Unit 1:

Principles of
Construction Procurement
D31PZ: Contracts and Procurement
 Introduction

This unit examines:

‣ the nature and difficulties of procurement

‣ the importance of relating construction projects to the client’s

business

‣ the basic responsibilities of the construction client in all

projects

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 What does it mean to “procure?”
‣ Buildings are designed and constructed to suit each client’s
individual needs

‣ This is a complex process that requires careful planning

and co-ordination

‣ Any object – including buildings – is said to be procured if it

is difficult to obtain

‣ Procurement is the management of process complexity

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Procurement issues
‣ To procure a building, it is necessary to:
‣ understand what the client wants
‣ organise the relationships of
many specialised organisations
‣ allocate each risk to the
organisation best placed to manage it
‣ agree and document the responsibilities
of the collaborating organisations
‣ agree how problems will be solved
‣ organise the exchange of
information and money

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Construction and the client’s business
‣ Commercial clients construct buildings or facilities to develop
their business

‣ The relationship between the construction project and the

client’s business need must be understood

‣ It is critical that the construction project is aligned with their

business

‣ Many client’s don’t want to build

‣ They do so because there is no alternative

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Construction and the client’s business
‣ The client’s primary strategy directs its business
‣ Long term goals focused on organisational development
and commercial competitiveness

‣ The client’s secondary strategy directs its projects

‣ Short term goals focused on meeting immediate business
needs
‣ Developed with the aid of construction industry
professionals

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Construction and the client’s business

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Construction and the client’s business

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 The Accelerating Change Client Process

Decision
to build

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 The Accelerating Change Client Process

Secondary strategy
Primary strategy

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Procurement cycle
1. Project initiation 2. Procurement 3. Procurement tactics
strategy

a) Business need Feasibility + VM study Term of engagement/forms

of contract
b) Business case Client brief Appointing the team

c) Gate review Procurement methods The award stage

process
Work packages Notification of award,
debriefing and mandatory
standstill period

Market engagement Managing performance

Supporting processes Managing delivery

Outline business case

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Defining procurement
‣ Procurement is not purchasing

‣ Procurement is:

‣ “the framework through which construction is

brought about, acquired or obtained”

‣ “the strategy to satisfy client’s development

and/or operational needs with respect to the
provision of constructed facilities for a discrete
life cycle”

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Levels in construction procurement

Level Task/objective Function/example

National procurement
Strategic/ The way in which strategy, OGC buying
Industry works are placed in solution, aggregation of
level the market demand, etc.

Assigning Design-bid-build,
Firm/
responsibilities and design-build,
organisationa
defining construction
l level
relationships management, etc.

Project/ Procuring of Site procurement

trade/task materials, plant functions
level and labour

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Definitions
‣ Project procurement set outs ways in which works are placed in
the market , e.g. Framework agreement, aggregation of demand
by OGC.

‣ Procurement is the framework within which construction is

brought about, acquired or obtained.

‣ Procurement is an organisational system that assigns specific

responsibilities and authorities to people and organisations, and
defines the relationships between the different elements of
construction in a project.

‣ Project procurement set outs ways in which works are

placed in the market and establishes the contractual
framework that determines the nature of relationship
between the project team for the duration of their
interactions.

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Historical procurement problems
‣ Time and cost overruns in key public sector projects:

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 The Latham report & the Egan report
‣ Government-sponsored reports studied the industry’s
procurement problems

‣ In 1994 Latham recommended:

‣ Working closely with clients to understand their needs
‣ Taking care to select the right procurement route

‣ In 1998 Egan recommended:

‣ Partnering between construction organisations
‣ Partnering with client organisations

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 “Accelerating Change” programme
‣ Selected performance of “M4I” projects, as reported in 2002:

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 “Achieving Excellence in Construction”
‣ HM Treasury initiative, commenced in 1999

‣ The Office of Government Procurement (OGC) states

mandatory procurement practices for public sector clients in
a series of guides:
‣ Key guides:
‣ Guide 2. Project organisation
‣ Guide 3. Procurement lifecycle
‣ Guide 5. The integrated project team
‣ Guide 6. Procurement and contract strategies

‣ http://www.ogc.gov.uk/estates_construction.asp

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Understanding clients
‣ All clients have finite resources

‣ They must balance competing goals

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Project objectives

Identify clear objectives

A project is successful if the

Quality
building is delivered at the
right time, at the appropriate
price and quality standards,
and provides the client with a
high level of satisfaction.

Cost Time
Establish priorities

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Typical client requirements
‣ Typical concerns of basic client types:

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Typical client requirements
‣ Examples of typical client priorities:

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 I don’t know It can’t cost
what I want more than
- yet £500k

I need it now!

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Understanding clients

‣ When determining the client’s priorities:

‣Never assume
‣Always investigate every client’s
individual needs

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 The client’s responsibilities
‣ Defining policy and strategy

‣ Providing a management function

‣ Adequately and appropriately informing briefing

‣ Co-ordinating and resolving stakeholder conflict

‣ Making decisions

‣ Managing risks

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Stakeholders as clients

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Notes
‣ The Accelerating Change Client Process:
‣ Egan, J. (2002). Accelerating Change: A report by the Strategic Forum for
Construction. London: Rethinking Construction.

‣ The Latham Report:

‣ Latham, M. (1994). Constructing The Team, Final Report of the Government
/ Industry Review of Procurement and Contractual Arrangements in the UK
Construction Industry. London: HMSO.

‣ The Egan Report:

‣ Egan, J. (1998). Rethinking Construction: Report of the Construction Task
Force. London: Department of Trade and Industry.

‣ Achieving Excellence in Construction guides:

‣ Available from: www.ogc.gov.uk/

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

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D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Summary
Project priorities:
Procurement

Time:
‣ is early completion required?
‣ is phased / sectional completion required?
‣ is certainty of time or a particular deadline important?

Cost:
‣ is price competition important?
‣ do I want single point responsibility?
‣ is cost certainty or a firm price important?

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

 Summary cont’d
Procurement
Quality:
‣ is flexibility required / changing requirements / opportunity for
variations?
‣ is the development complex, specialised or technologically
advanced?
‣ is a prestige design required?
‣ are high quality materials and workmanship important?

Management:
‣ able to / want to manage several consultancies / contractors

D31PZ: Contracts and Procurement Unit 1: Introduction to Construction Procurement

Remember to read the full Unit notes and
Appendices, and complete your independent study
of this topic.