D31PZ

Contracts and Procurements

-

Walchand Sukumar Chougule

INDEX
Introduction
.1
A
strategic
approach
to
procurement
...2
Analysing
critically
the
alternative
routes3

procurement

Suitable
Advance
Procurement
Practice..4
Factors influencing the development of
an appropriate procurement strategy & its implementation..
.5
The
Most
Suitable
route
....6
Example
....7

1. INTRODUCTION

India is planning to host an international sports competition in next 3

years (2018). A state of the art games village is to be build, as a part of
hosting. This games village will have capacity to accommodate 10,000
sports men, women and officials. With addition of a retail area, recreation
area, dining hall and medical facilities for the athletes. The government
wants the organiser to use this opportunity to recover a typical slum area
by giving them employment, training. This can likewise help in enhancing
nearby business and social enterprise.
A 40 hectares site is finalized for this games village. After the competition
the government wants to further develop this site and have 600 homes
and a part of this will be used for social rental. And hence the
accommodation design must be very flexible which can further fit in the
given requirement. The design has huge scope for sustainable and green
approach. Which will obviously promote an environment friendly and
green image of the project. As we can see from the overall scenario that
this is complex project, and needs a well-planned procurement strategy.
What is procurement?
Construction procurement could be defined as the framework through
which construction is brought about, acquired or obtained [Morledge, R.,
et. Al (2006). Building Procurement. Oxford: Blackwell Publishing.] So
there need to be a proper framework to bring this project to life. The
procurement of a specific project involves utilization of specialised
techniques to avoid any difficulties.

2. STRATEGIC APPROACH TO PROCUREMENT

The Procurement strategy defines what the project must do and the
influences on it. The Office of Government Commerce explains:
Procurement Strategy: The procurement strategy identifies the best way
of achieving the objectives of the project and value for money, taking
account of the risk and constraints, leading to decision about the funding
mechanism and asset ownership for the project. The aim of a procurement
strategy is to achieve the optimum balance of risk, control and funding for
particular project. [Office of Government Commerce (2007). Achieving
Excellence in Construction Procurement Guide 06: Procurement and
Contract Strategies. London: Office of Government Commerce]
Hence procurement strategy is moreover related to following:

To link the project to clients business making it a primary strategy

Principles by which client wishes the project to be organised and
implemented, making it the secondary strategy
Risk allocation to the organisation best able to manage it which
reflect their responsibility
Should reflect the availability of resources required for the project,
and
Should reflect the priorities of the projects, i.e. Time, Cost and
Quality.

Factors of Procurement strategy

Some key factors are identified by the Office of Government Commerce
which are to be considered when forming a projects procurement
strategy. Once the strategy is formed, a procurement route can be
selected on depending the established priorities. The factors to be
considered are:

The project objectives

Constraints
Cultural Factors
Risks

Clients capabilities to manage a project of this type

The length of operational service required from the facility

The Procurement Process

The clients primary strategy is its business, this strategy consist of long
term goals mainly focused on development of their organisation and
commercial competitiveness.
The clients secondary strategy is its projects, this strategy consist of short
term goals focused on meeting immediate business needs and develop
with the aid of construction industries professionals.
Clients primary business activity
(Primary strategy)

Construction
Project

Identifiable start,
Resources and plan

Smooth
adaption and

Identifiable end
and handover

Figure 1.1: Relation of the Construction Project to the Clients Business

[Figure Adapted from Kelly, J. (2004). Project briefing: practice in Murray, M. and
Langford, D. (Eds.)
Architects handbook of construction project management. London: RIBA Enterprises]

Understanding the client

By understanding the needs of a client, objectives for the projects are set
by a process called briefing. In briefing a construction industry
practitioner will work with the client and the stakeholders to determine
their requirements.

Summary of Key client responsibilities

The client should ensure the following, as responsible of managing the
overall progress of the project.

Everything required for the project is available, most importantly the

finance resources and land etc.
Communication system is clearly defined, particularly with regard to
decision making; and
There is coordination in technical expertise within the clients
organisation.

There are eight issues to which a procurement strategy must respond,

[ibid] these are:
1.
2.
3.
4.
5.
6.
7.
8.

Factors outside the control of the project team

Client resources
Project characteristics
The need to make changes
Risk management
Cost issues
Timing
Quality and performance

3. ANALYSIS OF PROCUREMENT ROUTES

After understanding in details the needs of the client for the construction
project, a procurement strategy is formed to establish the priorities. Each
risk should be allocated to organiser best able to handle it, which means
organisers are made accountable for their specialised contribution to the
project.
There will be several risks arising in a project, but only few have major
effect and therefore should be considered during the selection of
procurement route. These risk include the likelihood of:

A project which will not function in accordance with the clients

needs;
A project which is of inadequate quality
A project which is completed later than required: and
A project which costs more than the clients budget or ability to pay.

[Royal Institute of Chartered Surveyors (1998). The Surveyors

Construction Handbook, London: Royal Institute of Chartered Surveyors]

PROCUREMNET ROUTE OPTIONS

Procurement route is nothing but Ways of producing the required project
outcomes.
The construction industry uses several routes which are well-defined, tried
and tested arrangements of the many specialised organisation who must
work together to deliver a construction project.
The four basic procurement routes to be discussed and analysed are:
1. Traditional (also known as Design-Bid-Build)

2. Design-Build
3. Construction Management
4. Management Contracting

3.1 The Traditional procurement route (Design-Bid-Build)

In traditional procurement route the Architect is the principal agent
appointed by the client. For the preparation of the contract documents
client appoints a team of consultants (Architect, Engineer, Surveyor etc.)
The contract document consist of design, with specification and drawings,
and tender documentation to allow the selection of a contractor.
After the completion of design, the quantity surveyor measure the
drawings to compile a bill of quantities. The whole process from the
employment of architect to the completed tender documentation can take
from one year to five years, subject to project type.

Client

Consultants
(fee contract)

Architect
(fee contract)

Named
Subcontractors

Main Contractor
(Standard lump sum

Subcontractors

Suppliers

(Standard lump sum)

(various contracts)

Contractual relation ship

Administrative responsibility

Figure 3.1: Typical Project Structure under the traditional procurement

route
[Procurement course notes, Oyegoke, A.S]

The contractors are now invited for tender, where they submit a price for
completing the work. For this the client will provide the contractor the
drawings, specification, bills of quantities etc. The client expects a firm
price from contractor within four to six weeks.

Brief

Design

Tendering

Constructio
n

Figure 3.2: Sequence of Traditional procurement route

The traditional procurement route is characterised by:

The design is completed before contractor is appointed, preventing

contractors design expertise which can result in poor buildability.
Dependence on competitive tendering to appoint the contractor.
All the control over design is kept by client via his consultants. There
is no responsibility of the contractor for design.
Reasonable cost certainty
An Architect or Project Manager is appointed as an independent
contract administrator to run the contract.

In this procurement route all the decision by clients are made before
tendering. The contract sum can be possibly changed only if any change
in design arises or anything arises during work in progress. It is clients
responsibility and also risk of performance of design team. The
contractors responsibility is only for construction work.
It is not beneficial to choose contractor only on cost basis, because
contractor will bid low cost to get the contract and them might recover the
profit by claiming at work in progress. Due to the different process of
design and construction there rises an attitude of them and us between
designers and contractors. As this may affect the team spirit which can
show adverse effect on overall project.
ADVANTAGES:

Fair competition
Comparatively low tender cost
Reasonable public answerability
Traditional well known processes
Relatively easy application of changes

DISADVANTAGES:

Slow to start work, also no simultaneous work

Open to abuse when design incomplete
Poor buildability, as contractor is not involved in design process
Likely for accusatorial relationship
Client bears the design risk

RISKS:

COST risk is low as it is a lump sum contract

Medium TIME risk as the contract date are fixed (though it is
extendable)
QUALITY/DESIGN risk is low as the design team is working directly
for client

3.2 The Design and Build procurement route

The design and build procurement route (also known as design and
construct), follow a process of developing a tender document describing
the clients requirement, but it does not have a detailed design and
specifications. Design and build tender document generally is a functional
brief, which describes the requirement of building, areas, services and
finishes.
These documents are then circulated to potential contractors as a
Request for Proposal (RFPs) and then the contractor proposes an initial
design (not complete) showing the fulfilment of clients need. If the bid is
won then they complete the design and construct it.
After assessment of proposals, a single contractor is appointed to
complete the design and develop the project. The contractor will have his
own design team.
This route provides an advantage for client as the contractor is solely
responsible for delivering the project in time, stated cost and quality,
which streamlines clients process. This route offers low flexibilities to
make changes. The contractor is responsible for design, construction
planning, organisation and control.

Client

Clients
Consultants

Project
Manager

Design & Build

Contractor

D & B Contractors
Consultants
(various contracts)

Subcontractors

Suppliers

(Standard lump sum)

(various contracts)

Contractual relation ship

Figure 3.3: Typical project structure under the design and build
procurement route
[Procurement course notes, Oyegoke, A.S]

It can be beneficial for client as the contractor can offer other packages
like site selection, purchasing, obtaining necessary approvals, financing,
leasing etc.
Thus the design and build route is suitable for:

Clients who are inexperienced

Clients who do not want a close participation in project
Those expecting cost certainty
Project which need to be completed fast
Simple buildings.

This route has very less chances of changes of design, as the contractor
controls design. Due to this time and cost is saved, which is beneficial for
client and the total project cost and time. The design and build method is
becoming increasingly popular in UK and around the world. As because
the client has all idea of regarding financial thing at early stage. Also the
client dont need to involve himself closely in the construction process.
Sequence

Brief

Competitio
n

Design

Constructio
n
Figure 3.4: Sequence of Design and Build procurement route

ADVANTAGES:

Single point of responsibility (contractor)

Essential buidabilty
Total financials are known at early stage of project
Duration of project is reduced, Compared to traditional route
Contractors design responsibility can be stretched

DISADVANTAGES:

Contractor must be appointed before design is complete

There is no outline of design without appointing consultants
Difficulty in comparing bids
Changes if any might be expensive

RISKS:

Low COST risk as the contracts are on lump sum basis

Low TIME risk as the contractor commits to deliver the project in fix
time
High DESIGN/QUALIT risk as the contractor has his own design team
which is not under clients control.

3.3 The Management Contracting procurement route

This route follows a process as, client appoints a contractor at early stage.
This management contractor helps on design program and buildability. He
prepares packages and acquires tender for the works on lump sum basis.
In this route work can be started at early stage as the client approves the
design. The management contractor is employed much earlier and he
involves himself in design team, contributing his construction and
management knowledge. Once on project his responsibilities comes to
advising work packages in project.
Client

Project
Manager

Clients
Designer

Management
contractor
(standard fee contract)

Works Contractor
(std lump sum
contract)

Works
Contractor

Works
Contractor

Supplier

Suppliers

(Various Contracts)

(various contract)

Contractual relationship

Sub
Consultant

Figure 3.5: Typical Project Structure under the management contracting

procurement route
[Procurement course notes, Oyegoke, A.S]

Them and us attitude will be less seen in this route and communication
increases. It is easy for the management contractor to categorise clients
needs and interests. Most of the decision are made jointly, which makes
use of wider experience.

Brief

Design

Construct
Figure 3.6: Sequence of management contracting procurement route

Subcontractors compete for individual work packages at second stage

tender. At the time of commencement of the work, contractors are
entered for second stage tendering and firm price tender is done. As these
tenders are more competitive than those submitted too early.
For client the estimate of project is unknown until the last subcontractors
is awarded with work. The management contractor however may agree to
give for a guaranteed maximum price (GMP). This route may create
problem for architect, as he have less time and pressure form client,
contractors etc, and design quality may be compromised. But as it is seen
that there is a closer relation between client, contractor and designer this
may allow buildability to be considered.

ADVANTAGES:

This route can save time required for overall duration

Has potential buildability
Argumentative issues are avoided
Parallel work can be carried out
If any changes, can accommodate in later stage
Work packages led to competition

DISADVANTAGES:

Requires better superiorly prepared brief

Cost certainty is poor
Depends on good project team
Removes resistance to works contractors claim

RISKS:

Medium COST risk as the client dont have exact project cost until
last package is let
Medium TIME risk as the duration of project depends upon package
selection
Low QUALITY/DESIGN risk as everyone involved in project are
working as a team.

3.4 The Construction Management procurement route

In this route the client appoints construction manager to advise him on fee
basis. The client then enters into contract with every specialist contractor.
As this will give the client close involvement with the contractors in the
project. Also the communication is easier for both client and the
specialised contractor which ultimately helps reducing time in decision
making. The construction manager, also co-ordinate the design and
construction programs.

Client

Construction
manager

Project
Manager

(fee Contract)

Works
contractor

Works
contractor

Works
contractor

Subcontractor

Suppliers
(various
Contract)

Clients
Designer

Consultant
(various
Contract)

Contractual relationship
Figure 3.7: Typical Project Structure under
management procurement route
[Procurement course notes, Oyegoke, A.S]

the

construction

It is more preferable for contractor to work with client directly instead of

any mediator, for example management contractor, as the short-term
payments are made promptly. Further this route allocates the risks which
are appropriate to the respective technical work package.
The construction management route is suitable for:

Clients with experience

No importance to cost certainty
Fast track projects
Difficult projects
Emerging brief; and
Where buildabilty advice is required

Brief

Design

Construct
Figure 3.8: Sequence of construction management procurement route

ADVANTAGES:

Opportunities to improve buildability

Parallel work in progress
Competitiveness due to individual work packages
All organisation have clarity of their work, risks and relationship
Changes if any can be accommodated at the time of work in
progress

DISADVANTAGES:

Client have to involve in every part of project

No cost certainty

Requires good quality brief

Needs capable project team

RISKS:

Medium COST risk as the total project cost is unknown till last
package is let
Medium TIME risk as no single organisation is responsible for delay
of project
Low QUALITY/DESIGN risk as the client will be working closely with
architect and other contractors

Hence except the clients contract with individual specialist contractors,

this procurement is similar to Management Contracting procurement
route.

4. ADVANCED PROCUREMENT PRACTICES

The advance procurement practices are one which are used along with the
basic procurement routes.
Few of the advanced procurement routes are:
1. Develop and Construct
2. Design and Manage

3. Partnering
4. Two stage tendering
5. Private Finance Initiative (PFI) / Public-Private Partnership

Design and Manage

Design and manage procurement route (also known as EPCMEngineering, Procurement and Construction management) is a
combination of features of Design and Build procurement route with the
management routes.
The client using design and manage route interacts with a single
consultant, i.e. Design and manage consultant. In this route client seeks
for management services having design and constructed within it.
The consultant is responsible for employing design team, and organises
construction. He divides the work of construction in to different packages
and does the tendering of all packages separately, similar to management
route. These individual contractors work for design and manage
consultant and finish their work packages. In this route the consultant is
the only one in contact with client.
For this route client should know very well the requirement of project and
he should handover the management to the consultant (project manager)
as a professional surrogated client. The consultant often has technical
knowledge and s capable to handle complex projects.
It is not architects or other consultants concerns to manage the project, so
they are free from problems related to management.
ADVANTAGES:

Suitable for large and complex projects

Avoids delay in project
Avoids excessive cost to client
Single point of contact

5. FACTORS
STRATEGY

INFLUENCING

DEVELOPMENT

OF

PROCUREMENT

Factors of Procurement strategy

The key factors are identified by the Office of Government Commerce
which are to be considered when forming a projects procurement
strategy.

The project objectives

o Is to build a games village for accommodation of sports men
and others. including a retail area, dining hall, recreational
area and a medical facility.
Constraint
o Time frame: 3 years
o Design
Cultural Factors
o Employment to local slum area, training
o Improve local business and social enterprise
Risks
o Completing the design in Time
o Use of flexible design
o Use of environment friendly material
o Cost
Clients capabilities to manage a project of this type
o Client shall have previous experience of complex projects like
this
The length of operational service required from the facility
o The length will be till the completion of games, as after the
games the village have to be modified for social renting.

The basic client values which are present in all construction projects,
albeit in to different extent are:

Time: the clients need for the project to be delivered on time;

Capital cost: the clients willingness to spend money on the
creation of the project;
Operating cost: the clients ability to spend money to operate to
operate and maintain the project in use;
Environment: the clients desire for the project to be
environmentally sustainable;
Exchange: the importance placed by the client on projects market
value;
Flexibility: the clients need for the project to accommodate
changes in its use during its life;
Esteem: the clients desire for others to hold the project in high
regards;
Comfort: the clients need for the building users to be physically
comfortable; and
Politics: the clients desire to keep those in the community in which
the project will sit happy.
[Kelly, J. (2004). Project Briefing: Practice. In Murray, M and Langford, D.
(eds) Architects handbook of construction project management. London:
RIBA Enterprises.]

Above are the factors and values to be implemented to form an

appropriate procurement strategy.

6. Route selection
The most suitable route for the above said project would be Design and
Manage route
Benefits of choosing this routes are:

The project will have a fix target period

The consultant is single point of communication with client, hence it
will be convenient to take fast decisions.
The consultant is responsible for majority of tasks, like designing,
construction planning, organisation and control.
Due to competitive tenders in individual work packages, the cost
concern is managed
Prior to construction the cost of the project is available, hence giving
a clear idea of project cost.
Late changes in design can be adopted

This route is suitable for a complex and big project like this.