Procurement Systems

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Procurement Systems
The organisational structure adopted by the
client for the management of the design and
construction of a building project Masterman,
An introduction to building procurement systems,
Spon.
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The need for different procurement routes

• Differing project objectives
• Time, Cost and Quality aims
• Differing clients
• Degree of involvement, risk attitudes,
  experience
• Operating in a changing environment
• Political, economic, legal etc
• No single route will suit all circumstances

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The key variables in the procurement process

• Design control
• Who employs/directs the designers?
• Usually a choice between client contractor
• Constructors involvement
• When do you employ the contractors?
• Usual choice is between when outline design is
  complete or when design is finally complete
• Contract to construct or to manage construction?
• Who employs the subcontractors?

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The key variables in the procurement process

• Team selection
• Competition or negotiation for selection?
• Open or selected tendering?
• Paying for the construction
• Pay on Price or Cost?
• Price contractor tenders to do work for a
  total amount estimated costs profit
  overheads /- risk adjustments
• Cost contractor tenders to do the work for
  actual costs (calculated as work proceeds)
  allowance for profit etc
• Pay in timed instalments or on completion of
  stages?

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The key variables in the procurement process

• Form of contract used
• Contracts specify obligations of parties to one
  another client designers, client
  contractor, contractor subcontractor etc
• Main variation in client/contractor contract
• Main choice influenced by basic procurement
  route used
• Standard forms exist for most routes e.g. JCT
  Forms
• Modification of contracts is common to suit
  strong partys requirements

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The available routes

• The range of options
• In excess of 100 recognised variants
• In fact permutations are infinite
• Better to treat options as lying on continuous
  spectra of the procurement variables
• The most common routes
• Four systems dominated the UK industry in recent
  times
• Traditional, Design Build, Management
  Contracting Construction Management

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The Traditional or conventional route

• The process
• Client employs designers to produce complete
  design
• Contractor tenders on PRICE after design
  complete
• Tenders sought typically on competitive,
  selected basis
• Often lowest price wins
• Winning contractor carries out construction
  through employed sub- contractors
• Client pays price in monthly instalments based
  on amount of work done

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The Traditional or conventional route

• Advantages
• Client retains good control of design process
• Widely used - all parties understand roles etc
• Fairly even split of financial risk between main
  parties
• Cost certain after tender and tenders easily
  comparable
• Disadvantages
• Slow because design and construction sequential
• Contractors expertise not used in design
• Creates sides potential for adversarial
  attitudes, conflict

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The Traditional or conventional route

• Variants
• Subcontractors may be nominated specified by
  client potential for divided loyalties, blurs
  responsibilities
• Accelerated tenders sought on outline design
  may be quicker but cost certainty lost, time
  pressures on design etc

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The design build route

• The process
• Client employs designers to produce outline
  design
• Contractor tenders PRICE to complete design and
  perform construction
• Tendering usually competitive selected best
  overall submission should win price, design,
  programme etc
• Winning contractor carries out design and
  construction through employed design consultants
  and sub-contractors
• Client pays price in monthly instalments as
  traditional
• Significant shift in risk to contractor c.f.
  Traditional

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The design build route

• Advantages
• Design construction overlapped rapid
  procurement
• Contractors expertise influences design cost
  savings
• Early cost certainty possible
• Client has single point of contact with team
• Disadvantages
• Client relinquishes control over design
  quality problems?
• Client changes difficult after contract let
• Adversarial attitudes remain, perhaps worse
  than traditional

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The design build route

• Variants
• Client may require contractor to employ same
  design team as client employed Novation
  potential conflict of interest, blurs
  responsibility, authority etc
• Tenders may be sought on Guaranteed Maximum
  Price basis redistributes risk as savings may
  be split between parties. Arriving at the right
  Maximum is the key issue.
• Most extreme form Package or Turnkey
  approach. Contractor provides full service ALL
  design, even finding site, finance etc in some
  cases.

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The management contracting route

• The process
• Client employs designers to produce outline
  design
• Contractor tenders on estimated COST to perform
  construction fee to manage process
• Tendering usually competitive selected
• Best overall submission should win fee,
  management, programme, track record etc
• Winning contractor joins team advises
  designers in completion of design, organises
  construction in parallel by employing works
  package contractors
• Client pays COST of packages fee on monthly
  basis

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The management contracting route

• Advantages
• Design construction overlapped rapid
  procurement
• Contractors expertise influences design cost
  savings
• Contractor in team reduces adversarial nature of
  process
• Client retains control of design
• Late changes in design can be accommodated
• Disadvantages
• Client assumes high level of TCQ performance
  risk
• Client involvement high
• Possible time pressures on design

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The construction management route

• The process
• Same as management contracting except that
  client employs each package contractor directly
• Advantages
• Client can exercise high degree of control over
  entire procurement process
• Disadvantages
• Client share of risk is even higher than MC
• Client commitment/involvement is very high

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Further reading

• Many texts give general descriptions of the
  procurement routes and associated contracts as
  part of coverage of the industry e.g. Chapters 7
  8 of Harvey Ashworth, The construction
  industry of GB, Newnes and Chapter 6 of Cadman
  Topping, Property development, Spon.
• More detailed consideration of the routes can be
  found in Masterman, An introduction to building
  procurement systems, Spon and Franks, Building
  procurement systems, Spon.
• Murdoch Hughes, Construction contracts law
  and management, Spon.As its name suggests gives
  an in-depth coverage of the legal aspects and
  case law etc

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