EIABC

DEPARTMENT OF CONSTRUCTION TECHNOLOGY

AND MANAGEMENT

PROCUREMENT AND CONTRACT

MANAGEMENT

CHAPTER TWO: PROCUREMENT & CONTRACT

DELIVERY SYSTEMS
 2. Procurement and Contract Delivery
2

 Procurement and Contract 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.

 Procurement Delivery method is also an organizational

concept which assigns specific responsibilities and authorities
to people and organizations and which defines relationship of
the various elements in construction of a project.

 Procurement and Contract Delivery system is often determined

during the Basic Planning phase of Construction Project.
 2.1 Types & Development
3

 Methods of project delivery systems

 Force Account,
 Design Bid Build (DBB),

 Design Build (DB) or Turnkey,

 Finance / Build Operate transfer System (BOT),

 Construction/Facility Management Consultancy

 Alliances.

Force Account - Since development started

Design Bid Build (DBB) – 1950s / 1987

Design Build (DB) / Turnkey - 1970s Onwards / Mid 1990s

Finance / Design Build Operate - 1980s / ……

CM / Facility Management - Mid 1990s / 2000s

Alliances & Outsourcing – 2000s / 2000s

 1. Force Account
4

 When the Project Owners engage themselves to

undertake the project, it is called a force account
delivery system. This system is promoted for
• Comparative advantage of cost, quality and time
• Scale of projects and technology (large, small)
• Remote projects
• Spatially scattered and maintenance projects
 2. Design bid build
5
 Merits of DBB
6

 Contractors bid competitively, based on complete

design documents to maximize the built product for the
price
 The owner selects the Designer on the basis of
qualifications or ability
 The Designer is active in construction administration,
so design intentions are followed.
 Design and construction roles are clearly defined, and
responsibilities and liabilities are also clear.
 Owner is an active participant in design process.
 Demerits of DBB
7

 Fragmented contract for the project owner

 Severe Adversarial relations between the contracting
parties, rather than foster a cooperative atmosphere
that lead to disputes and claims
 Non - Impartiality of the Design and Contract
Administration services
 Project owner responsibility for risks associated with
the design and contract administration
 Design-Bid-Build construction phases are sequential
and may require more time
 Demerits of DBB
8

 Owner is at risk for final construction cost. Actual

construction costs are not known until design and
bidding are complete.
 The inability of design and contract administration
consultants to cope up with new construction
technologies and constructability issues of their
designs.
 The indirect contractual obligation assigned for the
Design and Contract Administration consultants.
 3. Design Build/Turnkey
9

 Design Build or Turnkey Delivery system is a

response to problems associated to the last two
types of delivery systems.

 This system is common worldwide specifically for

Private projects.

 This led lead contracting firms to form a team or

consortium of designers and specialty contractors
who work together to meet the entire demand.
 3. Design-Build
10

OWNER

DESIGN-BUILD
FIRM

design
subcontractors construction
design subcontractors
subconsultants
suppliers
 Advantage of DB
11

 reducing fragmentation and adversarial relations between

designers and constructors;
 accountability and entire responsibility for both design and
construction is onto a single contractor;
 minimizing Project owners’ risk transferable due to Designers’
faults;
 employers’ responsibility to co-ordinate is avoided;
 single point responsibility minimizes the opportunity to claims
and disputes
 the client budget or financial requirement is defined early enough
 Earlier schedule and cost certainty
 Disadvantage of DB
12

The General disadvantage of this delivery system

is
 loss of control,
 cost of tender and
 cost of risks.
 4. Build Operate Transfer
13

 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, and operate for a certain period
(usually 10 years) and transfer.
 the project owner is not responsible for any liability other
than force majeure and agreed upon claim adjustments.
 The Operation period between completion and transfer gives
the contractor an opportunity to verify the quality of the
output of the services and works
 BOT project involves a potentially complex contractual
structure
 BOT Contractual Structure
14
 Advantages of BOT
15

 It minimizes owners’ scarcity of financial resources;

 It devoid of considerable risks from the project
owners
 the facility is well operated and transferred with free
of charge or minimum compensations to project
owners.
 Integrates the process of design, construction,
operation, and maintenance.
 Projects are likely completed faster
 Disadvantage of BOT
16

 Longer tendering process

 Costly tendering
 No capable local contractors (for our case)
 Costs more in the long run
 Contractors may not be interested in all works
 5. Construction/Facility Management
Consultancy
17

 response to problems associated with DB and

BOT
 Construction management consultancy firm is
used to coordinate all activities from concept
inception through acceptance of the facility.
 Facility management consultancy adds operation
of facility during operation and maintenance to
Construction Management Consultancy.
 Construction Management consul..
18

 CM is involved in the whole construction processes where as

all the others involve only during the implementation phase
after major decisions are made during the Basic planning phase
 Construction Management Consultants then represents Project
Owners to carry out the following services:
 Feasibility studies of Construction related services
 Plan and Monitor the Triple Constraints of Project
Performances
 Lead and Organize regulatory systems of the Construction
Industry
 Valuation, Quantity Surveying and Procurement and
Contract Management Services
 Construction Management
19

 Construction management is a broad term covering a

variety of project delivery scenarios in which a
construction manager becomes an integral part of the
team, at early stages in the project, to oversee such
elements as schedule, cost, and construction
methodologies and procurement strategies.
 The general Construction Management variations are
Construction Management-for-Fee (CM for-Fee)
and
Construction Management-at-Risk (CM-at-Risk),
 CM for-Fee

20

CM-for-fee is a delivery method similar to the DBB

In CM-for-fee method,
the construction manager is responsible for project and site management,
 but is not involved in actual construction work.
The construction manager monitors cost, time, quality and safety,
 but does not take responsibility for them.
 The construction manager is paid a fixed or time based fees for
services provided
 The construction management organization takes an advisory role
or role of an agent to the client
 The CM has limited risk because construction contracts are
between the owner and individual contractors.
 Construction Management-for-Fee
21
(CM for-Fee)

Owner

Agency
CM

A/E
GC

Designers and Consultants

Subcontractors and Suppliers

 Advantages of CM for-Fee
22

 Managing and administering all phases of a

project.
 Treats Planning, Construction and Design,
as an Integral Task.
 Cost and Schedule Control
 Constructability input at design stage
 Disadvantages of CM for-Fee
23

 No contractual relationships with trade

contractors
 No contractual responsibility for outcomes of a
project
 Client retains the risks
 Additional cost for the Construction Manager
 CM at-Risk

24

 In CM-at-risk, the construction manager, apart from providing

constructability inputs at the design stage, is also responsible
for construction means and methods and delivery of the
completed work, including quality and performance of the asset
 All procurement in the project is done by the construction
manager,
 owner contracts with the designer and the construction
manager-at-risk,
 construction manager-at-risk contracts with the subcontractors.
 But, still, the client retains the final decision in project
delivery
 Construction Management-at-Risk
25
(CM at-Risk)

Owner

Agency
CM

A/E
GC

Designers and Consultants

Subcontractors and Suppliers

 Advantages of CM at-Risk
26

 Good for clients with insufficient staff

 Responsible for cost and time overruns
 Holds and manages trade contractors
 Constructability design review and absorbs risks
 Works closely as a teaming effort and encouraging
trust and partnering
 Phased construction (fast tracking) possible
 Disadvantages of CM at-Risk
27

 Lack of capable construction managers

 Demanding work organization
 Lack of cost certainty for each work packages
 No exactly defined work packages (bill of
quantities)
 Lack of contractors who can provide both
construction management and construction
services
 Fragmentation, as compared to DB& BOT
 6. Partnering, Alliances, Outsourcing and CE & JIT
28

 It focuses most on management of relationships

and value adding to ensure quicker, cheaper and
quality services and products with less disputes
 This is a method where an owner/developer and a
contractor agree to work together  by freely sharing
resources, risks and knowledge during the course
of the project
 It bases behind DB, BOT, FM\CM consultancy
delivery systems but their at most and recent
developments
 Partnering, Alliances, Outsourcing and CE & JIT
29

This type of project procurement can be

distinguished from others by

 collective performance of obligations by the

owner/developer and contractor,
 decision-making by consensus,
 commitment to resolve disputes without
resort to litigation
 Consideration in Selecting Project Delivery
Methods
30

 Choice of project delivery methods can be pictured in a

different context, which displays the project delivery
methods viewed by means of two criteria. This is based on
whether the project delivery methods are based on:
approach (segmented or integrated), and
Source of finance (direct or indirect funding)
 If the goal is to seek traditional or segmented delivery
methods, then the client would consider the following
delivery methods.
Design-Bid-Build (DBB)
Construction Management (CM) at fee.
 Some Considerations
31

 If the goal is to seek integrated delivery methods, then

the client would consider the following delivery methods.
Design-Build (DB)
Construction Management (CM at-Risk)
Design-Build-Operate-Transfer (BOT)
 And if the intention is to seek direct project funding, the
owner may consider the following options:
Design-Bid-Build (DBB)
DB (Design-Build)
Construction Management (CM) at fee and at risk.
 Some Considerations:
32

 If the goal is to seek external financing (indirect

funding), then the client would consider the
build-operate-transfer (BOT ).
 Note: It is worth mentioning that the

above division is based on the normal

procedure or the usual practice. It may
vary as agreed up on.