PRM SEM 01 - 13. Procurement Flashcards
Procurement Processes
- Procurement
- Quotes and Estimates
- Monetary Allowances, Prime Cost Sums, Provisional Sums
- Cost Fluctuations and Contingency Sums
- Margins and Mark-ups
- Nominated Sub-contractors and Substitutions
- Tendering and the relevant NZIA Standard Construction Contract sections
- Tender Analysis and Acceptance
- Other Methods of Procurement
Procurement: Quotes and estimates
A quote or quotation is a specific promise, bid or offer to do a job for a precise sum of money, generally based on a good understanding of the scope of the job.
Get it in writing.
Check you are agreed on all materials, quantities, details, quality etc. The best quotes are based on good detailed drawings and specifications, and a contract spelling out terms of payment, retentions, timeframe etc. Once accepted it is part of a contract and the builder has a legal obligation to stick to it.
Quotes are generally free.
How many quotes is standard to get?
It’s standard to get at least three, to differentiate the highest from lowest. Builders don’t like
quoting when there are four/ five or more as it reduces their chances.
What is the general time limit for a quote?
Most quotes have a time limit on them of a month or so
Asking builders to break down quotes
Often builders are happy to break-down the quote so you can see where the costs are in terms of labour, materials, different trades, profit etc. The NZIA SCC 2014 (Standard Construction Contract) contract requires a break-down also known as a trade (or tender?) summary
Ethics on using quotes as leverage
(Honestly and fairness) Ethically its bad practice to take a quote and use it as leverage to obtain another lower quote
(unfair to the first quoter who has done work, gives inside knowledge/ competitive advantage to
second, and anyway, low price is only one consideration in a quote).
Procurement: Estimate
An estimate is a best guess at the cost and is often based on little information eg it might be based on $ per metre2 of floor area without knowing too much about architectural detail or finishes. In common practice an estimate should be accurate to within 10-15% - but in design we wouldn’t rely on one! Builders may give a low estimate to get a job.
Better to get a Quantity Surveyor to do a proper analysis and estimate.
“Lowest or any quote/ tender not necessarily accepted”
“Lowest or any quote/ tender not necessarily accepted”. This is frequently stated by an architect obtaining quotes (see T3 point 6 “Acceptance”). It means that the lowest price is not the only consideration - before accepting a quote we would consider the builders experience, reputation, resources, any quality issues, timetable etc. Procurement is about getting a good builder as well as a good price.
Sometimes the lowest quote is from someone who has misunderstood the job or is desperate for
work and we could expect scrimping on quality or constant battles to recoup profit.
There is an old saying in construction: everyone wants it fast, cheap and good - but you only ever
get two out those on a job: if its fast and cheap, it wont be good, if its fast and good it won’t be
cheap, if it’s cheap and good, it wont be fast.
Talk about Ethics of using Dave’s son as a builder and landscaper
Monetary Allowances and Exclusions: Unresolved details
Reliable quotes come from good drawings, details, specification and contract. However we may not have resolved certain things such as floor finishes or hardware when we put a job out for quote. So we tell all builders quoting to allow a certain lump sum of money to cover that area. This might affect the accuracy of our budget for the job, but at least all quotes can be compared on the same basis.
Monetary Allowances and Exclusions: Allowances
Allowances are often underestimated so if a builder doesn’t quote in a certain area or trade, look
very carefully at that cost and try and get it quoted eg its quite common they don’t price for some signage or planting and just allow a sum. As long as these are tagged as allowances in the quote, the actual cost will be passed on to the client.
Monetary Allowances and Exclusions: Prime Cost Sums
The NZIA SCC (Standard Construction Contract) in Section 10 Monetary Allowances has more
information including defining allowances as:
Prime Cost Sum: also known as PC sums: price for materials only, with contractors cost and
profit, but not including labour.
Monetary Allowances and Exclusions: Provisional Sum
Provisional Sum: everything: materials, labour and contractors cost and profit.
These are listed in Section B1 of the Schedules, in the NZIA Standard Construction Contract (SCC)
Monetary Allowances and Exclusions: Exclusions
Sometimes a builder does not quote or allow for an item and this is called an exclusion, however
it must be tagged otherwise we can assume it is covered in the quote. It is very common to
exclude rock from earthworks as the builder has no idea if it is there or not, so the cost of
breaking or removing rock obstructing foundations is extra. Always check a quote for tags. Ask
the builder if there are any tags.
A quote can not be expected to cover other unforeseen costs (eg the discovery of asbestos or
inadequate structure in an alteration) and unforeseen events (eg floods).
Monetary Allowances and Exclusions: GST!
GST should be stated as excluded otherwise we assume it is included. But check: it is very
common in the building industry to exclude GST! Assuming GST is included is a very common
mistake (eg when phoning Placemakers about the price of timber).