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LEONARDO DA VINCI ToI PROJECT

TRAIN-TO-CAP
Strengthening of European Union Funds Absorption Capacity
for Infrastructure Construction Projects
2010-1-PL1-LEO05-11469

MANUAL
PROCUREMENT STRATEGY
IN CONSTRUCTION

Authors (in alphabetical order):


SALEEM AKRAM
CRISTIANA CAVALLINI
ALTAN DIZDAR
ARNAB MUKHERJEE
PAWE KLUCZUK
ZBIGNIEW KUJAWA
LUIGI MASSARINI
ANDRZEJ MICHAOWSKI
ALEKSANDER NICA
PAWE OLAF NOWAK
PIOTR ROBERT NOWAK
BARBARA PUASKA
MACIEJ SIEMITKOWSKI
KAROLINA ZARBA

Warsaw, Ankara, Ascot, Mondavio 2012


"This project has been funded with support from the European Commission under the Lifelong Learning Programme. This
publication reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be
made of the information contained therein."

PREFACE

This book and training course are the results of the project no. 2010-1-PL1-LEO05-11469
entitled Strengthening of European Union funds absorption capacity for infrastructure
construction projects, implemented within the framework of Leonardo da Vinci Programme
Transfer of Innovation.
The Polish Association of Construction Industry Employers, Poland was the project promoter.
The project partners were:

The Chartered Institute of Building United Kingdom;


ERBIL Project Consulting Engineering CO. Ltd Turkey;
Training 2000 Italy;
Civil Engineering Faculty Warsaw University of Technology Poland.

The aims of the project were to:


Minimise problems connected with disputes and claims in construction projects
regarding infrastructure;
Increase transparency of procedures in risk management and claims and disputes
processes;
Increase access to training through the MOODLE platform.
The main result of the partnerships works within the TRAIN TO CAP project is a blended
learning training set containing: training courses on MOODLE (Multi Object Oriented
Dynamic Learning Environment) platform concerning risk and dispute management in
infrastructure construction projects and three textbooks:
PROCUREMENT STRATEGY IN CONSTRUCTION
DELAYS AND DISRUPTIONS IN CONSTRUCTION PROJECTS
MANUAL FOR TUTORS
The project products are prepared for: qualified engineers, managing directors, project
managers, construction managers, engineers (FIDIC), and other managing staff from
construction companies, government agencies, local authorities who are able to manage
international projects and act in any European country.
TRAIN TO CAP as a blended learning course was created in order to increase the
professional knowledge, skills and background of employees dealing with European
construction projects. Understanding and gaining the specific skills minimises risks and
disputes during conducting construction and infrastructure projects on European Union
market. Gained knowledge and usage of specific terminology allows avoidance of
unnecessary problems with management and communication during the lifetime of projects.
These aspects are directed to strengthen effective European Union funds absorption in the
field of infrastructure projects.
The project products are available in four language versions: Polish, English, Turkish and
Italian. TRAIN TO CAP course is to be used as a basis for organisation of trainings for the
engineering staff at construction companies, local government organisations, and local
authorities and for postgraduate students as well.
More information about the project and the online course is on TRAIN TO CAP website:
www.traintocap.eu.

Contents:
CHAPTER 1 INTRODUCTION PROCUREMENT STRATEGY IN CONSTRUCTION ...... 8
OBJECTIVES OF CHAPTER 1 ..................................................................................................... 8
LEARNING OUTCOMES FOR CHAPTER 1 ............................................................................. 8
1.1. Introduction ......................................................................................................................... 8
1.2. Procurement practices in construction................................................................................. 9
1.3. Business strategy and construction procurement ................................................................ 9
1.4. Procurement/tendering in context of EU legislations ........................................................ 10
1.5. Trends in construction procurement .................................................................................. 11
1.6. Literature and further reading for chapter 1 ...................................................................... 12
1.7. Set of exercises for chapter 1............................................................................................. 13
CHAPTER 2 LIFE CYCLE OF CONSTRUCTION PROJECT ................................................. 14
OBJECTIVES OF CHAPTER 2 ................................................................................................... 14
LEARNING OUTCOMES FOR CHAPTER 2 ........................................................................... 14
2.1. Introduction ....................................................................................................................... 14
2.2. Strategic planning .............................................................................................................. 15
2.2.1. Introduction ....................................................................................................................... 15
2.2.2. Basic elements of strategic planning ................................................................................. 16
2.2.3. What is a feasibility report ................................................................................................ 20
2.2.4. Why prepare feasibility studies? ....................................................................................... 20
2.2.5. Feasibility study elements ................................................................................................. 21
2.3. The stages of the project .................................................................................................... 22
2.3.1. The conceptual stage ......................................................................................................... 22
2.3.2. The development stage ...................................................................................................... 24
2.3.3. The implementation stage.................................................................................................. 24
2.3.4. The operational stage ......................................................................................................... 25
2.3.5. The abandonment stage ..................................................................................................... 26
2.4. Risk management strategies .............................................................................................. 26
2.5. Literature and further reading for chapter 2 ...................................................................... 27
2.6. Set of exercises for chapter 2............................................................................................. 28
CHAPTER 3 BUILDING AND LEGAL ISSUES ...................................................................... 32
OBJECTIVES OF CHAPTER 3 ................................................................................................... 32
LEARNING OUTCOMES FOR CHAPTER 3 ............................................................................ 32
3.1. Standard methods of procurement ..................................................................................... 32
3.1.1. Traditional Method: (Construction) .................................................................................. 33
3.1.2. Design and Build methods................................................................................................. 34
3.1.3. Management contracting ................................................................................................... 34
3.1.4. Project/construction management ..................................................................................... 35
3.2. Issues with EU procurement .............................................................................................. 36
3.3. Procurement under EU Directives ..................................................................................... 37
3.4. Alternative methods of procurement PFI ....................................................................... 40
3.5. Literature and further reading for chapter 3 ...................................................................... 43
3.6. Set of exercises for chapter 3............................................................................................. 44

CHAPTER 4 PUBLIC TENDERING ......................................................................................... 46


OBJECTIVES OF CHAPTER 4 ................................................................................................... 46
LEARNING OUTCOMES FOR CHAPTER 4 ........................................................................... 46
4.1. Introduction ....................................................................................................................... 46
4.2. Phases of tendering ............................................................................................................ 47
4.3. Procuring the supply chain ................................................................................................ 50
4.4. Tender procedures ............................................................................................................. 52
4.5. Tender appraisal: time, quality and price .......................................................................... 56
4.6. Awarding the contract ....................................................................................................... 57
4.7. Literature and further reading for chapter 4 ...................................................................... 62
4.8. Set of exercises for chapter 4............................................................................................. 63
CHAPTER 5 CONTRACT ADMINISTRATION AND MANAGEMENT ............................... 65
OBJECTIVES OF CHAPTER 5 ................................................................................................... 65
LEARNING OUTCOMES FOR CHAPTER 5 ........................................................................... 65
5.1. Contract award .................................................................................................................. 65
5.1.1. The contract drawings ....................................................................................................... 65
5.1.2. The specifications .............................................................................................................. 66
5.1.3. The general condition of contract ..................................................................................... 66
5.1.4. The special conditions of contract .................................................................................... 66
5.1.5. The bill of quantities (BOQ).............................................................................................. 66
5.2. Kick-off, inception report ................................................................................................. 67
5.2.1. Agenda of the kick-off meeting engineers contract commencement ............................ 67
5.2.2. Inception report - table of contents .................................................................................... 68
5.3. Contract management ........................................................................................................ 69
5.3.1. Role of project management .............................................................................................. 69
5.3.2. Skills of contract manager ................................................................................................. 70
5.3.3. Contract manager abilities ................................................................................................. 71
5.4. Administrative requirements ............................................................................................ 71
5.5. Environment requirements ................................................................................................ 71
5.5.1. Environmental assessment methodologies ........................................................................ 72
5.5.2. Waste management plan .................................................................................................... 72
5.6. Finance project cost and value management .................................................................. 73
5.6.1. Project cost management ................................................................................................... 73
5.6.2. Value management ............................................................................................................ 74
5.6.3. Cash-flow diagrams ........................................................................................................... 74
5.7. Time, cost and quality ...................................................................................................... 75
5.7.1. Updating ........................................................................................................................... 75
5.7.2. Project control ................................................................................................................... 76
5.7.3. Schedule/time/progress control ......................................................................................... 76
5.7.4. Cost control ....................................................................................................................... 77
5.7.5. Control of schedule, cost and technical performance Earned Value Method ................ 77
5.8. Health and safety ............................................................................................................... 78
5.8.1. Health and safety management system .............................................................................. 78
5.8.2. Safety policy and organisation .......................................................................................... 79
5.9. Warranties, insurances ...................................................................................................... 79
5.9.1. Insurance............................................................................................................................ 79
5.9.2. Project insurance ............................................................................................................... 80
5.9.3. Marine-to-erection insurance............................................................................................. 80
5.9.4. Contractors all-risk insurance (CAR insurance) .............................................................. 80
5

5.9.5. Liquidity damages insurance ............................................................................................. 82


5.9.6. Professional indemnity policy ........................................................................................... 82
5.9.7. Warranty ............................................................................................................................ 82
5.10. Certificates at completion .................................................................................................. 83
5.11. Project close-out ................................................................................................................ 83
5.11.1. Construction close-out ....................................................................................................... 84
5.11.2. Financial close-out............................................................................................................. 84
5.11.3. Contract close-out .............................................................................................................. 85
5.11.4. Project managers close-out .............................................................................................. 85
5.11.5. Lessons learned from the project ....................................................................................... 85
5.12. Literature and further reading for chapter 5 ...................................................................... 86
5.13. Set of exercises for chapter 5............................................................................................. 87
CHAPTER 6 CASE STUDIES .................................................................................................... 89
OBJECTIVES OF CHAPTER 6 ................................................................................................... 89
LEARNING OUTCOMES FOR CHAPTER 6 ............................................................................ 89
6.1. CASE STUDY 1 (Poland): Procurement problem in Polish legal regulations ................. 89
6.2. CASE STUDY 2 (Turkey): Assessment of public procurement ....................................... 90
6.3. CASE STUDY 3 (Italy): Previous juvenile prison of Pesaro ............................................ 94
6.4. CASE STUDY 4 (Turkey) Izmir Bay Crossing Project . .......................................... 95
6.5. CASE STUDY 5 (Turkey): Railways - prvatsaton and investment n Turkey .............. 96
6.6. CASE STUDY 6 (Turkey): Mersin Container Port project .............................................. 98
6.7. CASE STUDY 7 (Turkey): NABUCCO Gas Pipeline Project ....................................... 100
6.8. CASE STUDY 8 (Poland): Channel Tunnel Rail Link ................................................... 101
6.9. Literature and further reading for chapter 6 .................................................................... 104
CHAPTER 7 GLOSSARY ........................................................................................................ 105

CHAPTER 1
INTRODUCTION PROCUREMENT STRATEGY
IN CONSTRUCTION
OBJECTIVES OF CHAPTER 1
The primary objective of this chapter is to introduce the concept of construction procurement,
its strategic context, its relevance in terms of EU Directives and some future trends.
LEARNING OUTCOMES FOR CHAPTER 1
The primary learning outcome for this chapter is to gather understanding of the notion and the
nature of construction procurement including contextual and strategic issues.
1.1. Introduction
Construction procurement is the process of identification, selection and commissioning of the
contributions required for the delivery of:
Alteration, refurbishment, maintenance, extension or demolition of an existing
building or structure, and/or
The creation of a new building or facility, including all associated site works.
To obtain the best service and performance from the construction industry, the client must be
closely involved with each step of the procurement process. Successful construction
procurement should result in a project delivered on time, to cost and to the desired quality
capable of performing the specific function required by the client.
New buildings or structures are seldom standard items and the refurbishment of existing
structures can never be standard. The act of creating a new structure or extending or
refurbishing an existing structure cannot be directly compared to the procurement of goods
which can be requisitioned, are often off the shelf and where an immediate choice can be
made in terms of cost and quality.
The procurement of construction works involves the commissioning of professional services,
either from within the procuring organisation or from external sources. The process is
complex, involving the interaction of the client, design team and other consultants, contractors
(who provide the construction expertise, labour, materials and plant resources), suppliers and
various statutory/public interest bodies. Construction procurement is often the subject of joint
funding, with the different stakeholders having varying degrees of interest and objectives in
the outcome of the project.
From recent literature on this subject1, the following six elements can be identified as the best
practice drivers in terms of construction procurement:
Traditional processes of selection should be radically changed because they do not
lead to best value;
An integrated team, which includes the Client, should be formed before design and
maintained throughout delivery;

See for example Constructing the Team, Sir Michael Latham, 1994; Rethinking Construction, Sir John Egan,
1998; Improvement of Capacity, Sir Christopher Kelly, 2004 & 2006; Public Sector Efficiency Review, Sir Peter
Gershon, 2004; Securing the Future UK strategic policy document, 2005; Economics Review, Sir Michael
Stern, 2006

Contracts should lead to mutual benefit for all parties and be based on a target and
whole life cost approach;
Suppliers should be selected by Best Value and not by lowest price; this can be
achieved within EC and government procurement guidelines relating to value for
money;
Performance measurement should be used to underpin continuous improvement
within a collaborative working process;
Culture and processes should be changed so that collaborative rather than
confrontational working is achieved.
However, in the context of construction procurement, many contractual arrangements are
often not aligned to achieve or facilitate these drivers.
1.2. Procurement practices in construction
Procurement practices in construction, broadly speaking, are quite varied and complex in the
sense that it is quite difficult to define the various arrangements available2.
The key drivers of any construction project will remain centred around either cost, or time
or the quality. A good procurement strategy will understand the key drivers and achieve the
optimum balance in context of the individual project and the requirement of the organisational
strategy.
To provide an example, a particular requirement for a project may be a specific design, which
in turn assigns the quality through the specifications and if this parameter is relatively fixed,
then the other two key drivers i.e. the cost and the time will have to be optimised through the
procurement strategy.
There may also be situations where the end user requirements and the costs are fairly set, and
through the procurement process the design and the time elements will have to be optimised
and achieved. Table 1.1. below3 attempts to capture the characteristics of the different
contractual arrangements common in construction.
The various procurement options available reflect the fundamental differences in the
allocation of risk and responsibility to match the characteristics of different projects, therefore
the selection of the procurement strategy must be given strategic consideration.
The specific contractual arrangement, when reviewed in context with the current EU
legislative requirements (EU Procurement Directives are discussed in detail in Chapters 3
& 4), makes it imperative for any public sector organisation undertaking construction projects
to consider carefully the organisational needs and strengths and the strategic fit of the
intended procurement strategy it its organisational capabilities.
1.3. Business strategy and construction procurement
In addition to the risk allocation, the client organisations business strategy will also have an
influence on selection of the procurement strategy. This is particularly important in terms of
funding the construction project. For example, if a public sector body considers Public Private
Partnership (PPP) or Private Finance Initiative (PFI) to be a viable option to commission the
project, there are specific steps and considerations at the procurement stage which the
commissioning body will have to follow.
Table 1.1. Characteristics of the different contractual arrangements

Hibberd & Djebrani (1996)


Rowlinson & Newcombe (1984); NEDO (1985) Thinking about Building , Building Economic Development
Committee, London; Also see Code of Practice for Project Management (4th edition), CIOB, 2010
3

Price

Type of
arrangement

Certainty

Construction process
Traditional
Good
Design &
Good
Build
Average to
Measurement
Poor
Prime Cost
Poor
Consulting
Management
Average to
Function
Poor
Framework
Good

Design

Level
(including
professional
fees)

Parallel/overlap
between design
& construction

Changes

Buildability
inherent in
design
through
early
contractor
involvement

Low

No

Easy

No

Long

Medium

Yes

Difficult

Yes

Medium/Short

Medium

Yes

Easy

No

Medium/Short

High

Yes

Easy

No

Fast

Medium

Yes

Easy

Yes

Fast

High

No

Easy

Yes

Fast

Lead in time
to start

There are also fundamental differences in delivery structure and contractual arrangements,
which involve a larger number of stakeholders, a substantially different risk matrix and more
complex responsibility for the management of risk. It is important at the strategic level to
consider and understand these risks, which are more extensive, more onerous and which
extend for a much longer period4.
1.4. Procurement/tendering in context of EU legislations
EU procurement (tendering) rules were introduced by the European Community to open up
competition between member states. This is because public sector spending represents
a significant proportion of the construction spend across the EU member states.
Any contracts with an estimated value of more than the amounts listed below as threshold
values are subject to specific rules regarding specification and the tender process.
These thresholds are subject to amendment by the European Union and are usually adjusted
every two years,
Considerations for contracts falling within thresholds are listed below.
Values exclude VAT.
Values are TOTAL values NOT annual values e.g. a three year contract valued
at 60,000 per annum (total value 180,000) is covered.
Values are to be aggregated e.g. if there is an on-going annual need for supplies.
It is a breach of EU law to deliberately divide up contracts to avoid the rules.
There are specific rules in relation to extensions of existing contracts.
There are specific rules relating to contracts for both services and supplies.
There are specific exceptions to these thresholds. They are similar to the local
or regional government (e.g. councils) exceptions, but different procedures apply.

See recent CLOMEC 2 publications on PPP projects and also Code of Practice for Project Management (4th
edition), CIOB (2010).

The EU Procurement Directives


The Directives cover the following:
Works - Building and engineering capital works over the threshold value;
Supplies - Supply, lease, rental or hire purchase of goods over the threshold value;
Services - Supply of services over the threshold value (Does not apply to employment
contracts).
The application of the Services Directive is split between Part A services (e.g. IT) which are
subject to the full European regime and Part B services (e.g. catering) which have minimal
legislative requirements.
Part A Services (see below) are subject to the full requirements. This means for instance, that
the services must be advertised in the Official Journal of the European Union (OJEU).
Part B Services (summarised below) have minor requirements. The main requirements are
in relation to technical specification and award notice.
Table 1.2. Services Directive
Part A Services (full regime)
Accounting, auditing, book-keeping
Market research and opinion polling
Management consultancy
Architectural, engineering, urban planning,
landscaping and related technical services
Advertising
Building cleaning and property management
Sewerage and refuse disposal
IT Services
Financial services
Transport and courier services
Maintenance and repair of vehicles and
equipment

Part B Services (partial regime)


Catering
Legal
Security
Educational
Health and Social
Recreational, cultural and sporting

Other Services

The above categories are in summary form only. There are extensive and detailed EU
definitions for the types of services covered under each of these categories.
The EU Procurement Directives and their implications for construction procurement are
discussed in further detail in Chapters 3 and 4.
1.5. Trends in construction procurement
Over the last two decades or so, procurement practices in construction have undergone
a considerable transformation, partly due to a shift in the business environments in which the
procurement systems operate. In the 1990s procurement experts and practitioners were
involved mainly with debating the more strategic issues of the time such as privatization,
market liberalisation, and the role of culture and trust in negotiations, as well as the more
traditional themes of procurement systems, contractual arrangements and forms of contract5.
In the late 1990s some wider issues relating to procurement began to emerge,
i.e. those procurement systems/strategies that looked at the whole life cycle of the project,
rather than just cost and time criteria6. Recent reports also acknowledge that the softer skills
5
6

McDermott (1999)
McDermott (2006)

10

of persuasion, collaboration and alignment are required by the industry in order to best
incorporate value creation and best practice procurement7. Procurement is no longer
concentrating on operational activities, but on strategic objectives linked to the long-term
survival and development of the organisations as a whole8. Using procurement as
a competitive tool brings many implications and complex interconnectivities9 that have to be
properly assessed and understood to obtain the optimum benefits from a procurement strategy.
1.6. Literature and further reading for chapter 1
1. Chartered Institute of Building (2010) Code of Practice for Project Management
for Construction and Development (4th edition), Wiley Blackwell.
2. Future Purchasing Alliance (2003) Connecting Purchasing and Supplier Strategies
to Shareholder Value. FPA, UK.
3. Goodier, C.I., Soetanto, R., Fleming, A., Austin, S.A. and McDermott, P. (2006) The future
of construction procurement in the UK: a shift to service provision. Proceedings of CIB
W92 Symposium on Sustainability and Value through Construction Procurement,
McDermott, P. and Khalfan, M.M.A. (eds.) University of Salford, 29 November
- 1 December, pp. 182-193. ISBN 1-905732-11-2.
3. Hibberd P & Djebrani R (1996) Criteria of Choice for Procurement Methods (1996)
available at www.rics.org/site/download_feed.aspx?fileID=2330...PDF accessed November 2011
4. Male, S. (2003) Future trends in construction procurement: procuring and managing
demand and supply chains in construction. In Management of Procurement, Bower, D.
(ed.), Thomas Telford Publishing, London.
5. McDermott, P.(1999) Strategic and emergent issues in construction procurement.
In Procurement Systems: A Guide to Best Practice in Construction, E&FN Spon, London.
6. McDermott, P. (2006) Think Piece: Policy through Procurement? In The Future of
Procurement and its Impact on Construction, a workshop of Joint Contracts Tribunal & the
University of Salford, 19/07/06.Male (2003).
7. Miller G, Furneaux C, Davis P, Love P & ODonnell A (2009) Built Environment
Procurement Practice: Impediments to Innovation and Opportunities for Changes, Curtin
University of Technology, Report for Built Environment Industry Innovation Council,
Australia.
8. NEDO (1985) Thinking about Building, Building Economic Development Committee,
London.
9. Rowlinson, S.M., and Newcombe, R. (1984). Comparison of Procurement Forms for
Industrial Buildings in the UK The 4th International Symposium on Organisation and
Management of Construction, University of Ontario, Canada.

FPA (2003)
Male (2003)
9
Goodier et al (2006)
8

11

1.7. Set of exercises for chapter 1


Exercise 1.1:
Define construction procurement what are the key objectives of construction procurement?
Exercise 1.2:
Briefly outline the advantages and disadvantages of various contractual arrangements in terms
of cost, time and specification (design) flexibility. What procurement advice will you provide
to a client who requires strict control of the end product, and needs a quick start while
the design is being developed but must have cost certainty?
Exercise 1.3:
Name the three key drivers in a procurement strategy
Exercise 1.4:
Name the key areas covered by EU procurement directives
Exercise 1.5:
Employment contracts fall under EU Services Directive. True or false?

12

CHAPTER 2
LIFE CYCLE OF CONSTRUCTION PROJECT
OBJECTIVES OF CHAPTER 2
This chapter presents different stages of project life cycle in construction industry. Different
stages of the cycle are presented: conceptual stage, implementation stage, operational stage
and abandonment stage. The chapter also presents information about the feasibility report
(importance of preparation and contents) and elements of strategic planning (basic steps and
risk management strategies).
LEARNING OUTCOMES FOR CHAPTER 2
After reading this chapter you will be more familiar with project life cycle of the construction
object. You will differentiate stages of the life cycle. You will know about feasibility study
report and strategic planning, its importance, contents and stages for preparation. You will
be familiar with an introduction to risk management strategies.
2.1. Introduction
Management can be translated into a simple two-step sequence: Plan before doing, or even
Plan Your Work, Work Your Plan!. This basic concept is the foundation of the project life
cycle by which projects need to be managed. First plan, then produce.
The goal of the construction company is simple - it is to build something with profit. What
differentiates the construction industry from other industries is that its projects are large, built
on-site, and generally unique. Every project can be broken down into a series of logical
definable steps, which will become a roadmap for the project. The project team will start
at the beginning of the list, and when they get to the end the project is over. Projects are
characterised as having a simple starting and ending point with all the work in between.
The uniqueness of each project characterises the high-risk nature of project management.
Because they are generally one-time ventures, a bad roadmap can lead the team in the wrong
direction, wasting money and time.
The acquisition of a constructed facility usually represents a major capital investment,
whether its owner happens to be an individual, a private corporation or a public agency. Since
the commitment of resources for such an investment is motivated by market demands or
perceived needs, the facility is expected to satisfy certain objectives within the constraints
specified by the owner and relevant regulations.
Construction projects are intricate and time-consuming undertakings. The total development
of a project normally consists of several phases requiring a diverse range of specialised
services. In progressing from initial planning to project completion, the typical job passes
through successive and distinct stages that demand inputs from such disparate directions
as financial organisations, governmental agencies, engineers, architects, lawyers, insurance
and surety companies, contractors, and building tradesmen. From the perspective of an owner,
the project life cycle for a constructed facility may be illustrated schematically in Figure 2.1.
[2] Essentially, a project is conceived to meet market demands or needs in a timely fashion.
Various possibilities will be considered in the conceptual planning stage, and the
technological and economic feasibility of each alternative will be assessed and compared
in order to select the best possible project. The financing schemes for the proposed
alternatives will also be examined, and the project will be programmed with respect to the
timing for its completion and for available cash flows.
13

ABANDOMENT
STAGE

OPERATIONAL
STAGE

n or
al Pla ign
s
eptu
Conc inary De
m
li
Pre

De
f
Ob initi
jec on
tiv
o
e s f P ro
an
d S ject
cop
e

CONCEPTUAL
STAGE

Desig
n
Engin and
eerin
g

d
n an
ratio
Ope enance
t
n
Mai

Fulfil
lem
Usefu ent of
l Life

al
tu
ep g
nc nin
Co lan d
P an lity
i
ib
as dy
Fe Stu

Di
sp
os
al
Fa of
ci
lit
y

e
Lif
ect
roj

fP
do
En le
c
Cy

Market Demands
or
Perceived Needs

IMPLEMENTATION
STAGE

of

n
ta
ep ty
cc ili
A ac
F

Completion of
Construction

d
an
ent
rem ction
u
ocu
Pr onstr
C

ce

on
st
ru
Sp a cti
ec nd on
ifi
Pl
ca
an
ti
s
on
s

St
O art
c
cu up f
pa or
nc
y

Figure 2.1. Project life cycle of a constructed facility [2]


After the scope of the project is clearly defined, detailed engineering design will provide the
blueprint and set of technical requirement for construction, and the definitive cost estimate
will serve as the baseline for cost control. In the procurement and construction stage, the
delivery of materials and the erection of the project on site must be carefully planned and
controlled. After the construction is completed, there is usually a brief period of start-up
or shakedown of the constructed facility when it is first occupied. Finally, the management
of the facility is turned over to the owner for full occupancy until the facility lives out its
useful life and is designated for demolition or conversion.
2.2. Strategic Planning
2.2.1. Introduction
The word Strategy has been borrowed from the military and adapted for business use. It is
a management tool and as with any management tool, it is used for one purpose only: to help
an organisation do a better job - to focus its energy, to ensure that members of the
organisation are working toward the same goals, to assess and adjust the organisation's
14

direction in response to a changing environment. It is a process that engages an entire


organisational community in integrating its best hindsight and foresight in aligned action. The
objective of strategic planning is to build a posture that is so strong in selective ways that the
organisation can achieve its goals despite unforeseeable conditions.
There is a considerable amount of confusing terminology surrounding strategy. It is normally
defined as the means to attainment of ends, not their specification. In other words, a strategy
is a general method for achieving specific objectives. It describes the essential resources and
their amounts which are to be committed to achieving those objectives. It describes how
resources will be organised, and the policies that will apply for the management and use of
those resources. But most of the time, the company owners, when asked about their business
strategy, start talking about their revenue goals, expense budgets, cash flow needs for the next
year and how they will meet overhead costs. In other words, there is a prevalent sense that the
goal or purpose of their business is to make money this confuses the mission of their
business with the reward for achieving it.
Most planning is seen as a budgeting exercise rather than a process of engaging key staff
in dialogue, analysis and prioritising to determine what is needed to sustain, strengthen
or achieve a competitive advantage. But the real purpose of strategic planning is to find the
best strategy for the company to increase its shareholder value and strengthen
competitiveness. The emphasis is also on understanding how the environment is changing and
will change, and in developing organisational decisions which are responsive to these
changes. No matter what your current strategy, the challenge of going through the process on
a regular basis is to find an even better one. Only when you cannot find a better strategy will
you be sure the one you have is the one you should follow.
The construction industry worldwide designs, produces and maintains the physical
infrastructure for the functioning and welfare of society and the continuing growth and
development of the economy. Its basic structure reflects the three main components of
operation: the design of buildings and facilities; the manufacture and importation of the
necessary materials and components; and the on-site construction process. The product of the
construction process includes all buildings for uses such as housing, industry, commerce,
health, education, leisure utilities, underground installations, transportation routes and
facilities, drainage, water supply and waste disposal. Strategic thinking and planning
is therefore central to the future wellbeing of all societies.
2.2.2. Basic elements of strategic planning
The basic steps in a strategic planning process are:
Getting ready / Preparing for the project
To get ready for strategic planning, an organisation must first assess if it is prepared. The
leadership and key stakeholders must understand that a shared understanding of its past and
possible futures will catalyse more effective and aligned responses to these issues in the
present. It is the day-to-day decisions and enactments that ultimately shape an organisation.
The moves in this initial part of the process should include:
Identifying specific issues or choices that the planning process should address.
Clarify roles (who does what in the process) and the ground rules.
Creating a planning committee to customise and guide the process.
Develop an organisational profile and engaging top management in a clear
sponsorship role.
The product developed at the end of step one is a work plan.

15

Exploring and learning and finding common goals


The process should now move up and back into history, engaging the intuition and feelings
of participants by looking at the big picture. Throughout this stage the group should dialogue
and document in an exploratory mode, gathering a common base of respect and understanding
for the visioning journey ahead. A solid platform of information and agreements should be
created which would serve as a springboard for visioning. When people know what some
of the given boundaries are, they are freer to improvise and stretch. Clarifying the
understandings at this stage sets up everyone for a launch into visioning. Common moves
include:
Completing a graphic history.
Identifying core competencies and historic values.
Creating a context map of the relevant environment.
Analysing industry structure.
Agreeing on trends, assumptions, and essentials.
Analysing strengths, problems, opportunities, and threats of the current organisation.
Interviewing customers, stakeholders and others for their perspectives.
Assessing the Situation
An organisation must take a clear-eyed look at its current situation. A part of strategic
planning, thinking, and management is an awareness of resources and an eye to the future
environment, so that an organisation can successfully respond to changes in the environment.
Situation assessment, therefore, means obtaining current information about the organisation's
strengths, weaknesses, and performance - information that will highlight the critical issues
that the organisation faces and that its strategic plan must address. These should include
a variety of primary concerns, such as funding issues, new programme opportunities,
changing regulations or changing needs in the client population, and so on.
The products of step three include: a data base of quality information that will be used
to make decisions; and a list of critical issues which demand a response from the organisation.
Articulating mission, vision and guiding principles
A mission statement is like an introductory paragraph. It typically describes the reason for the
firms existence, a definition of product and services the organisation provides, technologies
used to provide these products and services, types of markets and the expertise that sets the
firm apart from others. The mission of Skanska, a Swedish company founded in1887 is
To develop, build and maintain the physical environment for living, working and travelling.
The vision should describe where the organisation is headed and what it intends to be. Its
processes seek to create a compelling picture of desirable future states, which often represent
quantum changes from the past. They develop stories about the nature and benefits of this
future, and work backwards to understand the journey that could carry people to this vision.
Vision should also be linked to customers needs and convey a general strategy for achieving
the mission. Visions are most powerful if they represent real aspirations. They do not need to
be worked out in every detail, but imagined powerfully and vividly. For example a company
A has its vision stated as To be the world leader - the clients first choice - in construction
-related services and project development. Company B, one of the world's largest, publicly
owned engineering, procurement, construction, and maintenance services organisation states,
To be the preeminent leader in the global building and services marketplace by delivering
world class solutions.
Guiding principles, guide the journey to that vision by defining attitudes and policies for all
employees. For example the guiding principles of B are:
Focus (on the needs of the customers);
16

Motivate (people essential for business success);


Apply knowledge (to deliver customers solution);
Manage risk (to the benefit of stakeholders);
Deliver shareholder value (through sustained profitable growth, business discipline
and cost diligence).
The mission, vision and guiding principles serve as the foundation for strategic planning.
They must be articulated by top management and also by people who lead.
Developing strategies, goals and objectives
Once an organisation's mission has been affirmed and its critical issues identified, it is time to
figure out what to do about them: the broad approaches to be taken (strategies), and the
general and specific results to be sought (the goals and objectives).Strategies link the learning
from the past with the vision by articulating a high level path forward. In a sense, they begin
to bring the vision back down to the ground. The moves in this part of the process begin to
integrate the work of the prior stages. Strategies should tell a powerful story of where to focus
actions.
Strategies, goals, and objectives will come from individual inspiration, group discussion,
formal decision-making techniques, and so on - but the bottom line is that, in the end, the
leadership agrees on how to address the critical issues.
The product of this step is an outline of the organisation's strategic directions - the general
strategies, long-range goals, and specific objectives of its response to critical issues.
Strategy deployment
The mission has been articulated, the critical issues identified, and the goals and strategies
agreed upon. This step essentially involves putting all that down on paper and developing
a detailed action plan. If there is one thing that undermines a process of this sort, it is lack of
genuine involvement and modelling of its significance. The most direct route is to involve as
many people as possible in refining the vision and strategies. Another key part of this step is
formal communications that let everyone know what is happening, and building feedback
mechanisms. The ultimate success of a strategic visioning process is the extent to which
leadership and key stakeholders actually begin living the vision day-to-day. Finally strategic
planning is the process of making sure youre doing the right things and doing them right.
Evaluating and changing
None of the tasks associated with strategic planning are a onetime venture. As events unfold,
better way to do things becomes evident. Thus managers must constantly evaluate
performance and monitor the situation. They should make necessary adjustments as required.
Format for a strategic plan
A strategic plan is simply a document that summarises why an organisation exists, what it is
trying to accomplish and how it will go about doing so. Its "audience" is anyone who wants to
know the organisation's most important ideas, issues, and priorities: board members, staff,
volunteers, clients, funders, peers at other organisations, the press, and the public.
Below is an example of a common format for strategic plans, which might help writers as they
begin trying to organise their thoughts and their material. This is just an example, however,
not the one and only way to go about this task.

17

Vision

Mission

Establish strategy

Strategy Development
Process

Review strategic initiatives


and critical success factors

Value Engineering

Planning Process

Develop short and long


term plans

Deploy the plans

Strategy Deployment
Process

Review measures

Business Priority Process

Figure 2.2. Strategic Planning Process an example [2]


The sections commonly included in a strategic plan are:
1.
Introduction by the president of the board.
2.
Executive summary.
3.
Mission and vision statements.
4.
Organisation profile and history.
5.
Critical issues and strategies.
6.
Programme goals and objectives.
7.
Management goals and objectives.
Benefits of strategic planning are as follows:
1.
Clearly defines the purpose of the organisation and establishes realistic goals and
objectives consistent with that mission in a defined time frame within the
organisations capacity for implementation;
2.
Communicates those goals and objectives to the organisations constituents;
3.
Develops a sense of ownership of the plan;
18

4.

Ensures the most effective use is made of the organisations resources by focusing the
resources on the key priorities.

2.2.3. What is a feasibility report?


A feasibility report is an analytical tool used during the project planning process which shows
how a project would operate under a set of assumptions, the technology used, and the
financial aspects. It also gives an outline description of the recommended solution, and
explains the reasons for selection.
It is conducted during the deliberation phase of project development before financing is
secured. The study is the first time in a project development process that the pieces are
assembled to see if they perform together to create a technical, environmental, social and
economically feasible concept.
The feasibility study evaluates the projects potential for success. If, after completing
a feasibility study, the group decides not to proceed, there is no need to create a project plan.
The perceived objectivity of the evaluation is an important factor in the credibility placed on
the study by potential investors and financiers.
2.2.4. Why prepare feasibility studies?
Developing any new business venture is difficult. Taking a project from the initial idea
through the operational stage is a complex and time consuming effort. Before the potential
members invest in a proposed business project, they must determine if it can be economically
viable and then decide if investment advantages outweigh the risks involved. Often
construction project operations involve risks with which the members are unfamiliar. The
feasibility study allows groups to preview potential project outcomes and to decide if they
should continue. It is an integral part in developing a construction project. The purpose of the
feasibility study is to explore the project in enough detail for the interested parties and stake
holders to make a commitment to proceed with the development of the project.
Feasibility studies are useful and valid for many kinds of projects. An evaluation of a new
business venture both for new groups and established businesses is the most common, but not
the only usage. Studies can help groups to expand existing services, build or remodel
facilities, change methods of operation, add new products, or even merge with another
business. A feasibility study assists decision makers whenever they need to consider
alternative development opportunities.
Although the cost of conducting a study may seem high, they are relatively minor compared
with the total project cost. The small initial expenditure on a feasibility study can help to
protect larger capital investments. A feasibility study permits planners to outline their ideas on
paper before implementing them. This can reveal errors in project design, before their
implementation negatively affects the project. Applying the lessons gained from a feasibility
report can significantly lower the project costs. The study also presents the risks and returns
associated with the project so the prospective members can evaluate them. There is no correct
rate of return a project needs to obtain before a group decides to proceed. The acceptable level
of return and appropriate risk rate will vary for individual members depending on their
personal situation.
The study is not conducted as a forum merely to support a desire that the project will be
successful. It is rather an objective evaluation of the projects chance for success. Studies with
both positive and negative conclusions can assist a groups decisions.

19

2.2.5. Feasibility study elements


The creation of a feasibility study, although part of the project cycle, contains a process in
itself. It consists of the following steps.
- The conceptual study is the first level study and the preliminary evaluation of the
construction project. Often groups proceed directly to the feasibility study and overlook the
importance in making the first decision with deliberation. Take the time to determine if
a feasibility study is appropriate. Careful consideration of whether to conduct a feasibility
study will save much time and money and increase the study value once completed. Moreover
if this decision is conducted thoughtfully, the group will probably have established
a procedure for decision-making. Then the decisions that the group needs to make later in the
development process will probably come easier and the likelihood of them being correct will
be greater.
The principle parameters of the conceptual study are mostly assumed and/or factored.
Accordingly the level of accuracy is low. Flow sheet development, cost estimation and
construction scheduling are often based on limited data, test work and engineering design.
The result of a conceptual study typically identifies:
Technical parameters requiring additional examination.
General features and parameters of the proposed project.
Magnitude of capital and operating cost estimates.
Level of effort for project development.
A conceptual study is useful as a tool to determine if subsequent studies are warranted.
However it is not valid for economic design making.
- The pre - feasibility report - prior to initiating feasibility report, the group needs to sketch
out possible design of the project. This can begin with the back of the envelope calculations
and proceed through a formal pre feasibility study for complex projects. The purpose of this
phase is to establish whether a project looks likely to happen and calculate the potential cost
of carrying out the full feasibility study. It also serves the purpose of initiating wider public
interest. Sufficient work has been completed to develop the construction project and
processing parameters for equipment selection, consumables, flow sheet, production and
development schedule.
The degree of detail carried out in the pre-feasibility study will be dependent on the nature
and type of the scheme. The economic analysis from a pre-feasibility study is of sufficient
accuracy to assess various development options and the overall project viability. However
these cost estimates and engineering parameters are typically not considered of sufficient
accuracy for final decision making or bank financing.
At the end of the pre-feasibility stage, the promoting organisation will have to make
a decision on whether to proceed to the full feasibility study phase and will have the job of
raising investment to carry this out.
- The feasibility report - the feasibility report represents the last step for evaluating a
construction process for go-no go decision and financing purposes. It presents a holistic
view of the entire project. The principle parameters for a feasibility report are based on sound
and complete engineering and design work.
Although all studies must start with certain assumptions, they are closer to reality to give
a value to the study. A feasibility study presents the environment where the project will occur
and describe its scope. The description also includes the need for the project and how the

20

group can accomplish the goals. The scope also includes the key elements of all aspects of the
project. Potential reaction by competitors should be included in the study.
The study also includes the rationale for scenario selection. Both worst-case possibilities and
optimistic scenarios are compared. Comparative results from scenarios are presented in tables.
Possible economic outcomes should be a prominent part of a feasibility study. Operating costs
and net revenues are factors that show if the project is economically viable. The study
contains pro-forma balance sheets, operating statements, benefit-cost ratios, projected cash
flows, and internal rates of return for the project. These are normally based on a three year
projection.
The study includes possible project risks for potential members and other investors, project
technology, potential legal and governmental setbacks, management and labour resources and
time-critical factors. Most importantly, the feasibility study enables members to make
constructive, informed decisions on whether to proceed with, revise, or abandon the project.
Simply put the feasibility study is a formal technical report that is used by the company
to determine whether the proposed project is capable of being developed at a sufficient return
to justify the capital and managerial resources that must be committed to the project.
The level of accuracy for a feasibility report is higher than the pre-feasibility report. The
objectives for the feasibility report are the same as those listed for the pre-feasibility report,
but the level and detail and accuracy for each objective are stringent. Detail calculations have
been worked out to develop the flow sheet development, equipment selection, consumables,
power consumption, material consumption, drawing, construction schedule, and capital and
operating cost estimates.
2.3. The stages of the project
The information necessary to the project manager for making important decisions must
involve an understanding of preceding phases of the project or what is expected in subsequent
stages. The life cycle of the project consists of four stages (fig. 2.3.)
(1) The conceptual stage;
(2) The implementation stage;
(3) The operational stage; and
(4) The abandonment stage.
2.3.1. The conceptual stage
Prior to implementation of any planning in the construction management process, there has to
be an establishment or identification of a need. The basic process of decision making starts
with the recognition that there is a need for a capital improvement or for a new development.
Once the owner has identified a need for the new facility, the requirements are defined and
a potential solution is developed. The budgetary constraints are also delineated and the project
is conceived and defined during this period.
Project definition involves establishing broad project characteristics such as location,
performance criteria, size, configuration, layout, equipment, services, and other requirements
put forth by the owner, which are needed to establish the general aspects of the project.
During this stage the owner hires key consultants including the designer and construction
manager. The definition of the work is basically the responsibility of the owner, although
a design professional may be called in to provide technical assistance and advice. The most
critical decision that is made during this project phase is whether to proceed with the project
or not.

21

Project scope is the way in which one describes the boundaries of the project. It defines what
a project will deliver and what it will not deliver. For larger projects, it can include the
organisations affected, the transactions affected, the data types included etc.
The scope of the project must be kept current and good communication maintained with all of
the team who may be involved in the various studies and financial analyses. If you look at the
reasons why projects fail, it is usually the result of two problems. Either the team did not
spend enough time defining the project and/or there was a lack of scope management.
After initial definition, a preliminary feasibility study will be made to determine whether the
concept is technically possible. Examination of rough economic data is done to justify
pursuing the project. Assuming that the project is feasible, a preliminary definition is made
and very preliminary planning is done. A closer look is taken at costs and a viability study is
prepared. The viability study determines the commercial feasibility of the project. Viability
means that the project can be profitable or necessary to the companys operations and
available at a reasonable cost. Profitability and pay-outs for the project are calculated. The
financing source for the project is established as the capital may come from the owner, from
outside financing, from the sale of bonds or elsewhere. Once the source of money has been
resolved, formal submission of the proposal or request for funding is made and approval is
given if the project is to proceed.

Plan

4
Abandonment
Stage

Implementation
Stage

2
Development
Stage

Conceptual
Stage

Operational
Stage

Total Project Life Cycle

Produce
Go/No-Go
Decision

Figure 2.3. The stages of development. [2]


22

In sum, for the conceptual planning stage of a project the owner needs to gather as much
reliable information as possible about a project. This process will require hiring quite
a number of design and technical consultants to help if those resources are not available
within the company. Once the information is formulated the owner needs to make a decision
as to whether or not to proceed with the project. This is called the go/no go decision. If the
decision is go, the owner needs to select a site, establish programme, a conceptual estimate,
and a master schedule. The designer and construction manager should also be hired at this
stage. Conceptual planning stops short of detailed design although a considerable amount of
preliminary architectural or engineering work may be required.
2.3.2. The development stage
It is during this phase that detail planning starts followed by basic engineering, detailed
engineering, procurement, construction and handover the facility to the owner.
During the design development the project manager independently investigates costs and
availability of systems proposed by the designer. He advises the designer or the engineer as to
the availability and costs of possible alternative systems. During design development the
project manager performs necessary periodic reviews of the proposed design in order to
monitor pre-established budgets and cost limitations.
Conceptual engineering of the project should be done concurrently with the preliminary
planning. Decisions are made as to the source of the technology to be used.
The project manager reviews preliminary specifications prepared by the architect-engineer,
including quality control standards and criteria for site development, plumbing, electric, and
site utilities. In accordance with the review of the total design, which may include design
aspects such as the architectural, civil, mechanical, electrical, and structural plans, the
construction manager considers both construction feasibility and possible economy that may
be affected by different choices of proposed materials and construction methods.
At the conclusion of the preliminary design stage, the project manager makes a very important
estimate. This is the first point at which major structural, mechanical, and electrical systems
have been defined. This information combined with the spatial solution of the schematic
design, can be cost-estimated with a higher degree of accuracy.
Prior to completion of the final design plans, the project manager together with the architectengineer will analyse the total design effort and establish the appropriate decision of work for
the final contract documents and plans and specifications.
2.3.3. The implementation stage
The next stage in the life cycle is construction planning. It is a fundamental and challenging
activity in the management and execution of construction projects. It involves the choice of
technology, the definition of work tasks, the estimation of the required resources and
durations for individual tasks, and the identification of any interactions among the different
work tasks.
Construction planning consists of three steps:
(1) Determination of the job steps or activities that must be performed to construct the project;
(2) Ascertainment of the sequential relationships of these activities; and
(3) The presentation of this planning information in the form of a network.
However these three actions usually proceed more or less simultaneously rather than as
discrete and successive steps.

23

A good construction plan is the basis for developing the budget and the schedule for work.
Developing the construction plan is a critical task in the management of construction. In
addition to these technical aspects of construction planning, it may also be necessary to make
organisational decisions about the relationships between project participants and even which
organisations to include in a project.
Procurement is an important job that follows construction planning. It can make or break the
profit situation on a specific contract and for the company as a whole. Procurement involves
purchasing of equipment, materials, supplies, labour, and services required for construction
and implementation of a project.
The major individual components of materials management includes:
requisitioning: including specifying, designing and material take-offs;
inquiry;
receipt of vendor offers;
technical and commercial bid analyses;
bid conditioning;
issuing purchase orders;
expediting vendor documents;
expediting vendor orders;
inspection during manufacture/fabrication;
shop testing/acceptance;
traffic or transport of the material from the plant/shop to the jobsite;
receipt of the material at the jobsite; and,
closeout of purchase orders.
The scheduled smooth and uninterrupted flow of materials to the site represents a very
important determinant of project success.
Procurement methods and practices differ with individual firms and projects; nevertheless
certain principles are common to each general approach to construction procurement.
The procurement process is affected by a number of different factors and hence should not be
performed in isolation. It should not be performed without considering the design and
construction schedule of a project. It is essential that procurement be considered as a grand
plan involving a number of stages.
After the completion of the construction works, which includes acceptance of work,
subcontractor evaluation, inspection and testing and mechanical acceptance, handover of the
facility to the owner, takes place. Following the project closeout, direction of the plant startup activities comes under the owners start-up manager at the time of mechanical acceptance.
One individual, the start-up manager, is named to assume the responsibility for
commissioning the plant and for starting it up. Frequently the plant may be turned over to the
owner on a system-by-system basis or all at one time depending upon the size of the project.
The owners project manager makes sure that the plant has been completed and is ready for
customer acceptance. Once the facility is accepted, it is under the care and custody of the
owner.
2.3.4. The operational stage
Even prior to the turnover, the owner has started marketing product and training operating
personnel. There are three important aspects of plant start-up: (1) The start-up plan (2)
Equipment (3) Staffing. Prior to revenue service, the owner should simulate service to test
whether all system elements are functional and perform as designed. Start-up operations

24

should verify the competence of the personnel and ensure a smooth transition from
construction, through testing, to revenue service.
During this phase, a transition occurs from construction to operations, which directly affects
the approach to safety, risk management, and insurance. The system safety programme plan
addresses all aspects of operational safety and guides standard and emergency operating
procedures. As the project is implemented a formal safety certification process is conducted to
verify that all safety features are included and function as specified in the design. The
installation is maintained to assure a continuous level of output. The operation of the facility
is optimized and major or minor changes are made to increase production.
2.3.5. The abandonment stage
This is the final stage in a products life cycle. The market matures, competition increases, the
technology changes and the market share may drop. The facility becomes uneconomical or
obsolete after certain duration of time. The installation is then written off the books and the
life cycle is complete. Thus a project can be viewed as a series of activities that need to be
completed successfully in order to meet the project objectives.
The stages of development in Figure 2.1 may not be strictly sequential. Some of the stages
require iteration, and others may be carried out in parallel or with overlapping time frames,
depending on the nature, size and urgency of the project.
2.4. Risk management strategies
Project development, due to its complex nature, will often encounter many unanticipated
problems, resulting in projects falling behind on deadlines, exceeding budgets and resulting in
sub-standard products. Strategic plans, corporate objectives, annual budgets and day-to-day
business operations all involve some degree of uncertainty or risk. It is the ability to recognise
and manage these risks, which defines the success of a business organisation. Although these
problems cannot be totally eliminated, they can however be controlled by applying risk
management methods. This can help to deal with problems before they occur. Organisations
that implement risk management procedures and techniques will have greater control over the
overall management of the project. By analysing five of the most commonly used methods of
risk management; conclusions will be drawn regarding the effectiveness of each method.
Risk management strategies include the following:
- Risk avoidance: avoiding the risk associated with a specific task, activity or project. Often,
following the review of a contract, it is determined that a project is just too risky. The client
may decide not to bid the work at all, or remove that element of the work from their bid,
sometimes using an alternate method to delineate the exclusion. Risk avoidance is strictly
a business decision, and sometimes a very good strategy if construction documents are
unclear, ambiguous or incomplete.
- Risk abatement: the process of combining loss prevention or loss control to minimise a risk.
This risk management strategy serves to reduce the loss potential and decrease the frequency
or severity of the loss. Risk abatement is preferably used in conjunction with other risk
management strategies, since using this risk management method alone will not totally
eliminate the risk.
- Risk retention: a good strategy only when it is impossible to transfer the risk. Or, based on
an evaluation of the economic loss exposure, it is determined that the diminutive value placed
on the risk can be safely absorbed. Another consideration in retaining a risk is when the
probability of loss is so high that to transfer the risk would cost almost as much as the cost of

25

the worst loss that could ever occur, i.e. if there is a high probability of loss, it may be
necessary to retain the risk instead of transferring it.
- Risk transfer: shifting the risk burden from one party to another. This can be done several
ways, but is usually done through conventional insurance as a risk transfer mechanism, and
through the use of contract indemnification provisions.
- Risk allocation: sharing the risk burden with other parties. This is usually based on
a business decision when a client realises that the cost of doing a project is too large and
needs to spread the economic risk with another firm. Also, when a client lacks a specific
competency that is a requirement of the contract, e.g., design capability for a design-build
project. A typical example of using a risk allocation strategy is in the formation of a joint
venture.
2.5. Literature and further reading for chapter 2
1. Technical Construction Language, manual for Introductory, Intermediate Course of
Professional English Language for Construction Managers and Engineers, Oficyna
Wydawnicza PW, Warsaw, 2004. (Leonardo da Vinci PL/01/B/P/LA/140310:
Improvement of the Linguistic Skills of Polish and Portuguese Construction Managers
and Engineers - Recognition of Needs and Preparation of Courses in "Construction English
Language" supervised by DSc. PhD. Eng.. A. Minasowicz, ISBN 83-89780-06-2.
2. Principles of the Management in Construction (PM/CM/QM/REM), manual for
Introductory, Intermediate Course of Professional English Language for Construction
Managers and Engineers, Oficyna Wydawnicza PW, Warsaw, 2004, ISBN 83-89780-07-0.
3. Procurement and Tendering Procedures, manual for Advanced Course of Professional
English Language for Construction Managers and Engineers, ISBN 83-89780-08-9,
Oficyna Wydawnicza PW, Warsaw, 2004.
4. www.lifecyclebuilding.org
5. Lifecycle Construction Resource Guide, by The Pollution Prevention Program Office, U. S.
Environmental Protection Agency, 2008.
6. The Lifecycle Construction Guide Design for Deconstruction: The Chartwell School Case
Study, by Scott Shell, Octavio Gutierrez, Lynn Fisher, et al for U.S. Environmental
Protection Agency, 2006.

26

2.6. Set of exercises for chapter 2


Exercise 2.1:

Fill the empty spaces with proper text:


?? - disposal of facility; ?? - design and engineering; ?? - start-up for occupancy

1 - ??

2 - ??

3 - ??

Exercise 2.2:
Name the benefits of strategic planning (descriptive question).
Exercise 2.3:
Which order of basic steps for strategic planning is correct? Choose the right one.
a)
Preparing for the
Project

Exploring and
Learning and Finding
Common Goals

Assessing the Situation

Articulating Mission,
Vision and Guiding
Principles

Developing Strategies,
Goals and Objectives

Strategy Deployment

Evaluating and
Changing

Format for a Strategic


Plan

27

b)
Preparing for the
Project

Exploring and
Learning and Finding
Common Goals

Assessing the Situation

Strategy Deployment

Developing Strategies,
Goals and Objectives

Articulating Mission,
Vision and Guiding
Principles

Evaluating and
Changing

Format for a Strategic


Plan

Preparing for the


Project

Assessing the Situation

Exploring and
Learning and Finding
Common Goals

Strategy Deployment

Evaluating and
Changing

Articulating Mission,
Vision and Guiding
Principles

c)

Developing Strategies,
Goals and
Objectives
Proper
answer
is b).

Format for a Strategic


Plan

28

Exercise 2.4:
Fill the blanks in the diagram below so that it refers to Strategic Planning Process.

???
???
Establish strategy

Strategy Development
Process

Review strategic initiatives


and critical success factors

Value engineering

Planning Process

Develop short and long


term plans

Deploy the plans

Strategy Deployment
Process

???

Business Priority Process

Exercise 2.5:
Fill the blanks with the appropriate word.
The level of accuracy for a______________ report is higher than the pre-feasibility report.
Exercise 2.6:
Name the elements of a feasibility study (descriptive question).

29

Exercise 2.7:
Choose the right answer.
A stage in which the basic process of decision starts with the recognition of a need for
a capital improvement or for a new development is called the_____________________.
a) Operational stage
b) Conceptual stage
c) Abandonment stage
d) Implementation stage
Exercise 2.8:
Write stages of the life cycle of the project in the proper order:
Implementation stage
conceptual stage
Abandonment stage
operational stage
Exercise 2.9:
What happens with a facility during the abandonment stage? (descriptive question)
Exercise 2.10:
Fill in the blanks using the words in the box below so that the sentences are correct.
a) Risk ____________: avoiding the risk associated with a specific task, activity or project.
b) Risk ____________: the process of combining loss prevention or loss control to
minimise a risk.
c) Risk ____________: a good strategy only when it is impossible to transfer the risk.
d) Risk ____________: shifting the risk burden from one party to another.
e) Risk ____________: sharing the risk burden with other parties.
Abatement

Allocation

Avoidance

30

Retention

Transfer

CHAPTER 3
BUILDING AND LEGAL ISSUES
OBJECTIVES OF CHAPTER 3
This module aims to explain the methods of procurement for construction engineers,
managers and administrative staff and define and show how to be prepared and what to do
when entering into procurement in the construction sector. The participant will be aware of
the types of procurement methods, EU procurement and alternative methods of procurement
and will be more conscious while preparing for procurement and during the procurement
phase.
LEARNING OUTCOMES FOR CHAPTER 3
In this module, you will learn the traditional, design and build, management contracting,
project/construction management methods of procurement and will be trained about the
responsibilities and tasks of the client and the contractor in each of these methods, you will be
aware of the issues with EU procurement, procurement under EU directives and about the
alternative methods of procurement, what will give you a complete set of procurement
methods.
3.1. Standard methods of procurement
Procurement (tendering) is the acquisition of goods and/or services. It is preferable that the
goods/services are always appropriate and that they are procured at the best possible cost to
meet the needs of the purchaser in terms of quality and quantity, time and location. It should
also be considered to be the process of identification, selection and commissioning of the
contributions required for the construction phase of the project.
Almost all purchasing decisions include factors such as delivery and handling, marginal
benefit, and price fluctuations. The various procurement options available reflect fundamental
differences in the allocation of risk and responsibility to match the characteristics of different
projects; therefore selection of the procurement option must be given strategic consideration.
The project manager must advise on the relative benefits and disadvantages of each option,
related to the particular circumstances of the project, for the benefit of the client.
Direct procurement and indirect procurement (TENDERING)
TYPES

F
E
A
T
U
R
E
S

Direct procurement

Indirect procurement

Raw material and production


goods

Maintenance, repair, and operating supplies

Capital goods and


services

Quantity

Large

Low

Low

Frequency

High

Relatively high

Low

Value

Industry specific

Low

High

Nature

Operational

Tactical

Strategic

Crude oil in petroleum industry

Lubricants, spare parts

Machinery, computers

Examples

Table 3.1 Examples for the Direct and Indirect Procurement for the supplies
31

Based on the consumption purposes of the acquired goods and services, procurement
activities are often split into two distinct categories. The first category being direct,
production-related procurement and the second being indirect, non-production-related
procurement.
Direct procurement occurs in manufacturing settings only and it encompasses all items that
are part of finished products, such as raw material, components and parts. Direct procurement,
which is the focus in supply chain management, directly affects the production process of
manufacturing firms. In contrast, indirect procurement activities concern operating
resources that a company purchases to enable its operations. It comprises a wide variety of
goods and services, from standardised low value items like office supplies and machine
lubricants to complex and costly products and services like heavy equipment and consulting
services.
The final choice of procurement method should be made on the basis of the characteristics of
the project, the client and their requirements. The selection of method should be made when
consideration is being given to the appointment of design and other specialist consultants
because each option can have a different impact on the terms of appointment of the members
of the project team.
There are many different methods of construction procurement; and the most common types
of procurement are as follows:
1. Traditional (Construction)
2. Design and Build
3. Management Contracting
4. Project/Construction Management
Each method has its own variations. No method is best in all circumstances. They bring
different degrees of certainty and risk to the project construction and development.
3.1.1. Traditional method: (construction)
Construction is based on the design of the client and this is the most common method of
construction procurement and is well established and recognised. In this arrangement, the
architect or engineer acts as the project coordinator. His or her role is to design the works,
prepare the specifications and produce construction drawings, administer the contract, tender
the works, and manage the works from inception to completion. There are direct contractual
links between the client & architect (designer) and the client & main contractor. Any
subcontractor will have a direct contractual relationship with the main contractor. The
contractor builds to a defined scope of work generally priced with the measurement units or
for a fixed price lump sum. The client, however, remains responsible for the design and the
performance of consultants under the building contract. The client appoints a design team,
including a quantity surveyor responsible for financial and contractual advice. A building
contractor is appointed, usually after a tender process, and usually based on one of the
standard forms of contract, to carry out the construction. The tender process can be based on
complete design information or partial design information plus provisional guidance if an
early construction start is required. The traditional method is sometimes called Design-Bid
-Build (or design/bid/build, and abbreviated D-B-B or D/B/B accordingly), also known as
design-tender (or "design/tender"). The traditional method is a project delivery method in
which the agency or owner contracts with separate entities for each the design and construction

32

of a project. Traditional method for project delivery differs in several substantial aspects from
design-build.
There are three main sequential phases to the traditional delivery method:
The design phase (client);
The bidding (or tender) phase:
o Bill of quantities ( when client prepares BOQ);
o Lump-sum (when the contractor prepares BOQ on the base of technical
drawings delivered by the client);
The construction phase (contractor).
3.1.2. Design and Build methods
The owner produces a list of requirements for a project, giving an overall view of the project's
goals. Several D&B contractors present different ideas about how to accomplish these goals.
The owner selects the ideas he likes best and hires the appropriate contractor. Often, it is not
just one contractor, but a consortium of several contractors working together. Once
a contractor (or a consortium/consortia) has been hired, they begin building the first phase of
the project. As they build phase 1, they design phase 2. This is in contrast to a traditional
contract, where the project is completely designed by the owner, then bid on, then completed.
Prime contracting is an extension of the design and build concept. The prime contractor will
be expected to have a well-established relationship with a supply chain of reliable suppliers.
The prime contractor co-ordinates and manages throughout the design and construction period
to provide a facility, which is fit for the specified purpose, and meets its predicted through-life
costs. The prime contractor is paid all actual costs plus profit incurred in respect of measured
work and design fees; it is only at risk in respect of its staff and preliminaries.
Public private partnerships (PPPs) projects are developed for the provision of services that are
required as a result of client needs and requirements and not specifically for the exclusive
provision of capital assets such as buildings. For this reason it is preferable to investigate
PPPs as soon as possible after a user need has been identified rather than leaving it until
a conventional construction project has been selected as the solution. It is possible that a PPP
may result in a solution (provision of services to meet the user need or objectives) that does
not require a construction project at all.
One major benefit of this type of procurement is that the risks associated with providing the
service are transferred to those best able to manage them. To achieve the project objective, the
outputs that the service is intended to deliver (as a result of the facility/development) must be
clearly defined at the initial stages by the client.
Framework agreements with a single supplier or a limited number of suppliers can result in
significant savings to both parties. These agreements may cover prime contracting and design
and build procurement routes. However, they are unlikely to be appropriate for clients that
only occasionally have projects. They can be particularly appropriate for facilities
management and maintenance requirements.
The expectation is that savings will come from: the absence of a requirement for re-procuring
for each individual project, continuous improvement by transferring the learning from one
project to another, reduced confrontation through extended co-working, and continuous
workflow by keeping the same project team.
3.1.3. Management contracting
The client appoints a design team with responsibilities related to design and management of
the project and augmented by a management contractor whose expertise and advice is
33

available throughout the design development and procurement processes. Specialist works
subcontractors, who are contracted to the management contractor on terms approved by the
contract administrator who may be the architect, the quantity surveyor or the project manager,
carry out the construction. The appointments of the management contractor and the trade
subcontractors are usually made on standard contract forms. The management contractor is
reimbursed all their own costs and paid a percentage on project costs in the form of
a guaranteed profit or fee.
3.1.4. Project/Construction management
In this arrangement the client plays an active role in the procurement system by entering into
separate contracts with the designer (architect or engineer), the project manager, and
individual trade contractors. The client takes on the contractual role, while the construction
or project manager provides the active role of managing the separate trade contracts, and
ensuring that they all work smoothly and effectively together.
Management procurement systems are often used to speed up the procurement processes,
allow the client greater flexibility in design variation throughout the contract, the ability to
appoint individual work contractors, separate contractual responsibility on each individual
throughout the contract, and to provide greater client control.
Construction management requires that the specialist works contractors are contracted to the
client directly, involving the construction manager as a member of the project team acting as
an agent and not a principal, to concentrate on the organisation and management of the
construction operations. The project team, including the construction manager, is responsible
for all financial administration associated with the works. The construction manager is paid an
agreed fee to cover the costs of its staff and overheads. This is generally considered to be the
least adversarial form of contract and is often invoked when design needs to run in parallel
with construction.
In construction, the authority having jurisdiction is the governmental agency or sub-agency
which regulates the construction process. Construction performed for supra-municipal
authorities are usually regulated directly by the owning authority, which becomes the
authority having jurisdiction.
During the planning of a building, the zoning and planning boards of the authority having
jurisdiction will review the overall compliance of the proposed building with the municipal
general plan and zoning regulations. Once the proposed building has been approved, detailed
civil, architectural, and structural plans must be submitted to the municipal building
department (and sometimes the public works department) to determine compliance with the
building code and sometimes for fit with existing infrastructure.
Before the foundation can be dug, contractors are typically required to verify and have
existing utility lines marked, either by the utilities themselves or through a company
specialising in such services. This lessens the likelihood of damage to the existing electrical,
water, sewage, phone, and cable facilities, which could cause outages and potentially
hazardous situations. During the construction of a building, the municipal building inspector
inspects the building periodically to ensure that the construction adheres to the approved plans
and the local building code. Once construction is complete and a final inspection has been
passed, an occupancy permit may be issued.

34

3.2. Issues with EU procurement10


The EU's procurement regime sets out rules and regulations to achieve transparency and equal
treatment for all tenderers to ensure that public contracts are awarded to the tender offering
best value for money. Whilst arguably this has expanded in growth of the public procurement
markets across EU, there is a widely held view that there is still a significant scope for
improvement to increase the cross border trade, as the public procurement market still appears
to be lagging behind the private procurement market in terms of cross border trade.
The predominant issue, many believe, is the nature of the EU procurement directives. The
directives themselves are not the problem as such, but "grey", behavioural and contextual
issues such as complex procedures, unfair national preference, and wavering commitment to
competition and market liberalisation are key factors holding back the creation of
a competitive and dynamic EU public procurement market.
Some key issues relating to current EU procurement directives include:

Tender requirements tailored to suit a given, national, supplier; or pressure applied to


suppliers to use locally-based sub-contractors;
Overly legalistic approaches to public procurement;
False competition where international bids are invited but there is little intention of
awarding a contract to a non-national firm;
Splitting contracts into small lots to avoid detailed procurement rules;
'Price-squeezing' to keep foreign competition out of a market, particularly where the
state has a substantial stake;
Preference to national suppliers even where foreign bidders are believed to offer better
value for money;
Instructing successful bidders on the location of manufacturing for a contract.

However, there are a number of steps and actions that can be considered and formulated to
overcome these issues. Some of these include:

Action to identify and spread best practice among Member States, including the use of
scorecards, where appropriate, to measure performance;
Action by Member States to open up more markets to public procurement and remove
barriers to effective competition, as well as to raise the skills of procurement
practitioners and to eliminate bad practice;
Good products and services with reliable delivery and customer support services;
Clear commitment to public procurement markets and the resource investment
required;
Structural readiness for export;
Relevant export support services have been investigated and used;
Market research has been carried out; issues such as country-specific regulation,
customer preferences, standards have been explored;
Niche or best-in-class product or service is offered;
Internationally recognised brand;

10

Assessing the impact on public sector procurement on competition, OFT, 2004 available at
http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft742b.pdf accessed November 2011
Public Procurement Standard Note SN/EP/6029 updated 13 July 2011 , House of Commons Library, available
at www.parliament.uk/business/publications/research/.../SN06029.pdf accessed November 2011

35

Clear and robust country-entry strategy in place;


A strategy of starting small has been considered, to avoid head-on competition with
firms already well-established in the market;
Familiarity with relevant EU public procurement rules;
Familiarity with informal problem-solving mechanisms in case problems occur;
Some form of local presence is in place (distribution agreement, joint-venture, local
subsidiary, sub-contracting arrangements);
Linguistic skills and cultural understanding of the target country;
Sales representatives are natives of the country, or at least fluent in the language, and
well integrated within the local culture and business environment;
Good relationships and dialogue are in place with potential and actual clients;
Competitive bid;
Good fit with client requirements; and
Pragmatic approach to difficulties and cultural differences, and adaptability to
customer requirements.

There is also a growing view that some public services are best suited to being delivered by
organisations that are rooted and based within the communities served and so should be
excluded from EU procurement rules. These mostly relate to SMEs and fundamental issues in
this context include:
Processes that are disproportionate to the value of the contract and are expensive and
time-consuming for SMEs;
Processes that require a significant investment of resource to complete with a low
chance of return;
Processes that are based on an inflexible and highly risk-averse approach to
procurement;
A lack of joined up working and differences in approaches, culture, objectives and
priorities between the various officers involved in the whole commissioning process,
from those who take part in the earlier stages of a commissioning process to the
technical procurement officers;
Competing and conflicting policy objectives.
The EU procurement directives are currently undergoing further reviews and it is anticipated
that the first proposals of the new legislation will be available in 2012.
3.3. Procurement under EU Directives
The European Union (EU) procurement directives, and the regulations that implement them in
the UK, set out the law on public procurement. Their purpose is to open up the public
procurement market and to ensure the free movement of goods and services within the EU.
The rules apply to purchases by public bodies and certain utilities which are above set
monetary thresholds. They cover all EU Member States and, because of international
agreements, their benefits extend to a number of other countries worldwide.
Where the Regulations apply, contracts must be advertised in the Official Journal of the EU
(OJEU) (unless it qualifies for a specific exclusion e.g. on grounds of national security) and
there are other detailed rules that must be followed. The rules are enforced through Member
States courts, and the European Court of Justice (ECJ).
What are the key changes?
The changes introduced through the current set of regulations (enacted on 31 January 2006)
36

include:
Supply, services and works are consolidated into a single set of regulations;
Framework agreements and e-auctions expressly included;
A new competitive dialogue procedure introduced in addition to the open and
restricted procedures;
Dynamic purchasing systems introduced;
Specific provisions made for central purchasing bodies;
Mandatory exclusion of entities whose directors or other decision makers have been
convicted of certain offences;
A 10 calendar day standstill period at the award stage prior to contract signature has
been provided for.
What about mixed contracts?
Where a contract covers both services and supplies, the classification should be
determined by the respective values of the two elements;
Where it covers works/supplies or works/services, it should be classified according to
its predominant purpose;
Where a contract provides for the supply of equipment and an operator it should be
regarded as a services contract;
Contracts for software are considered to be for supplies unless they have to be tailored
to the purchasers specification, in which case they are services.
What is the advertisement requirement?
Generally contracts covered by the regulations must be the subject of a call for competition by
publishing a contract notice in the OJEU. In most cases the time allowed for responses or
tenders must be no less than a set period, although some reduction is possible under certain
circumstances (see SIMAP website for further details).
There are some services (categorised as Part A and Part B services) where a reduced
advertisement requirement applies details of this is available on SIMAP website11.

11

http://simap.europa.eu/index_en.htm

37

Table below outlining the advertisement timescale requirements.


Procedure
Open

Restricted

Restricted
Accelerated

Competitive
Dialogue and
Competitive
Negotiated
Competitive
Negotiated
Accelerated

Text
Minimum time for receipt of tenders from date contract
notice sent
Reduced when prior information notice (PIN)
published (subject to restrictions) to, generally,
And no less than

Days
52

36
22

Minimum time for receipt of requests to participate


from the date contract notice sent
Minimum time for receipt of tenders from the date
invitation sent
Reduced when PIN published (subject to restrictions)
to, generally,
And no less than

37

Minimum time for receipt of requests to participate


from the date contract notice sent
Minimum time for receipt of tenders from the date
invitation sent
Minimum time for receipt of requests to participate
from the date contract notice sent

15

Minimum time for receipt of requests to participate


from the date contract notice sent

15

40

36
22

10
37

What are the procurement options?


Open procedure all interested parties can respond
Restricted procedure a selected number of respondents are invited to tender.
Competitive dialogue procedure - following an OJEU contract notice and a selection
process, the authority then enters into dialogue with potential bidders, to develop one or more
suitable solutions for its requirements and on which chosen bidders will be invited to tender
Negotiated procedure - a purchaser may select one or more potential bidders with whom to
negotiate the terms of the contract. An advertisement in the OJEU is usually required but, in
certain circumstances, described in the Regulations, the contract does not have to be
advertised in the OJEU. An example is when, for technical or artistic reasons or because of
the protection of exclusive rights, the contract can only be carried out by a particular bidder.
How do the regulations impact on private sector projects?
For public works concession contracts (i.e. contracts under which the contractor is given the
right to exploit the works, e.g. tolled river crossings), the winning concessionaire is required
to comply with certain OJEU advertising requirements for works contracts which it intends to
award to third parties. For some subsidised works contracts (civil engineering activities,
building work for hospitals, facilities intended for sports, recreation and leisure, school and
university building or buildings for administrative purposes) the public authority awarding the
grant is obliged to require the subsidised body to comply with the Regulations, as if it were
a public authority, as a condition of grant. This provision has, for example, been invoked for
many Lottery funded projects. There is a similar requirement for subsidised service contracts
in connection with subsidised works.
38

This guidance is not intended as a substitute for project specific legal advice, which
should always be sought by a public authority where required.
The EU procurement regime is not static. It is subject to change, driven by evolving
European and domestic case law, European Commission communications, new and
revised Directives and amendments of the existing UK Regulations.
Further information can be obtained from SIMAP website12.

3.4. Alternative methods of procurement PFI


There are fundamental differences in procuring, managing and the delivery of a PPP/PFI
project to that of the more conventional projects.
The key area is that they are set up on a completely different structure and contractual basis.
This involves additional parties, a substantially different risk matrix and more complex
responsibility for the management of risk. It is the understanding of these risks which are
more extensive, more onerous and which extend for a much longer period.
Firstly however, a brief history of the development of PPP/PFI in the UK Is set out to give an
understanding of the basis of these changes
Brief History
In the early 1990s the UK government formulated and awarded specific Design, Build,
Finance & Operate (DBFO) projects to modernise the UKs ageing road infrastructure; these
in the main were the forerunners to fully privately financed projects (PFI).
Also there were early Build, Own & Operate (BOO) projects and Build, Own, Operate &
Transfer (BOOT) projects but the DBFO projects were more numerous.
This approach allowed various road infrastructure projects to be built and operated by private
companies but more importantly, financed by private capital with the borrowings remaining
off balance sheet for the government.
However, these private loans were normally 100% underwritten by the government and repaid
over a concession period of (initially) 20-25 years through shadow tolls for traffic usage - In
effect the Government was buying upgraded assets on HP.
These projects tended to be multimillion projects such as major new motorways and
strategic bridge links such as the second Severn crossing and the Dartford M25 toll bridge:
The John Major government then launched the Private Finance Initiative (PFI) in the mid1990s. PFI contracts were of similar format but were used to include renewal and upgrade of
other key Government funded facilities.
There were two main forms of contract which passed down different levels of risk to the
private sector, namely:
Availability such as schools, prisons, hospitals;
Full risk such as water projects, light rail & private roads.
The availability model followed very much the same format as DBFO in that availability
for use payments were made, much in line with shadow tolls, during the concession period
Where the full risk was passed down, the lengthy concession period allowed revenue to be
generated by the private companies directly from the service provided and was used to
finance and service their equity and loans.
These full risk projects were not underwritten by the government.

12

http://simap.europa.eu/index_en.htm

39

Structure of PFI/PPP/PFI company


In order to allow investment in PFI/PPP projects and to allow the effective risk transfer to
safeguard the private investors, a new format of legal company had to be established; Special
Service Companies (SPC) or Special Service Vehicles (SPV) were established as the main
contracting company.
These SPC/SPVs became not only responsible for the construction of the specific project but
had to operate the facility for up to 30 years before handing back to the government.
A typical structure of a SPC/SPV is shown below:

Client

Advisors

Banks / Lenders

Special Purpose Company

Operation & Maintenance

Construction Company

Company

Subcontractors

Subcontractors

Suppliers

Suppliers

Within this structure, there needed to be formal contracts to ensure all parties understood their
legal responsibilities and then were held to account to deliver to the specific requirements and
performance criteria.
As in the main the companies forming the SPC/SPV were the same as those involved in the
Construction and O&M Companies, there needed to be formal arms-length stand-alone
contracts between the different legal entities.
Project management of PPP/PFI projects
From the diagram above, it now becomes obviously very important to define which part of the
project that a project manager is to be responsible for, namely:
Project manager/director for the SPC/SPV
Project manager for the construction company or consortium
Project manager for the long term operating & maintenance company or joint venture
This is essential as his role, responsibilities and authority levels will vary greatly.
The other critical issue is that he needs to fully understand within which part of the
organisation that certain risks should be retained and controlled and then ensure that the
appropriate risks are transferred to the legal party contracted to manage them.

40

A diagram below demonstrates this:


Transfer of
Risk

Retained
Risk

Client

Advisors

Special Purpose Company

Operation & Maintenance


Company

Construction Company

Subcontractors
0 years

Banks / Lenders

Subcontractors

Suppliers

3 5 years

Suppliers
25 30 years

Risk responsibility duration

Risk transfer
At the start of PFI, full risks not fully identified and understood, thus in some cases the proper
risk were not properly transferred from party to party, thus risks were not always allocated
properly to the correct party.
Risk transfer has been developed over the years and is now a mature market.
The best performing PFI/PPP projects have generally been where the risks are properly
identified and then allocated to the party best able to understand them and thus properly
manage them.
There are a range of PPP/PFI models that allocate responsibilities and risks between the
public and private partners in different ways. The following terms are commonly used to
describe typical partnership agreements:
Buy-Build-Operate (BBO): Transfer of a public asset to a private or quasi-public entity
usually under contract that the assets are to be upgraded and operated for a specified period of
time. Public control is exercised through the contract at the time of transfer.
Build-Own-Operate (BOO): The private sector finances, builds, owns and operates a facility
or service in perpetuity. The public constraints are stated in the original agreement and
through on-going regulatory authority.
Build-Own-Operate-Transfer (BOOT): A private entity receives a franchise to finance,
design, build and operate a facility (and to charge user fees) for a specified period, after which
ownership is transferred back to the public sector.
Build-Operate-Transfer (BOT): The private sector designs, finances and constructs a new
facility under a long-term concession contract, and operates the facility during the term of the
concession after which ownership is transferred back to the public sector if not already
transferred upon completion of the facility. In fact, such a form covers BOOT and BLOT with
the sole difference being the ownership of the facility.
Build-Lease-Operate-Transfer (BLOT): A private entity receives a franchise to finance,
design, build and operate a leased facility (and to charge user fees) for the lease period,
against payment of a rent.

41

Design-Build-Finance-Operate (DBFO): The private sector designs, finances and constructs


a new facility under a long-term lease, and operates the facility during the term of the lease.
The private partner transfers the new facility to the public sector at the end of the lease term.
Finance Only: A private entity, usually a financial services company, funds a project directly
or uses various mechanisms such as a long-term lease or bond issue.
Operation & Maintenance Contract (O & M): A private operator, under contract, operates
a publicly owned asset for a specified term. Ownership of the asset remains with the public
entity. (Many do not consider O&Ms to be within the spectrum of PPP/PFIs and consider
such contracts as service contracts.)
Design-Build (DB): The private sector designs and builds infrastructure to meet public sector
performance specifications, often for a fixed price, turnkey basis, so the risk of cost overruns
is transferred to the private sector. (Many do not consider DBs to be within the spectrum of
PPP/PFIs and consider such contracts as public works contracts.)
Operation License: A private operator receives a license or rights to operate a public service,
usually for a specified term. This is often used in IT projects.
The options available for delivery of public services range from direct provision by a ministry
or government department to outright privatisation, where the government transfers all
responsibilities, risks and rewards for service delivery to the private sector. Within this
spectrum, public-private partnerships can be categorised based on the extent of public and
private sector involvement and the degree of risk allocation.
In UK public sector there is no legal requirement to adopt a uniform PPP/PFI project
implementation procedure all the different sectors engaged in PPP/PFI form of procurement,
for example, the defence sector, education sector, housing sector, the ICT sector and so on,
have created their own terms of engagement in terms of PPP/PFI projects, with input and
support from regulatory, legislative and executive authorities. Although the first standard PFI
contract was published in 1999, the different sectors have developed their own forms of
contractual arrangements to suit their particular requirements13.
In many sectors, there is non-statutory guidance which provides model documentation and
advice in relation to the PPP/PFI processes.
For further information regarding PPP/PFI projects please refer to the recent LdV publication:
results of the LdV TEP-PPP project nr: 2009-1-PL1-LEO05-05040, titled: Trans-European
Promotion of PPP Projects, ISBN 978-83-933884-4-8, Centrum PPP, Warsaw, 2012.
3.5. Literature and further reading for chapter 3
1. Introduction to the EU procurement rules: Office of Government Commerce Guidance
March 2008.
2. Philip Webster. 1990. Tendering Procedure and Construction in Europe. J. Property
Finance.Vol1. No3. 411-415.
3. Code of Practice for Project Management for Construction and Development. 2002. ISBN
1-4051-0309-4. 3rd ed. Blackwell Publishing Ltd., 240p.
4. Public Procurement Bulletin 2008, 2009, 2010.
5. Bedri K. O. Tas, Rasim Ozcan and Ilke Onur. 2008. Public Procurement Auctions and
Competition in Turkey. Working Paper No: 08-14. TOBB University of Economics and
Technology Department of Economics.
6. Public Procurement Authority (http://www.ihale.gov.tr)
7. Hasan Gl. 2010. Modernising public procurement and creating an independent public
procurement regulatory authority. EBRD-Law in transition.
8. EBRD: Turkey (http://www.ebrd.com/pages/country/turkey.shtml)
13

There is however a requirement to comply with the guidance available in a HMT Treasury publication
Standardisation of PFI Contracts (SoPC currently at version 4 published in 2007) for PFI contracts

42

3.6. Set of exercises for chapter 3


Exercise 3.1:
Which one of the following is not a method of procurement?
a) Project/construction management
b) Contract and Build method
c) Traditional
d) Design and Build
e) None
Exercise 3.2:
Which one of the following is wrong?
a) In traditional type of procurement, construction is based on the design of the contractor.
b) In project/construction management type of procurement, the client plays an active role in
the procurement system.
c) In management contracting type of procurement, the client appoints a design team with
responsibilities related to design and management of the project.
d) In design and build method type of procurement, the owner produces a list of requirements
for a project, giving an overall view of the project's goals.
Exercise 3.3:
Fill in the blank with the appropriate word:
_________________ method is sometimes called as Design-Bid-Build (or design/bid/build,
and abbreviated D-B-B or D/B/B accordingly), also known as Design-tender (or
"design/tender").
a)Management
b) Traditional
c) Contractual
d) Project
e) Tender
Exercise 3.4:
Which one of the following is wrong about the categories of the procurement activities?
a) Direct procurement category covers raw materials and production goods,
b) The first category is called direct, production-related procurement and the second is
indirect, non-production-related procurement,
c) Indirect procurement covers raw materials and production goods,
d) Maintenance, repair and operating supplies belong to indirect procurement,
e) None
Exercise 3.5:
What is the main purpose of implementation EU procurement directives?
Exercise 3.6:
According to EU legislation, where must all tenders from the public sector which are valued
above a certain financial threshold be published?

43

Exercise 3.7:
What is a minimum time (in calendar days) for receipt of tenders from the date a contract
notice is sent for Open Procedure according to the OJEU timescale requirements?
a) 28
b) 36
c) 52
Exercise 3.8:
PFI/PPP is not an alternative method of procurement. True or false?
Exercise 3.9:
List at least three PPP/PFI models describing partnership agreements.
Exercise 3.10:
Briefly describe Design-Build-Finance-Operate (DBFO) model.

44

CHAPTER 4
PUBLIC TENDERING
OBJECTIVES OF CHAPTER 4
The aim of this module is to explain the tender procedures and the documents to be prepared
during a tendering phase identifying the specification, selection and award stages. The
participant will be equipped with the knowledge of tendering phases starting from the
beginning up to the award stage.
LEARNING OUTCOMES FOR CHAPTER 4
The participant will learn the phases of tender, procuring the supply chain, tender procedures,
tender appraisal; time, quality and price and awarding the contract. This will include
everything about a tender and will be useful for construction managers who are entering
a tender.
4.1. Introduction
Public procurement (tendering) is the process whereby public authorities - including all
levels of government and public agencies - buy goods and services or commission work.
Public procurement generally is an important sector of the economy. In Europe, public
procurement accounts for 16.3% of the Community GDP.
Government procurement (tendering), also called public tendering or public procurement,
is the procurement of goods and services on behalf of a public authority, such as
a government agency. With 10 to 15% of GDP in developed countries, and up to 20% in
developing countries, government procurement accounts for a substantial part of the global
economy.
To prevent fraud, waste, corruption or local protectionism, the law of most countries regulates
government procurement more or less closely. It usually requires the procuring authority to
issue public tenders if the value of the procurement exceeds a certain threshold.
Government procurement in the European Union has been regulated and harmonised by
community law since the 1970s. European regulations also provide for electronic
procurements.
Especially with regard to infrastructure, public tenders have an important meaning for
industry. Following the European Union laws, all EU accession countries needed to provide
tender processes consistent with EU regulations. The advantage for foreign firms is the
chance to win tenders in other countries since all firms must be treated alike and every firm
capable of conducting the project has the right to participate in the tender process.
The creation of a common market for public-sector procurement and construction contracts
was as a result of the obligations Member States had undertaken in the treaties to remove
restrictions on foreign goods, services and businesses. Community legislation was necessary
to make sure that government contracts were open to all nationalities on equal terms and to
make tendering procedures more transparent so that compliance with the principles laid down
in the treaties could be monitored and enforced.
Therefore, to back up the prohibition of import restrictions resulting from discriminatory
public purchasing and to make it easier for foreign firms to compete for public-sector
contracts, the Council issued directives to coordinate procurement procedures in all publicsector procurement subject to the treaties.
45

4.2. Phases of tendering


Figure below and at the next page shows the general steps and actions taken during a typical
tender process for services or consultancy under the restricted procedure:
Contracting Authority
Contractor
Consultation and market search, preliminary Market analyses and business strategy
works
Focus on target sectors
Project definition and design, including Market intelligence for contract opportunities
initial drafting of bid specification or terms Client and project research
Contacts with client managers
of references.
Decision to make restricted procedure,
Determination of contract award criteria,
weightings and quality-price ratio
Assessment and selection
Review of supplier database, registration and
pre-qualification information
Notification and pre-qualification
Advertisement and contract notice,
Response to contract notice
invitations to expressions of interest
Preparation and submission of expression of
interest
First stage of selection, reducing the list to a
manageable total for second stage of
selection
Second stage of selection, a more detailed
assessment, including interviews and visits
Definition of shortlist
Tendering
Finalisation of work specification
Issue of proposal invitations and
Acknowledgement of invitation
accompanying documentation
Decision to bid
Confirmation of intention to submit a
proposal
Decisions on evaluation approach
Analysis of work specification
Preparation of proposal
Arrangements for dealing with clarification
Request for clarification
requests
Format site visits or briefings, if appropriate
Briefing or meeting with client, if appropriate
Receipt of proposals
Submission of proposal

46

Contracting Authority

Contractor

Evaluation
Formal tender opening and checks for
compliance
Proposal evaluation, quality and price
Arrangements for presentations by lead
contenders
Preparation of formal and key questions for
Preparation of presentation
presentations
Assessment of presentations
Delivery of presentations
Further clarification of contract issues if
Further clarification of contract issues if
appropriate through negotiation
appropriate through negotiation
Selection of the most economically
advantageous tender
Contract Award
Notification to successful bidder, including
any conditions to be discussed at a further
contract negotiation stage
Notification to unsuccessful bidders,
including placing a reserve or hold on the
bidder ranked second in case contract
negotiations with the first ranked bidder fall
10-days mandatory standstill period before
entering into contract
Ref: Bids, Tenders and Proposals: Winning Business Through Best Practice by Harold Lewis
In terms of their detailed application, EU procurement procedures are more complex than can
be indicated in this brief outline. There are circumstances and conditions that give rise to
exceptions from general rules and aspects of the directives that are open to differing
interpretations. It is essential for prospective bidders to make a thorough analysis of the
information in the contract notice and the bid specification.
As well as the main EC portal (http://europa.eu) and the TED site (http://ted.europa.eu), the
SIMAP website (http://simap.europa.eu) offer a useful means of efficient management,
performance and delivery is normally reflected in the bid specifications for high-value public
sector contracts by a requirement to provide plans for progress measurement, performance
monitoring, quality control and the management of risk and change.
These activities may include the following:

Checking that the various tender documents are produced at appropriate times,
including those for enabling works (e.g. demolition, site clearance, access and
hoarding) and ensuring that they contain any special terms required by the client. In
conjunction with the relevant consultants, preparing lists of firms to be invited to
tender for the main and subcontract elements of the work (prequalifying process);
Obtaining confirmation that the listed firms will be prepared to submit tenders at the
specified dates, taking up references and/or interviewing tenderers, together with the
relevant consultants;

47

Ensuring that appropriate reference to the construction Design & Management


regulations is made in tender documentation where the contractor is to be appointed as
principal contractor, including the health and safety plan;
All subcontract terms must be compatible with the main contract terms, paying
particular attention to contractor-designed elements and confirming that appropriate
warranties are secured. Receiving reports on tenders, together with method statements.
Interviewing successful tenderers, if necessary, to clarify any special conditions and to
meet significant leading personnel. Arranging for formal acceptance of tender as
appropriate and issuing relevant letters of intent;
Balancing quality and price is the base for selection;
Distinguishing if tenders are outside budget;
Ensuring that the client understands the nature and terms of the construction contract,
particularly those in relation to possession and payment terms, and that possession of
the site can be given to the contractor on the date set out in the tender;
Arranging for formal signing and exchange of contracts.

The Regulations are designed to ensure all suppliers or contractors established in countries
covered by the rules are treated on equal terms, to avoid discrimination on the grounds of
origin in a particular Member State. The criteria cover:
Specification stage - how requirements must be specified, avoiding brand names and
other references which would have the effect of favouring or eliminating particular
providers, products or services and the requirement to accept equivalence. The
Regulations now make it clear that authorities may use performance specifications
rather than technical specifications. They also provide clarification on the scope to
reflect environmental issues in specifications.
Selection stage - the rejection or selection of candidates based on:
o evidence that they are not unsuitable on grounds, e.g. of bankruptcy, criminal
conviction or failure to pay taxes. Certain offences now require, in normal
circumstances, a mandatory exclusion;
o their economic and financial standing e.g. that they are judged to be
financially sound on the basis of their annual accounts; and
o their technical capacity and ability e.g. that they will be adequately equipped
to do the job and that their track record is satisfactory.
Award stage - the award of contract is either on the basis of lowest price or various
criteria for determining which is the most economically advantageous tender to the
purchaser. Government policy is to use the latter criterion, as this is consistent with the
obligation to achieve value for money.
Transparency is very important and in European government procurement. It is achieved
through the publication, in the Official Journal, of three types of notices:
Periodic indicative notices (PIN) indicate the annual estimated procurement volume for
every contracting authority
Invitations to tender are the formal invitations to suppliers to tender offers that start the
process of awarding a contract.
Contract award notices (CAN) notify the public about the award of a contract to
a successful tenderer, including the price and the reason for the selection.
Transparency increases price competition among suppliers, resulting in lower purchase prices,
because publications make more suppliers aware of business opportunities, and they also
know that their competitors will too have seen the publications. CANs also send important
price signals to the market. But the increased competition may drive down prices down to a
level where poor quality or predatory pricing become a concern. It also wastes effort on the
48

part of the many unsuccessful tenderers and of the authority which has to evaluate many
tenders.
4.3. Procuring the supply chain
The EU procurement directives set out the legal framework for public procurement and they
apply when public authorities and utilities seek to acquire supplies, services, or works (e.g.
civil engineering or building). They set out procedures which must be followed before
awarding a contract.
The main aim of the EU procurement rules is to open up the public procurement market and
to ensure the free movement of supplies, services and works within the EU. In most cases
they require competition. The EU rules intend to reinforce the value for money focus of the
governments procurement policy. This requires that all public procurement should be based
on value for money, defined as the optimum combination of cost and quality to meet the
users requirement, which should be achieved through competition, unless there are other
reasons which are contrary. In practice European tenders are based on the lowest price with
some technical assessments.
Better relationships among different supply chain partners; trust and transparency during
different construction activities; integrated supply chain; completion of projects on time,
within the agreed cost, with promised quality products and services, can be supplied within
the construction industry due to innovation within the project procurement processes and
activities. There is also a better understanding that the promotion of innovative thinking, in
procurement processes for supply chain integration, offers all the involved parties some main
benefits in terms of more flexibility and adaptability, commercial growth, and improved
quality of products, and delivered service. It is observed from real life that some of the critical
factors motivated the people within the firms to move from traditional ways of procurement,
and search, innovate, and implement the new procurement thoughts and models. These
models offer transferable learning opportunities and motivation for staff of other construction
firms seeking to have integration within their supply chains through innovative procurement
routes.
Now the regulations include a number of changes to procedures and requirements to procure
the supply chain more efficiently:
The previously separate supply, services and works public sector regulations are
consolidated into a single set of regulations;
The public sector regulations expressly provide for framework agreements and
electronic auctions for the first time;
A new competitive dialogue procedure in the public sector regulations is available for
complex procurements where the authority does not consider that the open or
restricted procedures will allow the award of a contract. This procedure will allow
authorities to enter into a dialogue with potential bidders before seeking final tenders
from them. This procedure is appropriate for many cases where hitherto the negotiated
procedure had been used;
Introduction of rules for dynamic purchasing systems, a wholly electronic system for
commonly used purchases. The system is open to new potential bidders through its
lifetime. Call offs are made by means of a simplified notice in the Official Journal of
the European Union;

49

Contracts may be reserved to supported factories and businesses where more than 50%
of the workers are disabled persons;
Specific provisions are included for central purchasing bodies whereby contracting
authorities can purchase from or through such bodies, which must be contracting
authorities who have been set up to provide those supplies, services or works;
Clarification on social and environmental issues;
Mandatory exclusion of companies or other bodies whose directors or other decision
makers have been convicted of the following offences participation in a criminal
organisation, corruption, bribery and fraud, as defined in the Regulations; and
A 10 calendar day standstill period at the award stage prior to contract signature to
permit unsuccessful tenderers to seek further information about an award decision, and
enable them to take action in the courts when they have sufficient grounds.
It is important that contracting authorities consider the detailed requirements on the above
issues in the regulations.
Terms of reference and technical specifications are prepared for the tenders and the purpose
of terms of reference (for service contracts) and technical specifications (for supply and works
contracts) is to give instructions and guidance to contractors at the tendering stage about the
tender they will need to submit and to serve as the contractor's mandate during project
implementation. The terms of reference or technical specifications will be included in the
tender dossier and will become an annex of the eventual contract awarded as a result of the
tender. The thorough preparation of the terms of reference or technical specifications is
extremely important for the ultimate success of the project. It is important to ensure that the
project has been properly conceived, that the work is carried out on schedule and that
resources will not be wasted. Therefore greater effort during project preparation will save
time and money in the later stages of the project cycle.
The terms of reference and the technical specifications must afford equal access for
candidates and tenderers and should not have the effect of creating unjustified obstacles to
competitive tendering. They should be clear and non-discriminatory and should be in
proportion to the object and/or budget allocated for the project. They define the characteristics
required by the contracting authority of the service, supply or work to be purchased. Those
characteristics include:
a) Quality levels;
b) Environmental performance;
c) Design for all requirements;
d) The levels and procedures of conformity assessment, including environmental aspects;
e) Fitness for use;
f) Safety or dimensions, including, for supplies, the sales name and user instructions, and, for
all contracts, terminology, symbols, testing and test methods, packaging, marking and
labelling (including environmental labelling, e.g. on energy consumption), production
procedures and methods.
After the tender dossiers have been finalised the tender procedure should be launched as soon
as possible. The terms of reference or technical specifications contained in a tender dossier the basis for the project work-plan - must reflect the situation at the time of project start-up so
as to avoid considerable effort being spent on re-design the project during the inception
period.

50

The general structure of terms of reference for services has been drawn up in accordance with
the principles of project cycle management. The aim is to ensure that all issues are covered
systematically and that key factors related to clarity of objectives and sustainability are
thoroughly examined.
4.4. Tender Procedures
The rules for applying the standard tender procedures are summarised in the table below.
They are explained for services (e.g. technical assistance, studies, provision of know-how and
training), supplies (i.e. equipment and materials) and works (i.e. infrastructure and other
engineering works). After the approval of an activity and given grant by the European
Commission with the financing decision and agreement, the contracting authority can proceed
with tendering and contracting following these standard procedures. The thresholds given in
the table are based on the maximum budget for the contract. In each of the procedures, the
contracting authority must respect all basic principles (including eligibility, exclusion and
selection criteria).
If the relevant conditions are met, other procedures can be applied regardless of the
thresholds, for example, negotiated procedures on the basis of a single offer.

SERVICES

200,000
International
restricted
tender procedure

SUPPLIES

150,000
International
open tender
procedure

WORKS

1.5,000,000
international
open tender
procedure
2.International
restricted
tender procedure

1.

1.< 200,000 but > 10,000 Framework


contracts
2.Competitive negotiated procedure
< 150,000 but
60,000
Local open tender
procedure

< 60,000 but >


10,000 Competitive
negotiated procedure

< 5,000,000 but


300,000
Local open tender
procedure

< 300,000 but>


10,000
Competitive
negotiated procedure

10,000
Single
tender

Open procedure, under which all those interested, may respond to the advertisement in
the Official Journal of the European Union by tendering for the contract.

That is; calls for tender are open where all interested economic operators may submit a tender.
The announcement is given through the publication of a notice in the Official Journal (Sseries) of the European Union, the official journals of all the ACP States (EDF) on the Europe
Aid website and in any other appropriate media. Any natural or legal person wishing to enter
to the tender receives the tender dossier (which may have to be paid for), in accordance with
the procedures lay down in the procurement notice. When the tenders received are examined,
the contract is awarded by conducting the selection procedure (i.e. verification of the
eligibility and of the financial, economic, technical and professional capacity of tenderers)
51

and the procurement procedure (i.e., comparison of tenders). No negotiation is allowed in this
type of tender.
2.

Restricted procedure, under which a selection is made of those who respond to the
advertisement and only they are invited to submit a tender for the contract. This allows
purchasers to avoid having to deal with a large number of tenderers.

That is; calls for tender are restricted where all economic operators may ask to take part but
only candidates satisfying the selection criteria may submit a tender. The contracting authority
invites a limited number of candidates to tender. Before launching a tender procedure, it will
draw up a shortlist of candidates selected as a result of their qualifications. The selection
procedure, by which the long list (all candidates responding to the published notice) is cut
down to a shortlist, involves examining responses to a procurement notice, in which the
selection criteria and a general description of the tasks to be undertaken are set out. At the
stage of the short-listing and before the shortlist is approved by the evaluation committee, the
contracting authority shall also ensure that there is not a detection of the third party (i.e. the
candidate including partners) concerned in the Early Warning System (EWS) (EWS is an
operational tool for Commission services, providing them with information on identified
risks related to beneficiaries of centrally managed contracts and grants. The system is based
on a system of flags, identifying the level of risk concerned, from W1, the lowest level of
flagging, to W5, the highest level).
In the second stage of the procedure, the contracting authority invites the shortlisted
candidates and sends them the tender dossier. In order to ensure fair competition, tenders must
be submitted by the same service provider or consortium which has submitted the application
form on the basis of which it was short-listed and to which the letter of the invitation to tender
is addressed. Only under the following conditions can modifications be made:

Where a combination has taken place between a shortlisted member of a consortium


with another company and where the new company is found to meet the eligibility and
exclusion criteria and does not give raise to any conflict of interest;

Exchange of positions within the consortium;

A partner leaves the consortium but this does not alter the shortlisting conditions and
the rest of the consortium fulfils the selection criteria independently.
The successful tenderer is chosen by the procurement procedure once the tenders have been
analysed . No negotiation is allowed in this type of tender.
3. Competitive negotiated procedure, the contracting authority invites candidates of its
choice to submit tenders.
At the end of the procedure, it selects the technically compliant tender which offers the best
value for money in case of service tenders and the cheapest offer in case of supplies or works
tenders.
The procedure for evaluating the submitted tenders (including the use of an evaluation
committee) and awarding the contract is the same as under the restricted procedure.
4. Framework contract is an agreement between one or more contracting authorities and one
or more economic operators the purpose of which is to establish the terms governing specific
contracts which may be awarded during a given period, particularly as regards the duration,
subject, price, implementation rules and the quantities envisaged.
52

The framework contracts done with several economic operators are called multiple framework
contracts, which take the form of separate contracts but concluded in identical terms. The
minimum as well as the maximum number of operators which the contracting authority
intends to conclude contracts with must be indicated in the specification. The minimum
number of economic operators may not be below three. The duration of these contracts may
not exceed four years. Contracting authorities may not use the contracts in a way that the
purpose or effect is to prevent, restrict or distort competition. Specific contracts based on
framework contracts shall be awarded in accordance with the terms of the framework contract
and shall respect the principles of transparency, proportionality, equal treatment, nondiscrimination and of sound competition.
5. Dynamic purchasing is an electronic process for making commonly used purchases which
has limited duration and open throughout its validity to any economic operator who satisfies
the selection criteria and has submitted an indicative tender that is found compliant.
In dynamic purchasing, no specific threshold applies. For each contract, the contracting
authority publishes a contract notice and invites all contractors. The contract is awarded to the
technically compliant tender being most economically advantageous (i.e. the sole award
criterion is the best value for money). The legal framework of this procedure is defined for
future use, but the IT tools (confidentiality, security) to make it possible are not yet available
in the Commission.
6.

Competitive dialogue procedure, following an Official Journal of the European Union


Contract Notice and a selection process, the authority then enters into dialogue with
potential bidders, to develop one or more suitable solutions for its requirements and on
which chosen bidders will be invited to tender;

In the case of complex contracts, where the contracting authority thinks that direct use of the
open or restricted procedures will not allow the contract to be awarded to the tender offering
best value for money, then the contracting authority may make use of the competitive
dialogue. A contract is considered to be particularly complex where the contracting
authority is not objectively able to define the technical means capable of satisfying the needs
or objectives or able to specify the legal or financial makeup of the project. No specific
threshold applies in this type of contract.
Contracting authorities shall publish a contract notice setting out their needs and requirements
in a descriptive document. They will open a dialogue with the candidates satisfying the
selection criteria announced in the procurement notice. During the dialogue, all aspects of the
tender can be discussed; however, the dialogue is conducted individually with each candidate
on the basis of their proposed solutions and ideas. The contracting authority has to ensure the
equal treatment of tenderers as well as the confidentiality of tenders must be supplied. The
minimum number of candidates invited to tender may not be less than three, provided that a
sufficient number of candidates satisfy the selection criteria. Where the number of candidates
meeting the selection criteria is less than three, the contracting authority may continue the
procedure only with these.
After the dialogue is completed, contracting authorities will ask them to submit their final
tenders on the basis of the solutions presented and specified during the dialogue. These
tenders will contain all the elements required and necessary for the performance of the
53

project. The tenderer offering best value for money may be asked to clarify aspects of the
tender or confirm commitments contained in the tender provided.
The contracting authorities may specify prices or payments to the participants in the dialogue.
The contract shall be awarded to the technically compliant tender being most economically
advantageous (i.e. the sole award criterion is the best value for money).
7. Negotiated procedure/single tender procedure, under which a purchaser may select one
or more potential bidders with whom to negotiate the terms of the contract.
An advertisement in the Official Journal of the European Union is usually required but, in
some cases, described in the regulations, the contract does not have to be advertised in the
Official Journal of the European Union. An example is when, for technical reasons or because
of the protection of exclusive rights, the contract can only be carried out by a particular
bidder.
This contract can be awarded directly in the following occasions:

when the contract does not exceed 10 000 EUR ("Single tender procedure");

In exceptional cases, where the factual or legal circumstances defined in the


implementing rules of the financial regulation are met. No specific threshold applies in
such cases ("Negotiated procedure").
The contracting authority must prepare a report explaining the manner in which the
participant(s) in the negotiations were identified and the price was established, and the
grounds for the award decision. The contracting authority must follow the negotiation steps of
the negotiation report template and ensure that basic principles relating to procurement
procedures such as checking compliance with eligibility rules (nationality rules), capacity to
carry out the contract and exclusion criteria are applied.
8. Fair and transparent competition, the arrangements for competitive tendering and
publicising contracts for works, supplies and services depend on the contract value.

In the case of mixed contracts covering a combination of works, supplies or services, the
contracting authority determines the procurement procedure to be used. This will depend on
whether the type of the component is works, supplies or services, an assessment which must
be made on the basis of the value and strategic importance of each component relative to the
contract as a whole. Whatever the procedure used, the contracting authority must be sure that
conditions must allow fair competition. Wherever there is an obvious and significant
difference between the prices and the services offered by a tenderer, or a significant difference
in the prices proposed by the various tenderers, the Contracting Authority must carry out
checks and request additional necessary information.

Special type of tender procedure: Public-Private Partnerships

Public-private partnerships are not subject to special rules in EU procurement law, but must
follow the rules and principles resulting from the European treaties. In 2000, the European
Commission published an "interpretative communication on concessions under Community
54

law", and in 2004 it published a "Green Paper on public-private partnerships and Community
law on public contracts and concessions", which takes the existing practices from the
perspective of European law and is intended to launch a discussion on whether a specific legal
framework should be drawn up at the European level. Competitive dialogue was created with
the aim of making the award of public-private partnerships easier, since before its creation a
contracting authority faced the choice of the restricted procedure, which is often too inflexible
for such contracts, or the negotiated procedure, which is intended to be an exceptional
procedure with specific legal justifications.
4.5. Tender appraisal: time, quality and price
The contracting authorities will follow clear and non-discriminatory selection criteria in every
procurement procedure regardless of the value of the contract and the type of procedure. The
purpose of its use is to assess that the tenderer has sufficient financial, economic, technical
and professional capacity to implement the tasks of the contract. The capacity of the entity
must be verified and the legal base must be clear in this respect:

For the economic and financial capacity, the period may be no more than the last three
financial years;

The period to demonstrate professional capacity shall be the last three years;

For the technical capacity the number of years depends on the type of contract. For
service and supply contracts it shall be what has been implemented in the past three
years and for works contracts it shall be the last five years.
The chosen selection criteria specified in the procurement notice shall be applied by the
contracting authority without modification unless a corrigendum has been published.
The tenderer will be requested to submit information in response to their economic, financial,
professional and technical capacity according to the selection criteria specified in the tender
documents. For service and supply procedures, only successful tenderers have to supply proof
documents to support the information submitted in the tender submission form before the
award of the contract. But for works procedures, the proofs have to be submitted in
accordance with the tender dossier.
As a proof of economic and financial capacity, following documents can be presented:

Statements from banks or evidence of professional risk indemnity insurance;

the presentation of balance sheets,

overall turnover and turnover concerning the works, supplies or services covered by
the contract during a period which may be no more than the last three financial years.
As a proof of the technical and professional capacity, the following documents can be
presented:

Educational and professional qualifications of the contractor;

A list of the principal services provided and supplies delivered in the past three years,
with the sums, dates and recipients, public or private;

A list of the works carried out in the last five years, with the sums, dates and place.
The list of the most important works must be accompanied by certificates of
satisfactory execution, issued by the contracting authority or entity who ordered or
purchased the works, specifying whether they have been carried out in a professional
manner and have been fully completed;

A description of the technical equipment, tools for performing the works contract;
55

A description of the technical equipment and measures employed to ensure the quality
of services, and a description of the firm's study and research facilities;
Declaration of the technicians involved, whether or not belonging directly to the firm,
especially those responsible for quality control;
Samples, descriptions, photographs and certificates drawn up by official quality
control institutes with a recognised competence;
A statement of the average annual manpower and the number of managerial staff of
the contractor in the last three years;
Showing the proportion of the contract which the tenderer may intend to subcontract.
The contracting authority may also require the tenderer to submit any information on
the financial, economic, technical and professional capacities of the envisaged
subcontractor, in particular when subcontracting represents a significant part of the
contract.

4.6. Awarding the contract


Contracts are awarded in one of two ways:

With respect to the procurement procedure, satisfying the conditions laid down, with
the lowest price;

Under the best-value-for-money procedure; the most economically advantageous


tender.
The criteria should be precise, non-discriminatory and not prejudicial to fair competition.
In the following cases, the contracting authority can cancel the tender:
The tender procedure can be unsuccessful, no qualitatively or financially available
tender has been received or there is no valid response at all;

Economic or technical data of the project were changed;

Because of exceptional circumstances;

Tenders exceed the financial resources available;

Irregularities in the procedure,

The award is not in compliance with sound financial management,


If a cancellation occurs, all tenderers are notified in writing of the reasons for the cancellation.
A cancellation notice must be published in the event that a tender is cancelled.

After the cancellation of a tender, the contracting authority can decide:

To prepare a new tender;

To have negotiations with one or more tenderers who participated in the tender
procedure, provided that the original terms of the contract have not been altered. This
option is not available if the reason for cancellation is because of irregularities in the
tender procedure;

Not to award the contract.


The final decision is taken by the contracting authority which will not be responsible for any
damages, loss of profits, in any way connected with the cancellation of a tender.
The period for the tenderers is limited by the time specified in the letter of invitation to tender
or in the tender dossier. This period must be sufficient to allow the contracting authority to
examine tenders, approve the contract award proposal, notify the successful tenderer and
conclude the contract. The period of validity of tenders is fixed at 90 days from the deadline
56

for the submission of tenders. On the basis of the approved evaluation report, the contracting
authority informs the successful tenderer in writing that its tender has been accepted.
In preparation of the contract for signature, the contracting authority must proceed as follows
and the contract dossier must include:
a) Explanatory note about the project;
b) Copy of the financing agreement authorising the project;
c) Copy of the call announcements (contract forecast, procurement notice and shortlist,
shortlist report, tender opening report, evaluation report, the annual work programme,
guidelines for applicants, proposal opening and administrative check report, the list of grants
to be awarded and any other relevant information;
d) Three originals of the proposed contract, annexes for the general conditions and forms and
other relevant documents. Only the special conditions (and budget in the case of grants)
should need to be completed by the contracting authority.
Upon completion of the signatures of the contract by the contracting authority:

Three signed originals of the contract will be sent to the successful tenderer, who must
sign them within 30 days of receipt and

Return two originals to the contracting authority together with the eventual financial
guarantee(s) required in the contract. If the successful tenderer fails to do this within
the specified deadline or indicates at any stage that it is not willing or able to sign the
contract, the tenderer cannot be awarded. The contract preparation process must start
for the next highest score in the tender.
The contracting authority must inform candidates and tenderers of decisions taken concerning
the award of the contract as soon as possible, including the grounds for any decision not to
award a contract. After the signature of the contract, if the value of the contract is high and
above international thresholds, the Contracting Authority must prepare contract award notice
and send it to the European Commission, which publishes the results of the tender procedure
in the Official Journal, where applicable, and on the Europe Aid website.
In addition, the contracting authority must:

inform the other tenderers with a standard letter in 15 days after the signature of the
contract;

Inform all statistical information concerning the procurement procedure including the
contract value, the names of the other tenderers and the successful tenderer.
Checking the submission requirements:
The committee must decide whether or not tenders comply with the formal submission
requirements at this stage (i.e. following the opening of the outer envelope and the opening of
the technical offer). The chairperson must check that no member of the evaluation committee
has a potential conflict of interest with any of the tenderers (on the basis of the shortlist, the
tenders received, consortium members and any identified subcontractor).

57

Evaluation of offers:
With the agreement of the other evaluation committee members, the chairperson may
communicate in writing with tenderers whose submissions require clarification, offering them
the possibility to respond within a reasonable time limit to be fixed by the committee.
Administrative compliance:
The committee checks the compliance of tenders with the instructions given in the tender
dossier and in particular the administrative compliance grid. Any major formal errors or major
restrictions affecting performance of the contract or distorting competition result in the
rejection of the tender concerned. The tenderers must provide proof documents for the key
experts proposed. This includes copies of the diplomas mentioned in the CV and employers'
certificates or references proving the professional experience indicated in the CV. If missing
proofs are requested it should only be for the relevant experience and diplomas which are
among the requirements in the terms of reference. The administrative compliance grid
included in the tender dossier must be used to record the administrative compliance of each of
the tenders.
Technical compliance:
When evaluating technical offers, each member awards each offer a score out of a maximum
100 points in accordance with the technical evaluation grid (setting out the technical criteria,
sub-criteria and weightings) laid down in the tender dossier. Where the content of a tender is
incomplete or deviates substantially from one or more of the technical award criteria laid
down in the tender dossier (e.g. the required profile of a certain expert), the tender should be
automatically rejected, without being given a score, but this should be justified in the
evaluation report.
Each evaluator completes an evaluation grid to record for the technical offer in order to
demonstrate a general appreciation of strengths and weaknesses of the individual technical
offers. On completion of the technical evaluation, the points awarded by each member are
compared at the committee's session. Once discussed, each evaluation committee member
finalises his evaluation grid on each of the technical offers and signs it before handing it over
to the secretary of the evaluation committee. The secretary must then compile a summary of
the comments of the committee members as part of the evaluation report. The secretary
calculates the aggregate final score, which is the arithmetical average of the individual final
scores.
The evaluation committee may, after writing up its provisional conclusions and before
definitively concluding its evaluation of the technical offers, decide to interview the key
experts proposed in technically compliant tenders (i.e. those which have achieved an average
score of 80 points or more in the technical evaluation). It is recommended that tenderers
which have scored close to the technical threshold also be invited for the interview. In the
case of interviews, the experts are interviewed by the committee, at intervals close enough to
permit comparison. Interviews must follow a standard format agreed beforehand by the
committee with questions formulated and applied to all experts or teams called to interview.
Tenderers must be given at least 10 days' advance notice of the date and time of the interview.

58

The procedure must be recorded in the evaluation report. The indicative timetable for these
interviews must be given in the tender dossier. Once the committee has established each
technical offer's average score (the mathematical average of the final scores awarded by each
voting member), any tender falling short of the 80-point threshold is automatically rejected. If
no tender achieves 80 points or more, the tender procedure will be cancelled. Out of the
tenders reaching the 80-point threshold, the best technical offer is awarded 100 points. The
others receive points calculated using the following formula:
Technical score = (final score of the technical offer in question/final score of the best
technical offer) x 100.
Example for a Technical Evaluation:

Maximum
possible

Tenderer 1

Tenderer 2

Tenderer 3

Evaluator A
100
55
88
84
Evaluator B
100
60
84
82
Evaluator C
100
59
82
90
Total
300
174
254
256
Average score
174/3 = 58.00 254/3 = 84.67
256/3 = 85.33
(mathematical
average)
Technical score
Eliminated*
84.67/85.33 x 100 100.00
(actual
= 99.22
final score/highest
final score)
* Only tenderers with average score of at least 80 points qualify for the financial evaluation
Evaluation of financial offers:
After the completion of the technical evaluation, the envelopes containing the financial offers
for tenders who were not eliminated during the technical evaluation (i.e., those which have
achieved an average score of 80 points or more) are opened and all originals of these financial
offers are opened by the chairperson and the secretary of the evaluation committee. The
evaluation committee must show that the financial offer satisfies all formal requirements. A
financial offer not meeting these requirements may be rejected. Any rejection on these
grounds will have to be fully justified in the evaluation report. The evaluation committee
checks that the financial offers contain no obvious arithmetical errors. Any obvious
arithmetical errors are corrected without penalty to the tenderer. The envelopes containing the
financial offers of rejected tenderers following the technical evaluation must remain
unopened. They must be archived by the contracting authority together with the other tender
procedure documents. The total contract value comprises the fees (including employmentrelated overheads), the incidental expenditure and the provision for expenditure verification,
which are specified in the tender dossier. This total contract value is compared with the
maximum budget available for the contract. Tenders exceeding the maximum budget
allocated for the contract are eliminated. The evaluation committee then proceeds with the
financial comparison of the fees between the different financial offers.
The tender with the lowest total fees receives 100 points. And the others are calculated by the
following formula:
Financial score = (lowest total fees / total fees of the tender being considered) x 100.
59

When evaluating financial offers, the Evaluation Committee compares only the total fees.
Example of a financial evaluation *:
Maximum
Tenderer 1
Tenderer 2
Tenderer 3
Possible score
Total fees
Eliminated
951 322
1 060 452
following
Financial score
100
951 322/1 060
technical
(lowest total
452 x100 = 89.71
evaluation
fees/actual total
fees x 100)
* Only tenderers with average scores of at least 80 points in the technical evaluation qualify
for the financial evaluation.
Conclusions of the evaluation committee:
The best value for money is established by weighing technical quality against price on an
80/20 basis.
This is done by multiplying:
- the scores awarded to the technical offers by 0.80
- the scores awarded to the financial offers by 0.20.
Example for a composite evaluation:
Maximum
possible
Technical score
x 0.80
Financial score
x 0.20
Overall score
Final ranking

Tenderer 1

Tenderer 2

Tenderer 3

Eliminated
following
technical
evaluation

99,22 x 0.80 = 100.00 x 0.80 =80.00


79.38
100.00 x 0.20= 89.71 x 0.20=17.94
20.00
79.38 + 20.00= 80.00 + 17.94=97.94
99.38
1
2

As a result, weighted technical and financial scores are then added together and the contract is
awarded to the tender achieving the highest overall score. It is essential to make the
calculations strictly according to the above instructions.
As a result of this tendering, the evaluation committee can take the following decisions:
Award the contract to the tenderer which has submitted a tender:
o which complies with the formal requirements and the eligibility rules;
o whose total budget is within the maximum budget available for the project;
o which meets the minimum technical requirements specified in the tender dossier;
o which is the best value for money (satisfying all of the above conditions).
Cancel the tender procedure in exceptional circumstances.

60

4.7. Literature and further reading for chapter 4


1. Market Entry Strategies in Eastern Europe in the Context of the Europe by Michael Klug,

2006
2. Bids, Tenders and Proposals : Winning Business Through Best Practice by Harold Lewis,
2009
3. http://ec.europa.eu/youreurope/business/profiting-from-eu-market/benefiting-from-publiccontracts/index_en.htm
4. Guide to the Community Rules on Public Procurement of Services other than in the Water,
Energy, Transport and Telecommunications Sectors, Directive 92/50/EEC
5. Malik M.A. Khalfan, (Salford Centre for Research and Innovation (SCRI) in the Built and
Human Environment, University of Salford, Greater Manchester, UK), Peter McDermott,
(Salford Centre for Research and Innovation (SCRI) in the Built and Human Environment,
University of Salford, Greater Manchester, UK)
6. Private finance, public roads: configuring the supply chain in PFI highway construction
Mark Hall http://www.sciencedirect.com/science/article/pii/S0969701200000186 CORR1, Robin Holt, Andrew Graves
7. http://ec.europa.eu/regional_policy/sources/docgener/evaluation/pdf/5_full_en.pdf
8. TENDER SPECIFICATIONS INVITATION TO TENDER NO CT.09.ICT.013.1.0 FOR
THE SUPPLY OF PERIODICAL JOURNALS
9. http://blog.tendersdirect.co.uk/2010/05/27/answering-your-questions-on-frameworkagreements/
10. Practical Guide to Contract procedures for EU external actions published on the EuropeAid
web site in March 2011
11. http://ec.europa.eu/europeaid/work/procedures/implementation/practical_guide/documents/
2010_prag_en.pdf

61

4.8. Set of exercises for chapter 4


Exercise 4.1:
Fill in the blank with the appropriate word;
Public procurement (tendering) is the process whereby public authorities - including all levels
of government and public agencies - _____________________ or commission work.
a) sell services
b) commission goods and services
c) buy goods and services
d) rent goods
Exercise 4.2:
Which one of the following is not a duty of the contracting authority?
a) Initial drafting of bid specification or terms of references
b) Assessment and selection
c) Determination of contract award criteria
d) Response to contract notice
e) None
Exercise 4.3:
Which one of the following is not a stage of a tender process?
a) Specification stage
b) Selection stage
c) Award stage
d) Accomplishment stage
e) None
Exercise 4.4:
Which of the following is not a procedure of a tender?
a) Restricted
b) Framework contract
c) Dynamic purchasing
d) Awarding process
Exercise 4.5:
As a proof of economic and financial capacity, which one is not presented in the tendering
dossier?
a) Statements from banks or evidence of professional risk indemnity insurance;
b) The presentation of balance sheets,
c) Overall turnover and turnover concerning the works, supplies or services covered by the
contract during a period which may be no more than the last three financial years.
d) Number of banks that the company is working with,
e) None
Exercise 4.6:
Fill in the blanks with proper wording:
Contracts are _________________ in one of the two following ways:

With respect to the procurement procedure, satisfying the conditions laid down, with
the
________________ price;
62

Under the best-value-for-money procedure; the most economically ____________


tender.

a) cancelled, lowest, disadvantageous,


b) awarded, highest, advantageous,
c) awarded, lowest, advantageous,
d) cancelled, equal, disadvantageous
Exercise 4.7:
The contracting Authority cannot cancel the tender in which of the following cases:
a) The tender procedure is unsuccessful, no qualitatively or financially available tender has
been received, or there is no valid response at all;
b) Economic or technical data of the project were changed;
c) Because of exceptional circumstances;
d) Tenders coincide with the financial resources available;
Exercise 4.8:
In the preparation of the contract for signature, the contract dossier may not include:
a) Copy of the call announcements
b) Explanatory note about the project,
c) First payment of the project
d) Originals of the proposed contract,
Exercise 4.9:
Which one of the following is right?
a) Technical score = (final score of
technical offer) x 100
b) Financial score = (final score of
technical offer) x 2
c) Financial score = (final score of
technical offer) x 200
d) Technical score = (final score of
technical offer) x 2

the technical offer in question/final score of the best


the financial offer in question/final score of the best
the financial offer in question/final score of the first
the technical offer in question/final score of the best

Exercise 4.10:
As a result of tendering, the evaluation committee cannot take the following decision:
a) Award the contract to the tenderer which has submitted a tender, which complies with the
formal requirements and the eligibility rules.
b) Cancel the tender procedure, when given the best value for money.
c) Award the contract to the tenderer which has submitted a tender, whose total budget is
within the maximum budget available for the project.
d) Award the contract to the tenderer which has submitted a tender, which meets the
minimum technical requirements specified in the tender dossier.

63

CHAPTER 5
CONTRACT ADMINISTRATION AND MANAGEMENT
OBJECTIVES OF CHAPTER 5
This module is addressed to the construction engineers, project managers and supporting
administrative staff engaged in construction projects. The subject being discussed in this
module allows the participant to understand the fields of administration and management
activities in construction project implementation, the scope within each of that field, and the
requirements and principles of executing contract management and administration.
LEARNING OUTCOMES FOR CHAPTER 5
This module will appeal to a wide range of professionals responsible for construction project
implementation. After understanding the module details, the participants will gain specialised
knowledge on requirements and principles of management and administration in construction
contracts.
5.1. Contract award
Various types of contracts have been evolved to suit the various subject matters of contracts
complying with the legal requirements. Construction contracts also have many variants and
these vary from country to country. When a contract is awarded, such a contract is described
in a set of documents which are called contract documents.
A construction contract comprises essentially the following documents:
- The contract drawings;
- The specifications;
- The general conditions of contract;
- The special conditions of contract;
- The agreement;
- The bill of quantities (BOQ) if applicable.
The turnkey tender documents may have only the preliminary system drawings and may not
have the bill of quantities.
5.1.1. The contract drawings
The contract drawings are the means through which the physical, quantitative and visual
descriptions of the project are conveyed to the contractor. The drawings are classified into:
- Site drawings;
- Architectural drawings;
- Structural drawings;
- HVACheating, venting and air conditioning, and other services drawings
- Electrical drawings; and
- Special details: depending on the nature of work, there could be fire-fighting details,
public-announcement system details, building automation details, etc.

64

5.1.2. The specifications


Specifications, or technical provisions, are written instructions to carry out a work. It also
contains information not possible to show on a piece of drawing. Drawings mentioned earlier
together with specifications furnish the complete instructions to convert an architects and
a designers imagination into reality. The drawings and specifications are also useful for
preparing the cost estimates of work items of a project. Specifications commonly deal with
the following aspects:
- The quality of materials;
- The quality of workmanship;
- The frequency of testing;
- The approved manufacturers;
- The relevant standards describing the material;
- The inspection and installation method.
5.1.3. The general condition of contract
The general conditions of contract are an essential part of the contract. The term 'general'
implies that the document is a standard one used in all the contracts entered by a party (the
owner). Different owners such as World Bank, EBRD or FIDIC have evolved standard forms
of general conditions.
The general conditions of contract set out the responsibility and obligation of parties to the
contract. It spells out the scope and performance of the contract, valuation and payment terms,
arbitration and laws, labour regulations, safety code, various forms used for the tender and
required deeds under the general conditions of contract. It is advisable to use standard general
conditions of contract since most of these conditions have been tested in court over a period
of time.
In Poland and Turkey there is a growing trend in the use of FIDIC contract conditions in large
infrastructure projects, especially those funded by the European Union. The FIDIC conditions
of contract are discussed elsewhere in the text.
5.1.4. The special conditions of contract
Certain amendments/additions/deletions are made in general conditions of contract in order to
make it suitable for a particular project. These amendments are contained in a separate
document called special conditions of contract. Special conditions of contract may commonly
address the following issues depending on the requirements of a project:
Materials provided by the owner;
Site visits;
Mobilisation advance;
Start date of construction;
Requirement of various reports related to progress.
5.1.5. The bill of quantities (BOQ)
The bill of quantities shows the net quantity to be executed in each item of work. Items are
classified into groups of work like earthwork, concreting, structural steel, waterproofing,
concreting, brickwork, stonework, piping, installations, whitewashing and painting, flooring
and finishing, doors and windows, etc.
65

As soon as the contract is awarded, the contractors management should start to create an
appropriate management team to deal with all contractual obligations and duties specified in
the contract documents described above.
5.2. Kick-off, inception report
Kick-off meeting means the formal and official engineers (project manager) contract
commencement. After the kick-off, generally within 30 days, the engineer presents an
inception report to the employer.
To illustrate the scope, purpose and goals of the kick-off and inception report, examples of a
kick-off meeting agenda and inception report tables of content are presented in point 5.2.1 and
5.2.2 below.
5.2.1. Agenda of the kick-off meeting engineers contract commencement
1.
2.
3.
4.
5.
6.

7.

8.

9.

Introduction of participants and presentation of the agenda. Assumptions and aims of the
kick-off meeting.
Introduction of the consultant engineering company, experience as the engineer in the
field of project.
Introduction of the engineers team - position and role of each of the team member in the
project. Introduction of the other participants of the kick-off meeting.
Presentation of the engineers organisation scheme.
Presentation and discussion of the project organisation scheme.
Presentation of roles, tasks, and responsibilities of each party and individual involved in
the project:
- Employer engineer
- Project implementation unit (PIU) engineer
- Employer implementing agency
- Contractors engineer.
Discussion of communication rules between the parties, flow of information and
documents, reporting.
Other facets connected with information and document flow:
- Technical ways of sending documents and information (letters, e-mails, faxes, etc.),
and their acknowledgement;
- Format of documents (periodic reports, payment certificates, work completion
certificates, faxes, letters and others) will be stated in the project operation manual
inception report;
- Document control system, document approval;
- Archive system;
- Software for making, sending and reading of documents; and
- Language of technical and contract documents.
Presentation by the PIU current state of the project, relative to:
- Design documents (works contract);
- Formal and legal documents (permission for building etc.);
- Tender documents for works contract.
Presentation by the PIU the progress in arrangement of the engineers office, relative to:
- Rooms;
- Office equipment;
- Telephone lines, telephone numbers and LAN computer network;
66

- Rules of charging for telephone calls.


10. Update of the time schedule for project implementation:
- Signing of the engineers contract (done);
- The engineers contract commencement and (done);
- Inception report (rigid date);
- Works contracts completion (rigid date);
- Project completion final report (rigid date).
11. Presentation of the tasks and activities of the engineers team scheduled for the near
future:
- Setting up the engineers Office;
- Review of the tender documents for works contract;
- Inception report preparation;
- Range of assistance during the tender procedure.
5.2.2. Inception report - table of contents
1. Objectives and scope of the project
1.1.Background
1.2.Objectives of the project
1.2.1. Financial conditions of the project
1.3.Project scope
1.3.1. Service contract for the engineer (consultant)
1.3.2. Works contracts
2. Review of existing design and formal and legal documents
2.1.Design documents
2.2.Legal and formal documents of the contract
2.2.1. Land legal state
2.2.2. Formal documents
2.3.Opinion of documentation accuracy
3. Project advancement state and opinion on key tasks related to the achievement of the
project goals
3.1. Project current state works contract
3.2. Key tasks connected with the achievement of the project aims
4. Information on implementation of the project and administrative and organisational
changes in the project structure
4.1. Project structure
4.2. Engineers Team organisation
4.3. The engineers work so far
4.4. Engineers team tasks for next few weeks
5. List of institutions and persons involved in the project
6. Document control sheet
7. Attachments
7.1. Attachment No. 1 List of acronyms and abbreviations
7.2. Attachment No. 2 List of documents handed over to the engineer
7.3. Attachment No. 3 Minutes of the kick-off meeting
7.4. Forecast and schedules updating

67

5.3. Contract management


5.3.1. Role of project management
Project management is the application of knowledge, skills, tools and techniques to a broad
range of activities to meet the requirements of the particular project. Munns and Bjeirmi
(1996) define project management as the process of controlling the achievement of the project
objectives. Utilising the existing organisational structure and resources, it seeks to manage the
project by applying a collection of Tools and techniques, without adversely disturbing the
routine operations of the company. The function of project management includes defining the
requirement of work, establishing the extent of work, monitoring the progress of the work and
adjusting deviations from the plan.
Project management aims to achieve the stated goals of the project leading to a completed
facility, by virtue of planning, executing and controlling time, funds and human and technical
resources. The planning essentially consists of setting objectives, identifying resources and
forming strategy. Executing consists of allocation of resources, guiding execution,
coordinating efforts and motivating the staff. Controlling consists of measuring achievement
goals, reporting, and resolving problems. The planning, executing and controlling are
performed on a continuous basis until the goals of the project are realised.
Project management knowledge and practices are best described in terms of their component
processes. These processes can be placed into five process groups (initiating, planning,
executing, controlling and closing) and nine knowledge areas (project integration
management, project scope management, project time management, project cost management,
project quality management, project human resource management, project communications
management, project risk management and project procurement management).
There is probably no other discipline that is more difficult than construction project
management. After all, the general goal of a construction project seems simple enough
building a project on time, within budget, with the stated quality standards, and in a safe
environment.
The terms 'project manager' 'project coordinator', 'project administrator' and project controller'
are used quite interchangeably, and all of them appear to have very similar kinds of role, but
intensity of their job requirement and the expectations from them vary. For example, the
responsibilities of a project manager and a project coordinator include coordinating and
integrating of subsystem tasks; assisting in determining technical and manpower requirements,
schedules and budgets; and measuring and analysing project performance regarding technical
progress, schedules and budgets. However, a project manager is supposed to play a stronger role
in project planning and controlling.
A project manager is also responsible for negotiating, developing bid proposal, establishing
project organisation and staffing, and providing overall leadership to the project team.
An effective project manager should possess essentially three skills technical skills, human
relationships skills and conceptual skills. While technical skills include the knowledge in
a given field, such as engineering and finance, human relationships skills involve the ability
to communicate efficiently and to maintain a harmonious working group. The ability to
manage employees also falls in the category of human relationships skills. Finally, conceptual

68

skills include the ability to perceive the project as a system by keeping a global perspective and
not thinking of only one aspect at once.
It is advisable to appoint the project manager as early as possible, preferably in the feasibility
stage itself so that they are aware of all the aspects of the project and can take control of the
project. However, the early appointment may not be possible in all situations.
The project manager should be responsible for coordinating all project activities, making project
recommendations, fixing a design and preparing drawings and specifications for tender and
construction, preparing all estimates, and administering all contracts and issuing certificates.
In this we will focus on the part of activity of project management limited to construction
management or to contract management.
5.3.2. Skills of contract manager
Within the most important skills required by a contract manager in order to make the contract
successful we can distinguish the following:
Technical skills
These include specialised knowledge in the use of tools and techniques, project knowledge,
understanding methods, process and procedures, understanding the technology required, and
skill in the use of computer. He should have necessary knowledge of tools and techniques used in
engineering and construction processes. He should be able to understand the technology trends
and their evolution. He should also have skills to synchronise different technologies. He should
have expertise connected with product and process used in the project.
Attitude
This refers to an open, positive and 'can do' attitude, which encourages communication and
motivation, and fosters cooperation.
Common sense
This refers to a strong ability to spot sensible, effective, straightforward, least risky and least
complex solutions i.e., 90 per cent right on time is better than 100 per cent far too late!
Open-mindedness
This refers to an approach where one is always open to new ideas, practices and methods, and in
particular, gives equal weight to the various professional disciplines involved in the project.
Adaptability
This refers to a propensity to be flexible where necessary and avoid rigid patterns of thinking or
behaviour, and to adapt to the requirements of the project, the needs of the sponsors, its
environment and people working on it. He should be able to adapt to change. He should be able to
manage the changes and, in the process, recognise the opportunities.
Inventiveness
This refers to an ability to discover innovative strategies and solutions either from within oneself
or through interaction with other members of the project team, and to identify ways of working
with disparate resources to achieve the project objectives.

69

Prudent risk-taker
This refers to a willingness and ability to identify and understand risks but not to take a risky
approach in an unwise or reckless fashion.
Fairness
This refers to a fair and open attitude, which respects all human values.
Commitment
This refers to a very strong overriding commitment to the projects success, user satisfaction
and team coordination.
Conflict resolution
The project manager should be able to resolve conflicts arising among his team members.
5.3.3. Contract manager abilities
To summarise the required skills and traits of a contract manager to fulfil the contractual
obligations and achieve the success, we can say that the right contract manager should:
Have solid basic experience in the relevant field;
Be multidiscipline-oriented;
Be global-problem-oriented, i.e., he must consider the external, political, legal and
environmental aspects;
Have leadership skills;
Be able to identify and solve the problem;
Be able to balance technical, economics and human factors;
Master the basics of planning, budgeting, coordinating and assessing financial reports;
Have the knowledge and understanding of estimating systems, cost control, scheduling
control, quality and safety;
Be able to develop procedures and be able to implement them;
Possess good analytical abilities;
Be an effective problem solver and decision maker.
5.4. Administrative requirements
Administrative requirements at the implementation stage of infrastructure construction projects
differ from country to country and depend on country legislation, field of infrastructure and type
of project, and financing model and source.
The following groups of administrative requirements can be distinguished:
Resulting from the law, e.g. construction log, invoicing;
Resulting from the contract, e.g. communication, notification, reporting;
Resulting from the financing agency requirements for such project, e.g. cash flow,
justification of results obtained, final report, operation model.
5.5. Environment requirements
Environmental requirements reflect the general European approach to protect the nature against
the industrialisation and protect our Earth against the negative consequences of development of

70

civilization. This approach reflects the great stress given to environmental aspects of each
prepared and implemented infrastructure construction project.
Following the European directives and national laws, each infrastructure construction project
should be prepared and implemented in respect of the environmental aspects, which are proceeded
generally in the following steps:
Elaboration of Environmental impact assessment report;
Obtaining the Environmental decision;
Obtaining the Construction permit, where environmental aspects to be met during
construction are specified;
Confirmation that environmental requirements have been fulfilled.
To optimise the infrastructure construction project in all aspects, the optional solutions with their
influence for the environment and consequences should be elaborated and analysed to choose the
best one. The most frequent factors of the environment taken into consideration and being
analysed are:
Flora;
Fauna;
Noise;
Air pollution;
Soil pollution;
Underground water regime and pollution.
5.5.1. Environmental assessment methodologies
BREEAM and LEED are the two most widely recognised environmental assessment methods
used globally in the construction industry. BREEAM (Building Research Establishment
Environmental Assessment Method) was conceived by BRE and was first used in 1990.
The Leadership in Energy and Environmental Design (LEED) Green Building Rating System,
developed by the U.S. Green Building Council (USGBC), provides a suite of standards for
environmentally sustainable construction.
Both set the standard for best practice in sustainable building design, construction and
operation and have become the most comprehensive and widely recognised measures of a
building's environmental performance.
5.5.2. Waste management plan
Site Waste Management Plans Regulations 2008 came into force it the United Kingdom on 6
April 2008. All construction projects worth more than 300,000 must have a site waste
management plan (SWMP).
For projects estimated at between 300,000 and 500,000 (excluding VAT) the SWMP
should contain details of the:

Types of waste removed from the site;


Identity of the person who removed the waste;
Site that the waste is taken to.

For projects estimated at over 500,000 (excluding VAT) the SWMP should contain details of
the:
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Types of waste removed from the site;


Identity of the person who removed the waste and their waste carrier registration
number;
A description of the waste;
Site that the waste was taken to;
Environmental permit or exemption held by the site where the material is taken.

A SWMP is a live document. It must be updated through the course of the project.
5.6. Finance project cost and value management
5.6.1. Project cost management
Project cost management is all about controlling cost of the resources needed to complete project
activities. Apart from these controllable costs, there are certain aspects over which we do not
have any control. These are called uncontrollable costs and they are the subject matter of risk
management. The subject of project cost management can be taken up in four broad steps, as
below.
Resources planning schedules
The objective here is to prepare different resources schedule such as labour and staff schedule,
material schedule, plant and equipment schedule, and subcontractors or specialists schedule.
These schedules show the quantity requirement of each of these resources either on a weekly basis
or on a monthly basis. The basis for preparing these schedules is the project time schedule.
Cost planning
Once the resource requirement is obtained, the estimate to complete each of these can be
prepared on the unit cost of the resources and the total units of the resources required. This
process is called cost planning and it is a must for project cost management. The essential
components of a cost plan are the project schedule and estimates. The estimate of a project is
progressively developed as the project gets underway. To start with, a rough estimate based on
previous projects of similar size and nature is prepared at the conceptual stage. This is gradually
refined and finally a detailed estimate is prepared when the scope gets clearer and a detailed
design is ready.
Cost planning aims at ascertaining cost before many of the decisions are made related to the
design of a facility. It provides a statement of the main issues, identifies the various courses of
action, determines the cost implications of each course, and provides a comprehensive economic
picture of the project.
At the detailed design stage, final decisions are made on all matters relating to design,
specification, construction and others. Every part of the facility must be comprehensively
designed and its cost checked. Where the estimated cost exceeds the cost target, either the
element must be redesigned or other cost targets reduced to make more money available for the
element in question through all this, the overall project cost limit must remain unaltered.
Cost budgeting
Cost budgeting is the process of allocating the overall cost estimate to individual work items of
the project. Work items are groups of similar activities taken from bill of quantities. It is not

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necessary to go into each item of bill of quantities since that would require too much of the
planning engineer's efforts without commensurate results.
Cost control
The objective of cost control is to ensure that the final cost of the project does not exceed the
budgeted or planned cost. Project cost control can be seen as a three-step process:
1. Observe the cost expended for an item, an activity, or a group of activities;
2.
Compare it with available standards. The standard could be a predefined accepted
cost estimate (ACE) or it could be the tender estimate;
3.
Compute the variance between the observed and the standard, communicating
any warning sign immediately to the concerned people so that timely corrective
measures can be taken.
The initial stages of the project such as conceptual and design stages offer the maximum
possibility for influencing the final project cost. Thus, regular and close monitoring is needed
during these stages of the project.
5.6.2. Value management
Value management (VM), also known as value analysis (VA) or value engineering (VE) is
a systematic approach for obtaining value for the money spent. VE is the most effective
technique known to identify and eliminate unnecessary costs in product design, testing,
manufacturing, construction, operations and maintenance.
The core of value management lies in the analysis of function and is concerned with the
elimination or modification of anything that adds cost to an item without adding to its
function. In value engineering, 'function is that which makes the product work or sell, and
accordingly, we have 'work' functions and 'sell functions. All functions can be divided into two
levels of importancebasic and secondary. The basic function is the primary function of a
product or a service, while the secondary functions are not directly accomplishing the
primary purpose but play a supporting role and provide additional benefits.
Some other related terms used in value engineering are worth, cost and value. Worth refers
to the least cost required to provide the functions that are required by the user of the finished
project. Worth is established by comparison, such as comparing it with the cost of its
functional equivalent. Cost is the total amount of money required to obtain and use the
functions that have been specified. Value is the relationship of worth to cost as realized by the
owner, based on his needs and resources in any given situation. The ratio of worth to cost is
the principal measure of value.
Value index = Worth/Cost
Value engineering can be applied to any phase of a construction project, though the best
results may be expected during the initial stage of a project.
5.6.3. Cash-flow diagrams
Any organisation involved in a project receives and spends different amounts of money
at different points in time, and a cash-flow diagram is a visual representation of this
inflow and outflow of funds.
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The project cash-flow is basically a graph of receipts and disbursements versus time. The
project cash-flow can be prepared from different perspectives - of contractor, owner, etc. It
is usual to represent time in terms of month for project cash-flow diagram. For executing
a construction project, a contractor spends and receives the money at different points of
time.
The contracting company sometimes faces negative cash flow in the early stages of the
project. This negative cash flow experienced in the early stages of projects represents
locked-up capital that is either supplied from the contracting company's cash reserves or
borrowed. If the company borrows the cash, it will have to pay interest charged to the
project. If the company uses its own cash reserves, it is being deprived of the interest
-earning capability of the cash and should, therefore, charge the project for this interest loss.
A measure of the interest payable is obtained by calculating the area between the cash-out
and the cash-in. The negative cash flow indicates that the contractor has to mobilise this
much funding to execute the project.
5.7. Time, cost and quality
5.7.1. Updating
Traditionally, the schedule, cost and quality have been used as the control parameters for
construction projects. The purpose of a control system is to see that the progress, cost and
quality obtained in any project is within the agreed time schedule, the agreed cost, and the
agreed specification, respectively. There are many other parameters, such as disputes and
accidents, which one would like to control. It is believed that controlling the aspects of time
and cost would take care of other parameters.
Monitoring and control system also helps in providing feedbacks to management on the
different schedules prepared earlier, in order to ensure that the project is progressing as per
schedule. In case of slips/deviation from schedules, the system helps in taking corrective and
timely action. The basic objective of any monitoring system is to monitor projects by
measuring physical progress, costs and profits against targets, and to help in taking corrective
action. It also provides data for preparing reports for management Information system.
Updating can be defined as planning and programming of the remaining portion of an
activity job by introducing the latest information available. At the end of any day of work, the
activities of the project must either be completed, in progress, or they may not have started
yet. Further, the actual progress may not be according to the originally envisaged schedule.
Also, some of the activities that must have been completed as on the day of updating may not
have been completed; worse still, some may not have started. Some of the activities may have
not have achieved the required percentage of progress that was planned on the day of
updating. It is also possible that some new activities that were not in the original plan might
have to be taken up. This may at times bring about a change in the network logic (sequencing
of events). All these situations require updating of a project plan at an appropriate interval or
frequency.
The updating frequency (how often the updating should be undertaken) depends upon
the nature and type of the project, and the contractual provisions. It could be weekly,
monthly, or even quarterly. The updating frequency may be lower during the start of the
project, while more frequent updating would be needed towards completion of the project.
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Further, if there are any major changes in the objectives and scope of the project, or if the
status of a stakeholder in the project has changed drastically, the project requires an
immediate updating.
5.7.2. Project control
If projects are left to run on their own, they may end up spending more money than initially
planned and may also take longer to complete, and probably also be of quality lower than the
agreed standard. Thus, every project requires some degree of control. The control is an integral part
of the project management process, and it aims at regular monitoring of planned versus actual
achievement. In case deviations are noticed, there has to be revision in the plan. The timeliness of
application of control process is very important, and any control mechanism should attempt to
discover the deviation at the earliest so that corrective measures can be applied.
It is very rare for a construction project to proceed exactly as per the plan. Thus, there is
justification for applying the control process on a continuous basis. A typical control process
involves gathering facts and data, analysing them, predicting the likely outcome based on the
current data and taking appropriate corrective action.
Since a project control system provides a basis for management decision, it should be simple to
work with and at the same time be able to draw immediate attention to significant deviations
(difference between planned and achieved accomplishment). It should also indicate the area
where corrective actions are needed to overcome the deviation. Also, the key control measures
should be identified carefully so that the results of control are worth the time and effort spent.
There are three important elements to be controlled in a project:
Schedule/time/progress control;
Cost control;
Quality control.
5.7.3. Schedule/time/progress control
The tools for progress control are bar charts or critical path networks. Whichever technique
is used, the project manager should abide by the following steps:
Establish 'targets' or 'milestones' times by which identifiable complete sections of
work must be completed;
As each target event occurs, compare actual against targeted performance;
Assess the effect of performance to date on future progress;
If necessary, re-plan so as to achieve original targets or to reach as close as possible in
achieving them;
Request appropriate action from those directly responsible for the various activities.
Planning and control techniques achieve nothing unless they are translated into action, and it
is the responsibility of the project manager to see that this happens. Depending on the
duration and the type of the project as well as the contractual provisions, monitoring could be
done on weekly, fortnightly, monthly, or bimonthly basis. The most common monitoring
period is on a monthly basis.

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5.7.4. Cost control


There are different ways in which cost control can be exercised for a construction project. As
mentioned earlier, the important points that must be emphasised while devising cost control
for a construction project are the simplicity of the system and the response time. There is no
point in having a cost control system that is complicated and involves a number of staff to
man it, while the response time is very high.
The project cost control also can be thought of as a three-step process:
Observe the cost expended for an item, an activity, or a group of activities;
Compare it with available standards. The standard could be a predefined accepted cost
estimate or it could be the tender estimate;
Compute the variance between the observed and the standard, signalling a warning
sign immediately to the concerned people so that timely and possible corrective
measure can be taken.
This is where the simplicity of the system comes into the picture. The more complicated the
system, the more people it requires to be involved and possibly the more the response time
needed to pinpoint the variation between the observed and the standard. The response time
becomes very important since there is no point in finding the variance at a time when the
activity showing variance is already completed, although this data can be useful for other
projects.
The collection of cost for a project needs involvement of a number of people including planning
engineer, billing engineer, plant and equipment engineer, timekeeper, storekeeper, accountant
and head-office staff. The process of recording cost data against different cost codes and
analysing them against these codes, description, quantities, rates, etc., and then comparing
them with some standard such as accepted cost estimate, detecting variances, if any, and
taking timely corrective measures may all look simple in the beginning. However, the process
is not as easy in real-world projects. There are different control systems that can be adopted
depending on the requirement.
5.7.5. Control of schedule, cost and technical performance Earned Value Method
Earned value method can successfully integrate the schedule and cost control aspects. Earned
value is a methodology for determining the cost, schedule and technical performance of the
project by comparing it with the planned or budgeted performance. It is assumed that once the
budget has been made, it is more or less fixed.
The performance measurement parameter could be cost, schedule or any other technical
parameter such as man-hour. The comparison is done in terms of a common monetary term
(such as euro or dollar) or in terms of man-hour, equipment hour, 'quantity of material' etc.
assigned to the work.
Earned value is based on the idea that the value of the product of the project increases as
tasks are completed. Therefore, the earned value is a measure of the real progress of the
project.
The earned value method involves the concepts of work package and earned value to analyse
the performance of a project. It not only tells us about the progress to be achieved to be on
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schedule, but also clarifies whether the resources being spent are commensurate with the
budget.
The earned value method is also used for forecasting the likely course of a project by
extrapolating from the amount of work already put into a project. It is possible to forecast the
project cost at completion and also the probable completion date. The forecasts made are
also used to measure variances and define trends. The project manager can take appropriate
actions should there be unwanted variances and unfavourable trends.
The implementation of earned value method involves the following steps:
Defining the scope of the works
The scope of the works is frozen at an early stage in the project life cycle and changes, if any,
in due course are suitably addressed.
Setting up a work breakdown structure (WBS)
The project is broken down in logical groupings and levels, and these are shown in
a hierarchy. The lowest level is usually made up of work packages that are the smallest
self-contained grouping of work tasks considered necessary for the level of control needed.
Developing a project master schedule
The project master schedule contains details of scheduled start and completion of the entire
work package.
Allocating costs to each work package
The principal cost elements are labour, materials, and plant and equipment. The cost
components are summed up for each work package.
Establishing a practical way of measuring the actual work completed
There are different ways in which the actual work can be measured. The selection of
a particular method depends on the type of contract, the terms of payment, etc. However,
'simplicity' of the adopted system is the guiding philosophy most of the times.
Setting the performance measurement baseline
The baseline indicates the plan to spend in different time periods for all the work packages,
over the planned duration of the project. The period could be weeks or months.
5.8. Health and safety
5.8.1. Health and safety management system
Dan Petersen in his principles of safety management mentions that safety should be managed
like any other company function. Thus, in order to manage the project schedule,
a construction company plans the manpower and other resources; these plans are monitored
and, depending on the deviation, control measures are applied. In a similar manner, the
management should direct the safety effort by having a proper safety and health management
system in place. The key functions of the safety management systems are: planning for safety,
organising for safety, issuing directions for safety, and coordinating and controlling various
safety issues. Planning for safety may include developing a safety and health policy,
evaluating the policy from time to time, setting goals for safety and creating a budget for
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safety-related expenditures. Organising for safety includes activities such as development of


a safety organisation structure, defining the roles and responsibilities, delegating authorities,
and education and training for safety. Developing a proper communication system, standard
operating procedures and a safety manual are parts of the directing function. Constitution
of a safety committee can be considered under the coordinating function, while under the
controlling function we define the mechanism for accident reporting, investigation, record
keeping, and so on.
5.8.2. Safety policy and organisation
Dan Petersens principle that 'safety should be managed like any other company function
implies that safety is a line responsibility. For the line management to accept this
responsibility, the top management should clearly explain and stress the same by issuing
a document in the form of guidelines, i.e., a safety policy. In the other part of the same
principle, it is said that 'management should direct achievable goals by planning, organising
and controlling'.
A safety policy is managements first step in implementing the above-said principle.
A written safety policy removes any confusion regarding the objectives, directives and
distribution of responsibilities in this regard. Construction companies formulate safety policy
to show managements commitment to provide a safe and healthy work environment to all its
employees. These are prominently displayed in different languages so that every worker is
familiar with the existing policy.
5.9. Warranties, insurances
5.9.1. Insurance
Insurance is a device by means of which the risks of two or more persons or firms are
combined through actual or promised contributions to a fund out of which claimants are
paid. Insurance is a contractual relationship that exists when one party, for a consideration,
agrees to reimburse another for loss caused by designated contingencies.
The first party is called the insurer or underwriter; the second, the insured or policyholder;
the contract is the insurance policy; the legal consideration is the premium; the loss of life or
property in question is the exposure, and the contingency is the happening of the insured
event.
It is important that construction organisations attach to insurance as a means to manage
risk. In the construction industry, insurance is one of the most important ways to tackle risk.
In fact, insurance is considered as a synonym for risk management in the industry. The
majority of construction companies rely on insurance policies for different risk scenarios.
They purchase a number of insurance policies depending on the project and contractual
requirement. While selecting a given type of policy, a company considers the severity of
potential risk, the probability of occurrence of the risk, and the available risk mitigation
measures it has under its disposal.

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5.9.2. Project insurance


An element of risk is inherent in all types of engineering projects. It is ever-present in the world of
commerce and industry, during construction or during operational stage. The insurance policies
may be taken by the client as well as the contractor. A client organisation may go in for policies
such as marine-to-erection (including third-party liability), delayed start-up (advance loss of
profit), and so on. The contracting organisation may go in for policies such as:
Construction plant and equipment insurance;
Employers liability/workmens compensation;
Motor vehicles policy;
Car insurance and temporary properties of employers as well as of contractor.
5.9.3. Marine-to-erection insurance
The policy covers the contract works and equipment while in transit and during
construction/erection at site, during testing and commissioning, and also during the defects
liability period. Besides, the policy also covers damage to the surrounding property and
liability to third parties.
For goods in transit, the policy covers all risks of physical loss or damage, including war and
strike, riots and civil commotion. However, the policy does not cover loss or damage due to
insufficient or inadequate packing, inherent defects; un-seaworthiness of vessels, financial
default of vessel owners, radioactive contamination, and consequential losses caused by delay.
During construction and erection, the policy covers all risks of physical loss or damage to
the project works, including environment perils, location perils, handling perils and negligent
acts.
The policy during construction and erection excludes war risks, normal wear and tear, rust,
erosion, cessation of work, wilful acts or wilful negligence, and consequential (financial)
losses.
During the defects liability period, the policy covers contractors liability for the damage
caused by contractor on site during regular maintenance, as well as the damage caused by
faults in erection on site. The exclusions during defects liability period are in respect of
gradual pollution, damage to project works, insureds own employees, the vehicles licensed
for road use, and marine vessels or aircraft.
5.9.4. Contractors all-risk insurance (CAR insurance)
This engineering policy offers protection against loss or damage to the contract work. There
is also a provision to extend cover against any third-party claims while executing the project.
All civil engineering works, from a small residential building to a huge bridge, are
susceptible to damage from a wide range of causes including fire, explosion, flood, storm,
impact and internal defects. Exposure to such damage commences at the time of first
delivery of the materials to the contract site and continues to exist till completion of the
work. Even after completion of the work, there is exposure especially during the
maintenance period, after the civil engineering work is handed over to the client. The
contract usually describes the responsibilities of the contractor for loss or damage during

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the period of the contract and the subsequent maintenance period. The CAR policy can
provide the contractor with a comprehensive insurance coverage.
This insurance cover is useful for:
All civil engineering works including massive dams, bridges, tunnels and docks;
Residential and office buildings;
Water treatment plants, canals and roads;
Airports, factories, etc.
The policy covers loss or damage to the subject matter from any unforeseen or accidental
cause that is not specifically excluded under the policy. Some of the more important causes
of loss indemnified under a CAR policy are:
Fire, lightning, explosion, impact, aircraft damage;
Flood, inundation, storm, cyclone, hurricane, etc;
Earthquake, subsidence, rockslide and landslide;
Theft, burglary, riot and strike damage.
Some general exclusions in this policy are nuclear perils, war group perils, and wilful act or
gross negligence on the part of the insured. Specific exclusions of the policy include deductible
excess, faulty design, inventory losses, defective material, bad workmanship, wear and tear,
deterioration, normal atmospheric conditions, cost of rectification or errors unless resulting in
physical damage, and loss or damage to vehicles used on the road or waterborne or airborne
craft/vehicles.
The period of insurance commences from the first unloading of the property at the
contractors site and expires on the date specified. The cover also ceases for that part of the
insured contract work taken over by the principal prior to the expiry date.
The sum insured will be the total of the estimates of possible outlay or outgo under the
following heads:
Contract price;
Materials or items supplied by the principal;
Any additional items not included in the contract price and materials supplied by
the principal;
Landed cost of imported items as at construction site;
Construction plant and machinery (restricted to five per cent of the contract
value);
Clearance of debris;
Insured's own surrounding property;
Extra charges for overtime;
Increased replacement value for contract price and materials supplied by the
principal;
Third-party liability.
The policy is also applicable during the defect liability/maintenance period, usually 12 months
after the completed work is handed over. However, the liability under this is restricted to loss
or damage caused by the insured in the course of obligatory maintenance under the contract.
The additional cover may be provided in the policy depending on the insureds requirement.

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5.9.5. Liquidity damages insurance


In general, under the provisions of construction agreements, the contractor is responsible to the
client for delay and/or under-performance of the project caused by technological failure or
fault on the part of the contractor (including his subcontractors and suppliers). In such
circumstances, the contractor is obliged to pay liquidated damages to the client in amounts that
should equate to the financial obligation of the client to the project lenders. Cover for such
damages is available to the contractor by way of liquidated damages insurance, which is
designed to protect the contractor for liability assumed under contract for the payment of
liquidated damages to the client for late completion and/or performance shortfall, following
errors or omissions on the part of the contractor, subcontractors and/or suppliers in connection
with the work to be performed under the terms of the construction agreement. Such work could
cover the engineering, design, procurement, construction and commissioning of the project.
5.9.6. Professional indemnity policy
The need for this policy is felt by construction companies that offer design and consultancy
services. Besides, some of the contract conditions these days stipulate insurance policy to
cover legal liability arising out of design defects. The obligatory policy for engineers in
construction in Poland offers an indemnity limit.
5.9.7. Warranty
In construction there are two general types of warranties. One is provided by the manufacturer
of a product (warranty on materials), the second one is a warranty for the labour (warranty on
construction).
What do these warranties mean? Essentially, they all mean the same thing: that your product
or labour is at least acceptable. It may not be perfect, but it meets certain minimum
expectations. Warranties reduce client risk as they tend to place more of the risk of poor
construction on the contractor. With a warranty, a client can collect from a contractor for poor
construction over the life of the warranty.
The project construction contract shall include warranty for constructed works or sections of
these works. The terms of the warranty shall be defined by the client and may include
contractor input if desired. As a minimum, the contractual warranty specifications shall
include:
Definition of what product(s) are warranted;
Length of the warranty period;
Responsibilities of the owner;
Responsibilities of the contractor;
Responsibility for maintenance;
Conflict resolution process;
Contractor quality control plan;
Measurement methods;
Performance based requirements and associated threshold levels that require corrective
action by the contractor;
Requirements for remedial corrective action;
Requirements for elective or preventative actions;
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Basis of payment;
Final warranty acceptance.
The warranty duration is intended to be long enough to cover any performance issues due to
poor quality construction but short enough so as not to create warranty bonding issues
associated with contractor assumption of risk for unduly long periods of time.
Ultimately, warranties must meet all applicable local regulations.
5.10. Certificates at completion
There are several certificates to be issued at completion of works and the whole contract.
Generally there are certificates related to the completion of works, financial statements, and
the fulfilment of the whole contractual obligations by the contractor.
Following procedures could be observed regarding the certificates issue:
1. Works:
Taking-over certificate for any part of the permanent works.
Taking-over certificate for the works (all works are completed for the purpose of
taking-over by the client).
2. Finance:
Statement at completion (after issue of taking-over certificate for the works).
Final statement (after issue of performance certificate).
3. Whole contract:
Performance certificate (after defect liability period, when all outstanding works
and remedying defects are completed) stating the date on which the contractor
completed his obligations under the contract. Only the performance certificate
shall be deemed to constitute acceptance of the works.
5.11. Project close-out
This is the last phase of a construction project and is as important as any other phase in the
project. This is a process of completing and documenting all the construction tasks required
to complete the project. A poor project close-out (or closure, as it is referred to sometimes)
leaves the client unsatisfied and may prove to be a cause for not getting repeat business.
Thus, project close-out should be meticulously planned. Considering importance of project
close-out, some companies have developed certain templates/checklists to assist them in the
process of project close-out. It is helpful for both contractors and owners to have short project
close-out time. While an owner faces least interference in moving in and acquiring the
constructed facilities, the contractor also can quickly move out to other project locations if
the project close-out does not become lengthy. A poorly planned project close-out may take
more than a year to complete. The outputs from the project close-out phase help to execute
the next project with much more efficiency and control.
Project close-out consists of a number of tasks. The project close-out phase can be divided
into the following broad headings:
1. Construction close-out;
2. Financial close-out;
3. Contract close-out;
4. Project managers close-out;
5. Lessons learned from the project.
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5.11.1. Construction close-out


This involves preparation of the project punch list, which is a list of deficiencies identified
during the combined inspection of constructed facilities by the representatives of client,
contractor and consultant. During the regular inspection also, deficiencies are reported to
the contractor by the consultant and the clients representative. The punch list is prepared
usually towards the end of the project when all major construction activities are completed.
The punch list is formally handed over to the contractor, who takes steps to rectify the
deficiencies thus pointed out. There may be a situation in which some of the deficiencies
pointed out in the punch list may not be part of the contract, and the contractor in such
cases usually asks the client for extra payment.
Certificate of substantial completion
For a contractor, obtaining the certificate of substantial completion is an important
milestone event as it ends the contractors liability for liquidated damages (LD).
Substantial completion refers to a situation in which the project is sufficiently completed.
In other words, even though some minor deficiencies may be present (all the deficiencies
pointed out in the punch list may not have been attended to), the construction facility can
now be used for its intended function. Usually, the unattended or yet-to-be-rectified
deficiencies are attached with the certificate of substantial completion.
Certificate of occupancy
This is usually issued by the municipality under whose jurisdiction the project location
falls. It indicates that the constructed facility complies with the entire codal requirement
and is safe to be occupied. Fire, labour and environmental inspection by municipal
authorities is required before the certificate of occupancy is issued.
Demobilisation or release of resources
This consists of demobilisation (release) of resources such as staff and workers, and is as
important as their mobilisation. The closure of office, removal of unused materials lying in
store, and disconnecting water, electricity and sewerage lines are all part of the demobilisation
process.
5.11.2. Financial close-out
Financial close-out consists of writing applications for final payment, release of various bank
guaranties, and settlement of any change order issued by the client.
Final payment
The contractor has to apply for the release of final payment after he has attended to all the
deficiencies pointed out in the punch list. The request for release of retention money is also made.
Release of various bank guarantees
During the course of execution of project, the contractor submits a number of bank guarantees to
the owner. A written request is made to the client to release the bank guarantees.

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5.11.3. Contract close-out


Construction contract usually specifies the requirement of contract close-out and, thus, the
contractor should prepare a list of requirements for contract close-out as per the contract between
him and the client. Some commonly mentioned requirements are:
Submission of as-built drawings
During the project execution process, due to site constraint there might be some changes in the
as-built facility from that as specified in the contract drawings. Thus, it is very important to
prepare the as-built drawings by estimating the actual dimension and condition of the
constructed facility. The as-built drawings of all the trades such as civil, electrical and
mechanical disciplines should be compiled and submitted to the client. As-built drawings are a
great help during the operation and maintenance (O&M) stage of a constructed facility, and in
most modern construction projects, it is mandatory for the contractor to provide as-built
drawings.
Submission of operation and maintenance manual
Modern projects involve a number of mechanical and electrical appliances for example,
elevator, cooling tower, air-handling unit and diesel-generator set. The manufacturers of
these appliances provide operation and maintenance manual associated with these
appliances. The O&M manual outlines the operational and maintenance procedure and also
specifies maintenance interval for the appliances. Thus, it is very important for the owner to
possess these documents.
Submission of warranties
It is the duty of the contractor to collect all the warranties and guarantees from vendors,
subcontractors and suppliers, and submit these to the owner.
Submission of test reports
During the execution of a project, a number of tests are conducted on materials, appliances
and systems that are installed in the project. The test records need to be compiled and
submitted to the owner for future reference.
5.11.4. Project managers close-out
This includes tasks such as preparation of an as-built estimate, analysis of actual cost versus
estimated cost, analysis of items where cost overrun was high, and conduct of meetings with
external agencies such as client and consultants for understanding their feedback on various
project management aspects. Meetings with own staff and subcontractor should also be held to
get their feedback on various issues.
5.11.5. Lessons learned from the project
This involves collection and compilation of all records associated with the project, and preparing
archives of important project records. It also involves documenting the important issues faced in
the project and their resolution. This helps in planning for such type of issues in the early stages
of other projects. The following questions should be addressed for betterment of future projects:
Did the project meet its requirements and objectives?
Was the client satisfied?
Was the project schedule met? Was the project completed within the stipulated cost?
84

Was the level of achieved quality acceptable?


Were the risks identified and appropriately mitigated?
What better ways can be employed to improve project execution and its management?
Compiling records of lessons learned may help in productivity improvement of the team for future
projects.
5.12. Literature and further reading for chapter 5
1. Kaufman, J.J., Value Engineering for the Practitioner, 1990
2. Parker, D.E., Value Engineering Theory, 1985
3. Anderson, S.D., Project quality and project managers, 1992
4. Fryer, B., Management development in the construction industry, 1979
5. Goodwin, R.S.C., Skills required of effective project managers, 1993
6. Odusami, K.T, Perceptions of construction professionals concerning important skills of
effective project leaders, 2002
7. Pettersen, N., Selecting project managers: An integrated list of predictions, 1991
8. PMBOK, A guide to the project management body of knowledge, 2001
9. Spitz, C.J., 1982, 'The project leader: A study of task requirements, management skills and
personal style', Doctoral dissertation, Case Western Reserve University, USA.
10. Stuckenbruck, L.C., The ten attributes of the proficient project manager, 1976
11. http://www.breeam.org
12. http://www.leed.net/
13. www.environment-agency.gov.uk

85

5.13. Set of Exercises for chapter 5


Exercise 5.1:
Contract drawings form a part of:
A. Special conditions of contract
B. Technical specifications
C. Contract
Exercise 5.2:
Inception report presents:
A. Contractor to employer
B. Engineer to employer
C. Engineer to contractor
Exercise 5.3:
Project management aims to achieve the goals of the project by:
A. Planning and controlling time and quality
B. Planning and controlling time and funds
C. Planning and controlling time, funds, human and technical resources
Exercise 5.4:
A project manager is established to:
A. Advise the employer
B. Advise the contractor
C. Govern the project
Exercise 5.5:
Administrative requirements are described in the:
A. BOQ
B. SCC
C. TSpecs
Exercise 5.6:
Value index is the ratio of:
A. Profit to cost
B. Worth to cost
C. Profit to worth
Exercise 5.7:
Three important elements to be controlled in the project are:
A. Progress in time, cost, and quality
B. Capacity, quality and cost
C. Progress in time, capacity, and cost
Exercise 5.8:
The health and safety management system is formulated by the:
A. Contractor
B. Engineer
C. Employer

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Exercise 5.9:
Certificates and completion refer to:
A. Takingover of the works.
B. Takingover of the works and financial statement.
C. Takingover of the works, financial statement and fulfilment of the contractual obligations.
Exercise 5.10:
Project closeout consists of:
A. Construction, financial, contract and project managers closeout and lessons learned from
the project.
B. Construction and contract closeout.
C. Financial and project managers closeout.

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CHAPTER 6
CASE STUDIES
OBJECTIVES OF CHAPTER 6
The primary objective of this chapter is to present a set of case studies related to the
construction procurement, its strategic context, its relevance in terms of EU Directives and
national legislation.
LEARNING OUTCOMES FOR CHAPTER 6
The primary learning outcome for this chapter is to gather practical information about the
nature of construction procurement including problems with management of construction
projects.
6.1. CASE STUDY 1 (Poland): Procurement problem in Polish legal regulations
The case described below is strictly connected with consequences of delays occurring in the
process of execution of a construction project.
The ordering party, that is the General Directorate for National Roads and Highways,
regardless of choosing in an open tender a contractor for construction works in the project of
Rebuilding of the national road no. 7 to meet parameters of an expressway at the Biaobrzegi
Jedlisk section, in the same procedure awarded a contract for a service consisting of
management and supervision of this project.
The management and supervision contract was concluded with the contractor in May 2006
and provided for the execution term of the subject of the contract being 35 months from the
commencement date of the contract execution.
This term included:
- 1 month before commencement of works;
- 19 months of conducting works;
- 12 months for reporting defects;
- 3 months (maximum) for final settlement.
On the basis of the concluded contract, costs of the project execution were co-financed from
EU funds.
At the time of commencement of construction works, already in the preliminary stage, there
was a delay in handing over the construction site which resulted in prolonging the term of the
contract execution and, in the investors opinion14, was due to reasons beyond control of the
ordering party.
The situation was caused by protests of property owners and a prolonged expropriation
procedure which led to a delay in handing over plots of land where the works were to be
completed.
In the course of project execution the contractor was not able to make up for the delay which
occurred for the above reasons.
In this situation, in May 2008 the investor decided to initiate a single-source procurement
procedure, pursuant to art. 67 section 1 point 1 letter a) and art. 67 section 1 point 5 letter b)
of the Public Procurement Act, to prolong the validity period of the management and
supervision contract by 117 with regard to the 35-month contract period.
14

Resolution with file signature KIO/KU 4/08 dated 9 September 2008

88

Pursuant to provisions of the Public Procurement Act, the investor notified the President of
the Public Procurement Office about initiation of the above mentioned procedure, and in June
2008 the President ordered an ex-ante control of the procedure to verify legality of choosing
a single-source procurement procedure.
As a result of the completed control, the President of the Public Procurement Office, based on
art. 161 section 1 of the Public Procurement Act, stated a violation of provisions referred to
by the ordering party, and decided to invalidate the subject procedure.
The ordering party reported reservations concerning the recommendations of the President of
the Public Procurement Office, who did not consider the investors reservations, and referred
the case to the National Chamber of Appeal.
The National Chamber of Appeal sustained the recommendations of the president of the
Public Procurement Office, and found that the reservations of the ordering party should not be
considered.
According to the consistent case-law of the European Court of Justice, application of a non
-competitive procedure, including a single-source procurement procedure, is admissible only
under special circumstances, subject to precise interpretation, which are consecutively listed
by the Polish legislator in art. 87 of the Public Procurement Act.
The National Chamber of Appeal pointed out the requirement to meet all conditions resulting
from art. 67 section 1, pertaining to both point 1 letter a), and point 5 letter b).
This applies in particular to the assumption that:
- The contractor is the only entity which can execute the order,
- They have special knowledge regarding the subject project,
- The situation cannot be foreseen,
- The scope of tasks of the contractor is not expanded,
- Awarding a single-source contract does not determine execution of the project.
The above case proves the need of a particularly detailed description of the subject of the
order and of including in the contract all possible conditions which could in the future affect
the possibility to introduce necessary changes which have impact on timely execution of the
project, according to provisions resulting from both EU regulations and provisions of national
law.
6.2. CASE STUDY 2 (Turkey): Assessment of public procurement
Legislative framework
Public procurement in Turkey is currently governed by the Public Procurement Law, Law
4734) and the Public Procurement Contract Law (Law 4735), both of which were adopted in
2002. The current Public Procurement Law is generally well-structured, with a natural
division between the various phases in the procurement process.
The Public Procurement Law has been amended several times every year since 2004. While
this may not be unusual, some of these amendments were introduced on an ad hoc basis by
individual ministries and parliamentarians, rather than as part of an overall government
strategy. These amendments have introduced exemptions that are not envisaged under the
acquis communautaire. It has also been a common practice in Turkey that big ticket
procurement for (politically) important international events (e.g. cultural or sporting events) is
exempt from Public Procurement Law.
In addition to the Public Procurement Law, several pieces of secondary and tertiary legislation
have been issued by the Public Procurement Authority (most recently in March 2009, after the
adoption of the amendments to the Public Procurement Law by Law 5812). These regulations
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contain detailed instructions for the conduct of procedures, together with standard tender and
contract documents (the use of standard tender and contract documents is mandatory).
The Public Procurement Authority also issues circulars and interpretative decisions. However,
the standard contracts provide for the possible application of a price advantage in favour of
domestic candidates, while the standard administration specifications for goods procurement
leave it to the contracting authority to decide whether or not to open up competition to foreign
tenderers under the thresholds.
Coverage of the legislation
The public procurement regime covers budget institutions, entities of special provincial
administrations and local municipalities, state economic enterprises, social security funds,
public institutions assigned with public duties, etc., but does not use the same definitions as
the EC Directives. In particular, the Public Procurement Law contains no definition
equivalent to the EC definition of bodies governed by public law.
The current Public Procurement Law does not explicitly deal with entities operating in the
utilities sector, nor does it contain any reference to the award of works concessions. While
utilities are not specifically mentioned, publicly-owned utilities operating in the water,
energy, transport and telecommunications sectors are included as state or municipality
economic enterprises. The result is that private sector utilities are not covered by the Public
Procurement Law; this is precisely the situation that the EC sought to avoid in adopting its
own original Utilities Directive.
Since 2007 the Public Procurement Authority has been working on a draft law for utilities
procurement, but the draft has not yet been adopted by the government. Also for the last two
years a proposed law on concessions and PPPs has been developed by the State Planning
Organisation (SPO) but is still not finished.
The Public Procurement Law applies to contracts for goods, services and works, although the
definitions are not identical with those of the EC Directives. It also provides a separate
definition of consultancy services, which are subject to a special procedure contained in
section 5 of the law. This special procedure does not appear to affect the overall application of
the common procedures of the Public Procurement Law, but sets out a two-envelope system
of tender submission that applies in this context only, allowing the technical evaluation to take
place independently of the financial evaluation.
The Public Procurement Law applies to procurement by contracting authorities for contracts
well below the EC threshold levels, although there is no great distinction made between the
procedures that apply for both high-value and low-value contracts. The only, but significant,
differences are that the publication rules are less onerous and the time limits are shorter for
low-value contracts, which simplify the procedure in practice. The Public Procurement Law
prohibits the practice of splitting contracts to avoid the application of the Public Procurement
Law.
Compatibility with EU legislation
Under the Public Procurement Law, the open procedure is the basic procedure; other
procedures may only be applied when special conditions for their use have been fulfilled.
In fact, the restricted procedure rarely occurs (0.61% of all procedures published in the Public
Procurement Bulletin in 2008). The Public Procurement Law also contains a specific direct
procurement procedure which can be used for: low-value procurement; situations that would
come under the ECs negotiated procedure, i.e. when there is only one supplier (e.g. based on
the existence of exclusive rights); the lease or purchase of immovable property; certain urgent
90

medical supplies; and the legal services of Turkish or foreign advocates for arbitration.
The most recent amendment to the Public Procurement Law (Law 5812) added to the list
some types of contracts that would not directly qualify for exceptional procedures under the
EC rules (purchase of some medicines, vaccinations and medical materials, and procurement
related to national and local elections).
The conditions for the use of the negotiated procedure largely reflect those of the
EC Directives.
The Public Procurement Laws qualification criteria largely reflect those of the EC Directives,
including the more recent mandatory exclusion provisions. The Public Procurement Law also
specifically prohibits bribery and collusion. The Public Procurement Law sets out
appropriately the content of tender documents and tender notices. However, the requirement
that only those tenderers who have purchased the documents (at the cost of reproduction) can
participate in the proceedings may unnecessarily restrict participation. The publication
of procurement notices (contract notices and contract award notices) is mandatory above
certain thresholds. Prior indicative notices (PINs) have been introduced by recent
amendments.
The Public Procurement Law permits domestic preferences; there is a price advantage of up to
15% for domestic contractors offering domestic products. In procedures for contracts below
the thresholds, contracting authorities may restrict participation to Turkish companies.
As the current Public Procurement Law was closely modelled on the former EU public
procurement legislation, there are many significant similarities. However, concerns remain
about the compatibility of the Public Procurement Law with the current EU legislation,
notably:
- The absence so far of the new procedures and techniques introduced in the most recent
EC Directives (competitive dialogue, social and environmental considerations,
functional technical specifications);
- The manner in which the Public Procurement Law defines the scope of application;
- The extensive exemptions;
- The apparent need to justify the use of the restricted procedure;
- The greater tolerance of direct procurement;
- Technical specifications and standards;
- The criteria for contract award; and
- The existence of national preferences and restrictions on participation by foreign
companies.
Other concerns with the Public Procurement Law, but not specifically addressed by the
Directives, include the automatic cancellation of tender proceedings in certain cases if fewer
than three tenders have been received (even though competition is guaranteed by ensuring that
a competitive process has been employed); and the mandatory requirement for tender and
performance securities in all contracts regardless of value or risk.
Legislation for concessions (PPPs)
The structure of the legal framework governing concessions (PPPs) will need to be amended
to ensure legal clarity and certainty for all operators (whether public or private). Sectorspecific laws governing the use of PPPs should be repealed, as well as laws allowing for the
use of particular PPP models only (e.g. the build-operate-transfer (BOT) law and the build
-operate (BO) law). These laws should be replaced by a single PPP law for all relevant
economic sectors that deals with the pertinent issues, such as eligibility of projects, internal
authorisation procedures, granting of state guarantees, and monitoring. It needs to be made
clear that the award of PPP contracts must follow the procurement rules if the contract is to
91

qualify as a public contract or public works concession. The PPP law does not need to contain
detailed procurement rules; instead it should refer to the Public Procurement Law.
The scope of the Public Procurement Law, on the other hand, should be extended to cover
public works concessions. The specific provisions of Directive 2004/18/EC on awarding these
works concessions and obliging concessionaires to respect procurement rules under specific
circumstances will also have to be adopted. The Public Procurement Law could also cover the
award of service concessions (in the sense of EU procurement law), although this is not
necessary from a legal point of view. If service concessions are left outside the Public
Procurement Laws scope, then the fundamental principles of the EU Treaty must remain
applicable in the award of these concessions.
Procurement operations and practices
Statistics
The number of contracting entities covered by the Public Procurement Law is about 10,500
(not counting utilities entities). According to Public Procurement Authority statistics, in 2008
there were 116,612 public procurement procedures, and the total value of public contracts (not
including direct procurement) exceeded 30 billion EUR. The Public Procurement Bulletin
appears to be rather successful in disseminating information on public procurement
opportunities, reflected by a fairly high participation rate. Thus, information on public tenders
is widely available. The general interest in tendering among economic operators appears to be
good in most areas. The figures for the rate of participation suggest that the number of tenders
submitted in procurement procedures is generally satisfactory. In the construction sector, in
particular, there appears to be significant competition. Foreign tenderers are also present,
indicating a healthy market. They will often form joint ventures or consortia with Turkish
tenderers, especially in the construction sector.
Views on the amendments
Contracting entities expressed appreciation of the amendments introduced by Law 5812 and
indicated that they had been consulted on the changes. They were in favour of the ability to
use negative references and of the changes to the complaints procedures. There was strong
interest in the use of framework agreements. However, as the accompanying byelaws were
only introduced in March 2009, contracting entities have not had much experience in using all
of the new approaches. The increase in the number of exemptions was also welcomed;
however, this could present a future problem when they are removed to align the Public
Procurement Law with the EC Directives.
Procurement practices
At the central level and in the main municipalities around Ankara, it appears that procurement
is well organised. Procurement is conducted by tender committees appointed in accordance
with the Public Procurement Law, and no procurement is commenced until a budget is
provided. The budgeting and internal financial controllers are involved from the outset and,
where possible, technical specialists are used from the contracting entity to prepare the
technical specifications. The higher-spending authorities also have specialised public
procurement units comprised of members with the relevant technical expertise. These
authorities are therefore able to create tender commissions for each procurement procedure.

92

As already mentioned, the procedures adopted tend to be the open procedure, with very few
restricted procedures being employed. It will be interesting to see whether this will change
under the new law. There appears, nevertheless, to be a residual reliance on direct contracting
by citing lengthy Public Procurement Law time limits or an emergency. In most cases, the
recourse to direct procurement is in reality a question of poor procurement planning and
budgeting, rather than a question of genuine urgency. This suggests that broader competence
training might be desirable. Statistics on the use of the direct procurement procedure are not
available.
Tender documents are largely based on the Public Procurement Authoritys standard tender
documents. The only clear problem seems to be the contracting authorities practice
of requesting original copies of all documents related to the qualification criteria in the Public
Procurement Law, regardless of need. This system inflexibility is also carried over to tender
securities and performance bonds, which are required in almost all cases, again regardless
of whether or not they are needed and irrespective of the contract value.
6.3. CASE STUDY 3 (Italy): Previous juvenile prison of Pesaro
In the inner city of Pesaro there is a large area to be recovered that for many years has been
a serious problem to be solved on the city plan.
Originally in the area where a religious compound was built - it was composed of a church, by
the annexed convent and by the adjacent gardens.
After the unification of Italy in 1861 the monastery was closed and the compound was used as
a military depot and then as a juvenile prison.
In 2001 the area was purchased by the Province of Pesaro and Urbino with the objective of
building public offices and enhancing as well as returning to public use the remaining
compound.
The chosen strategy was to enhance part of the area allowing the construction of buildings for
private apartments in order to partially finance the construction of offices and public spaces.
The municipality has therefore prepared a detailed plan through which the area was divided
into three zones: the first corresponding to the old cloister of the convent where to realise the
offices, the second corresponding to the gardens to create public green spaces for the inner
city and the third part to build private apartments to be sold.
Meanwhile, the Province drafted a restoration plan of the old cloister where the public offices
for the works would be located.
After approval of the detailed plan, the Province sold the area which was assigned for private
construction in order to finance most of the restoration work.
The other goal was to contract the work for the realisation of the offices using a type of
contract that would limit to the maximum the problems during the realisation phase and
would allow to realise a quality intervention.
For this type of contract, Italian legislation allows two different types of work award : award
according to the method of lowest price and the other according to the method of the most
economically convenient.
In this case, the strategy chosen was that of awarding the contract according to the method of
the most economically convenient.
The choice made finds its basis in the fact that the criteria of the cheapest and most
advantageous offer allows the award of public contracts, not so much through a purely
quantitative-economic evaluation ,but with a complex integration between the economic data,
the technical and qualitative and, therefore, it is particularly suited to select the private
contractor for the assignment of the works whose architectural aspect is of major importance.
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Such criterion is characterised by a greater flexibility, allowing the companies involved to


better express their innovative capabilities, thereby increasing their competitiveness, even in
terms of solutions offered to meet the needs pursued by the contracting authorities . The
identification of the most economically advantageous tender is based on the integrated
application of a plurality of evaluation criteria: this implies the need to solve the problems
of comparability between the same criteria, because of their different nature, quantitative
or qualitative and the different unit of measurement, making the operations relative to the
concrete evaluation of tenders complex.
The main evaluation criteria used for this tender were the following:

Methodology for restoration interventions;

Methodologies for structural consolidation of elements;

Features of the electric and heating plants for energy saving and reduction of operating
costs;

Improved sound isolation;

Building time;

Price mark down.


Further to the tender, the work was entrusted to a firm that offered a substantial price mark
down on the initial proposal as well as a series of proposed improvements for the various
criteria that resulted in a significant improvement in the intervention.
The contractor was very motivated to implement a quality intervention and to demonstrate
their skills and this has enabled the restoration works to be completed on time, within total
expenditure budget and thus reaching a valuable restoration.
The lesson learned from this intervention is that selecting a contractor through the
economically advantageous offer method, although requiring a greater initial effort and more
complex tendering procedures, is a winning strategy, especially for complex interventions of
considerable economic importance. The approach allows for the selection of companies that
are highly motivated to perform the job, which gains significant benefits for the contracting
authority in terms of improvement of the project.
6.4. CASE STUDY 4 (Turkey) Izmir Bay Crossing Project
A trial for a BOT (Build-Operate-Transfer) approach by GDH (General Directorate of
Highways) was zmir Bay Crossing project in 1994. But, it was cancelled because of the lack
of preliminary design, wrong information, legislative problems and a wrong tendering
process. After this failed tender, the second trial in the transportation sector was Gocek
Tunnel project which was successfully completed.
The qualification criteria for shortlisting were:

The selected company should cover $30 m of the tender cost;

The technical requirements specified in the tender document should be satisfied such
as the bridge width or design speed;

Proven experience in the design and construction of major infrastructure projects;


particularly on long span bridges constructed in seismic zones similar to Izmit Bay;

Proven technical experience and administrative capability in managing major


transportation projects;

Necessary financial strength and ability to secure a sound financial package;

Experience and managerial capability in traffic management, operation and


maintenance of tolled highways and bridges.
94

In April 1995, six companies satisfying these requirements were shortlisted. In February
1996, these companies were invited to submit bids. Only one bid was accepted so the tender
failed. In December 1996, the tender was repeated and three companies sent bids.
The winner has been invited to participate in further negotiations But the other company went
to court and the project was cancelled
Evaluations and comparison of two companies:
Criteria
Technical capacity
Financial situation
Toll rate:
For automobile
For truck
Toll rate structure
Construction + operation
period
Guarantees asked
Expertise
Reputation
Soundness of the bid

1st Company
High
good

2nd Company
Low
Not good

$11
$48.85
Not clear
27 years

$9
$45
Clear
22 years

Low liability to the


government
Satisfactory
Good
Realistic/consistent

High liability to the


government
Not Satisfactory
Good
Unrealistic/inconsistent

6.5. CASE STUDY 5 (Turkey): Railways - Prvatsaton and Investment n Turkey


The ministry responsible for privatisation is OIB (Ozellestirme Idaresi Baskanligi) and its
web-site is www.oib.gov.tr. It is widely known that private capital will have a place in
Turkish railways in the future. Turkey is thought to adopt public-private partnership (PPP)
opportunities on a Build Operate Transfer (BOT) basis. PPP is already being used in Turkey,
but not yet in the rail sector.
TCDD (Trkiye Cumhuriyeti Devlet Demiryollar) is the name for railways in Turkey,
Further privatisation is underway in Turkey and may impact the railways in future. Further
privatisation of ports currently owned and operated by TCDD is possible. The role for private
capital is likely to be on BOT projects with 30-year concessions. These will probably include
high-speed lines.
Republic of Turkey Prime Ministry Investment Support and Promotion Agency of Turkey
(ISPAT) http://www.invest.gov.tr, provides for inward investment into Turkey. It has
a presence around the world, including offices in the UK. It also serves as a reference point
for international investors and as a point of contact for all institutions engaged in promoting
and attracting investments at national, regional and local levels. ISPAT operates like a private
company. It works with its clients on a confidential basis and gives help to all Turkish
governmental bodies. Its services, which are provided free-of-charge include:

Market information and analyses;

Industry overviews and comprehensive sector reports;

Assessing conditions for investment;

Site selection;

Finding companies for potential partnerships and joint ventures;


95

Negotiating with relevant Government institutions;


Facilitating legal procedures and legislation issues, such as: Establishing business
operations, incentive applications, getting licenses, work/residence permits.

Eurasia Rail Exhibition www.eurasiarail.com, the first ever exhibition focusing exclusively on
rail was held in Ankara in March 2011. The next Eurasia Rail exhibition will be held on
8 12 March 2012, this time in Istanbul and Eurasia Rail is confident that it will be bigger
and better than the launch event. Eurasia Rail reported that the 2011 show was a great
success. It said:

Approximately 117 companies participated, 60 per cent of which were international.

Its aim is for 250 companies in 2012 - 78 are already confirmed;

Turkey is thinking to have US$25 bn of investment in rail, so there is already


significant interest in the show and the rail market;

The freight sector will benefit from being able to run through the Marmaray tunnel at
night. Consequently, the next event will include a focus on infrastructure and logistics
in order to develop this sector and international traffic.
The UK has stated publicly that Turkey is a market with significant potential for growth and
is keen to develop mutual trading links. UKTI East Midlands has a strong team in Turkey to
support UK business, and can assist in areas such as market research and identifying key
stakeholders, including partners, agents or distributors.
UKTI, Ankara market overview, March 2011

Turkey is the worlds 15th, and Europes sixth largest economy. It is forecast to be in
worlds top 10 by 2050;
The FDI Global Rankings in 2008 (UNCTAD) placed Turkey 20th and the UK fourth
in the world;
The UK is Turkeys second largest export market in Europe, after Germany. Turkey is
UKs eighth largest export market in Europe. Turkeys major import markets are
Russia and Germany. The UK ranks 19th.

Why Turkey is a charming place for investment? :

Turkey has the youngest and fastest growing population in Europe (with 450,000
graduates a year);
The Istanbul economy alone is larger than 12 EU countries;
Turkey will be second fastest-growing country in the world by 2018 (according to the
OECD);
The Turkish economy will be bigger than Canada, Spain and Italy by 2025;
Turkey has the worlds second largest construction and contracting sector;
It is Europes number one TV manufacturer;
It is Europes leading passenger coach manufacturer;
Turkey is the worlds third largest mega-yacht producer.

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6.6. CASE STUDY 6 (Turkey): Mersin Container Port Project

The project is about planning and development of the new Mersin Container Port as a new
gateway to transports and will be located near to the existing Port of Mersin. The purpose is to
fulfil the requirement for a port in the Eastern Mediterranean with a main port function and
has been thought of as a gateway port serving to Ankara and eastern Turkey as well as the
countries beyond to the east. The specific objective of the project is to strengthen the gateway
for import-export traffic and a trans-shipment centre in the region.
An investment value of 337m has been estimated for stage one from the EU public
investment programme as part of the IPA funding. Upon loan approval the tender for
development is expected to be issued to local and international consortiums on the basis of
a BOT model with a 49-year lease period. Once completed, vessels up to 10,000 TEU will be
able to berth. The port is planned to have a deep water access and is scheduled to be
operational by 2014.
The location of Mersin container port is shown in the map below :

Source: Workshop presentation: Arda ALTINOK (GM, Altinok Consult).


The idea of a new container port in Mersin dates back to 1990s. The Transportation
Infrastructure Needs Assessment for Turkey (TINA) Study (2007) anticipated the
development of the port of Mersin as one of the top priorities. In the TINA Study, overall
throughput at the port was expected to increase from 17 million tons per annum (at the Port of
Mersin) in 2004 to 60 million tons at the combined Port of Mersin/Mersin Container Port in
2020.
97

Mersin Port, Source: http://ahemlojistik.com/mersinlimani.asp


A financial feasibility study has been prepared on the basis of the government undertaking the
necessary preparatory work (temporary breakwater beyond the existing breakwater, quay
wall, convert the existing breakwater for use as a new terminal quay) and the successful
BOT tenderer taking responsibility for the port developments. The overall investments
required together with expected rates of return were also assessed.
The responsible authorities concluded the Mersin Container Port project is both strategically
important and financially feasible.
The Mersin Container Port project and related inland transport improvements are expected to
create greatly improved trade opportunities between the central and eastern parts of Turkey
and its overseas trading partners.
Mersin Container Port will make use of the latest advanced and environmental friendly
technology in port equipment and operation, including mainly auto-controlled systems, all
powered by electricity instead of diesel. This will be a major contribution to conservation of
the environment and green growth. Moreover, the latest technology implemented in the port
will result in minimisation of the liquid, solid and other types of wastes generated by the
operation of the port. There will also be a very advanced waste water treatment plant on site,
in the port to further minimise the adverse effects of the operation of the port on the
environment and contribute to green growth.
This case study shows that feasibility analysis of the project was done in a an exemplary way
and almost all questions were answered before the tendering phase of the project. This will
lead to a successful tender and more bidders for the tender.

98

6.7. CASE STUDY 7 (Turkey): NABUCCO Gas Pipeline project


The NABUCCO Gas Pipeline is a strategic project for gas supply from the Caspian and
Caucasus and Middle East regions to South East and Central Europe. Nabucco is
a Trans-European Network (TEN) project of European interest, as identified by the TEN-E
Guidelines adopted by the European Parliament and the Council. The pipeline will be routed
from Middle East and Caspian supply sources via Turkey/ Bulgaria / Romania / Hungary to
Austria.
The Nabucco transit countries (Austria, Hungary, Romania, Bulgaria and Turkey) signed an
Intergovernmental Agreement (IGA) in Ankara on July 2009. The Intergovernmental
Agreement was approved by Turkish Parliament on March 2010. The Project Support
Agreement (PSA) is being negotiated between the Nabucco International Company and the
respective Nabucco transit countries.
The project was jointly proposed by the respective gas companies of the involved States and
is currently being executed by Nabucco Gas Pipeline International GmbH (NIC) which is
directly owned by the Nabucco Partners and is responsible for the marketing of the pipeline
capacity.
The Nabucco pipeline project aims to open the fourth supply corridor for natural gas into
Europe, after the North Sea, North Africa and Russia, enabling new suppliers from the
Caspian and the Middle East regions to access the European gas market.
Project objectives include to:
Diversify the gas supply sources on economic terms;
Establish secure energy infrastructure for transporting the gas between producers and
consumers of gas.

The proposed route is shown in the graphic below.

99

The pipeline length is approximately 3 300 km, starting at the Georgian/Turkish and/or
Iranian/Turkish border respectively, leading to Baumgarten in Austria. A reasonable amount
of the gas volumes reaching Baumgarten have to be further transported through Austria to the
Central and Western European Countries.
According to market studies the pipeline has been designed to transport a maximum amount
of 31 billion cubic metres per annum.
Expected timings of the different phases to completion are:
Project Activity

Planned Date

First Construction Phase

2011-2014

(ANKARA and BAUMGARTEN)


Second Construction Phase

2014-2015

[Turkish Border to Supplier(s) border]


Following Construction Phase II

2017-

(Additional Stations to upgrade capacity for 31 bcm/y)


The tender has an open season procedure that contains two steps. In the first step, the offer
is addressed to the project shareholders and associated companies for an amount up to 15 bcm
50 per cent of Nabucco's maximum transport capacity. In the second step, Nabucco will
offer the other 50 per cent to external companies (third party access), offering them the
same conditions and transparency. In this procedure all market participants will have the
possibility of securing long-term contracts.
Estimated investment costs including financing costs for a complete new pipeline system
amount to approximately 7.9 billion euro. The planned sources of funds are commercial
banks, ECAs, EIB, and EBRD. The pipeline is scheduled to be in operation for at least 50
years.
The major opportunity that the project offers relates to the size and attractiveness of expected
increases in European demand for gas. While demand for oil in Europe (and other developed
countries) is not expected to increase significantly in future, demand for gas is generally
expected to continue to increase for many years to come. The Nabucco gas pipeline project
seems well placed indeed to respond to this strategic opportunity to meet the increasing
demand and to improve diversification in gas supplies.
In this case study, it is clearly seen that in order to perform a tender for such a big
construction, a special intercontinental attention is given for the details and properties of the
construction. Feasibilities, financial searches, construction routes, details are specified before
the start of the construction to be successful at the end.
6.8. CASE STUDY 8 (Poland): Channel Tunnel Rail Link
This case study gives examples of best practice when engaging workers to improve health and
safety in the workplace.
This case study relates to initiatives undertaken during the construction of the Channel Tunnel
Rail Link (CTRL).
100

Project fact le
The Channel Tunnel Rail Link (CTRL) is Britains rst new major railway for over a century,
running 109 km from the Channel Tunnel to St Pancras station in central London. It is also
Britains rst high-speed railway, with trains operating at up to 300 km/h (186 mph).
The first section of the route, from the Channel Tunnel to north Kent, opened on time in 2003.
When the second section from north Kent to St Pancras opened in 2007, journey times from
London to Paris were cut to 2 hours 15 minutes, and just 1 hour 51 minutes from London to
Brussels.
The project is enormous, the construction phase taking almost ten years to complete and
creating thousands of jobs. Construction includes 60 rail and 62 road bridges, 26 route-km of
tunnels, two new international stations at Ebbseet in Kent and Stratford in east London, and
the extension and renovation of the Grade-1 listed St Pancras station.
Such a large project presents all of the usual risks including working at height, vehicle
movement, lifting operations and conned spaces as well as all the risks of operating on and
around live railways.
The challenge
With such a huge project spread over a wide area, the challenge has been to engage all parties
involved and to get them actively committed to the CTRL Target Zero philosophy.
This philosophy is one where everyone is dedicated to the concept that all accidents are
preventable and committed to achieving and sustaining a zero accident performance through
continuous improvement.
The project has recognised from the outset that the majority of safety issues it faces are
a direct result of individual behaviour. It is people that have accidents and it is people that can
prevent them. The aim has been to change negative behavioural attitudes, implement
constructive communication channels and improve leadership and accountability from front
line supervision.
Health and safety management on the CTRL has been implemented through the highly visible
Target Zero campaign, which encompasses key elements of leadership, top-level involvement,
communication and people based safety.
Leadership
An emphasis has been placed on developing leadership skills amongst managers and
supervisors in an effort to encourage them to challenge unsafe behaviours and to proactively
encourage the workforce to become engaged in the health and safety programme.
The CTRL holds regular safety workshops to develop these skills and give advice on how to
achieve positive behavioural changes among team members. The course aims to get
a commitment from all attendees to make a difference so they take this message back to site.
This commitment starts by looking at themselves, being a positive role model and
askingam I doing enough?

101

Through these workshops the project has achieved considerable success. Supervisors have
been seen to become more visible in health and safety matters and their communication skills
have improved, keeping Target Zero at the front of everyones minds as a consequence.
Top-level involvement
The Target Zero campaign is supported at the very highest level by the CTRLs client
organisation, as well as directors and managers from the principal contractors. They
demonstrate their backing for the Target Zero campaign through attendance and participation
at safety inductions, presentations, brieng sessions and by conducting regular site tours in
which they liaise directly with the workforce, answering any questions they have.
Communication
Two initiatives demonstrate the emphasis placed on two-way communication with the
workforce:
1. The STARRT Talk. Central to the Target Zero campaign is the daily Safety Task
analysis Risk Reduction Talk (STARRT) a process implemented across the whole
project. This is a daily pre-task brieng that enables work teams to discuss with their
supervisors the key safety risks associated with the days work and the necessary
control measures required. STARRT allows team members to provide feedback,
offer suggestions and report any concerns from the previous days work. Some teams
encourage team members to take turns presenting the brieng.
2. The Target Zero Truck In initiative was suggested by employees themselves.
A Target Zero Truck regularly visits sites across the whole of CTRL to deliver key
health and safety messages and project updates. Equipped with on-board TV and
video, the truck has an external studio enabling it to be set up for presentations,
briengs and seminars as well as being a tool for handing out worker achievement
awards. Front line supervisors make the presentations ensuring that information
given is relevant and pitched at the correct educational level.
As well as STARRT, employees also have the opportunity to take part in the Job Hazard
Analysis process, in which the work team identies potential hazards and then develops
solutions to eliminate or control them.
Employee involvement is actively encouraged through holding regular safety committees
consisting of members of the workforce. The CTRL has an open door policy for all health
and safety matters and feedback is always provided to keep workers aware of any actions that
have been taken.
On a regular basis, health and safety managers from each contract meet to review any
accidents, near-misses or incidents that may have occurred. All lessons learned are
implemented throughout the whole of CTRL and safety messages are disseminated to all
crafts via safety alerts and health and safety briefs. Safe working practices are rewarded by
the presentation of prizes through incentive schemes. Reporting of near-misses is actively
encouraged and all employees are informed at induction on how to report a near-miss. The
near-miss reporting procedure has also been simplied.
People based safety
People based safety is a crafts driven programme with operatives observing other staff,
focusing on their working behaviours, both safe and at risk. Often the crafts are in the best

102

position to recognise unsafe situations; the scheme uses their knowledge and experience
to provide constructive feedback and coaching to correct at-risk behaviour.
This is a no blame process and all observations are anonymous. At the end of the reporting
period, data is collected and analysed to identify any trends. The scheme provides crafts with
a direct opportunity to make positive improvements to their working environment and helps
develop a safety culture based on people looking after each other.
Benets
Improving worker engagement has brought many benets to the project, including:
An accident rate of less than half the construction industry norm;
A positive change in safety culture;
Individual contracts regularly achieving over one million man-hours without
a reportable injury;
Recognition by HSE and the construction industry in the UK and beyond of
CTRL safety achievements.
6.9. Literature and further reading for chapter 6
1. Introduction to the EU procurement rules: Office of Government Commerce Guidance

March 2008
2. Philip Webster. 1990. Tendering Procedure and Construction in Europe. J. Property
Finance.Vol1. No3. 411-415
3. Code of Practice for Project Management for Construction and Development. 2002. ISBN
1-4051-0309-4. 3rd ed. Blackwell Publishing Ltd., 240p
4. Public Procurement Bulletin 2008, 2009, 2010
5. Bedri K. O. Tas, Rasim Ozcan and Ilke Onur. 2008. Public Procurement Auctions and
Competition in Turkey. Working Paper No: 08-14. TOBB University of Economics and
Technology Department of Economics
6. Public Procurement Authority (http://www.ihale.gov.tr)
7. Hasan Gl. 2010. Modernising public procurement and creating an independent public
procurement regulatory authority. EBRD-Law in transition
8. European Bank for Reconstruction and Development: Countries: Turkey
9. (http://www.ebrd.com/pages/country/turkey.shtml)
10. Railway Sector Fact-Finding mission to Turkey May2011 Produced by: Bob Docherty,
International Business Adviser, Railway Sector, UKTI, No 1 Victoria Street, London,
SW1H 0ET
11. Policy, Management and Finance of Public Private Partnerships, Edited by: Akintola
Akintoye, Matthias Beck
12. http://www.oecd.org/dataoecd/37/52/48641811.pdf, International Futures Programme,
Transcontinental Infrastructure Needs to 2030/2050 Turkey/Bosphorus Gateway Case
Study, Istanbul Workshop held 19-20 April 2010 Final Report

103

CHAPTER 7
GLOSSARY15 16

15

16

Term

Definition

Absenteeism

A failure of labour resource to arrive at the designated work place.

Activity

The making up of lost time at the employers expense (see also


Recovery).

Aftercare
engineer

The aftercare engineer provides a support service to the client/user


during the initial 612 months of occupancy and is, therefore,
most likely a member of the commissioning team.

Approximate
quantities

The estimated quantity of work usually prepared from a scheme


design and before detailed design is carried out, for the purpose of
cost estimating.

As-build

Work carried out.

Bills of Quantities

A document, usually prepared according to defined rules, which


sets out the measured quantity of work and describes the quality
standard of materials and workmanship for pricing

Budget

Quantification of resources needed to achieve a task by a set time,


within which the task owners are required to work. Note: a budget
consists of a financial and/or quantitative statement, prepared and
approved prior to a defined period, for the purpose of attaining a
given objective for that period.

Buffer

see Contingency.

Business case

Information necessary to enable approval, authorisation and


policy-making bodies to assess a project proposal and reach a
reasoned decision.

Cash flow

The balance of money received against money spent according to


a defined formula, sometimes referred to as accounting rules; the
rate at which money is spent in the past (actual) and in the future
(forecast and planned).

CDM Regulations

The health and safety rules and regulations applicable in the UK.

Change order

An alternative name for variation order, it indicates a change to the


project brief.

Chartered Institute of Building (2010) Code of Practice for Project Management for Construction and Development (4th edition), WileyBlackwell
Chartered Institute of Building (2011) Guide to Good Practice in the Management of Time in Complex Projects(1 st edition), WileyBlackwell

104

Term

Definition

Change control

A process that ensures potential changes to the deliverables of a


project or the sequence of work in a project, are recorded,
evaluated, authorised and managed.

Change
management

The art and science of controlling the effect of a departure from


the contract quality, quantity, methodology, cost and timing of the
work

Client

Entity, individual or organisation commissioning and funding the


project, directly or indirectly.

Client advisor

An independent construction professional engaged by the client to


give advice in the early stages of a project, as advocated by the
Latham Report.

Commissioning
team

Client commissioning: predominantly the clients personnel


assisted by the contractor and consultants. Engineering services
commissioning: specialist contractors and equipment
manufacturers monitored by the main contractor and consultants
concerned.

Completion date

The end-date for the works, the subject of the planning and
scheduling process.

Consultants

Advisors to the client and members of the project team. Also


includes design team.

Contiguous
duration

The gross period of time required to carry out an activity in an


uninterrupted process.

Contingency

A provision of resource and/or time which may or may not be


required.

Contingency plan

Mitigation plan alternative course(s) of action devised to cope with


project risks.

Contractor

Generally applied to: (a) the main contractor responsible for the
total construction and completion process; or (b) two or more
contractors responsible under separate contractual provisions for
major or high technology parts of a very complex facility. (see
Subcontractor).

Designed and
Build

A form of project procurement in which the contractor also carries


the design responsibilities.

Design audit

Carried out by members of an independent design team providing


confirmation or otherwise that the project design meets, in the best
possible way, the clients brief and objectives.

105

Term

Definition

Design freeze

Completion and clients final approval of the design and


associated processes, i.e. no further changes are contemplated or
accepted within the budget approved in the project brief.

Design team

Architects, engineers and technology specialists responsible for


the conceptual design aspects and their development into
drawings, specifications and instructions required for construction
of the facility and associated processes.

Down time

The period (usually brief) when work is suspended.

Driving
relationship

A relationship by which either the logical start or logical finish of


an activity is dependent upon the start or finish of an activity.

Duration

A period between the start and finish of an activity.

End user

Organisation or individual who occupies and operates the facility


and may or may not be the client.

Engineer, procure
and construct

Sometimes called turnkey; a form of contract in which the


contractor adopts the obligation of fitness for purpose in designing
and providing the finished product ready for use.

Environmental
conditions

Usually weather conditions, but can be other conditions in which


activities have to be carried out, e.g. mines and some large-scale,
heavy-engineering projects (dams, nuclear power stations and the
like).

Facilities
management

Planning, organisation and managing physical assets and their


related support services in a cost-effective way to give the
optimum return on investment in both financial and quality terms.

Facility

All types of constructions, e.g. buildings, shopping malls,


terminals, hospitals, hotels, sporting/leisure centres,
industrial/processing/chemical plants and installations and other
infrastructure projects.

Feasibility stage

Initial project development and planning carried out by assessing


the clients objectives and providing advice and expertise in order
to help the client define more precisely what is needed and how it
can be achieved.

Handbook

See Project handbook.

Implied variation

An act or omission which is deemed to be a variation.

Key date

A term usually used for the date upon which a work stage is to be
completed.

Labour

A human resource.

106

Term

Definition

Life-cycle costing

Establishes the present value of the total cost of an asset over its
operating life, using discounted cash flow techniques, for the
purpose of comparison with alternatives available. This enables
investment options to be more effectively evaluated for decisionmaking.

Lockout

Exclusion of the workforce from the works by the employer.

Logistics

Management of the flow of resources from procurement to


completion of the works.

Master
programme

This is the name given under some forms of contract to the


baseline schedule, against which progress is expected to be
monitored. It bears no relationship to the concept of the dynamic
working schedule, used as a time model for the purposes of time
management.

Mitigation

Action taken to alleviate predictable loss, expense or delay.

Occupation

Sometimes called migration or decanting. It is the actual process


of physical movement (transfer) and placement of personnel
(employees) into their new working environment of the facility.

Out-turn cost

The ultimate cost of a project: the tender cost plus the cost of
variations and compensation for loss and/or expense, including
consultants fees, planning fees and licenses etc.

Overload

The status of a project in which, in order to meet a duration,


resources are required in excess of that planned.

Overtime

Time required to be worked in excess of the regular or normal


hours of work.

Pacing

Slowing down of work for the reduction of resources to keep pace


with delayed work.

Planning

The determination and communication of an intended course of


action incorporating detailed method(s) showing time, place and
resources required.

Planning gain

A condition attached to a planning approval which brings benefits


to the community at a developers expense.

Planning
supervisor

A consultant or contractor appointed by a client under the CDM


Regulations to carry out this role.

Prime cost sum

A contingent sum of money included in the contract sum for work


to be carried out by a specialist subcontractor of for materials yet
to be specified.

107

Term

Definition

Principal
contractor

The contractor appointed by a client under the CDM Regulations


to carry out this role.

Programme

The time-control document required by some form of contract,


usually in printed form (see also Schedule).

Programme
management

A programme of works comprises a number of projects that are


related because they contribute to a common outcome. Programme
management provides coordinated governance to the realisation of
benefits that result from projects; it is concerned with initiating
projects, managing the interdependencies between projects,
managing risk, and resolving conflicting priorities and resources
across the projects.

Procurement

The process (but not limited only to the tender procedures) of


obtaining goods and services from preparation and processing of a
requisition through to receipt and approval of the payment.

Project

Unique process, consisting of a set of co-ordinated and controlled


activities with start and finish dates, undertaken to achieve an
objective conforming to specific requirements, including
constraints of time, cost and resources.

Project brief

Statement that describes the purpose, cost, time and performance


requirements/constraints for a project.

Project execution
plan

A plan for carrying out a project, to meet specific objectives, that


is prepared by or for the project manager. In some instances this is
also known as the project management plan.

Project handbook

Guide to the project team members in the performance of their


duties, identifying their responsibilities and detailing the various
activities and procedures (often called the project bible). Also
called project execution plan, project manual and project quality
plan.

Project insurance

Project insurance is the descriptive title for a suite of insurances


that are specifically designed to meet the needs of individual
projects as opposed to relying on the individual insurance
arrangements of the project team.

Project manager

Individual or body with authority, accountability and


responsibility for managing a project to achieve specific
objectives.

108

Term

Definition

Project schedule

Time plan for a project or process. Note: on a construction project


this is usually referred to as a project programme. The
construction industry tends to refer to programmes rather than
schedules. Indeed the term schedule tends to mean a schedule of
items in tabular form, e.g. door schedule, ironmongery schedule,
etc.

Project scope

All the work to be carried out to reach the projects objectives:


there could well be several contracts involved in project delivery
from project viability, feasibility, design and
implementation/construction.

Project sponsor

The project sponsor represents the client (which is usually the


government) acting as a single focal point of contact with the
project manager for the day-to-day management of the interests of
the client organisation.

Project team

Client, project manager, design team, consultants, contractors and


subcontractors.

Provisional sum

A contingent sum of money included in the contract sum for work


of which the detail cannot be fully described at the time of tender.

Recovery

Making up of lost time at the contractors expense (see also


Acceleration).

Remaining time

The duration planned to elapse before an activity is completed.

Resource

Anything necessary for the achievement of work but typically


materials, labour, plant, space, cost.

Risk

Combination of the probability or frequency of occurrence of a


defined threat or opportunity and the magnitude of the
consequences of the occurrence.

Risk analysis

Systematic use of available information to determine how often


specified events may occur and the magnitude of their likely
consequences.

Risk factor

Associated with the anticipation and reduction of the effects of


risk and problems by a proactive approach to project development
and planning.

Risk management

Systematic application of policies, procedures, methods and


practices to the tasks of identifying, analysing, evaluating, treating
and monitoring risk.

Risk register

Formal record of identified risks.

Schedule

The time-model for the work.

109

Term

Definition

Statutory
approvals

Permissions which are required by law.

Strategy stage

During this stage a sound basis is created for the client on which
decisions can be made allowing the project to proceed to
completion. It provides a framework for the effective execution of
the project.

Subcontractor

An individual or company to whom the contractor sublets the


whole or any part of the works. This covers such elements as
design, specialist trades and labour-only supply.

Temporary works

Work which must be carried out in order to construct the


permanent works, but which is not intended to remain.

Tenant

Facility user who is generally not the client or the developer.

Tender

An offer to carry out work for compensation under a contract (also


known as a bid).

Testing and
commissioning

The process of validating and adjusting the permanent works, or


any part of it, and rendering it fit for use.

Trade

A particular specialised type of work.

Unexpected
contingencies

A time allowance which is unused (see also Contingency).

User

The ultimate occupier of the facility.

Utilities

The public-company suppliers of water, gas, electricity,


communications and other public available service.

Variation

An instructed change as defined under the contract.

Work pattern

The name given of work in the detail which renders it unique


amongst other work descriptions of like type.

Zone of operation

A division of the work for the purpose of management and control.

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Notes

111