Procurement and Tendering Flashcards
What is procurement?
The overall process of obtaining construction goods and services
What are the main factors that would determine procurement route selection?
- Client objectives and key drivers, risk allocation
- Must consider and balance the client’s priorities, as you usually find that one procurement route won’t satisfy everything the client wants.
- Cost, time, control, quality, risk
What procurement options are you familiar with? / What are the 4 main types of procurement route?
Traditional
D&B
Management contracting
Construction management
Which procurement route poses the least risk to the employer?
D&B - the design risk is transferred to the contractor (single point responsibility)
Which procurement route is the riskiest for the employer?
Construction management - the employer places individual contracts direct with each trade contractor, construction manager has no risk (except professional negligence)
How to identify client requirements before recommending procurement route?
Detailed discussions with client and design team - identify priorities especially in time, quality, risk, control and experience
Client wants to start on site ASAP - what route to recommend?
- Need to consider other requirements (i.e. cost and quality)
- Time = main priority -> CM / MC -> offer fastest start on site (no long tender period) and overlap of design and construction
- Reduction in cost certainty
Client wants to start on site ASAP but also cost certainty - what route to recommend?
D&B -> design and construction overlapped, this risk transferred to main contractor based on lump sum price - offer high cost certainty
What is traditional procurement?
- Design and construction separate - employer appoints consultants for design then contractors submit tenders on fully developed scheme (apart from CDP - the consultants are retained by employer and will review and approve these).
- Contractor is responsible for construction and client for the design (& design team performance)
Key advantages of traditional procurement?
- (Excluding significant design changes) Reasonable certainty of construction costs before commencement if design is robust.
- Employer retains control of design, knows exactly what they’re getting and potential for higher quality
- Minimal risk priced in costs from contractor
- Design changes reasonably easy to arrange and value
Key disadvantages of traditional procurement?
- Longer project duration (less overlap with design and construction)
- Limited contractor buildability input
- Employer retains design risk
- Dual point of responsibility - employer = design, contractor = construction
- Price competition requirements can lead to adversarial relations
Where might the traditional route be appropriate?
- Specific / detailed design requirements - client wishes to retain control of design and spec - design, cost and programme certainty
- Cost certainty before construction = priority compared to programme
- Quality - client retains control
- Competitive tender analysis more fair
- Established - most linear and commonly used method of construction
What is design and build?
Who executes the design for the contractor under D&B procurement?
- Contractor responsible for completing design and executing construction phase, inc planning, organisation and work according to ERs.
- Under JCT - employer’s team produce employer’s requirements (ERs), then the contractor responds with contractor’s proposals (CPs) which include price.
- Design risk transferred to contractor when they’re appointed for a job- in some cases the original employer’s design team may be novated to contractor for continuity, or the contractor appoints their own design team (internal or separate design company)
What is novation?
- Used in D&B to transfer benefits and obligations of contractual agreement from client to the contractor- terms and conditions the same except parties in agreement.
- Benefits and obligations transferred (i.e. responsibility of payment)
Advantages and disadvantages of novation?
- Advantages - continuity, accountability, assurance on quality for client, reduces risk of post contract changes / disputes, less likely to price in design risk, contractor doesn’t commit as much time/resource to reviewing / validating design
- Disadvantages - Contractor unlikely to be familiar with architect- risk of non-beneficial working relationship, architect underperformance = contractor responsibility, inc prior to their involvement - could be unfair
Alternatives to novation?
Option to assign design team, contractually retained by client (not as good for risk averse)
What are employer’s requirements (ERs)?
- Document(s) produced by employer to set out project requirements, including performance specifications, drawings, initial designs, for the contractor to base their works on.
- Details level of design, structure and spec info to be provided by tenderers
What are the Contractor’s proposals?
Document(s) produced by contractor to respond to ERs- detailed design info for client to consider at tender review, requiring further development through course of project. Often include plans, elevations, sections and typical details, specification etc.
How much design input will the contractor have?
- Depends on design work already completed by the Contractor’s appointment
- Can range from full design to production info and coordination only
How does D&B establish cost certainty?
- Lump sum submitted for whole of works provides cost certainty in single stage tender
- Design development responsibility is contractor’s so risk transfer with it
Key advantages of D&B procurement?
- Single point of responsibility for design and construction (contractor) - they maintain risk
- Earlier commencement on site possible - faster programme if design and constructioncan be overlapped
- Buildability incorporated into design (contractor’s experience)
- More cost certainty overall than traditional procurement, early price certainty may be increased
Key disadvantages of D&B procurement?
- Design is only as good as employer’s requirements - employer may not have a sufficiently comprehensive brief
- Client may have to commit to concept designs early
- More complex to compare tender returns
- Employer changes difficult to value, often more expensive
- Less employer control over aesthetics and quality
- Risk premiums cost in tender return
Where might the D&B route be appropriate?
- Earlier start on site required, quicker programme
- When employer wants to minimise risk profile
- Contractor’s buildability input may help with technically complex projects
- Where retaining control of design is not priority
- Contractor assumes risk and responsbility for design
- Cost certainty required
Other consideration for D&B route?
- Additional insurances - Professional Indemnity Insurance (PII) might be needed as the contractor has design responsibility
- Employer usually pays a premium as contractor is taking on the design risk, so usually there is an allowance (sum of money) in exchange
Typically for D&B, what stage would contractor’s be taken on board?
Stage 3 - further design development to still get benefit.
What are implications of Stage 2 and 4?
What’s in a novation agreement?
- Relinquishes consultant from client
- Contractor takes responsibility for all design done before their involvement
- Payment terms
- New parties
- Terms and conditions
What is construction management?
- Employer directly appoints multiple subcontractors (trade contractors) instead of single main contractor - individual contracts with separate specialist trade contractors
- Construction manager expertise to coordinate and supervise works for employer, but they have no contractual link to trade contractors - construction manager has no vested interest in financial outcome and carries no risk
What is the construction manager’s role?
Construction manager role includes preparation of programme, determine requirements for site facilities, breaking project into suitable packages, obtaining and evaluating tenders, coordinating and supervising works. Requires a lot of upfront buildability knowledge
Key advantages of construction management?
- Speed (early start on site), overlap with design and construction
- Construction manager can contribute to design and project planning processes
- Easy to facilitate changes in design
- Prices may be lower due to direct contracts with trade contractors (not paying contractor’s premium)
- Employer has means of redress with trade contractors through direct contractual links
- Clear / direct roles, risks and relationships
Key disadvantages of construction management?
- No price certainty until last trade package is let
- Needs informed, experienced, proactive employer
- Lots of consultants and contractors for employer to manage
- Changes to packages could adversely affect already let packages
Where might construction management be appropriate?
- Experienced employer with sufficient resource to manage project
- Employer wants early start on site
- Flexibility for minor changes in design / spec / construction strategy throughout, with minimal impact on time / finances
- Large, technically complex job needing specialist consultants and trade contractors
- Price certainty before commencement not a key driver
- Repetitive work where structure / works is quite similar
What is management contracting?
Employer appoints management contractor to manage entire building process- they will appoint trade contractors with competitive open book tender to carry out construction works, are paid fee % / management fee based on construction costs and has direct contractual link with trade contractors - responsible for overall construction works
Key advantages of management contracting?
- Shorter programme (overlap design and construction)
- Management contractor (MC) provides buildability input
- MC single point of responsibility
- Trade packages let competitively and transparently
- Flexibility in design - changes made throughout construction process
- Contractor contribution to design and planning process
- Works are let competitively at current market prices on firm price basis
Key disadvantages of management contracting?
- No price certainty until last package is let
- Informed, proactive employer required
- % fee can disincentivise management contractor to minimise costs
Where might management contracting be appropriate? *
**REVIEW ANSWERS
- Early start on site
- Flexibility in design
- Buildability input from management contractor
- Cost certainty not priority for employer
- Changes to design of latter packages may affect packages already let
- Little incentive to MC to reduce costs
- In practice, MC has little legal responsibility for defaults of trade contractors
REVIEW!!!!!!!
Difference between management contracting and construction management?
CM - Employer directly appoints multiple trade contractors to execute works - direct contractual relationships with employer not CM
MC - Employer appoints management contractor who appoints trade contractors, direct contractual employer with employer and MC only
What is tendering?
Part of the procurement strategy
Includes:
- the bidding process where the employer invites 1+ contractors to submit a price and complete a project
- and how the Contractor is appointed
What is the difference between procurement and tendering?
Tendering is a part of the overall procurement strategy for a construction project, to appoint a contractor. Procurement is whole process of obtaining goods and services, including deciding how these are acquired and managing the employer’s attitude to risk
What are the main methods of choosing a contractor?
- Open tendering
- Selective tendering (single or two stage)
- Negotiated tendering
[- Serial tendering - not as essential]
What is a bona fide tender?
Bid submitted in good faith, complete, in prescribed form and meeting bidding requirements - confirmation that supplier hasn’t colluded with another party when completing the tender
What is a pre-qualification questionnaire?
Sets out a series of questions for potential tenderers to answer regarding their level of experience, capacity and financial standing etc. before being invited to tender. Now superseded by selection questionnaire (SQ) but private projects may still use PQQ
What is a selection questionnaire?
Questionnaire issued by contracting authorities to prospective bidders - series of questions regarding experience, capacity and financial standing before being invited to tender. SQs incorporate exclusion grounds in Public Contract Regulations 2015 (PCR 2015) and aligns with European Single Procurement Document (ESPD)
What’s the difference between PQQ and SQ?
- SQ now updated to incorporate the exclusion grounds in the PCR 2015 and ESPD. This correlates with exclusion concerning Modern Slavery Act 2015. SQs tend to also have the difference that you can self-certify that you meet the requirements instead of having to gather and submit all the evidence. Instead you’ll be asked to provide this once invited to tender or when being awarded the contract.
- SQ’s typically for public sector procurement
What is the purpose of the SQ?
Reducing number of potential tenderers so only those genuinely apt for job are invited. Saves time for those who wouldn’t have realistic chance of winning and for those managing tender
When would an SQ be used?
Particularly in public sector procurement
Where might you get a credit check from (as part of the SQ)?
- Dun & Bradstreet report
- Credit agency i.e. Experian
