Procurement and Tendering Flashcards
What is procurement?
- The overall act of obtaining goods and services for a construction project.
- There are several routes by which the design and construction of a building can be procured.
- The selected procurement route should follow a strategy which fits the project criteria and objectives.
What are the main factors that typically govern procurement route selection?
- The key is to identify the client’s objectives and key drivers in terms of time, cost and quality.
- Other factors such as risk allocation should also be considered.
- It’s unusual to satisfy all these elements with one procurement route. Consideration must be given to the client’s list of priorities to identify the most appropriate procurement route.
Which procurement options are you familiar with?
- Traditional procurement.
- Design & build.
- Management contracting.
- Construction management.
What is traditional procurement?
- The traditional procurement route involves separating design from construction.
- The employer first appoints consultants to design the project in detail, contractors are then invited to submit tenders based on a fully developed scheme.
Key points:
- The design is completed by the employer’s design team before competitive tenders are invited. The contractor is then appointed to build what the designers have specified.
- The contractors tender on a complete design produced by the employer’s consultants (with the
exception of Contractor’s Design Portions).
- Assuming no significant design changes arise, construction costs can be determined with reasonable certainty before work begins.
- The employer retains the design consultants during construction. The consultants prepare any additional design information and review CDP designs prepared by the contractor.
What are the key advantages of Traditional procurement?
- The employer retains control of the design.
- The design is largely finalised before the contractors tender for the build, which means the employer knows exactly what they are getting.
- All tenderers produce a submission based on the same information (tender returns are much easier to compare).
- Assuming the design is robust, reasonable price certainty is achieved at contract award.
- Minimal built-in contractor risk premium (unlike design & build).
What are the key disadvantages of Traditional procurement?
- The overall project duration may be longer than design and build procurement (limited opportunity to overlap design and construction phases).
- Zero or limited contractor buildability input.
- Design risk is retained by the employer, any changes post contract will be a variation or compensation event.
- Dual point of responsibility (employer for design and contractor for construction).
When might traditional procurement be appropriate?
- The employer may have specific or detailed design requirements.
- Cost certainty is important (traditional procurement has significant advantages over construction management or management contracting procurement routes).
- The shortest overall programme is not the employer’s main priority.
What is design & build?
- The contractor is responsible for completing the design and executing the construction phase of the project. - This is a completely different approach to delivering a project via traditional procurement, where the client appoints consultants to undertake the design and then a contractor is appointed to construct the works.
Key points:
- Under JCT contracts, the employer’s team produces a set of employer’s requirements (ERs), the contractor then responds to the ERs with their contractor’s proposals (CPs).
- The original employer’s design team may be novated to the contractor for continuity, or the contractor may appoint their own design team.
- The contractor is responsible for the design, planning, organisation, control and construction of the works.
- Design risk is transferred to the contractor.
What are the key advantages Design & Build procurement?
- Single point of responsibility for design and construction (contractor).
- Earlier commencement on site is possible (if design and construction can be overlapped).
- Benefit of the contractor’s experience harnessed during design (buildability input).
- Design and construction risks rest with the contractor.
- Provides more cost certainty than traditional procurement.
What are the key disadvantages Design & Build procurement?
- The design is only as good as the employer’s requirements (the employer may find it difficult to prepare a sufficiently comprehensive brief).
- More complex to compare tender returns.
- Employer changes can be difficult to value and expensive.
- The employer may have less control over aesthetics and quality.
- The contractor will build risk premiums into their tender return.
When might design & build be appropriate?
- Where there is a need to make an early start on site (D&B has the potential to overlap design and construction).
- Where the employer wishes to minimise their risk profile (design risk is passed onto the contractor).
- For technically complex projects, the design will benefit from the contractor’s buildability input.
- Where retaining control of the design is not a priority.
What additional insurance might be required under a D&B contract?
- The contractor and their design team will have design responsibility; therefore, it is likely that additional professional indemnity insurance (PII) will be required.
What are employer’s requirements (ERs)?
- The expression employer’s requirements is used to describe the document(s) produced by the employer to set out its requirements in relation to the project (including performance specifications, drawings, initial designs, etc) and this is what the design and construction of the works will be based on.
What are contractor’s proposals (CPs)?
- CPs are prepared by the contractor which respond to the employer’s requirements.
- In this document(s), the contractor will produce detailed design information (based on the employer’s requirements), which will require further development throughout the course of the project.
Which procurement route poses the least risk to the employer?
Design & build, this is because the design risk is transferred to the contractor.
Why does the employer usually pay a premium for design & build procurement at tender stage?
- The contractor will usually factor in an allowance within their tender return in exchange for taking on the design risk.
Under design and build, who executes the design for the contractor?
- The contractor may use their own in-house designers, or they can appoint external consultants.
- The employer’s original design team can also be novated to the contractor.
What is construction management?
- The employer directly appoints multiple subcontractors (referred to as trade contractors) instead of employing a single main contractor. - The single feature that makes construction management unique, particularly from management contracting, is that the employer places individual contracts with separate specialist trade contractors themselves.
Key points:
- The employer places a direct contract with each trade contractor and utilises the expertise of a construction manager to coordinate the works.
- The construction manager programmes and coordinates the works.
- The construction manager has no contractual relationship with the trade contractors.
- The construction manager has no vested interest in the financial outcome of the project and, barring professional negligence, carries no risk.
What are the key advantages of Construction Management procurement?
- Speed (early start on site).
- The overall project duration could be reduced by overlapping design and construction.
- The construction manager can contribute to the design and project planning processes.
- Changes in design can be accommodated without paying a premium.
- Prices may be lower due to direct contracts with trade contractors.
- The employer has means of redress with trade contractors through direct contractual links.
What are the key disadvantages Construction Management procurement?
- Price certainty is not achieved until the last trade package is let.
- The procurement route requires an informed, experienced and proactive employer/client to function efficiently.
- The employer has a lot of consultants and contractors to manage.
When might construction management be appropriate?
- The employer is experienced in construction and has suitable resources to manage the project.
- The employer wants to achieve an early start on site.
- The employer wants the flexibility to make minor changes to the design / specification throughout the process with minimal impact on time or finances.
- The project is technically complex and requires detailed engagement of specialist consultants and trade contractors.
Which is the riskiest procurement route for the employer?
- Construction management.
- This is because the employer places individual contracts directly with each trade contractor and the construction manager carries no risk (barring professional negligence).
What is management contracting?
- The employer appoints a management contractor to manage the entire building process, who in turn appoints trade contractors to carry out the construction works.
- The management contractor is usually paid a fee percentage based on construction costs.
- The management contractor has a direct contractual link with the trade contractors and is responsible for the overall construction works.
What are the key advantages of Management Contracting procurement?
- Overall project duration can be reduced by overlapping design and construction.
- The management contractor will provide buildability input.
- Single point of responsibility (management contractor).
- Trade packages are let competitively and transparently.
- There can be considerable flexibility in the design, with changes being made throughout the construction process.
What are the key disadvantages of Management Contracting procurement?
- Price certainty is not achieved until the last trade package is let.
- Requires an informed and proactive employer to be successful.
- Depending on how the construction manager is remunerated, there may be a built-in disincentive for the construction manager to minimise costs.
When might management contracting be appropriate?
- When an early start on site is a priority.
- Flexibility in design is required.
- Buildability input from the management contractor is required.
- Where cost certainty is not a priority for the employer.
What is the key difference between management contracting and construction management?
Construction management - The employer directly appoints multiple trade contractors to execute the works.
Management contracting - The employer appoints a management contractor, who in turn appoints the works contractors.
What is a framework agreement?
- A framework agreement is an umbrella agreement that a party enters with one or more suppliers (who may be contractors, subcontractors, suppliers or consultants) to establish governing terms.
- A framework usually establishes a strategic partnership for the procurement of goods, works or services.
How long can a framework be?
- Typically, a framework agreement lasts for 4 years. However, this is determined by the buyer. They can range between 2-10 years.
What are the key advantages Frameworks?
- Framework agreements can help to develop stronger relationships between the parties involved and encourage long term collaboration and cooperation.
- Time saving (can speed up the procurement of goods and services).
- Repeat work and continuity of delivery.
- Rates and prices are usually agreed upon upfront.
What are the key disadvantages of Frameworks?
- Contractors, suppliers or consultants can become complacent.
- Biders will invest time and money to be awarded a framework and then potentially not receive any work through it.
- May be restrictive to new suppliers who offer innovative, new solutions with the changing and evolving nature of technologies, for example.
Why might the employer choose a framework agreement to procure goods and services?
- Employers that are continuously commissioning construction work might want to reduce procurement timescales, learning curves and other risks by using framework agreements.
- A framework allows the employer to invite tenders from suppliers of goods and services on a call-off basis as and when required.
