Building Procurement route

A procurement system in construction is a system used in assigning specific responsibilities and roles to people and organisations, defining the various elements in the construction of a project (construction excellence, 2004). The different types of procurement systems are:

 Traditional (separated);

 Design and construct (integrated);

 Management (packaged); and

 Collaborative (relational)

Holt et al. (2000) posits that there are quite a number of variables to each of the commonly mentioned procurement strategies, notwithstanding the commonly adopted nomenclature; there

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is a very wide range of strategies available. For example, the guidelines of the New South Wales Government (2005) in their procurement systems identify about eight variants of the design and constructs system. However, a range of commonly adopted procurement system and contract methods exists and each of these is described below. The decision regarding the choice of procurement strategy has to be made early in the course of the project and this has to be underpinned by the client’s business case for the project. The risks associated with each procurement system and how they can affect the client should also be considered. Figure 3.5 provides an overview of the ‘speculative risk’ which can be identified in advance to a client and contractor for specific procurement methods.

Figure 3.5: Risk apportionments between client and contractor Holt et al. (2000)

In design and construct types of procurement the contractor predominately assumes the risk for design and construction of the project. Design and construct variations exist where the level of design risk can be apportioned more evenly, for example, novation. With traditional lump sum contracts the intention is that there should usually be a fair and balance of risk between parties. With management forms of procurement the balance of risk is most onerous for the client as the contractor is providing only ‘management expertise’ to a project. However, under a design and manage method a high of risk can be placed on the contractor for design integration (constructing excellence, 2004). The next section looks at the traditional procurement route which is the procurement method adopted for this research.

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3.3.1 Traditional or Des

gn-Bid-Build

This method of procurement is probably the most commonly used method in the construction industry and is suitable for:

 All clients, including inexperienced clients

 Complex projects and projects where functionality is a prime objective

 Time predictability

 Cost certainty.

In the traditional approach under which this research is underpinned, the design work is generally separate from the construction, consultants such as the architect are appointed for design and managing the project budget and the contractor is responsible for carrying out the works (Davis et al., 2008). They further mentioned that the responsibility of the consultant (architect) extends to all workmanship and materials, and includes all work by subcontractors and suppliers. The contractor is usually appointed by competitive tendering on complete information, but may if necessary be appointed earlier by negotiation on the basis of partial or notional information. Sometimes, consultants are also selected on the basis of referral (Morledge and Smith, 2013; Davis et al., 2008). The traditional method, using two-stage tendering or negotiated tendering, is sometimes referred to as the ‘Accelerated Traditional Method’ – this is where the design and construction can run in parallel to a limited extent. Whilst this allows an early start on site, it also entails less certainty about cost. This method however, is mostly not suitable for fast track projects. This method is characterised by the client sometimes developing the business case for the project, providing a brief and budget and then appointing a team of consultants (architects) to prepare a design, plus tender documents.

The client sometimes is involved in the process of appointing the building contractor to carry out the works to the design, by the contract completion date and for the agreed price. Usually much of the work is sub-contracted to specialist firms but the contractor remains liable (Davis et al., 2008). The consultants administer the contract on behalf of the client and carries out consultation practices on aspects associated with design, progress and stage payments, which must be paid by the client (Morledge and Smith, 2013). The separation of the contractor from the design can mean missed opportunities for contractor or specialist contractor to input. This strategy is a low-risk option for clients who wish to minimise their exposure to the risks of overspend, delays or design failure. However, exposure to risk will likely increase where the client briefing or design phase has not received adequate attention or time, where unachievable

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time targets are set or where the brief documents are not fully completed as a result of improper capturing of clients requirements (Morledge and Smith, 2013). There is a refinement to this method, which involves a two-stage tender where contractor’s tenders are based on a partially developed consultant’s design (stage 1 tender). The contractor then assists with the final development of the design and tender documents, against which tenders for the construction works are prepared (stage 2 tender). Whoever put forward the first stage tender has the opportunity to tender or negotiate the second (construction) stage. This approach increases the risks of an increase in overall price and a less certain completion date but contractor involvement is likely to increase the likelihood that both these criteria are realistically established (Davies et al., 2008). Construction excellence (2004) identifies three types of contract under the traditional procurement method:

1. Lump sum contracts - where the contract sum is agreed and determined before the construction

process starts, and the amount is entered in the agreement.

2. Measurement contracts – where the contract sum is accurately known on completion and after

re-measurement to some agreed basis.

3. Cost reimbursement – where the contract sum is arrived at on the basis of the actual costs of

labour, plant and materials, to which is added a fee to cover overheads and profit.

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3.3.1.1 Key points to consider with traditional procurement

A traditional procurement strategy requires the production of a complete brief document before tenders are invited. This method assumes that the client is responsible for appointing architects to provide consultancy services in the development of the design brief. As the client appoints consultants to provide advice on all matters of design and cost, they thereby retain total control over the design and quality required. The contractor depends heavily upon the necessary information and instructions from the architect being issued on time, which also includes the client deciding which specialist firm; the contractor is to use (Gordon, 1994).

3.3.1.2 Advantages and disadvantages of traditional procurement

Constructing excellence (2004) highlights some of the main advantages and disadvantages of using a traditional procurement strategy are:

 Accountability due to a competitive selection;

 Competitive equity as all tendering contractors bid on the same basis;

o Designer and the client are able to have a direct influence with the project which can facilitate a high level of functionality and improve the quality in the overall design;

 Price certainty at the award of the contract;

 A tried and test method of procurement which the market is very familiar with.

The main disadvantages of using a traditional approach to procurement are:

 Can be a timely process to produce the full contract documentation. Tenders documents from an incomplete design can be produced but can lead to less cost and time certainty, and may lead to disputes;

 Overall project duration may be longer than other procurement methods as the strategy is sequential and construction cannot be commenced prior to the completion of the client brief; and

 No input into the design or planning of the project by the contractor as they are not appointed during the design stage.