Procurement and Tendering Flashcards
What is procurement?
The overall process of acquiring goods and services for a construction project.
What should be considered when selecting a procurement route?
Cost.
Time.
Control.
Quality.
Risk allocation.
What are the main procurement methods?
Traditional.
Design and Build.
Management Contracting.
Construction management.
What is traditional procurement?
The design is completed by the client’s design team before competitive tenders are invited and a main contractor is employed to build what the designers have specified.
The contractor takes responsibility and financial risk for the construction of the works to the design produced by the client’s design team for the contract sum within the contract period.
The client takes the responsibility and risk for the design and design team performance.
What are the advantages of traditional procurement?
Tender analysis made easier.
Minimal built in contractor risk premium.
Client retains control of design.
Reasonable cost certainty at project start.
What are the disadvantages of traditional procurement?
Longer programme due to tender process.
Client retains design risk.
Dual point of responsibility.
No buildability input of contractor.
What is design and build?
Where the contractor is responsible for the design, planning, organisation, control and construction of the works to the employer’s requirements.
The employer gives the tenderers the ‘Employer’s Requirements’ and the contractors respond with the ‘Contractor’s Proposals’, which include the price for the works.
When might D&B be appropriate?
Where there is a need to make an early start on site as there can be overlap between design and construction.
Where the client wishes to minimise their risk as they transfer design responsibility to the Main Contractor.
What are the advantages of design and build?
Single point of responsibility.
Earlier start on site due to overlap of design and construction.
Buildability input of contractor.
Client relinquishes design risk.
When might traditional be appropriate?
If the employer has had the design prepared.
The client wishes to retain control over the design and specification.
If cost certainty at start on site is important.
What are the disadvantages of design and build?
Client must commit to a concept design early.
Client loses control of the design.
Built in contractor risk premium.
Design only as good as ER’s.
What are employer’s requirements (ER’s)?
Used to describe the documents produced by the employer to set out its requirements in relation to the project.
This is what the design and construction will be based off.
What are contractors proposals (CP’s)?
Prepared by the contractor in response to the ER’s.
It will contain detailed design information which will require further development throughout the course of the project.
Why does the employer usually pay a premium for a D&B project at tender stage?
The contractor will factor in a risk allowance.
Who executes the design for the contractor under a D&B?
They may use in house designers, external consultants, or the employer’s design team could be novated.
What is construction management?
The employer places a direct contract with each of the trade contractors and utilises the expertise of a construction manager who acts as a consultant to coordinate the contracts.
The trade contactors carry out the work.
The construction managers supervises the construction process and coordinates the design team.
The construction manager has no contractual links with the trade contractors or members of the design team.
When might construction management be appropriate?
Where an early start on site date is key.
Where buildability and programme input is required of the construction manager.
Where price certainty before commencement is not considered a key driver.
Where the client is experienced in construction.
What are the advantages of construction management?
Buildability input on Construction Manager.
Earlier commencement on site due to overlap of design and construction.
Potential for cheaper costs due to direct trade packages.
Design changes can be accommodated without paying a premium.
What are the disadvantages of construction management?
No single point of responsibility.
No cost certainty until last trade package is let.
Employer must be hands on and proactive.
What is the difference between management contracting and
construction management?
Under construction management the client is in direct contractual relationships with each of the trade contractors and the construction manager isn’t.
Under management contracting, the Management Contractor is in direct contractual relationships with the trade contractors and the client is in contract with the Management Contractor only.
What is management contracting?
A management contractor is employed to contribute their expertise to the design and to manage construction with a management fee being paid to them for doing so.
The management contractor has direct contractual links with all of the works contractors.
They have the responsibility for the construction works without actually carrying them out.
The client reimburses the cost of the trade packages to the MC plus their management fee.
When might management contracting be appropriate?
Where an early start on site is a priority.
Buildability input from the management contractor is required.
Where cost certainty is not a priority.
What are the advantages of management contracting?
Single point of responsibility.
Design changes can be made without paying a premium.
Potential for earlier start on site due to overlap of design and construction.
Buildability input of Management Contractor.
What are the disadvantages of management contracting?
No cost certainty until last package has been let.
No incentive for Management Contractor to reduce costs.
Proactive and hands on employer required.
How do you identify the client requirements before recommending a
procurement route?
Through detailed discussions with the client and design team to identify their priorities in terms of cost, time, quality, risk, control requirements and experience.
If the client wishes to start on site asap, what route would you
recommend?
My recommendation would need to take into account their other requirements such as cost and quality.
If time was their overriding priority, then Construction Management or Management Contracting may offer the best solution as they can offer the fastest start on site with overlap of the design and construction.
What would you recommend if the client wanted an early start but also
cost certainty?
Design and build procurement may offer the best solution.
Design and Construction overlap, and risk is transferred to the Main Contractor with their tender being based on a lump sum price to offer high levels of cost certainty.
What is GMP?
Guaranteed maximum price.
What does GMP mean to you?
GMP sets the limit that the employer will pay their contractor, regardless of actual costs incurred.
If the actual cost is higher, then the contractor has to bear the cost.
If the actual cost is lower, the contract will state which party will benefit from the savings. Usually split using a pre agreed %.
No adjustment of tender price unless design changes are requested by the client.
What is a framework agreement?
An umbrella agreement that a party enters with one or more suppliers.
Sets a strategic partnering relationship for the procurement of goods, works or services.
How long does a framework agreement last for?
Typically 4 years. They can range between 2-10 years.
What are the key advantages of framework agreements?
Help to develop strong relationships between the parties involved and encourage long term collaboration.
Time saving.
Rates are usually agreed upfront.
What are the key disadvantages of framework agreements?
Contractors, suppliers etc can become complacent.
Bidders may not receive any work through them.
Why might an employer choose a framework agreement to procure goods and services?
Employers who are continuously commissioning construction work may want to reduce procurement and other risks.
What is Partnering?
It involves two or more organisations working together to achieve specific mutual objectives and deliver continuous measurable improvements.
A collaborative management approach that encourages openness and trust.
What are the benefits of partnering?
The overall construction and design programme is shortened because there is a prior understanding of the Client and their requirements from previous projects.
The potential for conflict is reduced.
Communication is improved.
Improved client satisfaction is gained.
Recognition of protection of profit margin for contractors and suppliers.
Better predictability of time and cost.
What are the disadvantages of partnering?
Less opportunity to understand what other contractors can offer.
Difficult to find a strong partner with the same objectives, ethics etc.
What is PFI?
Private Finance Initiative.
A government programme launched in 1992 to bring private sector project management and expertise into the public sector.
What are the three types of PFI projects?
Financially free-standing - Projects costs are recovered by charging users for example toll roads and bridges.
Joint Venture - Public and private sector stakeholders both invest however the private sector has overall control. Contributions and allocation of risk are clearly defined.
Services Sold – The capital expenditure for the project is financed by the private sector and then sold back to the public sector.
What sort of projects might PFI be used on?
Its use is recommended where it offers clear value for money when compared against traditional public sector procurement.
It is generally considered more appropriate for larger projects of value greater than £20m and where there are significant ongoing maintenance requirements.
What might be some of the problems associated with PFI?
High bidding costs are associate with PFI projects and they can take longer to procure than traditional projects.
Value for money is hard to achieve as the cost of private borrowing is more expensive than public sector borrowing.
What is tendering?
The process by which the employer invites contractors to place a bid for work on a construction project.
To obtain a price for the works.
How the successful contractor is selected.
