PROCUREMENT AND TENDERING Flashcards
What is procurement
The overall process of aquiring construction work or services
What is considered when selecting procurement route
Project specifics
Timing
Budget/Funding Availability
Desired Quality
Client’s appetite for risk
What are the main methods of procurement
a. Traditional
b. Design & Build
c. Management Contracting
d. Construction Management
What are the procurement financial basis
Lump sum
Re-measured
Reimbursable
Target Cost
Guaranteed/agreed maximum price
What is a lump sum contract?
Under a lump sum contract, a single ‘lump sum’ price for all the works is agreed before the works begin.
What is a reimbursable contract?
The contractor is reimbursed the actual costs they incur in carrying out the works, plus an additional fee.
What is a re-measurement contract?
A remeasurement contract is where the work is measured and valued against agreed rates. There is therefore no agreement as to a lump sum, but there is agreement as to the basis upon which the work will be valued
What is a target cost contract?
The target cost is set early in the project, and then cost savings or overruns are shared based on an agreed formula
What is GMP and what does it mean?
Guaranteed Maximum Price Lump Sum
A form of agreement with a contractor in which it is agreed that the contract sum will not exceed a specified maximum, unless design changes are requested by the client.
What is traditional procurement
Design is completed by the client’s design team
Tenderers are invited to price the job based on the design
A main contractor is employed to build
Contractors design portion can be included
How does traditional procurement work (in terms of risk, design and programme)
Contractor - Takes responsibility and financial risk for construction of the client’s design for the agreed contract sum and contract period
*The Client retains design responsibility and holds the direct contractual relationship with the Architect
What is a contractors design portion?
A section of the design which is allocated to the contractor for completion while he commences works
commonly the M&E Package
What must the contractor have if they take on a Contractors Design Portion?
Takeout and Maintain Professional Indemnity Insurance.
Provide copyright licenses for designs to the Client.
Provide appropriate levels of skill, care and due diligence
When might traditional procurement be appropriate
a. If the design is complete or substatially complete
b. The client wishes to have control over design and spec
c. Cost certanity is important
d. Time is not a priority
What are the advantages of traditional procurement
Control over design can lead to higher quality
Competitive fairness, as all tendering contractors are bidding on the same basis.
Increased levels of cost certainty before commencement
Design changes are reasonably easy to arrange and value
What are the disadvantages of traditional procurement
Project duration may be longer than others due to lack of overlap between design and construction.
There is no input into design and planning by the contractor, unless a CDP is let
There is a dual point of responsibility with the design team controlling the design and the contractor retaining responsibility for the construction.
Incomplete design can result in less cost and time certainty and can be the cause of expensive disputes
What types of traditional procurement routes are there?
Lump sum
Remeasureable
Cost Reimbursement
What is Design & Build
The contractor is responsible for the design, planning, organisation, control and construction of the works to the employer’s requirements.
The Client transfers design responsibility to the Main Contractor who holds the direct contractual relationship with the Architect
How does Design & Build work
(What does the client give and what do the contractors return)
The client gives the tenderers ‘Employers Requirements’
The contractor will respond with ‘Contractors Proposals’ which includes their price
When might Design & Build 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.
For technically complex projects requiring the contractor’s expertise.
Where the employer does not want to retain control over design development.
What are the advantages of Design & Build
There is a single point of responsibility for design and construction.
The total project time of a design and construction route may be reduced, because of overlapping.
There is price certainty before construction starts, provided the ER’s are adequately specified.
The client can benefit from the contractor’s experience harnessed during the design & being bought on early
What are the disadvantages of Design & Build
Clients may find it hard to prepare a sufficiently comprehensive brief.
The Client has to commit to a concept design early and therefore Quality may be compromised.
Bids via a single stage are difficult to compare: each interpretation and design will be different.
It is harder to compare tenders and harder to determine whether value for money is being achieved.
Client changes to the scope of the project can be expensive
How much design input will the Contractor have in a Design & Build
It depends on how much design work the client has completed at the time of tender
What is Management Contracting
A management Contractor is employed by the client to contribute expertise to the design and manage construction
A management fee is paid
The Management Contractor holds the Contractual relationship with the Works Package Contractors
How does Management Contracting work
The management contractor selects the works contractors through competitive open book tender.
The management contractor has direct contractual links with all of the works contractors.
The client reimburses the cost of these packages to the management contractor plus their management fee
The management contractor has the responsibility for the construction works without actually carrying them out.
Not all of the design need be completed before the first works contractors start work.
When might Management Contracting be appropriate
When early start on site is a priority
When the client does not need cost certanity before commencement
What are the advantages of Management Contracting
Overall project duration is shorter due to overlapping design and construction (as works don’t have to be fully designed)
There is contractor contribution to the design and planning process.
Changes can be accommodated in packages not subcontracted yet if they have no further impact.
The works are let competitively at current market prices on a firm price basis.
What are the disadvantages of Management Contracting
The price for the works will not be received until the last package has been let.
Changes to the design of later packages may affect packages already let.
There is little incentive for the Management Contractor to reduce costs.
Management Contractor has little legal responsibility for the defaults of the works contractors.
What is construction management
The client has direct contract with each of the subcontractors and utilises the expertise of a construction manager who acts as a consultant to coordinate the contracts.
The Client holds the Contractual relationship directly with the Trade Package Contractors
How does construction management work
Client employs a Construction Manager
Client employs subcontractors directly via trade contracts to 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
Their role includes preparation of the programme, determining requirements for site facilities, breaking down the project into suitable works packages, obtaining and evaluating tenders, co-ordinating and supervising the works.
Price certanity isn’t known until all packages are let
Who is responsible for the construction
Construction work is carried out by trade contractors through direct contracts with the client.
Where might construction management be appropriate
On large, complex projects where the advantages of Construction Management can be utilisied
Where an early start on site date is key.
Maintenance of flexibility in design and construction strategy.
Where price certainty before commencement is not a key driver.
Where the client is experienced in construction.
What are the advantages of construction management
Time efficient programme as the design process overlaps with the tender and construction process alowing construcion to commence sooner.
The construction manager and Trade Contractors can contribute to the design and project planning processes.
Changes in design can be accommodated without paying a premium.
What are the disadvantages of construction management
Cost certainty is not achieved until the last trade package is let.
Changes to packages may adversely affect packages that are already let.
This route is not suitable for inexperienced client as the client is required to maintain a strong presence.
The client has a lot of consultants and contractors to deal with.
What is the difference between management contracting and construction management?
Under management contracting, the Main Contractor is in direct contractual relationships with the trade contractors and the client is in contract with the Main Contractor only.
Under construction management the client is in direct contractual relationships with each of the trade contractors and the construction manager isn’t.
What would you recommend if a client wanted to start on site ASAP
Management Contracting or Construction Management
But not having cost certanity would be the pay off
What is PFI?
Private Finance Initiative.
• A government programme launched in 1992 to bring private sector project management and expertise into the public sector.
• The private sector is granted a concession to finance, design & build and operate major public projects such as schools and hospitals.
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. The public sector requires clear demonstration that this provides better value for money than option 1 and 2.
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 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.
• Long term and inflexible contracts are formed which cannot respond to demographic changes. For example, a reduction in school cohort numbers can lead to empty classrooms being paid for by local authorities.
What is Build Lease Transfer (BLT)?
A facility is designed, financed and constructed by the private sector and then leased back to the government for a predetermined period of time at a pre-agreed rental cost.
The facility is owned by the private sector partner during the lease period, at the end the government can renew the lease, buy out the private sector partner or walk away from the deal.
Operation and maintenance of the facility during the lease period is usually the government’s responsibility.
This provides the public sector with a way of financing large-scale infrastructure projects based on ongoing revenue rather than using high levels of capital expenditure.
The primary disadvantage is that legal ownership remains with the private sector.
What is Build Operate Transfer (BOT)?
• The facility is designed, financed, operated and maintained by a concession company, for the period of
the concession.
• Ownership of the facility is vested in the host government from the time of construction completion.
• At the end of the period, the concessionaire’s involvement in the project ends and all operating rights
and maintenance responsibilities revert to the host government.
• The concessionaire retains all toll income during the agreed period.
