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BUILDING PROCUREMENT

(ALTERNATIVE METHODS)
NTK Lokuliyana

In early 1960s, construction projects were carried out by


promoting various alternative methods of procurement
systems with success. The building owners and developers
were no longer satisfactory with the traditional procedures
due to the following reasons:
(i)
Large sums of money have to be borrowed to
finance construction projects due to rapid increase in
construction costs;
(ii).

The time occupied by the traditional procedures


result in substantial additions to the construction
cost due to high interest rates;

(iii). Clients were becoming more knowledgeable


on construction matters and were demanding
better
value for money and an earlier return
on their investments;
(iv). High technology installations
higher
quality of construction.

required

Attention was drawn to reduce the time occupied in


producing a design and preparing tender documentation,
thus enabling construction work to begin sooner.

The bringing of the contractor in an early stage in the


design of a project was the other factor in consideration.
Under the traditional procedures, the contractor rarely
played any part until the tender stage was reached, after
virtual completion of the design. It was realized that the
vast amount of knowledge and practical experience of
contractors will make a valuable contribution in the
increasing complexity of projects, early in the design
process, which will be in the interests of clients and
architects, to a successful outcome.

The following are some of the principal alternative


methods building procurements now in use.

(A). DESIGN AND BUILD. (Sometimes called Design


and Construct or Package Deals)

Here the contractor is responsible for the design, for


the planning, organization and control of the
construction and for generally satisfying the clients
requirements, and offers his service for an inclusive
sum.

The procedure is initiated by the client (or an architect


on his behalf) preparing his requirements in as much
or as little detail as he thinks fit. These are then sent
to a selection of suitable contractors, each of whom
prepares his proposals on design, time and cost,
which he submits together with an analysis of his
tender sum. The client then accepts the proposals he
is satisfied best meet his requirements and enters into
a contract with the successful tenderer. The latter
then proceeds to develop his design proposals and to
carry out and complete the works.

The client may use the services of an


independent architect and a quantity surveyor to
advise him on the contractors proposals as to the
design and construction methods and as to the
financial aspects respectively.
He may also
appoint an agent to supervise the works and
generally to act on his behalf to ensure that the
contractors proposals are compiled with.

Advantages:
1. Single point responsibility is provided, i.e. the
contractor is solely responsible for failure in the
design and/or construction.
2. The client has only one person to deal with, namely,
the contractor, whose design team includes
architects, quantity surveyors, structural engineers
etc.
3. The client is aware of his total financial commitment
from the outset.
4. Close intercommunication between the contractors
design and construction teams promotes cooperation in achieving smoother running of the
contract and prompt resolution of site problems.

Disadvantages:

1. Variations from the original design are discouraged


by the contractor and, if allowed, are expensive.

2. The client has no means of knowing whether he


getting value for money unless he employs his own
independent advisors, which adds to his cost.

3. If the contractors organization is relatively small,


he is unlikely to be as expert
on design as he is on
construction, and the resulting building may be
aesthetically less acceptable.

(B). MANAGEMENT CONTRACTING.

The main characteristics of management contracting


is that the management contractor does none of the
construction work himself but it is divided up into
work packages which sub-let to sub-contractors, each
of whom enters into a contract with the management
contractor. The management contractor is nominated
by the client on the basis of the contractors previous
experience or is selected by competition based upon
tenders obtained from a number of suitable
contractors for:

(a) the management fees, and

(b) prices for any additional services to be provided


before or during the construction period. The
successful contractor will then enter into a contract
with the client.

The management contractors role consists of


providing a construction management service on
a fee basis as part of the clients management
team organizing, co-ordinating, supervising and
managing the construction works in co-operation
with the clients other professional consultants.
Further, he provides and maintains all the
necessary site facilities, such as offices, storage
and mess huts, and power supplies and other site
services, common construction plant, welfare,
essential attendances on the works contractors
and dealing with labour relation matters.

Advantages:

1. Work can begin on site as soon as the first


one or two works packages have been designed.

2. Over lapping of design and construction can


significantly reduce the time requirement,
resulting in an earlier return on the clients
investments.

3. The contractors principal knowledge and


management expertise are available on to assist
the design team.

4. Where the nature and extent of the work may


be uncertain, as in refurbishment contracts, the
design of latter work packages may be delayed
until more information becomes available as the
work progresses, without extending the
construction period.

5. The contractor, being part of the clients


team, is able to identify with the clients needs
and interests.

6. Because works contracts are entered into


close to the time of their commencement on site,
they can be based on firm price tenders.

Disadvantages:

1. Uncertainty as to the final cost of the project


until the last works contract has been signed.

2. The number of variations and the amount of remeasurement required may be greater than on
traditional contracts because of the greater
opportunity to make changes in design during the
construction period, because of problems connected
with
the interface between packages are
sometimes let on less than complete design
information.

(C). CONSTRUCTION MANAGEMENT (Sometimes called the


Separate Contract System).

Construction Management is not a procurement


system in itself but is only part of the total progress.
It is a professional consultant service to the client,
provided on fee basis, with the design and
construction services being provided by other
organizations.

The construction manager is responsible for the


organization and planning of the construction work
on site and for arranging for it to be carried out in the
most efficient manner. The construction work itself is
normally carried out by a number of contractors,
each of whom is responsible for a defined work
package. All the work packages together constitute
the total project. Each works contractor enters into a
direct contract with the client.

The construction managers duties normally include


any or all of the following:

Co-operation and consultation with the other


members of the clients professional team;

Preparation and updating of a detailed


construction programme;

Preparation of materials and components flows


and arranging for advance ordering;

Determining what site facilities and services are


required and their location;

The construction managers duties normally include


any or all of the following: (Contd.)

Breaking down the project into suitable work


packages in construction with the other members
of the clients team and recommending suitable
contractors to be invited to tender for work
packages;

Obtaining tenders from contractors and suppliers;

Evaluating tenders and making recommendations


on them to the clients team;

Co-ordinating the work of the works contractors to


ensure that it is carried out in accordance with the
master programme;

The construction managers duties normally


include any or all of the following: (Contd.)

Establishing all necessary management personnel


on site with responsibility to manage and supervise
the project;

Dealing with any necessary variations to the work,


providing the design manager with estimates of
their likely cost and subsequently issuing
instructions to works contractors;

Submitting to the quantity surveyor applications


from works contractors for periodic payments and
all necessary documentation enabling the final
accounts of works contractors to be settled;

Advantages:

The construction work is more closely integrated


into the management of the project.

Close liaison between the construction manager


and design manager leads to prompt identification
of and decisions relating to practical problems.

Detailed design can continue in parallel with


construction, work packages being let in
succession as the design of each is completed,
thus shortening the project time.

Privity of contract between the client and each of


the works contractors provides the client with a
readier means of redress in the event of difficulties,
such as delays, arising.

Disadvantages:

The client has one more consultant and a number


of contractors with whom to deal instead of only
one main contractor.

The clients financial commitment is uncertain until


the last of the works contract has been signed.

(D). PROJECT MANAGEMNT.

Project management is not a procurement system; it


does not include the site construction process but
only the general supervision of the works. It has been
defined by the RICS, as:

The overall planning, control and coordination of a project from inception to


completion aimed at meeting a clients
requirements and ensuring completion on time,
within cost and to required quality standards.

Quantity Surveyors, by their training and experience


in financial and contractual matters and with a
detailed knowledge of construction processes, are
qualified to offer a project management service.

The project manager is the clients representative,


with authority to supervise and control the entire
planning and building operation from acquisition of
the site to completion of the project and settlement
of the accounts. The services provided by a project
manager is planning, organizing and co-ordinating
the services provided by surveyors and lawyers in
relation to site acquisition; the architect, engineers
and quantity surveyor in relation to project planning
and design; and the contractor and sub-contractors in
carrying out the site construction work; but does not
include the carrying out of any of their duties himself.

(E). JOINT VENTURE.

This is an arrangement for building procurement,


which has developed out of the increasing
complexity of construction projects, often with
unorthodox methods or sequences of construction. It
is applicable to large-scale projects, where there is a
higher than normal proportion of engineering and
other specialist services. It has been defined by the
NJCC as follows:

A partnership between two or more companies


covering building, mechanical and electrical
engineering, or other specialist services for
the purpose of tendering for, and executing a
building or civil engineering contract, each of
the participating companies having joint and
several liability for their contractual
obligations to the employer.

The basis of such projects is a single contract to


which all the partner companies to the joint venture
are signatories. Any of the standard forms of
contract in current use may form the contract
documents. Modifications will need to be made to
cover joint and several liabilities of the participating
companies and to provide for any performance
warranty, which the Employer may require.

Joint venture has the effect of making specialist


contractors, who under more orthodox
arrangements would be sub-contractors, partners
with the building contractor. This does not preclude
the use of sub-contractors, a role, which is filled by
secondary specialist contractors who are not
partners in the joint venture.

Advantages:

1. The combined resources of participating


companies result in greater economy in the use of
specialist manpower, design and equipment.

2. There is greater degree of unified action between


the contracting parties.

3. Lines of communication between the Employers


professional advisors and the building contractor and
specialist contractors are shorter and better defined.

4. Improved integration of work sequences results in


a shorter contract time and fewer management
problems.

Disadvantages:

1. If one JV partner withdraws, the remaining


partner or partners must accept total liability to
complete the project.

2. A separate, unified JV bank account must be


arranged and maintained by all the parties.

3. Separate insurance policies must be taken out


on behalf of all the JV partners, specifically for the
proposed project.

4. A board of management with a single


managing director needs to be appointed jointly
by the JV partners to ensure unified actions.

Several variants of the Joint Venture are as follows:


BOO BOOT BOT BOOTTBTO BRT MOT -

Build, Own and Operate


Build, Own, Operate and Transfer
Build, Operate and Transfer
Build, Own, Operate, Train and Transfer
Build, Transfer and Operate
Build, Rent and Transfer
Modernise, Operate and Transfer

References:

Contract practice for Surveyors, Third Edition: by Jack Ramus and


Simon Birchall.

Thank You