Procurement is a term which describes the activities of the client or employer who brought about the construction or renovation of buildings. It is a mechanism that provides a solution to the problem: “How can I build my project?” (The Joint Contracts Tribunal, 2012)
In most projects, the client (usually through their consultants or design team) will start the procurement process through the development of the project strategy. The strategy weighting opportunity, risks, and budget constraints of a project to determine the project is suitable to use which procurement method. (The Joint Contracts Tribunal, 2012)
For each project, client will very care about the quality of the project, how long the project can be complete, the performance of consultants and the design of the project.
Select an appropriate method of procurement is very important for client. Different client need different method of procurement because different policies, resources, organizational structure, the preferred contractual arrangements.
Understanding of risk is essential because each procurement method has to follow a set of rules and procedures to select different particular route and risk.
How a procurement can successful is depend on whether the construction project parties has comply with their obligations or not, how they identifying the risk of the project and how they deal with the risk of the project.
There are four main procurements in construction which are designed by JCT’s contracts.
The four main procurement methods are:
Procurement using Traditional methods
Procurement using Design and Build methods
Procurement using Management methods
Procurement using Integrated or Partnering methods
2.0 a) Procurement using Traditional Procurement Method
2.1 Introduction of Traditional Procurement Method:
In the traditional approach, the client must engage consultants such as Architect, Engineers and Quantity Surveyor to design the project. Those consultants design must meet the client’s budget and satisfied by client. Once it is not meet client’s budget the Architect and Engineers need to redesign the project and the Quantity Surveyor must recalculate the cost of the project.
After the designed was satisfied by client and met client’s budget, client, Architect or Quantity Surveyor will call tender to give contractors to price and bid for the tender. Client will base on the most suitable price that priced by contractors to make decision, which contractor will be the successful tenderer for the project. The price is not always the lowest but is the most suitable price for the project. Factors to choose a successful tenderer other than price, the contractor must have reputation, pass projects, good financial strength, skills and the contractor cannot have too many projects in hand.
The successful contractor must follow the contract drawings and specifications to start the construction work. Contractor also must responsible for his workmanship and material, including work by sub-contractors and suppliers. Any defects, design errors or generated misuse, the contractor has to use his own money to repair or settle the problems.
Client & Consultants responsibility
Figure : The Linear or Sequential Process of the Traditional Procurement System (Rosli, A.R, 2006)
There are some types of contract will be use in traditional procurement method.
These contracts are:
Lump sum contract
Cost reimbursement contract
2.1.1 Lump sum contract:
Before construction project start, the contract sum of this contract is already determined and the amount of project is fixed in the agreement.
The contractor must base on the fixed contract sum to construct a building. This contract is not subject to recalculate due to the contract sum is fixed. Once the construction work started, client not allow make any variation. But the contract sum can have a limited change in cost of material, labour and plant if the changes of amount is determined by checking vouchers, a formula, invoice etc. (Frederick University Cyprus, 2007)
There are 2 types of lump sum contract:
Lump sum contracts with quantities, client are based on drawings and bills of quantities to pay to the contractor. It means that any increase in the quantity of material, the contractor cannot claim with client. But contract can claim under provisional sum due to items are not accurately quantified. (Frederick University Cyprus, 2007)
Lump sum contracts without quantities, client are based on drawings and contract document to pay to the contractor. It means that contractor can claim if there is any variation about the quantity of material. When the lump sum is total the material price, the work which done by contractor must described in the Schedule of Work. (Frederick University Cyprus, 2007)
2.1.2 Measurement contracts:
Sometimes are called as ‘remeasurement’ contract or ‘schedule of rate’ contract. In this contract, contractor will pay base on the unit prices in the agreement after he complete the works.
All the items needed for the construction work is stated in the contract document and bill of quantities. The contractor has to fill in the unit rate for each item and multiple with the quantities that calculate by Quantity surveyor to get the amount. (Frederick University Cyprus, 2007)
2.1.3 Cost reimbursement contracts:
Sometimes is called as ‘cost plus’ contracts. The contractor in order to construct the building and he will be pay based on the actual cost of materials, labour and plant plus certain percentage profit and overheads. The profit and overheads normally will be 10% of the total cost of materials, labour and plant. (Frederick University Cyprus, 2007)
There are three types of fee in cost reimbursement contracts:
Cost plus percentage fee
Cost plush fixed fee
Cost reimbursement based on a target cost
2.2 The cost, time and quality of via using Traditional Procurement Method:
In the early stage of this system, client may require more money to pay those consultants which helped client design the project. But this giving client a guarantee to get the good price to complete the project due to all the design, drawings, and specifications is fully developed and described in detail before contractors start to bidding for the tender. Since client can control everything via using this traditional method, contractor no chances to adjust the project price become higher than normal price. Logically, this procurement system is very fair for client to get lower cost because all the competitors (contractors) must apply price to the project base on the bill of quantity that calculate by Quantity Surveyor. This system also can control over the variation cost but only for small amount of variation. (Rosli, A.R, 2006)
Compare with other procurement system, traditional system take longer time than other system to complete the project due to the design and budget must meet and satisfy by client. Although it takes longer time to produce but it considered is the best approach because client can clearly know actual cost to construct his project, can get better design from consultants and get better quality control of the project. Client can use this longer time to make decision and check the project design with consultant team before start construction. (Rosli, A.R, 2006)
Traditional procurement method can come out with a construction project which is high quality controlled compare with other method. This method gives a lot advantage to client to compare the consultants design, decide which design suit his budget, management the project, protected by consultants due to giving professional advice and construction expertise between consultants and contractor. Using this method can give more time for client and consultants to check and develop the design, drawings, and specifications to create a better tender document. But this method do not give any advantages for contractor, contractor no power to design the project because contractor will engage after client and consultants decided the design of project. (Rosli, A.R, 2006)
2.3 Advantages & Disadvantages of Traditional Procurement Method
2.3.1 Advantages of Traditional Procurement Method
Client can controls the consultant team (design team)
Client will have better control over the quality of works
Client can obtain the best price through competitive tendering
Can easily accommodate any variation of the works as required by the Client
Client’s interest is protected by the Consultants who serve as advisors and independent certifiers in the building contract
Provided that the design has been fully developed and uncertainties eliminated before tenders are invited
2.3.2 Disadvantages of Traditional Procurement Method
Client need to face many organisation due to many consultants
The project need take long time to complete because many time is required in the early stage to design the building
May be too cumbersome for the Client to coordinate with the various consultants
the performance of consultants is very important because can directly affect the progress of the works
3.0 b) Procurement using Design and Build Method
3.1 Introduction of Design and Build Method:
In the construction world there have four type of main procurement which is Procurement using Traditional methods, Procurement using Design and Build method, Procurement using Management methods and Procurement using Integrated or Partnering methods.
In Procurement using Design and build method there is a method that to carry a task in which the design and construction services are contracted by a single entity, it is known as the design-builder or design-build contractor. From the history, Design and Build is similar as master builders or master masons by the Ictinus and Callicrates when they built Parthenon in Athens. In Roman around 40 B.C, describing existing practice in the designed and construction of building was written by Vitruvius. (Timothy N. Toler Toler & Hanrahan LLC Atlanta, Georgia)
Design and build is one of the procurement that using in building construction industry, following is the definition, method use and forms of contract.
Design and build is a team consisting of general contractor, architect, and engineer. They are build-up to provide an owner with a one source point of contact for the design and construction of their proposed project. Design and build is known as a “package deal” and it has been use in the building industry for a long period ago. (Jack W E Masterman, 2002) Beside, Design and build combines into a single role the design responsibility of the project A/E and the building function of the prime contractor.
3.2.2 “all in”
As known package deal is one of the “all in” contracting and it is a type of procurement method where a contractor is given the responsibility for the whole thing that is required and necessary for the design, construction and delivery of the project. Beside, under this package deal system the service of the contractor will be include the preparation of project brief, sketch and final working drawings getting all the approval from authorities, project financing, construction, furnishing and commissioning of all equipments and accessories and handing over the project to the client.
Turnkey contract is one of the American term for the “all in” or package contract. Under this system, a contractor is entrusting to undertake the responsibilities for every necessary and required thing for the construction, completion, commissioning and hand over the project. The word “turnkey” means that, upon completion, the client is given the key and he can then enter the project by “turning the key”. The contractor had to do the whole thing from preparing project brief, getting approval, designing, financing, construction, furnishing and decorating to commissioning and handing over completed, cleaned and ready for use project.
Develop and construct is also one of the integrated procurement which is much similar to design and build. In this case, the contractor is still given the responsibility for both the design and construction of the project. The difference is that, under Develop and Construct method the design consultants of client will prepare the concept of sketches or designs and passed them to the contractor and develop them and produced the detailed working drawings. The contractor will construct and complete the project based on what it has developed and produced.
3.2.3 Method Use / basis of procurement
As known that there have four type of procurement in building industry. Design and Build is one of the procurement that using in the construction industry. Main contractor in Design and Build procurement is responsible for undertaking both the design and construction work on a project, for an agreed lump-sum price.
Design and Build project can be different depending on the contractor’s design responsibility and the initial design in the employer’s requirements.
However, for the Design and Build the contractor’s design responsibility is much greater than traditional contract with a contractor designed portion.
Beside, sufficient time is needed for the contractor to prepare the employer’s requirements (usually employer will appoint consultants to facilitate this). The sufficient time is needed for the contractor to prepare their proposal and the tender price. By the way, proposal that been prepared by the contractor must matches all of the employer’s requirements before any of the contract are entered into.
Furthermore, normally employer has power to control over the design elements of the project according to their requirements. But once the contract is passes the responsibility to the contractor, so the employer has no direct control over the contractor detailed design.
3.2.4 Forms of contract
In the Design and Build procurement there have some of the contract documents which is formal agreement, conditions of contract, employer’s requirements, contractor proposals and schedule of rates.
3.3 Roles / responsibilities of each party involved
Party involved in the Design and Build procurement is contractor and the client / employer. The responsibility of the contractor in the Design and Build procurement is concept design, tender and contracting, construction with detail design and the construction and hand over. Beside, the responsibility of the client and consultants is project brief, feasibility study and tender document.
Client and Consultant responsibility
Construction and hand over
Figure : The Integrated Process of Project Designing and Construction in the Design and Build Procurement System
(Rosli, A.R, 2006)
3.4 The cost, time and quality of via using Design and Build Method:
Cost for one project of building is very important. In each of the procurement it has their special way to price the cost of a building. In case of design and build, cost is fixed at the tender stage and is subject to design changes, normally it is often higher than the traditional contracting system. Comparison between the design build procurement and traditional procurement, traditional procurement design will be completed during tender stage and it will set up a high level of price certainty except for the fluctuations in the cost of labor and materials.
The reason often is higher than the traditional contracting system is because once the tender is accepted, the tender price will be the final contract sum. It is not subject to change, unless there are variations required or instructed by the client. Such additional cost also cannot be avoided because under this procurement system the contractor will to take much of the financial risk.
In design and build procurement also know “fast-tracking” or”build-it-fast” project. So that it is suitable for the private clients, who want quick return on their investment, especially for commercial projects. The projects can be procured by negotiation rather than competition. This is because the design and build procurement save a lot of time depends on traditional procurement. By the way, traditional methods are most suitable for both public and private clients who want to control the stipulated overall time for the construction projects. All the operations are subject to considerable scrutiny and governed by fairly strict procedures especially in government funded development agencies.
In Design and Build procurement the whole construction process (pre and post contract works) is undertaken by only one party which will slightly affect the quality level of the construction project. Design and build method is also suitable to the projects that need early completion, so the quality of the work will be affected.
It’s compared to the traditional method, traditional method It produce the highest quality of work. The project is usually competitively tendered to a contractor before work starts on a lump sum basis. The design will be done before the commencement of construction and thus, the quality of work will be higher. Each process of construction is undertaken by different parties having varied expertise in the building team.
3.5 Advantages & Disadvantages of Design and Build Method:
In case of advantage of design and build procurement in construction industry, the advantage is it is suitable for all clients, including inexpert clients and those requiring distance from the project. By the way It is also cost certainty and faster track. Beside the disadvantage is it is not suitable for complex buildings and uncertain or developing client brief.
4.0 d) Procurement using Integrated or Partnering Method
4.1 Introduction of Integrated or Partnering Method:
Integrated or Partnering methods of procurement also can know as collaborative procurement. What is an Integrated and Partnering method? It is a form of procurement suited to large projects and a long term commitment between two or more organisations for the purpose of achieving specific business objectives by maximising the effectiveness of each participant’s resources. (Jack W E Masterman, 2002) Besides that, it also is about working as a team, regardless of organisation or location to achieve and to meet a client’s needs.
In construction industry, the Integrated or Partnering methods is intended to focus the participants of a project is attentive to delivering a project on time, to budget and to quality. (Jack W E Masterman, 2002) This procurement methods will enables team building and measurement and improvement of team performance on a project to project basis. Other than that, it also knows as a parallel or single responsibility procurement system where the client will only need to deal with a single organisation for both the designing and constructing the proposed project. In addition, the method is also to ensure that the contractors and consultants fully involve into the Integrated and Partnering process.
Furthermore, the general approach that using procurement using Integrated or Partnering methods is for the client organisation, consultants, contractors and selected sub-contractors to sign a partnering agreement and can be a legal contractual agreement or regular contracts can be in place with the partnering objectives set down in a separate charter.
In this situation, the role of contractor will have to engage and be responsible for design and construction teams for the client’s project. Under this method, the client’s consultants will prepare a tender or bidding document that include the project brief and client’s requirements by information giving by client. After that, the consultant will start invite a number of contractor to bid for the project. For submitting tenders, the invited contractor will produce their own design, construction and cost proposal. Usually the contractor that successful in bidding will into a contract based on lump sum price and a period of time that already fixed.
4.2 The cost, time and quality of via using Integrated or Partnering Method:
The Integrated or Partnering methods will help to reduce the cost of projects of the client. Although these are difficult to quantify accurately as there is a very wide range of percentage savings reported worldwide. Besides that, additional costs are incurred by all partners as a result of the need to hold workshops and to train stuff and also as a result of the expenditure on extra management time. There is little doubt, however, that Integrated or Partnering method will produce greater reductions over cost than other procurement methods.
The period of construction and design are reduced and sometime are shortened because the there are good relationship between consultant, contractor and client and with a good briefing about project by client and consultant and contractor can calculate the amount of the project needed and design a projects due to client requirements. Using this method can save a lot of time and select the most
Using the Integrated or Partnering methods, the quality of the final product is improved and safety standards are heightened. This is because mutually beneficial total quality management scheme can be jointly implemented which mean they are good in coordinate their work due to their specialist and can deliver the projects well and quality of the project will increase due to their efficiency.
4.3 Advantages & Disadvantages of Integrated or Partnering method:
4.3.1 Advantages of Integrated or Partnering method
Conflict among all of the members of the project team, and particularly between client and contractor and contractor and subcontractor or supplier, is reduced, as the number of disputes and claim.
Communication between all members of the project team is improved, and the establishment of mutual objectives ensures that the client’s needs and objective are known and understood by all of those involved.
The achievement of more efficient working and greater productivity that has been recorded as a result of the principle of continuous improvement will benefit all participants in their general activities as well as the specific projects with which they are involved.
When involved in Integrated or Partnering methods, the participants should benefit from the increased amount of innovative thinking and research and development that can be carried out as a result of sharing ideas and pooling resources.
Contractors, when involved in Integrated or Partnering methods, are able to rely on proportion of their annual workload being assured for at least the duration of the partnering programmed, and the costs normally associated with tendering for the amount of work in the programmed will not be incurred.
4.3.2 Disadvantages of Integrated or Partnering method
There is always the possibility that the client will not be able, or may not wish, to honour the arrangement to provide as much work as was originally envisaged, leaving the other partners with voids in their order books which they may find difficult to fill.
The relationships built up during the partnered projects can lead to cosy associations which do not encourage new ideas or a dynamic approach to the management of the project. Team members, when returning to their parent organisations, may find that there has been a hiatus in their career progression and that they have difficulty in acclimatising to the different culture.
Confidentiality can be compromised as a result of the opening up of information that is normally restricted to the organisations from which it originated.
Maintaining the commitment of staff, and particularly senior management, especially during the early stages of a project or programme when the benefits of partnering have not yet become evident, can be problematic and may even prove to be impossible.
Difficulties can arise as a result of conflicts that may occur between the partnering charter or framework, which usually are not intended to have any legal standing, and the terms and conditions of the formal contracts between the various parties involved in the projects.