01 Procurement Flashcards
What is involved in the procurement process?
Procurement is the overall act of obtaining goods and services from external sources (i.e. a building contractor) and includes deciding the strategy on how those goods are to be acquired by reviewing the client’s requirements (i.e. time, quality and cost) and their attitude to risk
What factors should be considered when deciding on the appropriate procurement method?
- Time - required completion date
- Cost - funds available
- Quality - required performance
- Risk allocation for time, cost and quality
- Type of project - complexity, requirement for contractor input etc.
- Level of client input
What are the main procurement routes.
- Traditional lump sum method
- Management contracting
- Construction management
- Design and build
How does a traditional procurement route work?
- The contractor agrees to build the design supplied by the employer and therefore has no responsibility for design
- Appropriate where the objectives of the employer have been clearly determined
- Financial outcome, responsibility and risk usually reside with the employer
What are the advantages and disadvantages of a traditional procurement route?
Advantages:
- Familiarity with most employers and contractors
- High degree of design and product control/selection
- Robust variation control
- Direct employer relationship with designers
Disadvantages:
- Time - longer project delivery
- Split responsibility between construction and design
- Limited risk transfer/increased economic uncertainty
- Limited opportunities to refine design and improve cost efficiency
- Potentially more likely to lead to disputes (e.g. designer vs contractor)
How does a design and build procurement route work?
- Tender documents outlining the employer’s requirements are prepared by consultants employed by the client
- A single contractor is then appointed (usually through a two-stage tender process), who will deliver to the requirements as outlined and take on responsibility for both design and construction
What are the advantages and disadvantages of a design and build procurement route?
Advantages:
- Cost certainty - total cost is established from the outset
- Single point responsibility - design, cost and programme all lie with the contractor
- ‘Buildability’ issues can be resolved through contractor design involvement
- Time - potential to overlap design and construction stages
Disadvantages:
- Loss of design control - may be cost-driven rather than quality-driven
- Restricted scope for change post-contract (without paying a premium)
- Longer tender evaluation period to ensure contractor’s proposals meet the employer’s requirements
- Higher tendering costs for contractors
How does a management contracting procurement route work?
- Management contractor is appointed on the basis of a fixed management fee (often a percentage project value) and rates for staff costs and common user facilities
- The management contractor programmes, packages and obtains tenders for the work, which are each let on a competitive basis
- The management contractor then has a direct contractual relationship with works contractor
What are the advantages and disadvantages of a management contracting procurement route?
Advantages:
- Less confrontational
- Contractor involvement to advise on buildability issues
- Time - can allow earlier start on site
- Flexibility to develop design whilst inviting tenders and letting packages
- An advantage over construction management - payments to the supply chain are made by the contractor, so the client avoids the administration inherent in making such payments
Disadvantages:
- Cost and programme risk lies with employer - not defined until all packages are let
- Greater employer involvement through rolling decision-making
- Design content needs to be precisely detailed prior to commencement, in order to minimise works that fall between packages
How does a construction management procurement route work?
- Similar to management contracting, however the project is split into packages and the client enters into separate contracts with each works contractor
- The client appoints a management team and a construction manager on a fee basis, obtained in competition, who would be expected to co-ordinate the design and construction programmes
What are the advantages and disadvantages of a construction management procurement route?
Advantages:
- Less confrontational
- Contractor involvement to advise on buildability issues
- Time - can allow earlier start on site
- Flexibility to develop design whilst inviting tenders and letting packages
- Direct employer relationship with the works contractors - can lead to improved performance
Disadvantages:
- Increased risk to employer - little risk carried by the construction manager
- Cost and programme risk lies with employer - not defined until all packages are let
- Reduced single-point responsibility
- Higher level of client administration, and consequent cost, throughout the contract period
- Design content needs to be precisely detailed prior to commencement, in order to minimise works that fall between packages
What are framework agreements?
- Used for when employers who carry out work regularly wish to try and capture the benefits of long term relationships within the supply chain
- Open tenders are usually advertised for firms to apply to be on a framework and eventually a smaller framework of approved contractors/consultants
How can you ensure value for money on a framework agreement?
Once the framework/approved list is agreed, contractors will usually be appointed in one of two ways:
- Calling off based on agreed fees - fee scales/rates based on project size/complexity
- Mini tenders - in effect an approved-supplier list, whereby the shortlist still has to go through the process of a mini competitive tender
What are the advantages and disadvantages of framework agreements?
Advantages:
- Reduced procurement time and costs for large numbers of contracts of similar works
- Early contractor involvement
- Provide greater continuity potential work and thus increase competiveness
- Partnering benefits allowed to grow and accumulate
Disadvantages:
- Having already been appointed on a framework agreement, suppliers may have to bid again for individual projects anyway, which can be timely and costly
- Complacency if contractors are guaranteed repeat work
How do you establish the relevant client?s requirements when deciding on a procurement route?
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What are the contractual links for the client in each of the main procurement routes?
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Which form of procurement will give a client the maximum cost certainty?
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How can you introduce cost certainty into a procurement route?
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If a client wished to pass on his concept design team to a design and build contractor, how could this be achieved?
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What is novation and how does it differ from assignment?
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Explain to a client how the process will work when his design team are novated to his design and build contractor.
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A design team has been novated to a design and build contractor. The contractor wants to re-negotiate their fees as part of the novation. Can he do this?
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