Procurement Systems ARBE121 – PROCUREMENT OPTIONS “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.

The need for different procurement routes ARBE121 – PROCUREMENT OPTIONS  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

The key variables in the procurement process ARBE121 – PROCUREMENT OPTIONS  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?

The key variables in the procurement process ARBE121 – PROCUREMENT OPTIONS  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?

The key variables in the procurement process ARBE121 – PROCUREMENT OPTIONS  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” party’s requirements

The available routes ARBE121 – PROCUREMENT OPTIONS  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

The “Traditional” or conventional route ARBE121 – PROCUREMENT OPTIONS  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

The “Traditional” or conventional route ARBE121 – PROCUREMENT OPTIONS  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 Contractor’s expertise not used in design Creates “sides” – potential for adversarial attitudes, conflict

The “Traditional” or conventional route ARBE121 – PROCUREMENT OPTIONS  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

The design & build route ARBE121 – PROCUREMENT OPTIONS  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

The design & build route ARBE121 – PROCUREMENT OPTIONS  Advantages Design & construction overlapped – rapid procurement Contractor’s 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

The design & build route ARBE121 – PROCUREMENT OPTIONS  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.

The management contracting route ARBE121 – PROCUREMENT OPTIONS  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

The management contracting route ARBE121 – PROCUREMENT OPTIONS  Advantages Design & construction overlapped – rapid procurement Contractor’s 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

The construction management route ARBE121 – PROCUREMENT OPTIONS  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

Further reading ARBE121 - PROCUREMENT OPTIONS 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…