Procurement and Tendering Flashcards
What is procurement?
The overall act/process of acquiring construction works and activities.
What are the factors affecting procurement choice?
- Specifics of a project such as:
- Design constraints.
- Technical constraints.
- Economic constraints.
- Client objectives regarding:
- Cost.
- Time.
- Quality.
- Risk appetite.
What are the main methods of procurement?
- Traditional.
- Design and Build.
- Management contracting.
- Construction management.
Explain traditional procurement and when it’s appropriate?
- Traditional is when the design is completed by the client’s design team before tenders are invited and the main contractor is employed to build what the designers have specified.
- It is most appropriate in the following scenarios:
- The client has had the design prepared.
- If the design is substantially complete at the time of contractor selection.
- The client wishes to retain control over the design and specification.
- If cost certainty is of importance.
- Programme or rather the shortest overall programme is not of much significance.
What are the advantages and disadvantages of traditional procurement?
Advantages:
- Retaining control over design can lead to higher quality.
- Increased levels of cost certainty before commencement.
- Changes are relatively easy to arrange and value.
- Competitiveness fairness and transparent process.
- Familiar and understood.
- Pricing can be simple and comparative through documents such as schedule of works and/or bill of quantities.
Disadvantages:
- Overall project duration is longer due to sequential process and no parallel working e.g. overlap of design and construction.
- Lack of buildability due to no early involvement of contractor.
- Strategy based on priced competition which can lead to adversarial relations.
- Dual point of responsibility - design with designers and construction with contractor.
- Incomplete design prior to tender could lead to reduced cost and time certainty.
- Client could be inclined to pay higher premium for works not identified such as refurb works.
- Client held responsible if discrepancy in BoQ, although this can be transferred through schedule of amendments (SOA).
Explain design and build and when it’s appropriate?
- The contractor is responsible for the design, construction and planning of the works to the employer’s requirements.
- It is most appropriate in the following scenarios:
- There is a need to make an early start on site as it allows for parallel working where the design can overlap with the construction.
- The client wishes to minimize their risk by transferring the design risk to the contractor.
- Ideal for complex projects which can utilize the contractor’s expertise thereby enhancing buildability.
- The client does not wish to retain control over the design.
- Client intends to have a single point of responsibility.
What are the advantages and disadvantages of design and build procurement?
Advantages:
- Single point of responsibility.
- Early commencement on site.
- Early price certainty achieved prior to start on site provided ER’s are sufficiently described and changes are not introduced.
- Increased buildability.
Disadvantages:
- Difficulty in preparing ER’s to ensure design meets requirements.
- Client commits to concept design at an early stage.
- Variations from original brief are difficult to arrange and can be expensive.
- Contractor may prioritize cost and time over quality.
- Difficulty in comparing tenders and obtaining value for money as each design is different and prices and programme will vary across different designs, although this can be mitigated if the design has been progressed sufficiently by the client prior to tender.
How much design input will the contractor have?
- This is dependent on the following:
- How much of the design has been completed by the client prior to tender.
- Can either be full design or production of information and coordination only.
Who carries out the design for the contractor?
- It may be outsourced to a separate design company.
- The contractor may have an in-house design team.
- The client may novate their design team to the contractor.
Explain management contracting and when it’s appropriate?
- When the works are constructed by a number of different works contractors who are contracted to a management contractor (MC) that contributes their expertise to design and manage construction for a fee.
- It is appropriate in the following scenarios:
- Where cost certainty is not important prior to start on site.
- Early start on site is of priority.
What are the advantages and disadvantages of management contracting procurement?
Advantages:
- Overall project duration is shorter due to overlap of design and construction.
- Increased buildability through contractor contribution to design and planning.
- Changes can be accommodated in packages not yet let provided they have no further design impact.
- Works are let at competitive current market prices on a firm basis.
Disadvantages:
- Price for works is not received until final package is let.
- Changes to design of later packages could affect packages already let which could be costly.
- Little incentive for the MC to reduce costs.
- MC has little legal responsibility for the default of the works contractors.
Explain construction management and when it’s appropriate?
- When the works are constructed by a number of trade contractors that are in direct contractual link with the client but managed by a construction manager (CM) on a consultancy basis.
- It is appropriate in the following scenarios:
- Large complex projects where the CM’s expertise can be utilized.
- Early start on site is key.
- Flexibility in design and construction strategy.
- Where cost certainty is not important prior to start on site.
- Where the client is experienced in construction.
What are the advantages and disadvantages of construction management procurement?
Advantages:
- Overall project duration is shorter due to overlap of design and construction.
- CM can contribute to design and planning.
- Roles, risks and relationships of all parties are clear.
- Changes can be accommodated without having to pay for a premium.
- Prices may be lower due to direct contracts with trade contractors.
- Client has a means of redress to trade contractors through direct contractual links.
Disadvantages:
- Price for works is not received until final package is let.
- Changes to design of later packages could affect packages already let which could be costly.
- Requires the client to be proactive.
- Heavily admin based as client has many consultants and contractors to deal with.
How does one identify the client requirements prior to recommending a suitable procurement route?
Have a detailed discussion with the client and design team to identify priorities/objectives in terms of cost, time, quality, risk, control and experience.
If the client wishes to start on site ASAP, what route would you recommend?
My recommendation would need to take into account other factors such as cost, quality and risk appetite.
If time was the only driving factor then I would suggest either management contracting or construction management.
If the client wishes for an early start on site and cost certainty, what route would you recommend?
- Design and build would offer the best solution.
- As well as allowing parallel working through overlap of design and construction it is based on a lump sum price thereby giving the client cost certainty.
What is a lump sum contract?
It is the most traditional and most common form of procuring construction works.
In simple terms, a lump sum contract is when a price for all the works is agreed before the works are executed.
That is not to say that it is a fixed price however there is more certainty over the final cost as there are mechanisms that allow the sum to change such as variations, change to scope of works and etc.
What is Guaranteed Maximum price and what does it mean?
- It is a lump sum contract under which there is no adjustment to the tender price unless design changes are requested by the client.
- The contractor includes the additional risk involved in the design development process in his tender price.
What are the risks associated with lump sum forms of contract?
- Gives greater risk to the contractor as there are fewer mechanisms for them to adjust price.
- Due to the increased risk profile, contractors may be inclined to increase their tender price.
- Preparing the tender may be more expensive for the contractor which is heightened if unsuccessful in their bid.
What are the risks associated with GMP contracts?
- Heightened risk profile for the contractor as they’re not able to exceed the budget stated.
- Any costs that exceed the budget are borne by the contractor which can eat into their profits.
- Could potentially lead to contractor insolvency due to increased risk profile.
- Contractor will be inclined to increase their tender price to pick up for any fluctuations in price which can be problematic on projects with a long programme.
- Fewer mechanisms for costs to change such as client requested changes.
What is tendering?
The process of obtaining a cost for the works in addition to the method of appointing a suitable contractor.
