Organized by:

Zewdu Tefera Worke, Engineering Contracts Lawyer

Adama University

School of Information & Technology

Department of Civil Engineering & Architecture
Construction Law & Contract Course
For
Postgraduate Students of

Construction Management

Lecture Notes on

Project Delivery Systems & Methods of Procurement

Organized & Delivered by;

Zewdu Tefera Worke

November 19, 2009

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 Organized by:
Zewdu Tefera Worke, Engineering Contracts Lawyer

Construction Law & Contract

Lecture Notes on

Project Delivery Systems & Methods of Procurement

Organized & delivered by:

Zewdu Tefera Worke

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1. Project Delivery Systems

1.1 Definition

 Contract or Project Delivery System is the way Project Owners together with
Project Regulators and Financiers determine the assignment of
responsibilities to Project Stakeholders along the Construction Process.

 It is often determined during the Basic Planning phase of the Construction

Project.

1.2 Types of Project Delivery Systems

 Project delivery systems are basically classified in to two broad areas:

a) Force Account; and
b) Outsourced.
 Force Account

 When the project owners engage themselves to undertake the project, it is

called a force account delivery system.
 Such a system is often promoted if the Project Owners believe that there is a
comparative advantage in cost, time & quality.

 Outsourcing

 Most of the project delivery methods/systems are found under the category
of outsourcing.
 The following are some of them.

 Design-Bid-Build (D-B-B);
 Design-Build (D-B);

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 Construction Management (CM At Free & At Risk);
 Design –Build- Operate (D-B-O);
 Design-Build-Operate-Maintain (D-B-O-M);
 Design-Build-Finance-Operate (D-B-F-O);
 Full Delivery or Program Management;
 Build-Own-Operate (B-O-T);
 Build Own Operate Transfer(B-O-O-T);

 Categories

 Those project delivery methods under the category of outsourcing

may be categorized under the following category.
 The criteria for such category are based on: segmentation,
integration & financing.
 These are:
 Integrated Process Delivery Methods
o Design-Build-Operate;
o Design-Build-Operate-Maintain;
o Design-Build-Finance-Operate;
 Segmented Delivery Methods
o Design-Bid-Build;
o Design-Build;
o Construction Management;
o Pure Operations & Maintenance (O&M)
 External Financing Methods
o Design-Build-Finance-Operate;
o Build-Own-Operate;
o Build-Own-Operate-Transfer;

 Design-Bid-Build

 After Project Owners did prepare the Basic Planning that identifies
construction project programs, they call upon the participation of
Design and/or Supervision Consultants.

 This Consultant will carry out the design together with the necessary
tender documents which will be the basis for tendering to select
Contractors.

 This process is called Design-Bid-Build and hence the name for such
delivery system.

 Advantages may include:

 Long history of acceptance;

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 Open competition;
 Distinct roles are clear;
 Owner flexibility;
 Easy to tender;

 Disadvantages may include:

 Innovation not optimized;
 Usually cost overruns;
 Disputes between parties;
 Client retains risks;
 Usually low bid-incentive for change orders;
 Owner responsible for errors & omissions;
 Design-Build

 Design Build or Turnkey, in principle, reduces numbers of procurement

processes engaged in the fragmented process and employ only one
procurement process and a single contractor to provide the entire
Construction Implementation Process(Design & Construction
Implementations)

 In this arrangement both the design & construction liability rests with the
Contractor.

 The following are some of the basic features of Design-Build.

 These are;-

 Employer’s Requirements & Contractor’s Proposals;

o The employer approaches a contractor with a set of

requirements defining what the employer wants.
o The contractor responds with proposals, which will include
production as well as design work.
o The scale of design work included depends on the extent to
which the employer has already commissioned such (design)
work from others.
o The contractor’s design input varies from one contract to
another, ranging from the mere detailing of a fairly
comprehensive design to a full design process including
proposals, sketch schemes & production information.
o The Design-Build contractor, in any way be responsible for
both the design & construction.

 The Pricing Mechanism;

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o The other feature is that Design-Build delivery method deals

is a guaranteed maximum price (GMP).
o This helps clients to feel reassured that they are not signing a
blank cheque.
o As an incentive to the contractor, any savings made by
completing the project for a price below the GMP may
sometimes be shared between the client & the contractor.

 Roles & Responsibilities of the contracting parties in the design-build

process;

o There is lack of an independent certification role in the

contract.
o There is no architect or contract administrator to settle
differences.
o There is no independent quantity surveyor responsible for
preparing the basis up on which contractors tender.

 Advantages may include:

 Single source responsibility both for design & construction;

 Integrating design & construction;
 Reduction in administration;
 Innovation;
 Cost savings;
 Constructability optimized;
 Most risks transferred to the design-builder;
 Usually GMP;
 Design reflects;

 Disadvantages may include:

 Limiting competition;
 High tendering costs;
 New method & unfamiliarity;
 Client needs quicker decision making;
 Clients bringing design requirements(30%)(reduces design innovation);

 Construction Management

 Under Construction Management the Owner contracts separately,

but somewhat simultaneously, with a design consultant and with a
firm whose primary expertise is construction (the Construction
Manager).

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 The owner procures the management services of the Construction
Manager (in most cases a general contracting construction firm)
early in the design phase.
 Construction Management should not be confused with Project
Management. Project Management implies a much broader set of
responsibilities than Construction Management. Project
Management is the overall management by, or on behalf of, the
Owner of all aspects of a project from its inception through design,
construction & use.
 CM is of two types: CM At Free/as Agent & CM At Risk/as
Constructor. This distinction determines the contractual approach to
CM.

 Construction Manager (CM) as Agent

 This is a form of CM under which the Construction Manager

acts as an agent of and advisor to, the Owner.
 The Owner enters in to multiple trade contracts with the trade
contractors & suppliers.
 The Construction Manager is retained on a fee for services
basis & acts on the Owner’s behalf in managing &
coordinating the trade contracts in the best interests of the
Owner.
 The Owner retains all of the contracting risks inherent in
each of the trade contracts.
 It essentially involves the Owner acting as its own general
contractor, with the assistance of a Construction Manager.
 This form of CM is sometimes also referred to as the “CM as
Advisor” or “owner contacted form of CM”.

 Construction Manger (CM) At Risk (as Constructor)

 This is a form of CM under which the Construction Manager

enters in to multiple trade contracts with the trade
contractors & suppliers.
 The Construction Manager assumes responsibility for the
performance of the trade contracts (subcontracts) much as a
general contractor under the traditional method, and is paid
for the trade contract work on a cost reimbursable basis.
 The Construction Manager may, or may not, also provide a
guaranteed maximum price & schedule to the Owner under a
cost plus type of arrangement, or enter into a stipulated price
contract, when the design is sufficiently complete.

 Advantages may include:

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 CM At Free
o Provides a managing & administering for all phases
of a project;
o Treats planning, design, construction as an
integrated tasks;
o Some costs & schedule control;
 CM At Risk
o Good for clients with insufficient staff;
o Owner flexibility;
o Responsible for time & cost overrun;
o Holds & manages the trade contractors;
o Constructability design review;
o Same legal position as a General Contractor;
o Provides a GMP;
o Works closely as a teaming effort & encouraging
partnering & trust;
 Disadvantages may include;

 CM At Free
o No contractual relationship with trade contractors;
o No contractual responsibility for outcomes of a project;
o Client retains the risks;
 CM At Risk
o Duplication of administration & additional paperwork;
o More paper work for the client;
o Some duplication of administration;
o Fast tracking difficult to control with designer & CM;
o Sometimes difficult to manage all phased packages with
costs, changes & schedules;
 Design-Build-Operate

 According to FIDIC, the D-B-O approach to contracting combines

design, construction, and long term (ex. 20 years) operation (and
maintenance) of a facility in to one single contract awarded to a
single contractor (who will usually be a joint venture or consortium
representing all the skills for in a D-B-O arrangement).
 Advantages of D-B-O
 The advantages are categorized in terms of: time, finance & quality.
 Time
 With possibilities to overlap some design & build activities it
will be possible to minimize delays & optimize the smooth flow
of construction activities.
 Finance

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
With cost restraints & commitments & other risks being
carried by the contractor, there is less risk of price over-run.
 Quality
 With the contractor responsible for 20 years operation, he has
an interest to design & build quality plant with low operation
& maintenance costs.
 Not only will then plant be “fit for purpose” but it will be built
to last.
 The FIDIC has now prepared conditions of contract which facilitate
the D-B-O process.

 Full Delivery or Program Management

 Under full delivery method the selected contractor shall under take
the whole range of activities from thought to finish & operation
inclusive of maintenance.
 The possible activities include:
 Planning & acquisition;
 Finance;
 Design;
 Construction;
 Operation;
 Maintenance;
 Upkeep & Improvements;
 Advantages may include;
 Shorter time to project competition;
 Fully integrated process from project inception;
 Maximization of planning & reduction of problems during
execution;
 Knowledgeable alternative funding sources;
 Good for large & complex projects;
 Single source expertise;

 Disadvantage may include:

 Difficult to tender & not knowing the costs;

 Compatibility issues wit client;
 Quality based selection process(Negotiated);
 Client needs to make decisions quicker;

 Build-Operate-Transfer

 BOT is a form of procurement and contract delivery system that

promotes Public Private Partnership ( PPP) in which a private
company is contracted to finance, design, construct, operate for a

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certain period ( usually 10 years) and transfer the facility to the
Project Owner.
 The typical BOT project contract is the process whereby a
government grants a concession to a project development company
to develop & operate what would normally be a public sector
project, for a given period of time known as the concession period.
 BOT project involves a potentially complex contractual structure.

2. Forms of Contract

2.1 Definition

 Form of contract means the type of conditions of contract used for the
procurement of ex. construction works.
 Form of contract shall suit to the selected project delivery system.

2.2 Basis for the Classification

 Form of contract may be based on the following two bases.

 These are:-
 method of pricing & payment; and
 function/responsibility taken by the contracting parties;

 Method of Pricing & Payment

 Based on the method of pricing & payment, the following types of contracts
are identified.
 Re-measurement Contract;
 Cost-reimbursable Contract; and
 Lump Sum Contract;
 Re-measurement

 Re-measurement Contract based on unit rates and prices; ( the New

FIDIC Red Book, 1999, the FIDIC MDB Harmonized Edition,
2006 );
 Remeasurement:The Ministry of Works & Urban Development
Conditions of Contract(1994);
 The PPA Conditions of Contract for Works (January, 2006);
 Re-measurement contract is also called ad measurement type of
contract.
 Cost-reimbursable

 Cost plus percentage fee contracts;

 Cost plus fixed fee contracts;

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 Cost plus fluctuating fee contracts;
 Target price contracts;
 The contractor is reimbursed for the actual cost of carrying
out of the work plus an additional amount of money in respect
of profit.
 In all these contracts, very detailed and extensive day-to-day
professional administrative services are required to check the
quality and quantity of work done.
 Lump Sum

 The FIDIC Orange Book;

 The PPA Conditions of Contract(January, 2006);
 Its basic characteristic is firmness in contract price.

 Function Responsibility

 This form of contract is based on the very obligation(s) assumed by the

contractor and/or the employer under the relevant contract.
 The possible function or obligation could be construction, design &
construction, financing, design & construction or financing, design,
construction & operation, or management,…
 The following forms of contract are identified.

 Design-Bid-Build: FIDIC 4th Edition (Red Book) Conditions of

Contract for Works of Civil Engineering Construction(1987) under
which the contractor is responsible for construction;
 Design-Bid-Build: The Ministry of Works & Urban Development
Conditions of Contract for Construction Works(1994), under which
the contractor is responsible for construction;
 Design-Bid-Build: The PPA Conditions of Contract for Works
(January, 2006), under which the contractor is responsible for
construction;
 Design-Bid-Build: FIDIC Conditions of Contract for Construction
for Building and Engineering Works (1999 the New Red Book)
under which the contractor is responsible for construction;
 Design-Bid–Build: FIDIC MDB Harmonized Edition 2006
Conditions of Contract for Construction(the Red Book) under
which the contractor is responsible for construction;
 Design-Build: FIDIC Conditions of Contract for Electrical &
Mechanical Works including Erection on Site(1987 3 rd Edition, the
Yellow Book) under which the contractor is responsible both for
design & construction;
 Design-Build: FIDIC Conditions of Contract for plant and Design –
Build for Electrical & Mechanical Plant, and for Building &
Engineering Works(the New Yellow Book 1999) under which the
contractor is responsible both for design & construction;

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 Engineer-Procure-Construct (EPC) FIDIC Conditions of Contract
for EPC/Turnkey Projects (the Silver Book, 1999), under which the
contractor is responsible for design, construction and/or financing,
operation,. this may also be adaptable to BOT & other related
arrangements;
 Design-Build-Operate: the FIDIC New Conditions of Contract for
Design Build & Operate, under preparation, under the intended
contractual arrangement, the contractor is to be responsible for
design, build & operate a given facility;
 Construction Management Conditions of Contract for at Risk & at
Free, in England;

3. Method of Procurement

3.1 Definition

 Method of procurement is the procedure by which the Government solicits

offers, establishes terms & conditions, and selects a contractor …

 Type of procurement is different from method of procurement. It could be

classified in very many ways.

3.2 Classification of Methods of Procurement

 Based on the level of competition involved in the process, methods of (public)

procurement may be classified, as follows.
 These are, according to Sue Arrowsmith, & et el., in Regulating Public
Procurement:-
 Formal tendering procedure;
 Less structured methods of competitive procurement; and
 Single source procurement;

 Formal tendering

 Single stage tendering

 In which tenders are sought in response to procurement

documentation setting forth the contract terms and
conditions and detailed technical specification.
 Tendering may be open to all interested parties or may be
restricted to a limited number of firms from whom the goods,
works, or services are available.

 Two stage tendering

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 In which tenderers submit only technical information in the
first stage of the procedure.
 Price discussions are typically held with all or some of the
tenderers who submit technically acceptable tenders

 Less structured

 Request for proposal

 In which detailed technical & cost proposals are sought.
 Technical & cost evaluations are conducted, and
negotiations with prospective providers may be held.
 This method of procurement permits a procuring entity to
include broad performance parameters in a request for
proposals & to seek technological or innovative solutions
from interested firms.
 Competitive negotiation
 The word negotiation may be used to refer to a competitive
request for proposals type procurement.
 Competitive negotiation may refer to a very informal and
unstructured competitive process.
 The meaning is therefore different in different countries.
 Requests for quotations/shopping
 Typically used for commercial or “off-the-shelf” items of
low financial value.
 Single source

 In which a procuring entity considers only one candidate.

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Construction Law & Contract

Source Materials For
Project Delivery Systems, Forms of Contract & Methods of
Procurement

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1. Susan I. Arrowsmith, John Linarelli & Don Wallace, Regulating Public

Procurement, National and International Perspectives, Jr. Kluwer Law
International, 2000
2. Construction Management, An Owner Guide to Using the ‘Construction
Management’ Project Delivery System on Alberta Infrastructure Funded
Building Projects, April 10, 2001
3. Wubishet Jekale Mengesha (Dr.Ing) Procurement & Contract
Management,.), April, 2006
4. FIDIC International Standard Conditions of Contract(Various editions);
5. Public Procurement Agency(PPA) Conditions of Contract(January, 2006);
6. Ministry of Works and Urban Development Conditions of Contract(1994);
7. The Ethiopian Federal Government Procurement and Property
Administration Proc. No. 649/2009;

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