5/10/2023

BACHELOR OF THE SCIENCE OF ENGINEERING IN CIVIL

ENGINEERING

LECTURE NO. 02

PROCUREMENT IN CONSTRUCTION

By
Ch. QS. Gayan Fernando
Chartered Quantity Surveyor/ Lecturer
B.Sc. (Hons) in QS, LLB (Hons)
M.Sc. in CL&DS, Dip. in Arb., AIQSSL.

DEFINITION
• A process of obtaining/ acquiring goods, services
or work
• A framework within which construction is brought
about, acquired or obtained
• A strategy to satisfy clients’ development and/or
operational needs with respect to the provision of
constructed facilities for a discrete life-cycle

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SCOPE OF PROCUREMENT ACTIVITIES

Land acquisition /
selection
Leasing or
managing facilities
Demolition

Activities
Design Commissioning

Financing Managing the

project

Construction …etc.
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PROJECT DELIVERABLES
Functional facility
… time, cost, quality

Procurement should achieve or enhance:

• overall efficiency and economy in the delivery
of projects.
• best value and quality in the delivery of
facilities and programmes.
• identification and selection of most appropriate
contractor. 4

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STRATEGIC FRAMEWORK

PROCUREMENT SYSTEM
• Traditional Procurement System (Separated
Procurement System)
• Alternative Procurement System (Modern
Procurement System)
o Intergrade Procurement System
o Management Oriented Procurement System
o Collaborative Procurement System

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TRADITIONAL PROCUREMENT
SYSTEM
• Called as Traditional/ Conventional Procurement
System
• Rigid separation of design from construction
• Consultants is usually appointed by the client to
prepare a complete design
• Once design is completed, client involves in
bidding process to select a contractor

TRADITIONAL PROCUREMENT
SYSTEM
Arch
Design Team

QS Employer

Eng

Building Contractor

NSC DSC
DSC
Money
Contractual
8
Functional

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TRADITIONAL PROCUREMENT
SYSTEM
Advantages
• Satisfactory basis for: interim valuations for
payment, valuation of variations.
• High degree of certainty before commitment to
build
• Clear accountability and tight control
• Opportunity to combine best design and
contracting skills
• Allows for nomination of specialists
• Allows certain amount of flexibility

TRADITIONAL PROCUREMENT
SYSTEM
Disadvantages
• This procedure tends to be slow
• Contractor’s expertise not exploited in the design
• Contractor has no legal standing to suggest the
cost-saving alternative
• Associated with inter-party conflicts
• Engenders incomplete designs & future problems

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INTEGRATED PROCUREMENT
SYSTEM
• Called as Alternative Procurement System
• Design and construction are integrated together
• Contractor enters into a series of separate
agreements with consultants, specialist sub-
contractors and suppliers

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INTEGRATED PROCUREMENT
SYSTEM

A
Arch d
v
Employer i
QS
s
o
Arch Eng
r
Design Team

QS Design and
Build Contractor

Eng

SC SC SC

Contractual
Functional 12
Money

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INTEGRATED PROCUREMENT
SYSTEM
Advantages
• Construction could overlap with design
• Contractor can offer a ‘best value’ solution
• Fixed priced often guaranteed
• Fixed time often guaranteed
• Novice clients can procure
• Economies of scale
• Clients able to pass most risks to the contractor
• Flexible: combining design ideas from client and
contractor
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INTEGRATED PROCUREMENT
SYSTEM
Disadvantages
• Best design quality is not guaranteed
• Buildability requirements could overshadow softer
clients’ needs
• Client may not obtain the cheapest facility
• Client’s requirements must be known precisely
• Expensive to vary client’s requirements after the
contract
• Late design changes could be costly (to contractor)
• No incentive for contractor to carry out value
engineering
• Bidding costs relatively high 14

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PPP
• Public Private Partnerships (PPPs) are a generic
term for the relationships formed between the
private sector and public bodies often with the
aim of introducing private sector resources
and/or expertise in order to help provide and
deliver public sector assets and services
• PPP provides VFM, risk shearing, affordability
• A PPP may bring in additional expertise or finance
that the private sector has developed on a global
scale
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MANAGEMENT ORIENTED
PROCUREMENT SYSTEM
• Attempt to bridge the gap between the design and
construction processes
 Management contracting – an expert builder is
appointed on a fee basis well before work starts on the
site to manage the contracts
 Construction management – a construction expert is
appointed early on, for a fee, to manage the
construction process
 Design & manage – designed by management
contractor or construction manager

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MANAGEMENT CONTRACTING
 Client has to sign only one agreement with the
management contractor
 Management contractor does none of the
construction & design work
 Provide a professional management service
 Overlapping of design and construction is
reduced
 Time, cost and the contractor's practical
knowledge and management expertise are
available to assist the design team.
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MANAGEMENT CONTRACTING

Arch

Contract
QS Employer
Information
Eng Money

Management
Contractor This is the
Management
Contract
WC WC WC

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MANAGEMENT CONTRACTING
Advantages
• Complex projects with many features can be
handled best by many specialists
• Design and management functions of the project
are separated
• Time savings - some work packages can start early
on site + fast tracking
• Cost savings - the best price for each package
• Single point responsibility for construction

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MANAGEMENT CONTRACTING
Disadvantages
• Client may be exposed to greater risk
• Overall cost may be greater
• Tendency for duplication of administrative duties
• Roles and responsibilities on quality control not
clear
• Design may suffer as architect is under time
pressure

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CONSTRUCTION MANAGEMENT
 Similar in many respects to the management
contracting
 Works are executed directly between the various
contractors who are responsible for a defined work
package by the employer.
 Suitable where the client is familiar with the intended
construction processes and technique

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CONSTRUCTION MANAGEMENT

Arch

Contract
QS Employer
Information
Eng Money

Construction
Manager This is the
CM Contract

TC TC TC

22

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CONSTRUCTION MANAGEMENT
Advantages
• Complex projects with many features can be
handled best by many specialists
• Design and management functions of the project
are separated
• Time savings - some work packages can start early
on site + fast tracking
• Cost savings - the best price for each package
• No middle man - works contractors are paid
earlier, as they are not subcontractors

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CONSTRUCTION MANAGEMENT
Disadvantages
• Complex coordination if problems arise
• Complex communication network
• Total risk lies with client
• CM assumes no risk other than negligence
• Clients need to be experts
• Works contractors could be jointly liable to damages
to works completed
• Overall price at commencement may be uncertain
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DESIGN & MANAGE

 Combination of characteristics of design & build system
with management system
 May be a contractor manage the design and contracts or
designer manage the design and construction

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DESIGN & MANAGE

A
d Arch
v
i Contractual
s QS Employer
o Functional
r
s Eng Money

Design &
Management
Contractor This is the Design
& Management
Contract
WC WC WC

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DESIGN & MANAGE

A Arch
d
v
i Contractual
QS Employer
s
o Functional
r Eng
s Money

Design &
Construction This is the
Manager
D & CM
Contract
TC TC TC

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COLLABORATIVE
PROCUREMENT SYSTEM
• Sharing assets, sharing investments, optimize
design and commitments of all parties towards
success of the project
• Partnering, Joint venture, Alliancing and Voluntary
arrangements

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JOINT VENTURE
 A business entity created by two or more parties, for
a specific project
 A joint venture company will last for only a limited
period until their goal is achieved.
 May be Integrated JV (parties agree to perform as
a single entity having several stakeholders) or
Non-integrated JV (parties managed separately
and take-over their respective portions of the
work distinctly)
 May be International JV (JV agreements forming
with multinational partners) or Domestic JV (JV
agreements forming with parties from a single
country) 29

PARTNERING
 A legal arrangement where two or more people own a
business together in long term to achieve business
objectives
 Entire business is shared for as long as the business
exists
 In a partnership, members cannot act according to
their wishes because they do not have any individual
identity

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PARTNERING

Client
Partnering Partnering

Main Partnering Professional

Contractor Team

Partnering Partnering
Specialist
Contractors & All are involved in the
Suppliers partnering process
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ALLIANCING
 Agreement to work collaboratively, share risk and
reward
 In partnering, partners may reap rewards at the
expense of other partners but in alliancing each
alliance member places their profit margin and
reward structure ”at risk”.

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VOLUNTARY AGREEMENTS
 Enabling a company to propose a composition
with its creditors whereby they accept a dividend in
full settlement of their debts

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CRITERIA FOR SELECTION

• Timing (starting and completion times, duration
of project)
• Variations (client’s desirability to vary the works)
• Complexity
• Quality
• Price (level of certainty expected)
• Competition (might be desired in the selection
of contractors)
• Responsibility (client might want more)
• Risk 34

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