Construction Procurement Methods Compared

Keywords: construction procurement strategy

Procurement is comes from the word of procure which is means “to bring about” and “to acquire”. Method is about “organized method, technique, process or procedure” (Rosli Abdul Rashid 2006). Procurement method is an overall management structure and specific management practices used in the project such as houses, office buildings, shopping complex, roads, bridges etc.

Traditionally, clients who wished to have projects constructed would invariably commission a designer, normal an architect for building projector an engineer for civil engineering projects. The designer would prepare drawings for the proposed scheme and, where the project was a sufficient size, a quantity surveyor would prepare estimates and documentation on which contractors could prepare their prices. Each of the different methods has been used at some time in the industry. New procurement systems will continue to be developed to meet new requirements and demands from clients, contactor and the professions (Allan Ashworth, 2008).

There is much more type of procurement systems used in the construction industry now a day. However the focus is only on the type of procurement systems that commonly used in Malaysia for example traditional system, design and build, management contracting and construction management.

2.1 Concept of Traditional System

Traditional System is also known as Design-Bid-Build (DBB). It is most common use in the construction industry. With this option, the client appoint an architect to prepare a brief, a scheme outline and working drawings, and to invite tenders and administer the project though issuing instructions, inspecting the work under construction and preparing certificates for payment. In another word, architect is to prepare design proposals to meet the client requirements. The architect may also, with the client’s approval, appoint other consultant such as quantity surveyor and structural engineers. The contractor, who has no responsibility for the design, will usually be selected by competitive tendering. The design team work independently from the contractor, who is responsible for executing the construction work in accordance with the teams of the contract (Allan Ashworth, 2008).

2.1.1 Contractual relationships of Traditional System

The client is in direct contractual relationship with the consultants on the one hand and the contractor on the other. Any contractual links for only where they clients make nominations is it advisable to recommend collateral agreements to protect his interests in respect of any matters which might lie outside the building contract (Stanley Cox and Hugh Clamp, 2003).

2.1.2 Management Relationship of Traditional System

The figure 2.3 is the management relationship of the traditional system. Architect is as the lead designer to coordinate with Engineers on the part of M & E works. Architects are also to ensure that the design complies with the local authority requirements. Besides that, Architects is to manage the whole project and supervise the works. Contractors to execute and complete the building works based on the design and specifications in the contracts. Contractors are to coordinate with the nominated Sub-contractors (NSC) on specialist works.

2.1.3 Advantages of Traditional System

• The quality of work is control by Client.
• Client can achieve the best price through competitive tendering.
• Clients can easily request any variation of the works.
• Client’s interest is protected by the Consultants who serve as advisors and independent certifies in the building contracts.

2.1.4 Disadvantages of Traditional System

• From inception to completion of the project need relatively longer period.
• The communication channel among various consultants may be incompetent.
• Client maybe too difficult to coordinate with the various consultants.

2.2 Concept of Design & Build

Design & Build (D & B) is a procurement system where a single organization undertakes the responsibilities and risks for both the design and construction phased. There may be various levels of employer involvement in the design: in the “pure” form of D & B, the client engages a building contractor at the outset who is then responsible both for the design and the construction of the work. The typical payment method for D & B is a lump sum, payable in monthly installments, based on a cost document that forms part of the “Contractor’ s Proposals” which is itself a tendered or negotiated response to the “Employer’s Requirements”, documents that form the basis of the contract (W.Hughes, 2006).

With D & B, it is likely that in the absence of in-house professional staff, the client will wish to engage outside consultants to advise on the preparation of requirements and to evaluate and select tenders etc. the main contractual link is between client and the contractor and the client’s agent or representative has only a limited role. The contractor might also have a contractual link with his own design consultants, and with sub-contractors and suppliers. As the contractor is wholly responsible for their performance, both in terms of design and construction, there might be less need for collateral agreements between them and the clients (Stanley Cox and Hugh Clamp, 2003).

2.2.1 Contractual relationships of Design & Build

With a design and build arrangement, instead of using and architect or engineer for a separate design service, the client chooses to employ a contractor directly for an all-in design and construction services. It may also be necessary and desirable to employ independent professional advisers to monitor the progress and quality of the contractor’s work and to agree the value of interim certificate for payment purposes (Allan Ashworth, 2008).

2.2.2 Management Relationship of Design & Build

The figure 2.5 is the management relationship of the D & B. Clients state his requirements through his consultants who prepares the ‘Employer’s Requirement’ or conceptual design. D & B Contractor is prepares the details design and prepare the cost proposals to the client. Therefore, successful D & B contractors are responsible for designing, planning, organizing, constructing and controlling the whole project. The scope of the design obligation needs to be set out as clearly as possible.

2.2.3 Advantages of Design & Build

• Ease of communication- Client only needs to liaise with one party i.e D&B Contractor, it is direct contact with the client.
• Saving in time and cost of construction.
• The contractor’s experience with the project from inception.
• The option for contractor s to include their constructing capability in the proposed design.
• No claim for possible delays due to a lack of drawn information.

2.2.4 Disadvantages of Design & Build

• Design possibilities are not explored in full and tend to be restricted by the D & B Contractor’s standard design and construction method.
• Quality of materials may be compromised in view of the D & B Contractor’s profit.
• Client is discouraged to order any variations of works.
• Client must select only D & B Contractor with good reputation and track record.

2.3 Concept of Management Contracting

The term management contracting is used to describe a method of organizing the project team and operating the construction process. The management contracting acts in a professional capacity, providing the management expertise and buildability requirement to the overheads and profits involved in return for a fee. The contractor does not therefore participate in the profitability of the construction work itself and does not directly employ any of the labour and plant, except possibly for those items involved in setting up of the site and the costs normally associated with preliminary works.

Because the contractor is employed on a fee basis, the appointment can take place early during the design stage. The contractor is therefore able to provide a substantial input into the practical aspects of the building technology process. Each trade required for the project is tendered for independently by subcontractor, either upon the basis of the measured work packages or a lump sum. This should therefore result in the lowest cost for each trade and thus for the construction work as a whole. The management contractor assumes full responsibility for the control of the work on site (Allan Ashworth, 2008).

2.3.1 Contractual relationships of Management Contracting

The contractual relationship in a management contract is between the client and the management contractor, with all works contactor in direct relationship with the latter. It may also be desirable to establish a contractual relationship between the client and each work contactors by means a collateral agreement. In construction management the contractual relationship is between the client and the construction manager, with all trades contractors in direct relationship with the former (Stanley Cox and Hugh Clamp, 2003).

2.3.2 Management Relationship of Management Contracting

The figure 2.7 is the management relationship of the Management Contracting. Management contractor (MC) is to manage construction works for a management fee that comprises a percentage for profit and fixed overheads. Normally MC does not undertake the construction works by himself. Consultants prepare the design; MC determines construction/management method. This method is popular used in UK.

2.3.3 Advantages of Management Contracting

• Early appointment of contractor as a member of design team to provide management skill.
• Better coordination & control of project through improved management qualities.
• Shorter project period because increase speed of design and construction

2.3.4 Disadvantages of Management Contracting

• Pressures on design team in preparation of various tender documentation and tender evaluation.

2.4 Concept of Construction Management

The contractual arrangement and services rendered by a construction management firm are not dissimilar from those under management contracting. But relieving such an organization of contractual risk for the performance of sub-contractors is much more effective if they are not contractual intermediaries. Thus, the most significant characteristic of construction management is that there is no general contractor; instead there is a series of direct contractual links between the client and the trade contractors, making the role of the construction management more like a consultant than a contractor. The arrangement is used particularly by experienced clients on projects with short lead-times (W.Hughes, 2006). The construction manager is responsibility for the overall control of the design team and the various trade contractors, throughout both the design phase and the construction phase of the project (Allan Ashworth, 2008).

2.4.1 Contractual Relationship of Construction Management

The construction manager is appointed after a careful selection process and is paid a management fee. One basic difference from a management contract is that the trades’ contracts, although arranged and administered by the construction manager, are direct between the client and the trade contracts. The construction manager is a coordinator, and usually cannot guarantee that the project will be finished to time or cost. The clients direct the project and the client is also likely to carry the greatest burden of the speculative risk (Stanley Cox and Hugh Clamp, 2003).

2.4.2 Management Relationship of Construction Management

The figure 2.9 is the management relationship of the Construction Management. Construction Management is separating consultants/designers from management of the project. Construction Manager (CM) replace designer in administration of contract except design/ certification matters. CM concentrates on managing time/ cost using his unique construction expertise. Clients selects all trade contractors and CM managers the project for a fee.

2.4.3 Advantages of Construction Management:

• Independent management function.
• Reduction in project durations and costs.
• Design team able to concentrate on design.
• No conflict of interest between design and production.

2.4.4 Disadvantages of construction Management:

• Additional management cost.
• Erosion of Architect’s power and responsibilities.

2.5 Summary

Traditional

 

Speed: Not the fastest of methods.

Complexity: Desirable to have all information at tender stage. Consider two stages or negotiated tendering.

Quality: Basically straightforward, but complications can rise if the client requires that certain sub-contractors are used.

Clients require certain standards to be shown or described. Contractor is wholly responsible for achieving the stated quality on site.

Design and Build

Speed: Relatively fast method.

Complexity: Pre-tender time largely depends on the amount of the detail in the client’s requirements. Construction time reduced because design and building proceed parallel.

Quality: A sufficient single contractual arrangement integrating design and construction expertise within one countable organisation.

Client has no direct control over the contractor’s performance. Contractor design expertise may be limited. Client has little say in the choice of specialist sub-contractors.

Management Contracting

Speed: Early start on site is possible, long before tenders have even been invited for some of the works packages.

Complexity: Design and construction skills integrated at an early stage. Complex management operation requiring sophisticated techniques.

Quality: Client requires certain standards to be shown or described. Managing contractor responsible for quality of work and materials on site.

Construction Management

Speed: Relatively fast method. The individual trade contractors are in direct contract with the client.

Complexity: Design team able to concentrate on design.Construction Manager concentrates on managing time/ cost using his unique construction expertise.

Quality: Construction Manager replace designer in administration of contract except design/ certification matters.

2.5.1 Summary

Traditional

Flexibility: Clients control design and variations to a large extent.

Certainty: Certainty in cost and time before commitment to build. Clear accountability and cost monitoring at all stages.

Responsibility: Can be clear-cut division of design and construction. Confusion possible where there is some design input from contractor or specialist sub-contractor and suppliers.

Design and Build

Flexibility: Virtually none for the client once the contract is signed, without heavy cost penalties. Flexibility in developing details or making substitutions is to the contractor’s advantage.

Certainty: There is a guaranteed cost and completion date.

Responsibility: Can be clear division, but confused where the client’s requirement are details as this reduces reliance on the contractor or design or performance. Limited role for client’s representative during construction.

ManagementContracting

Flexibility: Client can modify or develop design requirements during construction. Managing contactor can adjust programme and costs.

Certainty: Client is committed to start building on a cost plan, project drawings and specifications only.

Responsibility: Success depends on the management contractor’s skills. An element of trust is essentials. The professionals’ team must be well coordinated through all the stages.

Construction Management

Flexibility: Clients selects all trade contractors and CM managers the project for a fee

Certainty: Usually cannot guarantee that the project will be finished to time or cost

Responsibility: Success depends on the Construction Manager.

2.5.2 Summary

Traditional

Advantages: The quality of work is control by Client and Client can achieve the best price through competitive tendering.

Disadvantages: From inception to completion of the project need relatively longer period.

Summary: Benefits in cost and quality but at the expense of time.

Design and Build

Advantages: Saving in time and cost of construction.

Disadvantages: Quality of materials may be compromised in view of the D&B Contractor’s profit.

Summary: Benefits in cost and time but at the expense of quality.

Management Contracting

Advantages: Increase speed of design and construction, hence shorter project period.

Disadvantages: Pressures exerted on design team in preparation of various tender documentation and tender evaluation.

Summary: Benefits in time and quality but at the expense of cost.

Construction Management

Advantages: Reduction in project durations and Design team able to concentrate on design.

Disadvantages: Additional management cost and erosion of Architect’s power and responsibilities.

Summary: Benefits in time and quality but at the expense of cost.

2.6 Conclusion

As a conclusion, the traditional approach to construction has been to appoint a team of consultants to prepare a design and estimate, and to select an independent constructor. The final would calculate the actual projects costs, develop a programme to fit within the period laid down in the contract, organise the workers and materials deliveries and construct to the standards quality specified in the contact documentations.

The client would prefer single point responsibility and a truly fixed price and for projects to be completed as required. Procurement procedures remain is a dynamic activity. They will continue to develop to meet the changing and challenging needs of society and the circumstances under which the industry will find itself working. There are no standard procurement solutions, but each individual projects needs to be considered independently and analysed accordingly. However, is a need to evaluate more carefully the procedures being recommended in order to develop good practice in procurement and to improve the image of the industry.