CHAPTER FOUR

Procurement and
Contract
Management
 4. Procurement and Contract
Management
1. Introduction
2. Tendering
3. Qualification of Bidders
4. Contract Types
 Introduction

 Construction Industry involves

procurement and contract management
systems in order to ensure fair
competition and distributions of
obligations and rights among
stakeholders.
 Introduction…
Competition helps:
I. The Project Owners’ to acquire the five rights
(Counterpart, Cost, Time, Quality and Quantity)
s/he is entitled to
II. The Project Financiers’ and Regulators’ to value
market principles and effective utilization of
finance such that lowest qualified bids takes the
project , and
III. The Project Providers’ to get impartial and neutral
Opportunity for business.
 Introduction…

 Obligations and Rights help to

allocate appropriate risks among
contractual parties and their remedial
rights. That is, their entitlements and
provisions are clearly stated and
agreed upon.
 Introduction…
 Project Owners shall consider its own
particular institutional and technical
SWOT (including access to financing)
before selecting which procurement and
contract forms to adopt for its projects.
 These include the design source, allocation

of coordination responsibilities and the

pricing methods.
 Introduction…
 Procurement and Contract management has a
strong linkage and relationship with Construction
Process and Stakeholders Management.
 The delivery system chosen, the procurement
method adopted and the contract types decided
upon determine the construction process involved
and the relationships and roles of stakeholders
along the process.
 Procurement & Contract
Management Process
 
 Procurement and Contract
Management involves three major
processes: Contract Planning,
Procurement Management and
Contract Management.
 Introduction…

1. Contract Planning
Construction projects are components
of a certain business or development
demands.
 This phase often pass through the
identification, feasibility and financing
stages of Programs or Projects.
 Introduction…
2. Procurement Management
 It is a process of selecting individuals or
organizations to carry out the intended services and /
or works.
 Procurement Management is carried out based on the
provisions made during the contract planning phase of
the Procurement and Contract Process.
 It involves the preparation of procurement documents,
their invitation and submission of tender proposals,
and Opening and Evaluation of tenders.
 Introduction…
 The following issues are necessary for a
successful Procurement Management
phase
I. knowing and ensuring the
implementation of procurement related
National and International laws, rules
and regulations.
 Introduction…

II. Adherence to the provisions made during the

contract planning phase including their change
processes, that is; with respect to Delivery
Systems, Procurement Methods and Contract
Types
III. Establishment of a flexible procurement team, and
IV. Adhering to the principles of Proof of
competition, Impartiality, Neutrality, Accessibility
and Formality.
 Introduction…

3. Contract Management
 It is a process of reaching contractual
agreement for implementation, its
administration and finally concluding the
contract.
 Similar to the procurement management
process, it shall be based on the provisions
decided during the contract planning phase.
 Introduction…
 It involves negotiation based on tender
evaluation recommendations and signing
of contractual agreement followed by its
administration for contractual
implementation, progress tracking, and
changes, claim and disputes
administrations
 Introduction…
 The following issues are necessary for a
successful Contract Management phase:
I. knowing and ensuring the implementation of
contract related National and International
laws, rules and regulations,
II. adherence to the provisions made during the
contract planning phase including their change
processes, that is; wrt Delivery Systems,
Procurement Methods and Contract Types,
 Introduction…

IV. identifying, recognizing and involving all

potential or key stakeholders to form a
contract team,
V. understanding, mapping and monitoring all
contract conditions agreed upon, and
VI. ability to administer changes, claims and
disputes
 Procurement and Contract
Management Process
 Figure

Delivery System Contract Formulation

Procurement Method Contract Administration
Contract Types Contract Closing

Contract Procurement Contract Management

Planning Management

Procurement Preparation
Tendering
Tender Evaluation & Notice of Acceptance
 Tendering
 It is highly desirable when inviting
competitive offers from a number of bidders
that the tender received should be based as
far as possible on equal terms and conditions
and presented in a standardized manner.
 In this way evaluation and comparison

between the tenders received can be made

more simply and accurately with less risk of
misunderstandings, errors and omissions.
 Tendering….
 Actually the usual tender document consists of a
number of different documents, of which the
following forms the essential elements
Bidding Information:
 Invitation to bid,
 Instruction to bidders,
 Bid form including Bill of Quantities
 Addenda ( Bid amendment)
 Tendering….
 Contractual Information
 Agreement form
 Standard or General Conditions of Contract
 Particular or Special Conditions of Contract
 Technical Specifications & Methods of
Measurement
 Drawings
 Appendix to Contract
 Qualification of Bidders
 Before a contractor is awarded a contract, it
should likely be put through a qualification
and selection process on order to arrive at the
best advantage to the client in both price and
efficiency. The following chart depicts the
available options in bid qualification
procedure
Bid Qualification Procedure
 Contract Types
 It is a universal practice in construction
for a contract to be formalized by a
written contract document.
 The basic purpose of a contract document

is to define exactly and explicitly the

rights and obligations of each party
thereto.
 Contract Types…
 The complex nature of construction dictates a
form of contract that is relatively lengthy, detailed
and binding document in order to describe
precisely the legal, financial and technical
provisions and requirements.
 Construction contracts are substantially different
from the usual commercial variety. The product
concerned is not a standard one but a structure
that is unique in its nature and whose realization
involves considerable time, cost and hazard.
 Contract Types…
 The Contract document comprises the full
package tender documents including any
addenda issued there to with the technical and
financial offer of the successful bidder. Here,
both parties put their respective signature and
seal on the agreement form which was
included in the tender as contractual
information
 Contract Types…
 Different kinds of contracts provide
different advantages to the client and the
contractor. Depending on the risk of the
project and the degree of difficulty in
estimating costs, the client and contractor
try to negotiate the type of contract that
best serves their interests.
 Contract Types…

1. The Unit-Price Contract

 It is based on estimated quantities of certain
well defined items of work and costs per unit
amount of each of these work items. This type
of contract is suitable for a competitive bid.
 Contract Types…
 The specification and estimated quantities
are compiled by the designer during the
conception phase and the unit costs by the
contractor for carrying out the stipulated
work in accordance with contract
documents
 Contract Types…
Advantages
 Promotes open competition involving quantities of

work that cannot be accurately forecast at the time

of bidding.
 More transparent and easier for supervision and

control.
Disadvantages:
 Requires reasonable time and cost for the

preparation of specification and detailed bill of

quantities.
 Contract Types…
2. The Lump-Sum Contract
 The lump sum contract is one in which the
contractor agrees to carry out a stipulated job of
work in exchange for a fixed sum of money.
 The satisfactory completion of work for the stated
price remains the obligation of the contractor,
regardless of the difficulties and troubles he may
experience in the course of his construction
activities. This type of contract is suitable for a
competitive bid.
 Contract Types…
 Advantages:
 The owner knows the total cost of his project
in advance
 Disadvantages:
 Limited to construction programs that can be
accurately and completely described at the
time of bidding.
 Contract Types…

3. Cost-Plus Contract
 Generally this type of contract is suitable for
negotiated contract between the contractor and
the client.
 This designates actual cost plus additions for
profit and risks depending on the mutual
agreement to be reached between the parties.
There are three varieties of cost-Plus Contract.
 Contract Types…

A) Cost-Plus Percentage of Cost Contract

This type of contract fixes percentage of the
cost of construction for the profits and risks to
be due to the contractor. This contract is
particularly well fitted to cover work whose
scope and characteristics can be only poorly
defined at the outset of operations.
 Contract Types…
 Advantages:
 For an emergency nature that time is not available for the
advance preparation of contract documents and for the
usual bidding routine,
 The work entailed may be such that no one can ascertain
what difficulties will be encountered or even of what
order of magnitude the eventual cost may be,
 Disadvantages:
 It doesn’t urge the contractor to maintain and practice
strict economy in the interests of the owners.
 Contract Types…

B) Cost-Plus Fixed Fee Contract

A popular type of cost-plus contract is one in
which the contractor’s fee is established as a
fixed sum of money. This work must be of such
a nature that it can fairly be well defined and
reasonably good estimate of cost approximated
at the time of negotiations.
 Contract Types…

The contractor computes the amount of his fee

on the basis of the size of the project,
estimated time of construction, nature and
complexity of the works, hazards involved,
location of the project, equipment and
manpower requirements and similar
considerations.
 Contract Types…
 Advantages:
 Time saving in the preparation of contract
documents and the usual bidding document,
 Expedition of work is desirable from the view
point of freeing labor and equipment for other
contracts.
 Contract Types…
 Disadvantages:
 The contractor should work in a diligent
manner and failure to do so will cause
additional office, overhead expense to be
incurred for which he is not reimbursed
 Contract Types…

C) Cost-Plus Sliding Scale Fee Contract: A form

of cost-plus contract that acts in the nature of a
compromise between the percentage of cost
fee and a fixed fee. It is one in which the fee is
established in accordance with a sliding scale
arrangement. Either of the following general
schemes may be followed.