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Procurement

What is procurement?
1. The overall process of acquiring construction woks or services?
Factors affecting the selection of the type of procurement
1. Scope of wk: size, complexit
2. Programme: start/ finish dates
3. Client Brief: commercial/ public sector etc.
4. Risk. priority: time, cost, quality
5. Current mkt: inflation, financial stability, availability of specialists skills etc.
Types of Procurement
1. what are the main procurement methods?
  1. Design and Build
    1. Design and Build procurement
      1. what is it?
        where the MC is responsible for the design, planning, organisation, control and construction of the works to the employer
        the Emp. sends out a set of ER & the MC responds with Contractors Proposals which inc the price 4 the wks
      2. how does it work?
      3. when might it be appropriate
        where there is a need 4 an early start on site: can overlap design & construction
        where Emp wishes 2 min risk: MC take on resp 4 design
        Tech complex prj: benefit of using MC expertise
      4. what contracts can be used?
        JCT
        D&B
        MP
        Not so much
        SBC +CD
        IFC +CD
        MW + CD
        NEC
        Options C/D/E/F
        FIDIC
        Conditions of contract 4 plant & Design & Build
      5. Advantages?
        Single Pt Contact
        Earlier commence on site
        Early price certainty
        use of MC expertise
      6. Disadvantages?
        clnt find it hard 2 prepare good ERs
        clnt commit 2 design really early
        variations from orig brief r difficult 2 arrange & £££
        Harder 2 compare tenders; hard 2 determine Value 4 £
        ease of fabrication may be priortised by aesthetic qual
        Maybe less real comp due 2 fewer d&B firms
      7. how much design input will the contractor have?
        dep on amount of design wk emp already done at tender
        can range from full design (design & dump) 2 production info and coordination only
      8. who carries out design for the contractor?
        can b outsourced 2 a seperate design comp (MC retain resp);
        MC might have in-house designers
        OR Clients team novated
        what is novation?
        a new contract that transfers the rights& obs of one contractural party 2 a new 3rd party i.e. design rights & obs of arch 2 MC
        if Client DT novated: - make sure there r Collateral Warranties in place 2 give remedies 4 breach of contract
      9. if the design team is novated, what should the client put in place ?
  2. Traditional/ general contracting
    1. what is traditional procurement?
      1. design completed by the clients design team b4 competitive tendering
      2. MC builds what the designers have specified
      3. Appointment of a contractor is commonly by competitive tender, but less usually by negotiation
      4. The client has control over design, quality. Generally there is no design responsibility on the contractor.
      5. design and construction are separate sequential processes
        programme for the project tends to be relatively long
      6. certainty on construction costs
        contract figure is usually known at the outset
      7. risks are balanced as between the parties
      8. e traditional lump sum approach in terms of cost, design and quality is a relatively low risk procurement option for the client
    2. when might traditional procurement be appropriate?
      1. If emp has design prepared
      2. f design is substantially completed by time of contract selection
      3. client wishes 2 retain control over design & spec
      4. cost certainty at start of site is important
      5. the shortest overall programme is not the clients priority
    3. what contracts might be used with traditional procurement?
      1. JCT
        SBC - Q/XQ/AQ
        IFC
        MW
      2. NEC
        Option A/C/D/E/F
      3. FIDIC
        conditions of contract for construction
    4. Advantages of traditional procurement?
      1. Ability 2 accommodate chg
      2. Competitive fairness & transparent procedure
        Inc value 4 money
      3. Control over design & materials
      4. Price certainty b4 commencement
      5. well known procedures
      6. Direct contractural relationship between Cient & designers
      7. Programme commitment from MC b4 entering in2 contact
      8. LAD recoverable if delays
      9. early cost/ time commitment
    5. Disadvantages of traditional procurement?
      1. needs 2 fully detail design b4 tender
        if not complete b4 tender - cost, time cert reduced
      2. Pro duration may b longer than other types -its a sequential process
      3. no input into design and planning from MC
      4. strategy based on price competition
      5. dual point of responsibility - DT for design & contractor 4 construction
  3. Construction management
    1. What is it?
      1. Emp: direct contract with each trade contractors (TC) & utilises expertise of a construction Manger who act as a consultant 2 coordinate contract
    2. how does it work?
      1. TC: carry out wrk
      2. The construction man (CM) supervises the construction process & coordinates DT
      3. CM has no contractural link with TC ir DT
      4. CM role: prep of prog; determine req 4 facilities; b.down proj in 2 wrk pack; get tenders; co-ord & supervise wrks
    3. when is it appropriate?
      1. large/complex proj where ads of Cm r put 2 good use e.g. upfront buildability knowledge; prog advice; specialist input from TC;
      2. early start on site is KEY
      3. Flex in design, procurement, construction strategy
      4. where price certainty b4 commencement is NOT KEY
      5. where client is EXPERIENCED in construction
    4. what contracts can be used?
      1. JCT
        CM/A
        CM/TC
    5. Advantages?
      1. prj duration reduced by overlapping design & construction
      2. CM contribute 2 design & prj planning processes
      3. roles, risk and relationships 4 all parties r clear
      4. chg 2 design accommodated without paying ££££
      5. £ may be lower due 2 direct contracts with TC
      6. Client has redress 2 TC through direct contractual links
    6. Disadvantages
      1. Price certainty not achieved until last trade package let
      2. changes 2 later packages may affect earlier packages - £££
      3. Need an informed , pro-active client
      4. client has lots of consultants & contractors 2 deal with - no single POC - more fees
  4. management contracting
    1. Management contracting (MC)
      1. What is it?
        Man C. appointed early 2 let element of wks progressively as a series of trade pck contract (wrk pack)
        MC works closer with project team
        Man C is emp 2 contrib their exp 2 design & 2 manage construction and is paid a fee
        inital fee and staff costs paid throughout wrks
      2. How does it work?
        C. manager responsible 4 wrks & programme
        MC responsible 4 con wks BUT all physical wrks completed by SC
        Contracts between SC and Man. C
        Design developed by client consultants & construction commences b4 design is complete.
        final costs only determined when last pck let
        MC selects SC through competitive open book tenders
        Client reimburses cost of these packages 2 MC + fee
        MC role if low risk: gets a prime cost + fee
      3. when might it be appropriate?
      4. what contracts might be used?
        NEC
        option F
        JCT
        MC
      5. Advantages?
        O.all prj duration shorter due 2 overlap of design & con
        MC contrib 2 design & planning process
        chg can b accommodated in packages as not yet let if they have no further impact
        wks let competitively @ current prices on a firm price basis
      6. Disadvantages?
        £ 4 wks not received until last package let
        chg 2 design in later pack many affect pack already let
        little incentive 4 MC 2 reduce costs
        may become a "post box" sys
        in practice, MC has little legal res 4 defaults of wks of SC
      7. Partnering
        What is it?
        A different way of structuring a business relationship
        Involves 2 or more orgs working 2gether to achieve specific mutual objectives 2 deliver continous measurable relationships
        project partnering
        all members of a professional team become involved in the partnering process at the design stage (inc MC)
        Ownership of risk is spread between the parties and a collaborative approach is encouraged to delivering the solution and overcoming problems
        strategic partnering?
        A long-term relationship for a number of prj/works that will last over a long period of time. Framework agreements allow this and are then implemented on a project/project basis.
        Framewrok agreement - an agreement between MC/suppliers/emp. it provides an agreement to fix the T's & Cs for future purchases. subject 2 inflation
        key characteristics of partnering
        TRUST
        INCENTIVE; impacts on prices/conflict/disputes etc.
        ADMIN BURDEN - restrict it 2 large projects
        CONTRACTS
        PPC 2000
        Key stakeholder of prj (client/MC/consultants) single only one contract
        NEC OPTION X12
        BUT does not create a MULTI-PARTY CONTRACT
        JCT FRAMEWORK AGREEMENT
        stategic partnering contract
        NEC 3 FRAMEWORK CONTRACT
        Strategic partnering contract
        key performance indicators
        enable all those involved in the construction supply chain to est. how they are performing on a project
        What is integrated supply chain?
        objective of understanding & working wholly in the interests of the project client rather than immediate client
        BENEFITS
        conflict reduced
        better COMMUNICATION
        better value for client
        improved BUILDABILITY
        better predictability of time & cost
  5. Measured Term
    1. in the case where there will not be a tender amount or Contract Sum so the FA will need to b built up from zero amount to an 'Ascertained Final Sum' detailing measured and valued areas of the project
  6. Serial Contracting
    1. A new procurement strategy which provides an incentive to the contractor based on performance through KPI achievement as set out in the Contract. The Contractor will be awarded with an incentive project if project KPIs are met and project completed ahead of time.
Financial Basis of Procurement
1. Lump Sum
  1. contract sum is determined before construction work is started
  2. JCT Contracts ‘with quantities’ are priced on the basis of drawings and firm bills of quantities.
  3. JCT ‘Without quantities’ means a contract priced on the basis of drawings and usually another document, such as a specification or work schedules.
  4. synonymous with traditional procurement methods
  5. common law: contractor is entitled 2b paid lump sum when it completes the works (Construction Act gives contractors right 2 payment by installment)
2. Re-measurement
3. Reimbursable
4. Target Cost
  1. AKA: share gain/pain
  2. if cost exceed the GMP the contractor and emp share the extra cost of the overspend and likewise share the saving is below.
  3. INCENTIVE based 4 MC 2 manage effectively tendering & construction process & agree of account with subbies
5. Guaranteed or Agree Max Price
  1. A lump sum contract under which there is no adj of tender price unless SCOPE req. by client chgs.
  2. the MC inc add risk involced in design dev process in tender price
  3. ADVANTAGES:
    1. greater price certainty; MC takes risk of design dev & unforeseen occurances
    2. greater control of overspending - MC interest 2 alert the team to expensive items of Design Dev
    3. Quicker settlement of FA
  4. AKA: cost-type contract (also known as an open-book contract)
  5. What is it?
    1. contractor is compensated for actual costs incurred plus a fixed fee subject to a ceiling price
    2. contractor is responsible for cost overruns, unless the GMP has been increased via formal change order.
  6. DISADVANTAGES
    1. CLEINT pay 2 much - MC risk allowance may be higher than in reality
    2. Scope change are V. £££
    3. Can b adversarial - trying 2 decide whether changes are design development or scope cahnges
Tendering
1. Standard rules of tendering
  1. NJCC rules
    1. contractors pre-selected on say NJCC basis
      1. 1. est skill
        2. integrity
        3. repsonsibility
        4. proven competence & character
        5. size of work
      2. no more than 6 tenderers. If pre-selection is done beforehand then tenderers can be selected on price alone
      3. good MC have the following:
        recent exp
        necessary skills
        good manage & org struct
        spare capacity & good Financial standing
2. Single/ 2 stage tendering - competitive/ negotiated
  1. Two stage tendering
    1. ADVANTAGES:
      1. early appointment + MC work alongside DT
      2. suitable 4 large complex sch where collaboration with MC would b an Advantage 2 use expertise
    2. DISADVANTAGES:
      1. ££ 2 b paid 4 negotiation; comp reduced
      2. risk £ can occur as certain items r not tied down until contract sum agreed
    3. Purpose of the 1st stage
      1. select suitable MC by means of limited comp
    4. Purpose of 2nd stage
      1. negotiated process with the selected contractor on the basis of the 1st stage
  2. Single
    1. ADVANTAGES:
      1. cost certainty b4 construction
      2. competative fairness
      3. well know procedure
      4. DT under client control
      5. Public accountability
    2. DISADVANTAGES:
      1. slow start on site
      2. MC not involved in Design - no buildability
      3. adversarial
      4. cleint respon 4 DT performance
      5. difficult to remove contractor in event of non-performance
      6. reliant on quality & completeness of contract docs
    3. what is it?
      1. separates the process with selecting the MC from the process 4 determine the price 4 the works
      2. Used when it is desired 2 obtain benefits of comp and have ad of bringing a MC into planning of proj and gain early comencement
    4. Negotiated
      1. client has a preference for a particular firm
      2. used when a MC ha already done g8t work 4 client
      3. non compitition (lead 2 higher price?) but may b worth it if they do a good job quickly
      4. Contrac Sum arrived by negotiation
3. Compilation of tender lists
  1. financial standing & record
  2. size of company
  3. general experience and reputation in the area of work
  4. reputation of quality
  5. Reputation for timely completion
  6. reputation for claims
  7. exp of the chosen contractural role
  8. management structure
  9. H&S record
  10. capacity 2 undertake the works
4. Complication of tender documents
5. What is tendering?
  1. process of obtaining bids for construction work
    1. can b competitive or negotiation
6. OPEN TENDERING
  1. WHAT
    1. indiscriminate request 4 tenders
    2. Advert placed in local paper/technical press inviting contractors to apply for tender documents
    3. Gives character of work
    4. Deposit usually required to deter frivolous applications
  2. ADVATAGES
    1. No charge of favouritism
    2. gives opp 4 capable firms u might not have put on a tender list
    3. Should secure Max benefit from competition
  3. DISADVANTAGES
    1. danger lowest tender is inexperienced OR has made lots of errors
    2. No guarantee the lowest is capable or financially stable
    3. Total cost of tendering is increased
7. MEAT = Most Economically Advantageous Tender

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	Created by alison_patey0437 over 11 years ago