Procurement

Management
in Construction
Course Title
Part 2

Procurement routes
Part 2- Procurement routes
Selection of the most appropriate route
Traditional Procurement
•The client develops the business case for the project, and provides
a Scope and Budget;
•The Client appoints a team of consultants to prepare a design, plus
tender documents;
•The
The client appoints the building contractor to construct the works
to the design, by the contract completion date and for the agreed
price (a Lump Sum);
•Sometimes most of the work is sub-contracted by the Main
Contractor to specialist firms but the Main Contractor remains liable
overall; and
•The consultants usually administer the contract on behalf of the
Client and advise on aspects associated with design, progress and
payments which must be paid by the client.
Part 2- Procurement routes
Traditional Procurement
This route is probably the most commonly used method
of procurement and it is suitable for:
•all clients, including inexperienced clients;
•complex projects and projects where functionality is
a prime objective;
•cost certainty.
However, it is potentially not suitable for
•fast track projects.
Part 2- Procurement routes
Traditional Procurement
Traditional Design Price Form of Contract Consideration Risk Stage
allocation
Single stage Design by Lump sump price Typically JCT or MC=50%
client’s obtained prior to NECT- based C= 50%
consultant is commencement upon measured
TIME
complete date quantities
before (BoQ),
tender, approximate DESIGN CONSTRUCTION
successful quantities, COST QUALITY
contractors specifications
carries out and drawings or
construction schedule of
rates
Two stage Design by Can take differing Typically ( MC=40%
client’s forms i.e. 1st stage amended ) JCT C= 60%
consultant, based on stage D or NEC. Based
successful information and 2nd upon measured TIME
contractors stage based on quantities
carries out stage E or 1st stage (BoQ), DESIGN
construction, based on OH&P and approximate COST QUALITY
CONSTRUCTION
possibility to prelims and 2nd quantities
overlap stage based on specifications
design and package and drawings or
construction procurement of schedule of
stage E design rates
Part 2- Procurement routes
Traditional Procurement
AIQS
Advantages
•Well understood across all industry
•Procedures are well known
•Quality is under Employer’s control
•The Client retains full control over
the Design Process;
• Direct control of the Design Team
to ensure the required quality is
reflected
•Power to change (Avoid prohibitive
cost of change)
Disadvantages
•No one person is responsible for
the Design & Construction as they
are separated;
•The separation of the contractor
from the design can mean missed
opportunities for the contractor or
specialist contractor to input on
buildability (constructability).
Part 2- Procurement routes
Traditional Procurement
PICQS

Advantages Disadvantages
•Cost certainty-(No variations) •Design needs to be developed as
•This strategy is a low-risk option for fully as possible prior to the Contract
clients who wish to minimize their (incur more time)
exposure to the risks of overspend,
delays or design failure
•Contractor is responsible for
Subcontractors and supply chain
•No (or reduced) built in Contractor
Risk Premiums.
Part 2- Procurement routes
Design & Build Procurement
•The main contractor takes responsibility for both the
design and construction and may use either in-house
designers or employ consultants to carry out the design.
•Most of the construction work will be carried out by
specialist or sub-contractors;
•The
The contractor tenders against a Client Brief
(Employer’s Requirements Document) and will often
follow an initial concept or scheme design prepared by
consultants appointed to advise the client; and
•The design will then be developed by the contractor
and the works will be completed, usually for a fixed
price.
Part 2- Procurement routes
Design & Build Procurement
•The Design & Build approach gives the client 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
approach.
•Changes made by the client during design can be expensive,
because they affect the whole of the Design & Build contract,
rather than just the design team costs.
•There is potentially a high design/quality risk associated with this
approach as the contractor develops the design.
•To overcome this, there can be a refinement to this approach
where the client has the design prepared to concept or scheme
design stage and the contractor takes on ‘finishing off’ the design
and construction (develop & construct).
•The contractor may re-employ the original designers to complete
the design in a practice known as novation.
Part 2- Procurement routes
Design & Build Procurement
This method of procurement involves the contractor being
responsible for design as well as construction, it can be
suitable for:
•all clients, including inexperienced clients and those
requiring distance from the project;
•cost certainty (assuming limited variation); and
•faster construction.
However, it might not be suitable for:
•an uncertain or developing client brief; and
•complex buildings
Part 2- Procurement routes
Design & Build Procurement
Design & Design Price Form of Consideration Risk Stage
Build Contract allocation
Single stage Can be undertaken Contractors Form of MC=60%
on the basis of the provide a lump contract: C= 40%
contractor sum price for typically JCT
TIME
developing full undertaking the or NEC-
design from concept design and employer
or development of a construction requirements DESIGN
CONSTRUCTION
design prepared by contractors COST QUALITY
the client’s proposal and
consultant contract sum
analysis.
Two stage Undertaken on the 1st stage typically Form of MC=60%
basis of the based on OH&P contract: C= 40%
contractor and prelims and typically JCT
developing/ 2nd stage based or NEC-
coordinating the on package employer
TIME
design prepared by procurement of requirements
the client’s stage E design. contractors
DESIGN
consultant Contractor proposal and CONSTRUCTION
provides a L/S contract sumCOST QUALITY
price for analysis.
undertaking the
design and
construction
Part 2- Procurement routes
Design & Build Procurement
AIQS
Advantages
•Well established in the
Construction Industry;
•Early involvement of the
Contractor
•Firm price agreed prior to
construction. (single stage)
•Single point contract
responsibility
•Less time consuming
•Buildability (Constructability), Fit
for purpose
•Cost Certainty (If no interference
with design) (single stage)
Disadvantages
•Design controlled by Contractor.
•Client has less control over the final
quality / specification of the work
•Quality may be compromised
•Post Contract changes tend to be more
expensive.
•Tendering tends to be more expensive
due to higher risk for the Contractor
(risk premium)
•Bids difficult to compare
Part 2- Procurement routes
Management Contracting
•The client appoints designers and a contractor
(management contractor) separately and pays the contractor
a fee for managing the construction works.
•A feature is the early appointment of the contractor to work
alongside the design team to develop a programme for
construction and contribute to the design and costing of the
works.
•The Contractor performs the role of managing the works
contractors who carry out the works and are directly and
contractually responsible to the management contractor.
•This approach often means that design and the start on site
overlap, with the design and tender packages becoming
available ‘just-in-time’ to suit the construction programme.
Part 2- Procurement routes
Management Contracting
•The management contractor will not normally carry out
construction work.
•This preserves the management contractor’s
independence and reinforces a consultancy relationship
with the client.
•Payment
Payment is generally made to the management
contractor on the basis of the cost of the works
packages plus the agreed fee.
•Much of the success of this approach depends on the
contractor’s team. Unless the team is drawn from
companies which are experienced in this kind of team
working, the benefits are not always realised.
Part 2- Procurement routes
Management Contracting
•There is less price certainty at the outset, because
construction tends to start ahead of completion of
all design stages and at a point when many of the
work packages have yet to be tendered.
•This often means adjustments (Value engineering)
are made to the design and specification of works
packages later in the programme to keep the project
within budget.
•However, the overall process of design and
construction tends to be shorter than in either
traditional or design & build situations
Part 2- Procurement routes
Management Contracting
This is generally more suitable for:
•fast track projects;
•complex buildings; or
•a developing brief
However, it is generally less suitable for:
•inexperienced clients;
•cost certainty before starting construction; or
•clients wanting to pass risk to the contractor
Part 2- Procurement routes
Management Contracting

Design Price Form of Consideration Risk Stage

Contract allocation

Design by client’s Contract between Form of MC=40%

consultant and main contractor contract: C= 60%
construction overlap. and main Typically TIME
Management contractor packages. amended
appointed early to let Financial liability JCT. DESIGN
elements of work not known until COST QUALITY
CONSTRUCTION
progressively by trade / last packages
work package contracts have been let.
Part 2- Procurement routes
Management Contracting
AIQS
Advantages
•Early start – early completion
•Contribution by experienced
contractor to manage
•Late changes easily
accommodated
•Parallel working inherent
•Work packages tendered
competitively
Disadvantages
•No single point responsibility
for design and construction
•Client is dependent on the
Management Contractor (MC)
and exposed to risk of failure
perform by MC.
•Needs a good quality brief
Part 2- Procurement routes
Management Contracting
PICQS

Advantages
•Management Contractor has
early involvement and manages
the works of Contractors
•Early Constructability advice;
and
Disadvantages
•There is potential for reduced
cost certainty at the outset.
• Management costs might be
high
Part 2- Procurement routes
Construction Management
•This approach is similar in concept to Management
Contracting.
•Contractors are contracted directly to the client and the
construction manager manages the process for the client on
a simple consultancy basis.
•Although in a sense this gives the client a greater measure
of control, it also means that the client accepts a higher
amount of risk compared to other procurement options.
•The management contractor is simply an agent, and usually
cannot guarantee that the project will be finished to time
and cost.
•As it requires constant involvement by the client this
approach is really only suitable for experienced clients.
Part 2- Procurement routes
Construction Management
This is generally more suitable for (the same as
Management Contracting!):
•fast track projects;
•complex buildings; or
•a developing brief
However, it is generally less suitable for (the same as
Management Contracting!):
•inexperienced clients;
•cost certainty before starting construction; or
•clients wanting to pass risk to the contractor
Part 2- Procurement routes
Management Fee
Design Price Form of Consideration Risk Stage
Contract allocation

Design by client’s Contracts Form of MC=40%

consultant and between client contract: C= 60%
construction overlap. A and trade/ work Typically
fee earning packages. amended TIME
construction manager Financial liability JCT.
defines and manages not known until DESIGN
the trade/ work last packages CONSTRUCTION
COST QUALITY
packages have been let.
Part 2- Procurement routes
Construction Management
AIQS
Advantages
•Construction Manager is qualified
advisor to employer
•Direct contractual relationships
•Can be started early
•Cost could be controlled directly
•Late changes easily accommodated
Disadvantages
•More contractual responsibilities
•No Cost certainty
•Complex coordination &
communication.
•Need a competent Project Team
•Client is dependent on the CM and
exposed to risk of failure perform by
CM.
Part 2- Procurement routes
Construction Management
PICQS
Advantages
The construction work is more
closely integrated into the
management of the project.
Close liaison between the
construction manager and design
team leads to prompt identification
of and decisions relating to practical
problems.
Disadvantages
The client has one more consultant
and a number of contractors with
whom to deal instead of only one
main contractor
The client’s financial commitment is
uncertain until the last of the works
contracts has been signed.
Part 2- Procurement routes
Project Partnering Procurement
•Partnering refers to some form of collaborative
approach in which Clients and Contractor’s are open
with one another in order to meet common
objectives;
•Partnering is a management approach used by two
or more organizations to achieve specific business
objectives by maximizing the effectiveness of each
participants resources; and
•Partnering can be based on a single project (Project
Partnering) but a greater benefit is available when it
is based on a long term commitments (Strategic
Partnering or Alliance)
Part 2- Procurement routes
Project Partnering Procurement
Project Partnering –
Is based on a Client and Contractor working openly on a
single project, can look to achieve potential cost
reductions of around 2 – 10% when compared against a
more traditional procurement method.
Strategic Partnering –
Involves the client and contractor working on a series of
construction projects could potentially achieve savings
on an average of 30% per project when compared against
a more traditional procurement method of a single
project.
Part 2- Procurement routes
Project Partnering Procurement
•However, Partnering should not necessarily be
viewed as simply a procurement system.
•It can actually be used as a delivery method for the
four discussed common procurement methods.
•Procurement is also more of a culture and a mental
attitude rather than a dogmatic standard of
traditional procurement.
•It is two partners helping each other for mutual
benefit.
Part 2- Procurement routes
Project Partnering Procurement
Description Advantages Disadvantages Contract
Forms
•This method involves the •Early involvement of •Risk allocation generally more •PPC
participants in a construction project the contractor/ favourable to the contractor international
to carry out the project in an open specialist than other methods ACA standard
trusting and cooperative setting, subcontractors result •Less price certainty than forms of
presumably for the mutual benefit of in cost saving true traditional methods and contract for
all parties. value engineering limited opportunity for bench project
•There is no universally accepted •No need for a marking commercial offers partnering
approach to the application of detailed design at the •Still fairly innovative in the (PPC)
partnering principles. time of tendering / region and therefore require •NEC3
•The pricing basis is usually on an award, offering the greater levels of legal/ Engineering
“open book” cost plus basis with an opportunity to save contractual inputs at the outset and
element of pain/gain share. time. resulting in costs and delays in Construction
•This form of procurement is generally •Avoid time for the procurement process. contract,
used in long term arrangement rather competitive •Looser contractual publish by
than short term ones due to the tendering arrangement can create legal institution of
benefits to be gained from build-up •Collaborative uncertainty Civil Engineers
good will between the parties or approach allows •Success is dependent on trust/ (NEC3)
where the risks involved are so great parties to focus on confidence between individuals
that contractor would price them at acting in the best involved in the project
an amount that would make the interests of the
project uneconomic. project
Part 2- Procurement routes
Project Partnering Procurement

Traditional Partnering
•Adversarial; •Collaborative;
•Arms length •Trust;
relationship; •Open book accounting;
•Commercial secrecy; •Team approach to problem
•Apportion blame for solving;
problems (Claim); •Flexibility – encourages
•Specific Design innovation; and
Specifications; and •Dispute Resolution.
•Arbitration/Litigation
Part 2- Procurement routes
PFI/ PPP (Private finance initiative/ Public- private partnerships)
Development background
•A recent/modern form of procurement to encourage private
investment into public sector projects (most commonly
Schools, Hospitals and Infrastructure).
•Was introduced into the UK in circa 1992 as an initiative
designed to reduce the pressure on public sector borrowing..
•A single contractor will be appointed to build, design and
operate the project, in order to deliver services demanded by
the public sector.
•This contractor will have expertise in design, construction,
facilities management and funding capability.
•The contractor will finance the project and lease it to the
client for an agreed period.
•After this, the development will revert to the client
Part 2- Procurement routes
PFI/ PPP (Private finance initiative/ Public- private partnerships)
Development background
•To exploit the skills and knowledge of specialist private sector
firms in facilities management and property management
rather than public sector professionals.
•To
To reduce the total life cycle cost of assets where
conventional procurement methods gave no incentive to the
contractor to reduce maintenance costs.
•To convert public sector capital expenditure into service
payments over an extended period of time.
•To transfer certain risks (and the cost thereon) to the private
sector who are perceived as being better equipped and more
innovative in analysing and managing them
Part 2- Procurement routes
PFI/ PPP (Private finance initiative/ Public- private partnerships)
Development background
•Build, Own, Operate, Transfer [BOOT]
•Build, Operate, Transfer [BOT]
•Build, Own, Operate [BOO]
•Design, Build, Finance, Operate [DBFO]
•Design, Construct, Manage, Finance [DBMF]
Part 2- Procurement routes
PFI/ PPP (Private finance initiative/ Public- private partnerships)
•Undertaken on the basis of a Consortium/ Special Purpose
Vehicle (SPV), developing the design to respond to the
client’s requirement.
•Contractor provides a price to design, construct, manage
and operate the facility for a defined period typically 30
years. The client then pays for this through a service charge
per annum.
•Expensive procurement route for consortium to undertake
and therefore limits the number of renderers.
•Form of contracts typically bespoke
Part 2- Procurement routes
PFI/ PPP (Private finance initiative/ Public- private partnerships)

TIME
Client

SPV
COST QUALITY

Construction Hard FM Soft FM

DESIGN CONSTRUCTION

Risk Allocation
MC= 90%
C= 10%
Part 2- Procurement routes
PFI/ PPP (Private finance initiative/ Public- private partnerships)
Advantages
Enables clients develop facilities they
would not otherwise undertake due
to use of private sector finance
Allows clients to concentrate on the
core function of the facility rather
than worry about the asset
Provides a one-stop-shop with the
SPV, manages the construction and
hard/soft facilities management (FM)
Client pays a pre-agreed service
charge on a regular basis rather than
a large upfront capital cost
Disadvantages
Expensive cost of tendering , limits the number of
parties who are willing to participate
Locks the client into a contractual relationship for
a typical 30 year term
Doses not allow charges to be incorporated easily
and these can be disproportionately expensive
due to negotiating with one contractor
Requires extensive employer’s requirements for
complicated projects to ensure correct asset is
delivered
Design and construction programme durations
are long de to the need to address various
approvals and resolve contractual issues
Part 2- Procurement routes
Frameworks
•Used where multiple projects require delivery which
are in some way related- type of project, type of work,
etc.
•Type of contract; typically bespoke although there are
term contracts available where say a program
refurbishment work is being undertaken
•No one underlying form of delivery- can be a mixture
under the same framework e.g. PFI and D&B
•Usually includes a significant element of negotiation
and only works well where a long standing partnering
relationship exists.
•Risk allocation is dependent on underlying delivery
method.
Part 2- Procurement routes
Other Variants
Not for detailed discussion in this presentation,
however you may wish to research further on….
Traditional with Contractor Design Portions (CDP)
•Traditional with Re-measurement
•Traditional with Cost Plus (Cost Reimbursement)
• Traditional with Cost Plus & Target Cost
(Fluctuating Fee / Bonus / Pain & Gain)
•Guaranteed Maximum Price (GMP)
Part 2- Procurement routes
How do you select a procurement route?
How do you advise a client on selection of a procurement method?
Parameter Objectives Traditional Design & Mgt. Construct Framework
Build Contracting ion Mgt. Agreement
Timing Early completion N Y Y Y Y
Cost Pre construction price certainty Y Y N N Y
Quality Design prestige Y N Y Y N

Variations Avoid prohibited cost of Y N Y Y N

change
Complexity Technically advance or highly N N Y Y N
complex building
Responsibility Single contractual link N Y N N Y
Professional Need for design team to report Y N Y Y Y
Responsibility to client
Risk Desire to transfer complete risk N Y N N Y
Avoidance
Damage Facility to recover cost direct Y Y Y N Y
Recovery from contractor
Buildability Contractor input to economic N Y Y Y Y
construction