SCHOOL OF POSTGRADUATE STUDIES
MASTERS IN PROJECT MANAGEMENT
FACULTY OF ENVIRONMENTAL SCIENCES BUILDING DEPARTMENT UNIVERSITY OF LAGOS
PROCUREMENT METHODS (MPM 824)
AN ASSIGNMENT ON CONSTRUCTION PROCUREMENT METHODS.
PRESENTED BY
EKWUBIRI CHIDOZIE. E (099052083)
MAY 2011
Procurement
SC Quantity Surveyors can provide a full Procurement solution to all our clients, including Main Contractors, Private & Public Clients. Whatever level of construction procurement is required SC Quantity Surveyors have the knowledge and experience to guide clients towards a successful construction project. Procurement for Contractors and Private Clients: • • • • • •
Advice on the most appropriate procurement method for the project Contractual advice Contractor selection advice Preparation of tender and contract documentation ie. bills of quantities & schedules of rates Forms of contract Reviewing tender documents i.e. drawings and specifications
Construction Procurement Systems & Selection On any construction project it is vitally important to select the right method of procuring the construction works. Not only is it important to choose the right contractor but it is vital that the contract documentation and form of contract is appropriate to the project. In basic terms Procurement is the process used to obtain construction projects. It involves the selection of a contractual framework that clearly identifies the structure of responsibilities and authorities for participants within the building process. It is a key factor contributing to overall client satisfaction and project success. The selection of the most appropriate procurement method is consequently critical for both clients and project participants, and is becoming an important and contemporary issue with the building industry. It is vital that clients make the correct choice of construction procurement method in an increasingly complex situation, with a wide range of objective criteria and procurement systems available quantity surveyors have an important role to perform in building procurement selection because choosing the right procurement method is vital to the success of a building project.
Construction clients range from experienced clients who may have their own professional team and an effective procurement policy to the inexperienced client with little or no knowledge of procurement methods and who requires extensive professional advice. Furthermore the needs of clients vary considerably with regard to certainty of price, cost limits, time requirements, complexity of design and many other factors. Construction Procurement Systems A number of different procurement routes and options exist in the construction industry:1. Traditional (Design-bid-build) 2. Design and Build
3. Management Contracting 4. Construction Management 5. Design and Manage Traditional Procurement System The traditional procurement system remains by far the most popular method, followed by design and build. The other forms of procurement in aggregate only form a small percentage of construction transactions. The traditional structure for project procurement is seen as a sequential method because the employer takes his scheme to an advanced stage with his professional team before appointing a contractor. The designer is employed to advise the client, design and ensure that the work is kept within the cost limit and that it complies with the standards required. A Quantity Surveyor can be engaged to give guidance on design costs and budgets, prepare bills of quantities, check tenders, prepare interim valuations and advise on the value of variations. The contract price/sum is often based on a bill of quantities provided by the Quantity Surveyor which quantifies, so far as possible, every aspect of the works. Consultant structural and services engineers may be employed by either the client or his advisers to design the specialist parts of the project. The contractor only has responsibility for construction and not for design. Separating responsibilities for design and construction is seen as the primary reason for the move to alternative contractual arrangements. This can, and unfortunately often does, lead to disputes about whether defects are really design defects (for which the employer is responsible) or defects in materials and workmanship (for which the contractor is responsible). The other major disadvantage of this procurement route is that the final design of the project is often not fully completed before construction work commences on-site and this can and often does create problems and price uncertainty. The Traditional Procurement arrangements is shown below
Method
showing
the
contractual
Design and Build A design and build contract is a contractual arrangement whereby the contractor offers to design and build a construction project for a contract sum which is inclusive of both the design and construction costs.
The design and build contractual arrangement is an attractive option for clients. It simplifies the contractual links between the parties to the main contract because the contractor accepts responsibility for both design and construction. The client instead of approaching an architect for a design service chooses to go directly to the contractor for a complete design and build service. In design and build procurement the client may choose to retain the services of an architect and quantity surveyor to act as independent professional advisers for the client to provide essential advice in terms of cost, time and quality, and also to assess the building contractor's proposals with regards to both design and cost, and to monitor the work on site. Valuations for payments on account will be made by the employer's quantity surveyor and he will value any variations requested by the employer and negotiate them with the design and build contractor. A design and build contractor may commission design and cost services from outside design and cost consultants such as an architect or quantity surveyor, or he can employ an in-house design team from within his own contracting organisation. In design and build contracts the design evolved by the contractor is more likely to be suited to their own organization and construction methods and this should result in a saving both in time and cost of construction. The final building should, however, result in lower production costs on site, a shorter design and construction period and an overall saving in cost to the client, after taking into account the savings on design fees. Design and Build contracts provide the client with a single point of contact. However, the client commits to the cost of construction, as well as the cost of design, much earlier than with the traditional contracts. The benefits of design and build contracts for clients include:1. 2. 3. 4.
single-point responsibility for both design and construction; prices which reflect more closely the final cost to the client; inherently more buildable designs and proposals submitted; overlap of design and construction phases leading to early completion on-site and thereby savings in cost.
A major disadvantage of design and build contracts is the discouragement of possible variations by the client. Where clients consider these to be necessary they often have to pay an excessive sum of money for their incorporation within the finished building. Each contractor invited to tender for design and build work is carefully selected not only for its financial standing and construction record but also for its design capability and management structure for the work.
A client may not realize the importance of independent professional advice from an architect or quantity surveyor in design and build contracts. The selection of a design and build contractor should be based on a brief of the employer's requirements. This brief should ideally be prepared by independent professional advisers and costed by them, so that the contractors are tendering on a brief that is within the employer's budget. It is costly for design and build contractors to tender in competition, as each contractor will have to produce a design to meet the brief and a price for construction. Tender lists will generally be shorter than for traditional contracts. There are distinct advantages with design and build contracts which enables the contractor to use his management skills and experience in the pre-contract period to ensure that the design and performance are more closely coordinated and better related to time and cost. Economy and efficiency should flow from the continuity of joint experience. The Design and Build Procurement Method showing the contractual arrangements is shown below
Procurement Methods There are various methods of procurement which can be broadly classified under the following headings: • • • • •
Traditional Design and Build Two Stage Tendering Public Private Partnerships / Private Finance Initiative Management Contracting
• •
Construction Management Framework Agreements
Each method has different aspects of risk transfer and no one method can be classed as best overall. Traditional Procurement In this method the Contractor builds to a defined scope of works for a fixed price lump sum. The client retains the responsibility for the design and the project team. The contractor will be appointed normally following a tender process or negotiation and will sign up to a contract for the works. There are a number of standard forms of building contract available for this purpose. Design and Build Procurement The Client appoints a building contractor, as before standard forms of contract are available for this purpose to provide a completed building to an agreed cost and programme. The Contractor is responsible for design and construction. The Contractor can be chosen through a tender process or through negotiation. The Client can appoint a consultant to oversee the works. Maximum risk is transferred following this method of procurement, although a commercial response to design in order to address contract conditions can result. An alternative is to appoint a contractor when designs have been developed in order to retain control of the important elements of design and specification. The Design Team can then transfer their contractual obligations to the contractor and complete the designs on behalf of the Contractor. This process is called Novation. Two Stage Tender Procurement In this process, the Contractor is appointed on the basis of a first stage tender which determines the level of overhead and profit for each Contractor. The Contractor then works with the Project Team during the second stage to develop the designs and establish detailed costing for separate project work elements. This process will provide for a fixed price on a detailed design basis. The provider can then enter into a contract on this fixed price basis and also pursue the opportunity to novate the Design Team as with the Design and Build Procurement route as previously noted. This process requires a long second stage period in which to design and tender the different work elements and therefore a start on site would occur later than normal.
Public Private Partnerships Public Private Partnerships (PPP), particularly Private Finance Initiatives (PFI) projects are created for the provision of services and not specifically for the exclusive provision of capital assets such as buildings. It is therefore preferable to investigate PPPs as soon as possible after a user need has been identified rather than leaving it until a conventional construction project has been selected as the solution. It should be noted that the tendering process in this procurement route is expensive and
requires negotiation rather than competitive tendering. In comparison with other procurement routes the time from commencement of the project to attaining a start on site is substantially longer. Management Contracting This is a fast track strategy which overlaps the design and construction stages and allows early elements of the construction process to be commenced before design has been completed. The Management Contractor is engaged to manage the overall contract in return for a fee. The Management Contractor can therefore be appointed early in the design and can advise on buildability and programming. In addition to the contract with the Management Contractor, the contracts for the individual work packages are between the Management Contractor and the individual sub-contractors. A cost plan is utilized to control the development costs although actual costs cannot be obtained until the final work package has been awarded. Construction Management This is also a fast track strategy where individual elements of the project are let before the design of later work packages or elements have been completed. The provider will appoint a Construction Manager to manage the overall contract in return for a management fee as with Management Contracting. Also, as before, the project can benefit from early involvement of the Contractor. In this process the contracts for the subcontractors are placed directly between the Client and the sub-contractor and the Client will need to have a high level of involvement during the design development and the construction phases of the work. As with Management Contracting, the final costs will only be known once the final work elements have been awarded. Framework Agreements Framework Agreements can be established with single suppliers or with a limited number of suppliers. Frameworks can allow suppliers to be brought together with the relevant expertise and experience which can result in savings to both parties where a number of projects are involved. These agreements can cover different forms of procurement including Design and Build, Traditional, etc. The LSC are currently developing framework agreements for consultancy services across the country. These should be available for use by colleges by early 2008. Following on from this, the LSC will also be working on developing a contractor’s framework.
Procurement Procurement describes the merging of activities undertaken by the client to obtain a building. There are many different methods of construction procurement; however the three most common types of procurement are: 1. Traditional (Design-bid-build)
2. Design and Build 3. Management Contracting There is also a growing number of new forms of procurement that involve relationship contracting where the emphasis is on a co-operative relationship between the principal and contractor and other stakeholders within a construction project. New forms include partnering such as PublicPrivate Partnering (PPPs) aka Private Finance Initiatives (PFIs) and alliances such as "pure" or "project" alliances and "impure" or "strategic" alliances. The focus on co-operation is to ameliorate the many problems that arise from the often highly competitive and adversarial practices within the construction industry. Traditional Main article: Design-bid-build This is the most common method of construction procurement and is well established and recognized. In this arrangement, the architect or engineer acts as the project coordinator. His or her role is to design the works, prepare the specifications and produce construction drawings, administer the contract, tender the works, and manage the works from inception to completion. There are direct contractual links between the architect's client and the main contractor. Any subcontractor will have a direct contractual relationship with the main contractor. Design and build Main article: Design-build
Construction of the Phase-1 (first two towers) of the Havelock City Project, Sri Lanka. This approach has become more common in recent years and includes an entire completed package, including fixtures, fittings and equipment where necessary, to produce a completed fully functional building. In
some cases, the Design and Build (D & B) package can also include finding the site, arranging funding and applying for all necessary statutory consents. The owner produces a list of requirements for a project, giving an overall view of the project's goals. Several D&B contractors present different ideas about how to accomplish these goals. The owner selects the ideas he likes best and hires the appropriate contractor. Often, it is not just one contractor, but a consortium of several contractors working together. Once a contractor (or a consortium / consortia) has been hired, they begin building the first phase of the project. As they build phase 1, they design phase 2. This is in contrast to a design-bid-build contract, where the project is completely designed by the owner, then bid on, then completed. Kent Hansen, director of engineering for the National Asphalt Pavement Association (NAPA), pointed out that state departments of transportation (DOTs) usually use design build contracts as a way of getting projects done when states don't have the resources. In DOTs, design build contracts are usually used for very large projects. Management procurement systems Main article: Construction management In this arrangement the client plays an active role in the procurement system by entering into separate contracts with the designer (architect or engineer), the construction manager, and individual trade contractors. The client takes on the contractual role, while the construction or project manager provides the active role of managing the separate trade contracts, and ensuring that they all work smoothly and effectively together. Management procurement systems are often used to speed up the procurement processes, allow the client greater flexibility in design variation throughout the contract, the ability to appoint individual work contractors, separate contractual responsibility on each individual throughout the contract, and to provide greater client control. Authority having jurisdiction The examples and perspective in this section deal primarily with North America and do not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page. (November 2010) See also: Planning permission
Construction on a building in Kansas City, Missouri In construction, the authority having jurisdiction (AHJ) is the governmental agency or sub-agency which regulates the construction process. In most cases, this is the municipality in which the building is located. However, construction performed for supra-municipal authorities are usually regulated directly by the owning authority, which becomes the AHJ. During the planning of a building, the zoning and planning boards of the AHJ will review the overall compliance of the proposed building with the municipal General Plan and zoning regulations. Once the proposed building has been approved, detailed civil, architectural, and structural plans must be submitted to the municipal building department (and sometimes the public works department) to determine compliance with the building code and sometimes for fit with existing infrastructure. Often, the municipal fire department will review the plans for compliance with fire-safety ordinances and regulations. Before the foundation can be dug, contractors are typically required to verify and have existing utility lines marked, either by the utilities themselves or through a company specializing in such services. This lessens the likelihood of damage to the existing electrical, water, sewage, phone, and cable facilities, which could cause outages and potentially hazardous situations. During the construction of a building, the municipal building inspector inspects the building periodically to ensure that the construction adheres to the approved plans and the local building code. Once construction is complete and a final inspection has been passed, an occupancy permit may be issued. An operating building must remain in compliance with the fire code. The fire code is enforced by the local fire department. Changes made to a building that affect safety, including its use, expansion, structural integrity, and fire protection items, usually require approval of the AHJ for review concerning the building code.
Which procurement method? The term 'procurement method' is used to describe the often complex network of relationships which are formed between clients, consultants and construction companies, to enable a building project to be realised. It is important to distinguish the contractual relationships from managerial links, and in complex modern procurement systems this is sometimes far from easy. In some instances the procurement method will have already been decided before an architect is appointed, either as the result of company or authority laid down policy, or because circumstances or constraints leave very limited options, or because the choice has already been made by the client advised by a lead consultant who is not the Architect. In this extract from Which Contract? 4th edition by Sarah Lupton, Stanley Cox and Hugh Clamp, we look at both traditional and modern procurement methods. Which method to choose? Which procurement method is likely to prove the most appropriate in a given situation will depend upon the nature and scope of the work proposed, how the risks are to be apportioned, how and where responsibility for design is to be placed, how the work is to be coordinated, and on what price basis the contract is to be awarded. An important point to remember is that the choice of form (or forms) of contract cannot usually be settled until the procurement method and the type of contract have been established.
Procurement using traditional methods In the traditional approach, the client accepts that consultants are appointed for design, cost control, and contract administration, and that the contractor is responsible for carrying out the Works. The responsibility of the latter extends to all workmanship and materials, including work by sub-contractors and suppliers. In some cases the client will select some of the sub-contractors to be engaged by the contractor (variously referred to as named, nominated, or pre-selected). In such cases the contractor may take full responsibility for their performance, or the contractor's responsibility may be limited in some way, in which case a collateral warranty between client and subcontractor will be essential. The contractor is usually chosen after competitive tendering on documents giving complete information. However, the contractor can be appointed earlier, either through negotiation or on the basis of partial or notional information.
The traditional method, but using two stage tendering or negotiated tendering, is sometimes referred to as the 'Accelerated Traditional Method'. By this variant, design and construction can run in parallel to a limited extent. Whilst this allows an early start on site, it also entails less certainty about cost. Procurement using design and build methods The client may need to appoint consultants to advice on his design requirements and costs, if he does not have this expertise available inhouse. The contractor is responsible to a greater or lesser extent for design, as well as for carrying out the work and may appoint its own consultants. The arrangement may be for total design and construction, or for design development and production information based on a scheme design supplied by the client's consultants. The contractor may be appointed either by competitive tender or as the result of a negotiated agreement. Where a design and build agreement is negotiated with just one contractor, it is sometimes referred to as 'Single Direct Design and Build'. Where an approach is made to a number of contractors, even if this is a two stage operation with only the most promising proceeding to the second stage, the agreement is sometimes referred to as 'Competitive Design and Build'. It tends to take slightly longer, but it usually results in a more developed design and greater certainty of cost and timing. Frequently, in design-build procurement the client wishes to require the contractor to appoint some or all of its consultants at the time the design and build contract is entered into. This process is usually referred to as novation or consultant switch. It requires a complex tripartite agreement to be entered into between client, consultant and contractor. In addition to the client-architect and contractor-architect terms of appointment published by the RIBA, the CIC publishes suitable forms for novation and collateral warranties. Procurement using management methods There are several variants of management procurement practised in this country, but management contracts and construction management are the two most common. With management contracts the client usually starts by appointing consultants to prepare project drawings and a project specification. The management contractor is selected by a process of tender and interviews, and paid on the basis of the scheduled services, prime costs and management fee. Its role is literally to manage the execution of the work, and he is not usually directly involved in carrying out any of the construction work, which will be done in 'packages' undertaken by works contractors usually appointed by the management contractor. In some procurement arrangements, the management contractor might also accept a design
liability. In 'management contracting', works contractors are directly and contractually responsible to the management contractor. Its coordinated approach and potential for flexibility results in greater operational speed and efficiency. Where the management contractor's obligation is total – where, that is, it accepts responsibility for both design and construction – the arrangement is sometimes referred to as 'Design, Manage, Construct'. It is usually featured as a contractor-led procurement method, but there is no real reason why it cannot equally well be architect-led. Indeed, where small works are sometimes carried out under direct trades contracts and coordinated by the Architect in the absence of a main contractor, this comes close to being such a procurement method. It does, however, demand a degree of highly specialised expertise and experience in setting up and managing operations which most architects are unlikely to possess. With 'construction management' agreements, which will often be client drafted, there is usually a lead designer responsible for overall design, a construction manager responsible for the management and coordination of work, with the client responsible for directing the project and entering into all trades contracts. As the trades contractors are directly and contractually responsible to the client, the construction manager is in some ways less accountable for time and costs, whilst the client takes on the greater risk.
Typical Construction Procurement Methods Here are descriptions of three basic methods of construction procurement. 1. Traditional approach with General Contractor • • • • • •
Owner has two Contracts - one with the Architect and one with the General Contractor Architect designs building and prepares construction documents Owner selects GC(s) for negotiating construction contracts or soliciting bids. General Contractors (GC) submit bids to owner. GC contracts with subcontractors (plumbing, electrical, carpentry, etc.) Upon Architect's certification, Owner makes payments to GC, who pays subcontractors.
Merit: Best for owners who want least involvement in construction process. 2. Construction Management
• • • • • •
Owner has multiple contracts - with Architect, Construction Manager (CM), and contractors Architect designs building Architect prepares construction documents with the involvement of the CM. CM seeks bids from contractors of various trades. Owner contracts directly with each tradesman. CM schedules and manages the construction.
Merit: Best for owners who desire more involvement in the construction process. 3. Design/Build • • •
Owner has one contract - with design/build (D/B) firm. D/B firm handles design and construction. All subcontractors work for D/B firm
Merit: Best approach when cost is the most important factor. Knapp Schmidt Architects provides Architectural services for the traditional General Contracting method, as well as for the Construction Management method. KSA also provides Construction Management services for select projects and owners. Please refer to additional KSA literature for a description of this service and the advantages it may have for your project.
