4.1 Procurement

School of Civil and Environmental
Engineering
COTM 5104: CONSTRUCTION MANAGEMENT
Chapter 4
Procurement and Contracts
4.1 Procurement
Contents
Procurement
1. What is Procurement?
2. Project delivery systems
3. Stages of Civil Engineering projects
4. Bid preparation
5. Bid evaluation
6. Selection of bidders
1. Procurement
1.1 Procurement: Definition
Procurement is the acquisition of appropriate goods,

works and/or services at the best possible total cost of
ownership to meet the needs of the purchaser in terms of
quality, quantity, time, and location.
The complete action or process of acquiring or obtaining
personnel, material, services, or property by means
authorized in pertinent directives.
Corporations and public bodies often define processes
intended to promote fair and open competition for their
business while minimizing exposure to fraud and
collusion.
AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.
1. Procurement
1.1 Procurement: Definition
In short, Procurement is obtaining goods, works,

consultancy or other services through purchasing, hiring
or obtaining by any other contractual means.
Tendering/Bidding: is a stage in the procurement
process extending from advertisement (invitation to bid)
up to signing of contract.
Tender/Bid is an offer which incorporates: the sum of
money, time and other conditions required to carry out
the contract obligations in order to complete a project or a
part of it consisting of specified works.
When signed and submitted the Bid/Tender creates a
legally binding and valid offer.
1. Procurement
1.2 What is to be Procured?
Goods: include raw material, products and equipment and

commodities in solid, liquid or gaseous form, marketable
software as well as installation, transport, maintenance or
similar obligations related to the supply of the goods if
their value does not exceed that of the goods themselves.
Works: all works associated with the construction,
reconstruction, up grading, demolition, repair or
renovation of a building, road, or structure, as well as
services incidental to works, if the value of those services
does not exceed that of the works themselves; and
includes build-own-operate, build- own-operate-transfer
and build operate- transfer contracts.
1. Procurement
1.2 What is to be Procured?
Consultancy Services: a service of an intellectual and

advisory nature provided by consultants using their
professional skills to study, design and organize specific
projects, advice clients, conduct training and transfer
knowledge.
Services: mean any object of procurement not related to
professional skills other than works, goods and
consultancy services; such as transportation, printing and
duplicating books, maintenance, security, janitorial,
electricity, telecommunication and water supply services.
1. Procurement
1.3 Procurement Basics
Construction Industry involves procurement and

contract management systems in order to ensure fair
competition and distributions of obligations and rights
among stakeholders.
Competition helps:
The Project Owners: acquire the five rights
(Counterpart, Cost, Time, Quality and Quantity)
The Project Financiers & Regulators: value market
principles and effective utilization of finance, and
The Project Providers: get impartial & neutral
Opportunity for business.
1. Procurement
Procurement can also be expressed as a method used to

employ or buy services or works or goods for the value
(in the form of money) which includes reasonable profit.
An effective and efficient procurement method ensures
the following rights called the "Five Rights".
The Right Quality;
The Right Quantity;
The Right Cost / Price;
The Right Counterpart; and
The Right Time.
1. Procurement
A. The Right Quality
Right Quality is always based on two major factors. These
are the technical expectation and the economic
consideration, i.e.; Price & Availability.
B. The Right Quantity
The quantity should be computed carefully and included in
the BOQ correctly.
If the quantity is found mistakenly small :
Project Budgeting will be affected due to less quantities;
Construction planning will be affected and cause under

stocking;
Tenderers can manipulate their offer due to it;
Overzealous contract administration is caused; and
Contractor cash flow will be affected.

1. Procurement
B. The Right Quantity
On the other hand if the quantity is mistakenly more, it
will cause:
High stocking;
More storing places and risk of spoilage;
Unhealthy practices due to over budget provisions; and
Manipulation in tendering.
10
1. Procurement
C. The Right Cost/ Price
Tendering together with negotiation and market
intelligence techniques is the only way that ensures the
right cost and accomplishing the task successfully.
Competition is the bases for determining the Right Cost or
Price.
D. The Right Counter Parts
This is to guarantee that the parties agreeing to accomplish
the task shall be fit to the job.
E. The Right time
The right time for the provision of resources and
accomplishment of obligations of each party shall be set
and agreed.
11
2. Project Delivery Systems
Contract/project delivery system is the way Project

Owners together with Project Regulators and Financiers
determine the assignment of responsibilities to Project
Stakeholders along the Construction Process.
It is often determined during the basic planning phase of
the construction project.
Delivery systems are basically classified in to two broad
areas:
Force Account, and
Outsourced.
12

2.1 Force Account
When the project owners engage themselves to

undertake the project, it is called a force account
delivery system.
Such a system is often promoted if the Project Owners
believe that there is a comparative advantage in quality,
cost and time.
13

2.2 Outsourced delivery systems
o
o
o
o
o
o
o
Most of the project delivery methods/systems are found

under the category of outsourcing.
The criteria for such category are based on: segmentation,
integration and financing.
Integrated Process Delivery Methods
Design-Build-Operate;
Design-Build-Operate-Maintain;
Design-Build-Finance-Operate;
Segmented Delivery Methods
Design-Bid-Build;
Design-Build;
Construction Management;
Pure Operations and Maintenance (O&M)
14

1.2.2 Outsourced delivery systems
o
o
o
The criteria for such category are

segmentation, integration and financing.
External Financing Methods
Design-Build-Finance-Operate;
Build-Own-Operate;
Build-Own-Operate-Transfer;
based
on:
15

2.2.1 Design-Bid-Build, DBB (Traditional Method)
After Project Owners did prepare the Basic Planning that
identifies construction project programs, they call upon
the participation of Design and/or Supervision
Consultants.
This Consultant will carry out the design together with
the necessary tender documents which will be the basis
for tendering to select Contractors.
16

For many years, DBB has been the most common method
of project delivery for public projects, and for many
private projects as well.
DBB is effective on projects
Where the owner needs both professional design

services and construction services
Where the designer does not require detailed knowledge

of the means and methods of construction.
DBB provides the owner with a high degree of control.
17

Advantages:
Applicable to a wide range of projects,
Well established and easily understood,
Clearly defined roles for all parties,
Provides the lowest initial price that competitive bidders

can offer,
Extensive litigation has resulted in well established legal

precedents,
Insurance and bonding are well defined.
18

Disadvantages:
Innovation not optimized;
Usually cost overruns;
Disputes between parties;
Client retains risks;
Usually low bid-incentive for change orders;
Owner responsible for errors and omissions.
19

2.2.2 Design-Build, DB (Turnkey)
Design Build or Turnkey, in principle, reduces numbers
of procurement processes engaged in the fragmented
process and employ only one procurement process and a
single design-build contractor to provide the entire
Construction Implementation Process (design and
construction).
The design-builder performs design and construction
according to design parameters, performance criteria
and other requirements established by the employer or
his representative.
In this arrangement both the design and construction
liability rests with the Contractor.
20

Advantages:
Single source responsibility both for design and

construction;
Integrating design and construction;
Reduction in administration;
Innovation;
Cost savings;
Constructability optimized;
Most risks transferred to the design-builder;
Usually GMP; and
Design reflects.
21

Disadvantages:
Limiting competition;
High tendering costs;
New method and unfamiliarity;
Client needs quicker decision making;
Clients bringing design requirements (30%) (reduces

design innovation);
Less Engineer control over final design.
Elimination of traditional checks and balances so that

Quality may be subordinated by cost or schedule
considerations.
22

2.2.3 Construction Management, CM
Under CM the Owner contracts separately, but
somewhat simultaneously, with a design consultant and
with a firm whose primary expertise is construction (the
Construction Manager).
The owner procures the management services of the
Construction Manager (in most cases a general
contracting construction firm) early in the design phase.
Types of CM delivery system:
CM at Free: as agent,
CM at Risk: as a constructor.
23

2.2.4 Design-Build-Operate, DBO
According to FIDIC, the DBO approach to contracting
combines design, construction, and long term (ex. 20
years) operation (and maintenance) of a facility in to one
single contract awarded to a single contractor (who will
usually be a joint venture or consortium representing all
the skills for in a DBO arrangement).
The advantages are categorized in terms of time, finance
and quality.
24

2.2.5 Build-Operate-Transfer, BOT
BOT is a form of procurement and contract delivery
system that promotes Public Private Partnership (PPP)
in which a private company is contracted to finance,
design, construct, operate for a certain period (usually 10
years) and transfer the facility to the Project Owner.
The typical BOT project contract is the process whereby
a government grants a concession to a project
development company to develop and operate what
would normally be a public sector project, for a given
period of time known as the concession period.
BOT project involves a potentially complex contractual
structure.
25

2.2.6 Delivery systems based on Financing method
Design-build-operate-transfer; DBOT
Design-build-operate-maintain; DBOM
Design-build-own-operate-transfer; DBOOT
26
3. Stages of Civil Engineering Projects
The major stages in construction projects encompass:

Pre-design stage
Design stage
Processing construction bids stage
Construction stage
Completion and hand over (contract closeout)
27

3.1 Pre-design stage
It encompasses the following major activities:

Carryout feasibility study,
Selection of suitable site,
Preparation of tentative cost estimates,
Making topography of the site,
Preliminary sub-surface investigation.
28

3.2 Design stage
It encompasses the preparation of:

Concept design,
Preliminary design,
Final design,
Engineers cost estimate,
Bid documents,
Drawings and design reports.
29

3.3 Tender/Bid stage
The following activities need attention during processing
of construction bids.
A. Bid documents and related issues:
Preparation of bid documents
Clarity of bid documents,
Validity of bid security,
Amendment of bid document (if any),
Site visit,
Performance Security etc.
30

The following activities need attention during processing
of construction bids.
B. Bid processing and award of contract:
Determination of project category (possible procurement

method),
o
Competitive bidding (ICB, NCB),
o
Limited/restricted bidding (ICB, NCB),
o
Direct contracting (appointment/negotiated contract)
o
Force account
Announcement of invitation for pre-qualification,
Public bid opening,
31

B. Bid processing and award of contract:
Bid evaluation and award process,

o
Preliminary examination of bids
o
Evaluating bids
o
Propose award
o
Bid evaluation report
o
Contract award
Rejection of all bids,
Preparation of contract document,
Signing of contract.
32

3.4 Construction stage
Construction stage is the critical phase since the result of
all prior planning, design and the total pre-construction
decisions are brought to fruition.
The success of this stage mainly depends on the relation
and strength of the construction team (main
stakeholders).
The main activities in construction phase are construction
supervision and contract administration.
i. Construction supervision:
Site control,
Quality control,
Quantity control,
Monthly and quarterly progress evaluation meetings.
33

3.4 Construction stage
ii. Contract administration:
It covers the major activities of addressing changes,
payments, claims etc.
34

3.5 Contract closeout stage
Transition from design and construction to the actual use

of the constructed facility.
The management team must provide documentation,
shop drawings, as-built drawings, and operation
manuals to the owner organization.
Assessment of the project teams performance is crucial
in this stage for avoiding mistakes in the future.
Actual activity costs and durations should be recorded
and compared with that was planned.
35
4. Bid Preparation
4.1 Preparation of Bid Documents
The Bidding document shall incorporate all information

necessary for prospective bidders to prepare their bids.
The detail and complexity of bid documents may vary
with the size and nature of the proposed bid package and
contract.
Bid documents for works include:
Bidding information,
Contractual information.
Contractors are responsible for all duties, taxes and other
levies; hence, bidders shall take these factors into
consideration in preparing their bids.
36
4. Bid Preparation
4.1.1 Bidding Information
Its part of a tender document, where bidders are
required to respond (provide their offer, data,
information) in accordance with the requirement of the
documents within the bidding period.
Bidding Information Comprises:
Invitation for bid (IFB),
Instruction to bidders (ITB),
Bid Data Sheet (BDS),
Bid forms including BOQ,
Addenda (Bid Amendment).
37
4. Bid Preparation
4.1.2 Contractual Information
Documents included in the tender document to furnish
bidders with full and detailed information of the project for
application after winning the contract.
The bidder should utilize such information to provide a fair
and reasonable offer to the bidding document.
Contractual Information Comprises:
Agreement form (Contract Agreement),
Standard (General) Conditions of contract,
Particular or special conditions of contract,
Technical specifications and Methods of measurement,
Drawings, and
Appendix to Contract Agreement.

38
4. Bid Preparation
4.2 Time for Preparation of Bids
Time for preparation and submission of bids depend on

the particular circumstances of the project, magnitude
and complexity of the contract.
The time to be allowed for the first call is 30 calendar
days to enable prospective bidders to conduct
investigations before submitting their bids.
In some cases the employer is encouraged to convene a
pre-bid meeting and arrange site visits.
Concise instructions as to the time, date and place for
submission of tenders should be given
39
5. Bid Evaluation
5.1 Principles of bid evaluation
The Engineer evaluate and compare the bids after the

public opening and submit recommendation to contract
award/purchase committee for its review or approval.
Information relating the examination, clarification and
evaluation of bids shall not be disclosed to bidders or
other persons not officially concerned with this process
until the successful bidder is notified of the award of
contract.
The engineer may request in writing clarifications of
bidders concerning ambiguities or inconsistencies in the
bid, the response from bidders shall also be in writing.
No change in the price or scope of the original offer is
accepted.
40
5. Bid Evaluation
5.2 Preliminary examination of bids
Prior to detail evaluation, preliminary examination shall

be undertaken.
Its purpose is to identify and reject bids that are
incomplete, invalid or substantially non-responsive to
the bidding documents.
The following points shall be examined:
Check if each page is signed or initialed;
Verify amount of bid security corresponds to the
requirement;
Check if all requisite information has been filled in the
document; and
Verify that all pages of the bid document are in order.
41
5. Bid Evaluation
5.3 Propose award
The Engineer recommend the award of contract to the

bidder whose bid has been responsive to the bid
document and who has offered the lowest evaluated bid
price.
The engineer may consider rejection of all bids if:
None of the bids are found to be responsive,
Bids are unreasonably high in price,
None of the bidders are qualified.
The engineer shall prepare a detailed report on the
evaluation and comparison of bids setting forth the
specific reasons on which the recommendation is based
for the award of contract
42
6. Selection of Bidders
o
o
It is a contract award procedure which involves the

selection of contractors to be invited to tender or
negotiate.
The selection should be made on the basis of objective
criteria.
Bid qualification procedures take the following forms:
Negotiated bid,
Competitive bid.
Short listed,
Open bid.
Single stage, single envelope,
Single stage, two envelope,
Two stage, two envelope.
43
6.1 Negotiated Bid
The client invites, negotiates and enters a contract

agreement with only a single contractor.
A contractor is selected without competition. It is
sometimes referred to as "direct selection or Single
source procurement.
This method does not provide the owner with
comparative prices.
The cost of a works will be higher in this method, but it
may be offset by better quality, early completion, and
smooth administration.
44
6.2 Competitive Bid
Equi-potential and competent contractors are invited to
provide their best offer to the bid.
Contract is awarded to the best/most responsive bidder

based on bid evaluation.
It can be either International (ICB) or National (NCB)
competitive bidding.
A. Short listed bid
The Owner calls for bids from a few contractors who are
known to have specialized in the special type of work.
The bid evaluation under such cases is made only on the
submitted financial offer and the one with least price will
be awarded the contract.
It is also named as Restricted or Limited Tendering
45
6.2 Competitive Bid
B. Open bid
Is a procedure under which, all interested eligible
bidders, may submit their tender documents.
It is the most competitive tender procedure and all the
rest procedures exhibit a decreasing level of competition.
Bids are called by public advertisement.
It is usually adopted for public works, as the rules
generally require that government and other public
contracts be advertised publicly.
46
6.2 Competitive Bid
B. Open bid
Open
competition procedure has the following
advantages:
It provides equal and just opportunities to all

contractors,
It protects the government from possible implications of

favoritism,
It open the way to having the work done at a minimum

cost to the public.
The drawback is the possibility of having a lowest bid
submitted by contractor who is unsuitable for carrying
out the work and thereby resulting in waste of time and
effort.
47
THANK YOU!
48

4.1 Procurement

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School of Civil and Environmental

Procurement is the acquisition of appropriate goods,

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

In short, Procurement is obtaining goods, works,

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

Goods: include raw material, products and equipment and

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

Consultancy Services: a service of an intellectual and

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

Construction Industry involves procurement and

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

Procurement can also be expressed as a method used to

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

Project Budgeting will be affected due to less quantities;

Construction planning will be affected and cause under

Tenderers can manipulate their offer due to it;

Overzealous contract administration is caused; and

Contractor cash flow will be affected.

More storing places and risk of spoilage;

Unhealthy practices due to over budget provisions; and

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

2. Project Delivery Systems

Contract/project delivery system is the way Project

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

2. Project Delivery Systems

When the project owners engage themselves to

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

2. Project Delivery Systems

Most of the project delivery methods/systems are found

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

2. Project Delivery Systems

The criteria for such category are

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

2. Project Delivery Systems

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

2. Project Delivery Systems

Where the owner needs both professional design

Where the designer does not require detailed knowledge

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

2. Project Delivery Systems

Applicable to a wide range of projects,

Well established and easily understood,

Clearly defined roles for all parties,

Provides the lowest initial price that competitive bidders

Extensive litigation has resulted in well established legal

Insurance and bonding are well defined.

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

2. Project Delivery Systems

Innovation not optimized;

Usually cost overruns;

Disputes between parties;

Client retains risks;

Usually low bid-incentive for change orders;

Owner responsible for errors and omissions.

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

2. Project Delivery Systems

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.

2. Project Delivery Systems

Single source responsibility both for design and

Integrating design and construction;

Most risks transferred to the design-builder;

Usually GMP; and

AAU, AAiT, Construction Management, Lecture notes, March 2013, Getaneh G.