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0 PROCUREMENT METHODS
ATGB3663 BUILDING ACTS AND CONTRACTS
Tunku Abdul Rahman University College
Faculty of Engineering and Built Environment
Department of Quantity Surveying and Real Estate

What is Procurement System?


Procurement method is a system used to obtain and manage
a building project.
Types of procurement method commonly used in building
projects:
1. Traditional System (Sequential & Accelerated)
2. Package Deal/ Integrated
3. Management Oriented (Management Contracting &
Construction Management)

Procurement Process
Initiation / Inception / Feasibility Studies
Funding

Pre-contract
stage

Tendering

Construction

Post-contract
stage

Procurement Selection
Factors to consider in selection an appropriate procurement
methods:

Size

Design
Accountability
..

Organization

Risk

Finance

Types of Procurement Methods


Apart from the traditional approach, there are now other
fast-tracking or innovative procurement systems used by
the construction industry world wide.
The different procurement systems differ from each other in
term of allocation of responsibilities, activities sequencing,
process / procedure and organizational approach in project
delivery.

TRADITIONAL
PROCUREMENT METHODS
SEQUENTIAL
ACCELERATED

Traditional Methods

Sequential

Competitive
tender

Accelerated

Negotiated
tender

Traditional

Traditional Methods
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.

Traditional Methods
Responsibility

Employer

Contractual Link

Professional Team
Main Contractor

Sub-contractor / Supplier

Nominated Sub-contractor

Contractual Relationship for


Traditional Methods

Traditional Methods
A Fixed Price Contract involves the contractor agreeing to
construct the building as specified in the drawings and Bills of
Quantities (BQ) 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.

Traditional Methods
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.

Traditional Methods (Sequential)


Sequential

A drawn and specified design is prepared and,


together with cost documentation - contractor bid,
generally in competition.

The building owner will appoint a team of


consultants to act on his behalf to produce
construction drawings, specification and tender
document and to administer the tendering
processes to select a contractor.
Once selected and awarded the contract, the
contractor will carry out based on the drawings and
specification prepared by the clients consultants.

Traditional Methods (Sequential)

Inception &
Feasibility
Study

Design

Tendering

Sequence of Activity for


Traditional Methods (Sequential)

Construction

Handover &
Maintenance

Traditional Methods (Accelerated)


Accelerated

A contractor is appointed earlier in the sequence of


design on the basis of partial information, either by
negotiation or in competition.
Can be considered as an innovative approach to
speed up the selection of contractor and the
commencement of construction.
Involve preliminary discussion with selected few
contractors, submission of fixed tender and/or cost
negotiation based on partial information.

Traditional Methods (Accelerated)

Inception &
Feasibility
Study

Design

Tendering

Construction

Sequence of Activity for


Traditional Methods (Accelerated)

Handover &
Maintenance

Advantages of Traditional Methods


Time tested methods in construction
Most parties in industry familiar with its working
..

..
Minimizes professional conflict

Disadvantages of Traditional Methods


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).
Creates a them and us attitude

PACKAGE DEAL/INTEGRATED
PROCUREMENT METHODS
DESIGN & BUILD
TURNKEY
DEVELOP & CONSTRUCT

Package Deal
Commonly called the all in contracting.
A contractor is given the responsibility for everything that is
required and necessary for the design, construction and
delivery of the project.
The services of the contractor will 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 equipment and accessories
and handing over the project to the client.

Package Deal

Inception &
Feasibility
Study

Design

Tendering

Construction

Handover &
Maintenance

Sequence of Activity for


Package Deal (Integrated Procurement Methods)

Package Deal
Employer

Responsibility

Professional Advisor

Contractual Link

Main Contractor

Professional Team

Sub-contractors/
Suppliers

Sub-contractors/
Suppliers

Contractual Arrangement for Package


Deal

Design & Build


Under this system, the client together with his/her consultants
will prepare a tender or bidding document that include the
project brief and clients requirements and invite a number of
contractors to bid.
For the purpose of submitting tenders, the invited contractors
will produce their own design, construction and cost proposal.
Very often the successful contractor will into a contract based
on lump sum price and a fixed duration.
The contract may be on a fixed price or cost reimbursement
basis, which may be either negotiated, or subject to tender.

Design & Build


Purposes / 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.

Turnkey
Turnkey contract is an American term for all in or package
contract. Under this arrangement, a contractor is
commissioned to undertake the responsibilities for everything
necessary and required 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 will have to do everything 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 & Construct


Develop and construct is another type of the integrated
procurement approach which is very much similar to design
and build.

The contractor is still given the responsibility for both the


design and construction of the project.
The difference is that, under this method the clients design
consultants prepare the concept sketches or designs and
passed them to the contractor who will develop them and
produced the detailed working drawings. The contractor will
then construct and complete the project based on what it has
developed and produced.

Advantages of Package Deal Methods


Single point responsibility
.
.
Permits price certainty

Disadvantages of Package Deal Methods


Difficulty in evaluation
Compromise in quality
Higher professional fee outlay

Employers involvement is minimal

MANAGEMENT ORIENTED
PROCUREMENT METHODS
MANAGEMENT CONTRACTING
CONSTRUCTION MANAGEMENT
DESIGN & MANAGE

Management Contracting
Fast-tracking procurement approach. A contractor is
contracted and paid a fee to manage, procure and supervise
the construction of a project rather than to build the project.

The actual construction works are contracted out to many


package or specialist contractors/sub contractors.
The management contractor is employed as a construction
consultant to be part of the clients team.
The package contractors are in contract with the management
contractor.

Management Contracting
Inception &
Feasibility
Study

Design

Tendering

Construction

Handover &
Maintenance

Sequence of Activity for


Management Contracting (Management Procurement Methods)

Management Contracting
Work / Trade Contractors
Work / Trade contractors enter into a contract with the management
contractor to 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.

Management Contracting
Employer

Responsibility
Contractual Link

Professional
Team

Work Contractor

Management
Contractor

Work Contractor

Contractual Arrangement for


Management Contracting

Work Contractor

Management Contracting
To Contractor
To Developer

Advantages of Management Contracting Methods


to Developer and Contractor

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.

Construction Management
Inception &
Feasibility
Study

Design

Tendering

Construction

Handover &
Maintenance

Sequence of Activity for


Construction Management (Management Procurement Methods)

Construction Management
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.

Construction Management
EMPLOYER

PROFESSIONAL
TEAM

Responsibility
Contractual Link

MANAGEMENT
CONTRACTOR

WORK
CONTRACTOR

WORK
CONTRACTOR

Contractual Arrangement for


Construction Management

WORK
CONTRACTOR

Design & Manage


A single organization or firm is commissioned to be responsible
for designing the project and managing its construction.
The firm is does carry out the work itself, but it is contracted
out to a number of specialist sub-contractors or package
contractors, who enter into contract with the client.
A design and manage firm or company is engaged as a
consultant for the client and become a member of the project
team.

Design & Manage


EMPLOYER

Responsibility
Contractual Link

PROFESSIONAL
TEAM

DESIGN AND
MANAGEMENT
CONTRACTOR

DESIGN TEAM

CONSTRUCTION
CONTRACTOR

Contractual Arrangement for Design


and Manage

Comparison of Procurement Methods


RISK
Traditional

The risks are


generally fair and
balanced between
the parties to the
contract.

Design & Build

All the risks can lie


almost wholly with
the contractor.

Management
Contracting

The client retain


most of the risks.

Comparison of Procurement Methods


PRICE COMPLETION
Traditional

This method allows


certainty in cost
and time before
commitment to
build. There will be
clear accountability
and cost
monitoring at all
stages.

Package Deal

The client can


expect a
guaranteed cost
and completion
date

Management

The client is
committed to start
building on a cost
plan, project
drawings and
specifications only.

Comparison of Procurement Methods


RESPONSIBILITIES
Traditional

Package Deal

Management

This method can be a


clear cut division of
design and construction
works. The client will
engage different
consultant to design
the works and they will
take full responsibilities
for construction of the
works from the pretender stage until the
completion stage.

This method provides a


single point contact and
responsibility by the
contractor. Therefore
the contractor is solely
responsible for failure
in design or the
construction. In short,
the client has only one
person to deal with if
the project is faced
with any problems.

The client will have to


choose the professional
team who will be well
coordinated through all
the stages. The success
of the project will
depend on the
management
contractors skills and
an element of trust is
essential.

THE END