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 Method showing the contractual

arrangements is shown below
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. single-point responsibility for both design and construction;

2. prices which reflect more closely the final cost to the client;
3. inherently more buildable designs and proposals submitted;
4. 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 sub-
contractors 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 Public-
Private 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 sub-
contractor 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 in-
house. 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.