full documentation with bills of quantities
• A remeasurement contract is based on approximate/notional quantities the contract price is determined at the end of the contract by measuring the actual work carried out.
• Traditional projects are usually architect-led.
• As an alternative to an architect-led project, a project manager may be engaged as the client's representative who then manages the design consultants.
• JBCC is most commonly used
• NEC3, with the client representative acting as 'project manager', is both lead designer and contract administrator.
• GCC is also another alternative
• The architect is the leader of the design team for building projects and coordinates the input of specialist designers and cost consultants.
• Undertaking duties regarding the administration of the client's contract with the builder
• The architect may be assisted by a clerk of works, their 'eyes and ears' on site to make sure the design and specification are followed by the contractor.
• The design is complete before the tender stage, ensuring price certainty for the client.
• The designer understands how the building 'fits together', ensuring buildability.
• The design remain mostly unchanged during construction, so contract variations are kept to a minimum
• The end product is not finished on time
• The budget is overspent as the final account far exceeds the client's expectations.
• Disputes arise
• Adjudication, arbitration, or litigation results with the only winner being the legal profession.

Design and Build

• A single point of responsibility exists for both the design and construction of the project.
• The client benefits from the contractor's expertise early in the project and there is a common law fitness for purpose liability for contractor's design.
• Two extremes are considered in design and build procurement, Extreme A and Extreme Z, with a brief explanation of other design and build.

Extreme A - Client-led design and Build

• The client is fully involved in influencing the design development.
• Prior to tender action (Work Stage H), the design may be virtually complete possibly with full bills of quantities or notional bills.
• This is referred to as develop and construct because the contractor inherits the design and develops the detail required for the production stage of the project.
• An alternative twist on develop and construct, which is popular with many clients, is to novate the architect or design team to the contractor once the contract has been awarded.
• This variant is known as novation design and build

Extreme Z – Contractor-led design and build

• the client may wish to provide the contractor with minimal information in the form of an outline brief.
• the design and build contractor is fully responsible for the conceptual and detailed design to meet the employer's requirements.
• This variant is known as traditional design and build
• Design and Manage is similar to management contracting, except that both the construction "works contractors" and the design team are engaged directly by the contractor.
• Design, manage and construct is a similar method where the contractor undertakes some of the work packages and coordinates the other package contractors on site.
• Price certainty is secured early in the project.
• Contractual completion dates are fixed early in the design process.
• Less risk of price changes is expected during the design development.
• The main contractor provides single-point responsibility for design and construction where major risks lie with the contractor
• The contractor assumes greater financial risk, which is often reflected in the price.
• Difficulties arise for the employer in matching like-for-like prices at the tender stage.
• The tender period and negotiation tend to be much longer, making design and quality more problematic to control.
• Changes can prove to be expensive and disruptive to the contractor.
• The project becomes price-driven at the expense of quality.

Management Contracting

• A management contractor is appointed to engage and manage a number of work package subcontractors.
• It enables the client to create a competitive situation between management contractors at the appointment stage of the project.
• Presentations would indicate the management contractor's approach to the programme.
• Presentations would indicate contractor's approach to procurement of work packages.
• Presentations would indicate the contractor's approach to control of information flow.
• Presentations would indicate contractor's approach to buildabilty considerations.
• The construction management consultant or construction manager joins the design team early in the project.
• The construction manager's services are based on a negotiated fee with the client simply to supervise and plan the work to be undertaken by the work package contractors.
• This method is reserved for major projects
• Maximum overlap occurs between design and construction. As each package design is completed work may commence on the project.
• Quality can be assured due to high-level supervision and quality control can be achieved at site level.
• The construction expertise of the management contractor aids buildability and value engineering.
• Variations can be kept under control as the price of changes can be agreed before commencing a variation.
• The contractor takes a less adversarial approach, being part of the client's team which makes it ideal for complex projects where the design can be developed in stages.
• The client has no commitment from the contractor on price certainty so strict control of the work package budget is essential.
• The total cost of the project is not usually known until the project is well into the construction programme
• Blue-chip work package subcontractors are often chosen with no incentive to reduce costs.
• Early letting of packages may lead to extensive design changes.
• Damages for delay are difficult to pin on one subcontractor and they are expensive to negotiate so the client takes all the risk, particularly in the construction management arrangement

The Role of The Project Manager

• Walker (2007) suggests that management is the dynamic input that makes the organisation work
• Walker (2007) suggests that organisation is the pattern of the interrelationships, authority and responsibility that is established between the contributors to it.
• Overall planning, control, and coordination of a project from inception to completion is aimed at meeting a client's requirements.
• Projects must be functionally and financially viable and completed on time within authorised cost and to the required quality standards. Project management stages:
  • INCEPTION
  • FEASIBILITY
  • STRATEGY
  • PRE-CONSTRUCTION
  • CONSTRUCTION
  • SERVICING/ COMMISSION
  • COMPLETION & HANDOVER
  • CLIENT OCCUPATION

Private Finance Initiative

• PFI is an arrangement where public sector assets and services are acquired through private sector funding with the idea of reducing government/public sector borrowing.
• It is one of several types of public-private partnerships and typical projects undertaken include roads, bridges, schools, hospitals and prisons.
• Projects are typically over R400 million in value, offering potential for high returns
• Provides continuity of work and creates involvement in design that impacts buildability
• Provides more control over the programme
• The disadvantages of PFI is that it has very high bidding costs in a competitive market
• A large amount of resources required making it complex and demanding
• Tough contract terms can result in high levels of liquidated and ascertained damages
• Fixed price risk to contractor

Framework Contracting

• The idea is similar to the traditional standing tender list in that approved suppliers are chosen or 'preferred' to go on the list for future contracts.
• The framework suppliers include contractors, specialist contractors, suppliers of goods, and suppliers of professional services (such as architects and surveyors) who are invited to tender for packages of work.
• There will be no main contractor by definition under this type of contract
• The choice of successful bidder is not only made on the basis of price

Prime Contracting

• Runs on similar lines to the standing approved lists but the prime contractors are chosen very carefully, usually via several stages of selection.
• The system is used by some government departments such as Defence Estates and the National Health Service.

Prime Contracting Features

• The point when a price is agreed with the prime contractor can vary
• The price could be fixed price, guaranteed maximum price, or target price
• The form of contract could vary.
• The period of facilities management is flexible
• Long-term commercial agreements could be built in for facilities management or other contracts.

Partnering

• 'a structured methodology for organisations to set up mutually advantageous commercial arrangements, either for single projects or in long-term strategic relationships, which help their people work together more effectively'
• Partnering arrangements are standard in construction and many close client/contractor relationships have developed
• There are two types of partnering arrangement: strategic and project, that requires:
  • Mutual Objectives
  • Problem Resolutions
  • Continuous Improvement

Partnering Benefits

• Cost savings through value engineering and buildability
• There are fewer interest changes as there is usually no retention
• Cost savings by eliminating formal tendering occur.
• Reduced site correspondence saves money
• Good relationships lead to repeat business, and effective cost variations
• The ultimate goal is to achieve zero accidents