Contractual category type selection: Practice example

Choosing an appropriate contractual category type requires both an under- standing of the options available as well as an ability to align a category option with the circumstances and requirements of a particular project. Civil engineers charged to advise clients on the choice of best option of contract category type should take five key steps:

Step 1: Identify and summarise, via appropriate in-house past-experience and available texts, all contractual category type options6

Step 2: Review the characteristics and requirements of the project at hand

Step 3: Align project requirements with a suitable contractual category type

Texts7 _{that may assist in an alignment of ‘contractual and}

procurement arrangements’ with ‘project characteristic specif- ics’ include Deciding on the Appropriate Contract by the Joint Contracts Tribunal (JCT) , UK, and Relationship Contracting and Optimising Project Outcomes by the Australian Constructors Association (ACA). Noteworthy is that, although somewhat pre- disposed perhaps towards partnering-arrangements in lieu of more traditional approaches, the ACA’s ‘Project Delivery Method— Suitability Matrix’ does suggests a workable 10-point scale based on a weighting of project variables such as early delivery, green- field versus brownfield site, technology and complexity, risk, guar- anteed maximum price expectations, environmental aspects and the like.

Step 4: Suggest means to select/appoint an appropriate party to carry out the job

Step 5: Identify an appropriate standard form of GCC

A scenario might involve the need for a civil engineer to advise clients on an appropriate contractual arrangement for the following ‘range’ of pend- ing projects:

a. A large site has been acquired on the city outskirts but the client is unsure if finance can be secured for all of the planned development parts such as leisure complex, then/plus retail units, then/plus accom- modation apartments.

b. Various city hotels/serviced-apartments are owned by a client, who dislikes the current haphazard, disjointed nature of repairs, mainte- nance and renovation.

c. A head office building has had to close due to fire damage, the extent of which is unknown; normal working conditions are required as soon as possible.

d. A client seeks advice regarding projects with different design complexities.

Step 1

A summary of the potential range of contractual category types might include a review of options including: traditional full-design BQ lump-sum, bill of approximate quantities contracts, cost reimbursement contracts, tar- get cost, continuity contracts, serial, term contracts, two-stage tenders, design and build contracts, drawings and specifications, management con- tracting, partnership/alliance contracting and build operate (own) trans- fer BOT/BOOT procurement approaches. These procurement options are summarised in Table 5.2.

Steps 2 through 5

Table 5.3 summarises project characteristics and alignment of • Project particulars (step 2 column)

• An appropriate contractual category type (step 3 column) • Method of appointment (step 4 column)

• An appropriate standard form of (general conditions of) contract (step 5 column)

Having identified suitable contractual arrangements, the client (and the client’s representatives and consultants) must then compare the available constructors and justify selection of one preferred builder.

To review tenders (builders’ offers to construct/design-and-construct a project), a client needs an objective means of comparison. Selection criteria items are often given in advance to firms bidding for a job. The organisa- tion most likely to win will be the firm that (in the eyes of the client) best addresses selection criteria items such as requirement conformity, value for money, quality assurance, technical resources availability, good track record of previous performance and an innovative approach.

A number of guidance texts, from public sector government (and interna- tional) departments and learned bodies and associations, assist in procure- ment and builder selection criteria matrices, these include

• AS4120 (1994) Code of Tendering from Australian Standards8

• Australian Procurement and Construction Council (APCC)39

• Guidelines for Tendering by the Australian Constructors Association10

• Public Private Partnership Guide by the Australian Constructors Association11

• Achieving Excellence in Construction (UK)12

• Procurement and Contract Strategies (UK)13

A client’s acceptance of a builder’s tender-offer is but the beginning of a journey towards project completion; the following discuss project progres- sion relative to conditions of contract1,14–16 _{that structure requirements and}

milestones to be met.

Table 5.2 Categories

Contract category Summary of particulars

Traditional full-design

BQ lump-sum Suitable for projects if all planning has been completed at the tender (invitation to price) stage; does not provide for builder participation at the design stage

Bill of approximate

quantities contracts Common in civil engineering works; detailed design work incomplete at tender stage; enables early start; prices/rates used for re-measured/unforeseen work

Cost reimbursement

contracts Scope of work unknown at early stages; contractor reimbursed (given-back) actual cost of materials and labour plus a fee for overheads and profit

Target cost As cost reimbursement but with incentive targets for work to minimise costs

Continuity contracts Uses contractor already on-site to save time/money on potential next job (phase); original BQ/rate schedule (materials/work prices) used in new work

Serial As continuity but future contract approximate size known; uses original BQ

Term contracts Project cost unknown; competition via schedule of rates; successful firm works over agreed extended period; used for large-scale maintenance/repair jobs

Two-stage tenders Contractor involvement in planning and programming work tasks; successful firm agrees schedule of rates to value the work when final design is complete

Design and build

contracts Uses contractor’s skill/expertise in specialised fields for all design work then all building work; efficiency gains from building own design

Drawings and

specifications Simplistic/standard projects where BQ preparation unjustified. Contract terms for cost/payment/time/variation need clearly stated to avoid future conflict

Management

contracting Main contractor uses managerial expertise in design/planning/administration of contract to facilitate all work carried out by specialist subcontractors

Partnership/alliance Risk-sharing with builder reimbursed directly for all direct costs in all circumstances; motivated by profit-sharing resulting from good performance

Build operate (own) transfer BOT/ BOOT

Design, build, operate and maintain then transfer to client after a set recovery period; see also engineer, procure, install, commission (EPIC)