Transcript Contract Procurement Methods - Construction Learning Gateway

Contract Procurement Methods
• There are a number of ways that the design
and construction of the project may be
undertaken.
• The method chosen will depend on a number
of factors, which include the size and
complexity of the project.
Traditional
• This method usually uses the standard form of
contract by the Joint Contracts Tribunal (JCT) or a
similar
• The contract requires the contractor to carry out the
construction according to the drawings and
specification drawn up by the design team
• All work is supervised on behalf of the client by the
design team leader, which is normally the architect
or on civil engineering projects, the Consultant Civil
Engineer.
Fixed Price Contract
• A Fixed Price Contract involves the contractor
agreeing to construct the building as specified in the
drawings and Bills of Quantities (B of Q) for the client
for an agreed sum, by an agreed date.
• Although it is called a fixed price contract it does
allow for the contractor to claim additional costs for
any variations to the specification.
• Allowance can also be claimed by the contractor for
an extension of time if there is a delay which is
beyond his control.
• When constructing new buildings it is possible
to assess the cost of the work to be done, in
which case a fixed price can be the basis for
the contract.
• A fixed price can, however, be on the whole
contract, a section of work or can apply to a
unit rate. The price is fixed although the
amount of work is not known.
Fluctuating Price Contract
• Used if the contract is due to last more than
12 months has provision to be made for the
results of inflation.
Reimbursement Contract
• In refurbishment contracts it is more difficult
to assess the cost of work to be done, in which
case a Cost Reimbursement contract can be
used which reimburses the contractor for the
amount that it costs him to carry out the
work, plus a fee to cover overheads and profit.
Payment of the Contractor
• The contractor is paid according to the value of the
work done which is assessed each month by the
Quantity Surveyor,
• It is normal to withhold 3%, which goes into the
retention fund. The moneys due to the contractor
must be paid within 14 days.
• If the JCT Contract is used, half of the retention fund
is paid to the contractor on practical completion and
the balance is paid on the architect's final certificate.
Alternatively, the whole of the retention money is
paid on the final certificate.
Advantages
• All parties have a clear picture as to the extent
of their commitments.
• It gives a clear breakdown of the cost of all
aspects of the project.
• The unit rates allow ease of valuation for the
stage payments of work carried out and for
any variation to the original design.
Disadvantages
• Length of time taken in the design and
preparation of the Bill of Quantities
• Cost of preparation for the Bill of Quantities
(approximately 3.5% of the contract sum).
Design And Build
• Contractor who is responsible for the design,
specification and the construction
• The contract may be on a fixed price or cost
reimbursement basis, which may be either
negotiated, or subject to tender.
Uses
• Normally used for standard type buildings i.e.
industrial units.
• Useful for repetitive types of buildings, which
the contractor has constructed previously
• Past experience and familiarity of the design
and construction should result in cost savings
for the client.
Design And Build
‘Novated Design' or ‘Develop and
Construct'
• A variation is for a design team to be
appointed to produce concept drawings for
the project prior to going out to tender.
Design And Build
Advantages
• The developer is only dealing with one
organisation that has sole responsibility for
the success or failure of the design and
construction.
• It allows the developer to be aware of the
total amount of financial commitment prior to
the commencement of construction.
Design And Build
Management Contracting
• design team to specify the building requirements
• specialist subcontractors are supervised and co-ordinated by
the management contractor to carry out the construction.
• The management contractor receives a fee, which may be a
set fee or a percentage of the contract cost.
• The management contractor will be responsible for providing
site accommodation for which he will be reimbursed either at
cost or as a laid down lump sum in the tender document.
• Generally used on complex projects that require a short
contract period, though which must have flexibility for
modifications during construction.
Subcontractors
• Subcontractors enter into a standard JCT type of
contract with the management contractor carry out
construction work.
• It is the management contractor who has a
contractual relationship with the subcontractors who
carry out the work, not the client.
• If any problems arise it is the management
contractor who must pursue the subcontractor for a
remedy.
• Subcontractors are normally appointed by
competitive tendering based on the drawings and
bills of quantities.
Advantages
• To the contractor:
– very few risks as they are guaranteed a return of costs and
they do not have the problems associated with the
employment of labour.
– important that the project manager and quantity surveyor
control costs, for the management contractor has no
incentive to control costs within the cost budget, although
incentives can be introduced.
– Any costs that exceed the budget are borne by the client.
• To the developer‘
– work can begin as soon as the first few work packages are
produced, thus allowing design and construction to
overlap.
Construction Management
• Construction management is similar in most respects
to management contracting except that whereas
with management contracting the contract is
between the client and the contractor (the
subcontractors are engaged through the main
contractor) in construction management the
contracts for the work packages are with the client.
• The construction manager is employed to manage
the construction work. This system tends to be used
only on large, specialist technical projects such as
power stations.
Project Management
• "the overall planning, control and coordination of a project from inception to
completion aimed at meeting a client's
requirements and ensuring completion on
time, within cost and to required quality
standards".
• Project management can be used on
projects of any size, though it is normally
used on larger developments.
• Becoming increasingly popular and is
reducing the architect's influence within
the construction industry.
Project Manager
• May be an organisation or an individual.
• Guides the client in the selection of a suitable
procurement system, appoint all members of
the construction team and control and
organise the project.
• Appointed on a fee basis, which is not
dependent on the cost of the contract. This
tends to ensure that the project manager
works solely for the client's interest, as he
earns no commission.
Partnering
• The creation of a special relationship between
contracting parties in the design/construction
industry.
• This relationship encourages the parties to
change their traditional adversarial
relationships to a more co-operative, team
based approach, which promotes the
achievement of mutually beneficial goals,
including the prevention of major disputes.
Features
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Commitment from top management
Continual improvement
Time for benefits to emerge
Based on equality of all partners
Interest in mutual profitability
Free and open exchange of information
Keeps project teams together
Well thought out incentive schemes
Problem Resolution
Mutual Objectives
Consideration
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All parties seek a win-win solution
Value is placed on long-term relationships
Trust and openness are encouraged
An environment for long-term profitability exists
All are encouraged to openly address any problems
All understand the no one benefits form exploiting
the other
• Innovation is encouraged
• Each partner is aware of the other’s needs, concerns,
objectives and is interested in helping their partner
to achieve this
• Overall performance is improved.
Objectives
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Improved efficiency
Reduction in costs
Guaranteed profits
Reliable product quality
Speedier construction
More reliable completion time
Continuity of workload
Shared risk
Reliable flow of design information
Lower legal costs
Potential Benefits
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Reduced exposure to litigation
Better productivity
Lower risk of overrun in time and cost
Better quality
Lower costs
Greater potential for profit
Better decision and problem solving systems
Cost Implications
• Reduction in:
– Project cost - approx 5%
– Client cost – approx 6%
• Profits increase by between 4% and 9%
Potential Problems
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Lowest bid mentality
Complacency
Intellectual Property
Corruption
The wrong people used
Loss of opportunity
Private Finance Initiative (PFI)
• An arrangement where public sector assets
and services are acquired through private
sector funding which reduces
government/public sector borrowing.
• Used for roads, bridges, schools, hospitals,
prisons – normally over £20 million value
Procedure
• Public sector sponsor establishes a
business case strategy
• Project advertised in the Official Journal
of European Union (OJEU)
• Bidders short listed (Normally a
consortium set up specifically for the
project which forms a Special Purpose
Company (SPC)
• Contract awarded and notified in OJEC
Finance
• SPC provides 10% of finance remainder from
banks
• Finance is recouped of 25-30 years from tolls
or service charge
Advantages
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Potential for high returns
Continuity of work
Involvement in design
Buildability input
More control over programme
Disadvantages
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Very high bidding costs
Competitive market
Long bidding process
High level of resources required
Complex and demanding
Tough contract terms
High level of liquidated and ascertained
damages
• Fixed price for contractor