LECTURE 2 –

PROCUREMENT (PART 1)

By
Sr Ang Fuey Lin

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Lecture 3 - Procurement

 Introduction
 Traditional Method
 Management Contracting
 Construction Management
 Design and Build

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Introduction

What is Procurement?
Dictionary definition states that
procurement is ‘acquiring or obtaining by
care or effort’. In building circles, the
purchase of goods & services is commonly
known referred to as procurement
Clients who have made the major decision
to build will wish to procure the construction
works that they require with the most
advantageous arrangement.
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Procurement

 In construction context means ….

Obtaining the whole spectrum of
goods , materials, plants & services in
order to design, build & commission a
building that delivers the best possible
value for money for the client over its
life-cycle.
.
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Risks & Procurement

 Construction is a process that

involves various amounts of RISK &
various procurement strategies &
forms of contract have different
mechanisms for the allocation of
risk.

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Client Procurement needs

An uncertain event or a set of

circumstances, that could, should it occur,
have an effect on the achievement of the
project objectives.
 From a client’s perspective, risk can
manifest itself in the following forms:
 A) COST risk

 B) TIME risk

 C) QUALITY risk

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Procurement

 From a procurement perspective, the

questions that should be addressed are:
 What are the risks?
 What will the impact be?
 What is the likehood of the risks
occurring ?
 Who will be responsible for the
management of risk ? ( most impt)

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Procurement

 The QS when determining the

appropriate procurement strategy
will ask the client …..

Which of the drivers is important ?

Time or cost or quality ?

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Traditional Procurement Method

 Employer appoints a team of consultants

to complete the design for the works prior
to calling for tender.

 Upon completion of design, the works are

let out to tender and the contractor is
thereafter appointed to carry out the
Works in accordance with the
Consultant’s design.

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Prime Cost Sum

 PC Sum is defined as a sum provided for

work or services to be executed by a
nominated sub-contractor, a Govt or
statutory authority OR for materials &
goods to be obtained from a nominated
supplier.
 Such sum shall be deemed to be
exclusive of any profit and/or attendance
to be provided by the main contractor
and provision shall be made for the
addition thereof where applicable. 10
Traditional Procurement Method

Developer Consultants

Contractor

Domestic Nominated
Sub-Contractors Sub-Contractors

Contractual Relationship
Coordination

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Traditional Procurement Method

ADVANTAGES
 Certainty of construction cost (except works
under P.C. and provisional Sum) as the
tender will be based on completed design.
( high level of price certainty for the client)

 Will normally be comparatively cheaper as

the risk to the tenderer is lower due to
design completion. ( low tender price,
relatively low tender preparation costs,
subject to the status of the tender
documents, high tender quality)

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.
Traditional Procurement Method

Advantages cont’d

 Easier budgetary control with

minima variation ( accommodates
design changes and aids the cost of
management process)

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Traditional Procurement Method
DISADVANTAGES
 Design process has to be completed before
calling of tender and award. This will take a
longer time frame. ( a relatively lengthy time
from inception to start on site)
 Full design with minima variation in actual
practice cannot be achieved due to the
short time frame set by developer and lack
of resources in some consultant firm.
(problems relating to design error, the risk
relating to the design lies with the client. Post
contract design changes are frequently
abundant & resultant delays & disputes are
common )
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 Lack of single point responsibility
and control for development. There
are many parties involved in the
consultant teams as well as in the
contractor team, each with different
and vested interest. (lack of
involvement of the contractor in the
design process)

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Management Contracting
 A Management Contract is an agreement
between an Employer and a Building Contractor
under which the Building Contractor is engage to
plan, co-ordinate, organize, supervise and
generally to manage the construction activities of
the Project.

 Management Contractor (M.C.) is appointed at an

early stage before the full design is completed.
The appointment of Contractor is through bidding
where the Contractor will quote percentage
Management Fees or Lump Sum Fixed Fees.

 After the M.C. is appointed, the M.C. will work

with the Consultant Team engaged by the
Employer and advise on the ‘buildability’ of the
design and also help to identify the Sub-Contract
packages and draw up construction programme. 16
Management Contracting
 All the works will be split into various work
packages which will be tendered out and the
successful work package subcontracts will enter
into direct contract with the M.C.

 M.C. acts in a management capacity only.

 M.C. is essentially a form of cost-plus contract as

the M.C. is reimbursed the actual prime cost of
the works comprising the total of the agreed
accounts for work executed by the work package
subcontractors and the M.C. PLUS the agreed
management fees.

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Management Contracting

Developer Consultants

Management
Contractor

Works Packages
Contractors

Contractual Relationship
Coordination

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Management Contracting
 As an indication of the price the Employer will pay
for the project, a contract cost plan is prepared by
the Q.S. based on a specific set of drawings and
specification and upon agreement with the M.C.,
will be treated as the estimated prime cost
whereby the M.C.’s remuneration, either based
on a fixed fees or a percentage fee of the
estimated prime cost is established.

 The total of the estimated prime cost plus M.C.’s

fee will be the Contract Sum which form the basis
of budgetary control upon which the estimated
prime cost of the work packages will be
monitored against the actual prime cost of the
work packages upon award.

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 Management Contracting
ADVANTAGES
 The M.C. can participate in the early stage of
design process and contribute its expertise on
construction methods. ( Early involvement of the
M.C. the contractor can provide substantiate input
into the practice aspects of the building
technology process )

 Consultant’s team can design work in a sequence

which enable the M.C. to commence work before
overall design is completed, thus overlapping the
design and construction and shorter overall
development time. ( Reduce project duration,
construction work can start as soon as sufficient
work has been designed)

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Advantages cont’d

 All trades of the works are tendered separately

and the Contract Sum is the aggregate of all the
best possible price obtained for each trade. The
M.C.’s fee is not an extra to the contract but is
analogous to and similar to the profit and head
office overhead element built into the tender of a
contractor for a traditional contract.
 Accommodates later design decisions, some
designs decisions relating to work which
subsequently may be at the end of the
construction phase could be differed due to
work being let in packages)
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Management Contracting
DISADVANTAGES

 Uncertainty of final cost until the last works

contract has been signed.( Commitment prior to
full design, design is incomplete at time of
commencement & therefore aspects of price,
quality & programme are uncertain when the
client decides to proceed).

 The number of variations and the amount of re-

measurement may be greater than traditional
contracts because of the greater opportunity to
make changes in design during construction
period. Thus , design must be closely managed.

 Needs a good quality brief.

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Disadvantages cont’d

 Increase in client risk, the risks relating to

additional costs arising as a result of the
faults of the contractor ( e.g. delay,
defective work, claims from other works
contractors ) lie with the client.

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 Construction Management
 Like Management Contracting, the Construction
Manager can be brought in at early stage of the
development alongside other consultants to
provide their expertise in management of the
design development and project implementation,
and advising on “buildability” aspect of the
consultants’ design. They are acting as a member
of the consultant team.

 Like Management Contracting, the Construction

Manager will not undertake the physical
construction of the works but will split the project
into works packages or supply packages and
award to the works package contractors to execute
the works. However, unlike the Management
Contracting, the contractual relationship is
between the Developer and the Works Package
Contractors.
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 Construction Management
 The Construction Manager will plan, co-ordinate,
organize, supervise and generally to manage the
construction activities of the Project. The
Construction Manager will manage the design
development programme and the tendering
programme to ensure maximum overlapping of
construction and design development can be
achieved in order to achieve shorter overall
development duration.

 The cost control mechanism is basically similar to

that of the Management Contracting and the
Construction Manager’s remuneration is either
based on a fixed fee or a percentage fee of the
estimate prime cost.

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Construction Management

Developer

Construction Consultants
Manager

Package
Contractors

Contractual Relationship
Coordination

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Construction Management
ADVANTAGES

 Close liaison between the construction manager

and design team leads to prompt identification of
and decision relating to practical solutions to
problems.

 Detailed design can continue in parallel with

construction – shorter time.

 Privity of contract between the client and works

contractors provide the client with a readier
means of redress in the event of difficulties, e.g.
delays arising and client pays directly to trade
contractors.
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Construction Management
DISADVANTAGES

 The client has more direct trades contractors to

deal with and must be able to take an active role
in the project.

 The client’s financial commitment is uncertain

until the last of the works contracts has been
signed.

 Relies on a good quality project team to take

effective control of time and information.

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Summary of Construction
Management
 Similar with Management Contracting,
however difference is that the individual
trade contractors are in direct contract
with the client.

 Because of the direct contract

arrangement, additional client
involvement is required and therefore not
recommended for those without
adequate experience & resources.
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