Here, we look at four major methods in more detail :
a. The traditional method:
This method is the most popular procurement method in construction. The client appoints a team of consultants to brief the project, prepare the design, detail drawings and the complete tender documents. Lately, interested contractor of the lowest bid enters into direct contract with the client to execute the works. The main contractor is responsible for specialized sub-contractors.
- Advantages of this procurement:
- Project cost exactly known before the commencement of the construction.
- Time is predictable upon signing the construction contract.
- Suitable for prestige and complex project where certainty of high quality is demanded.
- The architect has freedom to conceive and develop the design.
- Suitable for all clients.
- Disadvantages of this procurement:
- It is not suitable for fast track project as it is time consuming method.
- The client liable for the project design.
- Limitation of design buildability.
- Contractor will look for loophole in the contract to bolster profit.
b. Design and build method:
The client appoints a main contractor. The contractor will be responsible for the design and the construction of the buildings. The client or his adviser has to prepare an initial drawings and a clear brief of the requirements to enable tenderers offering the best value bids.
- Advantages of this procurement:
- Single point responsibility.
- Cost certainty.
- Time certainty.
- Fast track due to overlapping between design and construction stages.
- All risk allocated to the contractor.
- It is suitable for all clients.
- Disadvantages of this procurement:
- It is not suitable for prestige project due to poor quality expected.
- It is not suitable for complex project.
- Uncertainty to achieve client requirements if the brief is ambiguous.
- The client has little right to alter his requirements during the construction stage.
- Low level of technical and managerial competence.
c. Management Contracting method:
The client appoints designer to brief the project. As soon as preliminary drawings are ready, the management contractors are invited to bid the project. The management contractor is appointed at the design stage on fees basis. Whenever the detail drawings are prepared, the management contractor lets works to specialized sub-contractors competitively. The management contractor does not perform any type of works himself.
- Advantages of this procurement:
- Fast track due to overlapping between design and construction stages.
- Suitable for complex and prestige projects.
- Improve design buildability and material availability.
- Flexibility for alteration the client’s requirements at construction stage.
- Integrity of the designer and the contractor.
- Disadvantages of this procurement:
- Not suitable for inexperienced client.
- Cost uncertainty. But, the contractor can be requested to state his Great Maximum Price when reasonable drawings are ready.
- Time uncertainty. But experience in other projects proofs that the lapping between design and construction stages will minimize the overall construction period.
- Risks are shared between the client and the contractor.
d. Construction management method:
This method concept is similar to management contracting. Main exception is that the client will have direct contact with specialized sub-contractors and suppliers.
- Advantages of this procurement:
- Fast track due to overlapping between design and construction stages.
- Suitable for complex and prestige projects.
- Improve design buildability.
- Integrity of the designer and the contractor.
- Disadvantages of this procurement:
- Not suitable for inexperienced client.
- Cost uncertainty.
- Time uncertainty.
- The whole risks allocated to the client.
- Less flexibility to the varied work.
- Non availability of contract format.
5. System procurement selection:
Based on our understanding to your needs and project objectives, we set the main criteria for providing Heriot Developments a guidance to assess the select of procurement route.
The main criteria established are:
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The prime concern for Heriot developments is the time. Because as early the project completed as they can start generate income from the project.
- Quality is the other prime concern, as they need a prestigious and high quality project.
- The complexity of the project will be taken in consideration as the development works involve many disciplines (building new facility, renovation, modifying the existing building and landscape work).
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Some alterations by Heriot Developments are expected at the construction stage to meet any new ideas or needs.
- Nevertheless the consortium is ready to meet the required financial cost; they want to keep the cost within the budget and not run out of control.
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Transferring most of the risk to contractor is another criteria because Heriot Development do not have the necessary skills to successfully manage the design and construction and they have limited awareness of the various reviews of the problems of the construction industry.
The weighing of the project objectives are established in following table:
After comparing all the procurement methods and based on the evaluation of the main project criteria, we recommend adopting contracting management with guarantee maximum price method as it meets your overall needs and the project objective. This method is a fast truck with less time due to lapping the design and construction stages, quality is guaranteed because the work will be supervised by the management contractor and the design team, the possibility of altering the design is available with less cost implication, has the ability to deal with complex project, transfer most of the risks to the contactor and the final cost can be guaranteed.
Notwithstanding, Heriot Developments are advised to increase the project budget by 5% to meet any unexpected contingencies.
The proposed project organization is shown in the following figure
6. Eliminating risks:
To eliminate the effectiveness of risks and to ensure obtaining the project as per established requirements, Heriot’s Developments are advised to consider the following measures throughout the selected procurement route:
- Giving a clear briefing description of the project stating all objectives.
- Selection of design team should be based on his ability to prepare the drawings, give the appropriate details for works, prepare prototype to give the most actual vision of the project to ease selection of finishing materials and colour scheme, his capability to cope with the local authorities requirements and obtaining the building permits.
- Engaging the managing contactor as soon as possible and when the initial design drawings and specifications are ready.
- Selecting a list of managing contractors who have performed similar project to bid the project.
- Final selection of managing contractor should be based on his experience and a previous record of success in performing similar project and his price.
- Proper selection of sub-contractors and specialized suppliers taking in account the same measures for management contractor selection.
- Specifying the obligations of management contractor.
- Defining the roles of all parties (Heriot’s Developments, Design team and management contractor) and in various stages (design, pre-construction and construction period).
- Prepare the program of works, which should include the engagement date of different trade/works contractors, cash flow chart, ..etc.
- Encourage the managing contractor to apply value engineering by sharing the profit.
- Phasing the project as it involves in different types of works (new construction, landscaping, refurbishments).
- Constructing good project teamwork with ability to share data and experience in all stages of works.
- Specifying site facilities and services to avoid lavish site establishment, plant and other preliminaries.
7. Partnering:
Partnering is a modern management approach. It is used by two or more organizations to improve performance by maximizing the effectiveness of all organizations resources.
The main elements of partnering are:
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Commitment: where all companies have to understand each other and their goals.
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Trust: because companies are sharing information and accepting a diminished control of part of its operations. Open book costing is a common feature of payment formulas under partnering agreements.
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Mutual advantage: as all companies expect that the partnering relationship have to offer them more advantages and opportunities than are available in conventional commercial relationships.
The key principles of partnering as described by Jones & Saad (2003 p.203&p.208) are:
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Agreeing mutual objective to take into account the interests of all the firms involves.
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Improving communication and making decisions openly and resolving problems in away that was jointly agreed at the start of the project.
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Aiming at targets that provided measurable improvements in performance from previous projects.
The partnering relationships have provided the participant with:
- Great focus on the client and end user.
- Improve flexibility to meet the changing needs of clients and end users.
- Faster project start-ups.
- Better design, greater functionality and added value.
- Improve quality.
- The reduction for defects at handover and during the design and construction process.
- More stable workloads.
- More predictable and higher margin.
- Lower accident rates.
- More innovation.
The two main partnering frameworks are strategic partnering and project partnering
Strategic partnering: which intend to provide a long-term relationship with suppliers & sub-contractors. Strategic partnering can be made for the works need periodic maintenance like air-conditioning, heating system and lift. Heriot Developments can go for a long time maintenance agreement with those suppliers. Such agreement will ensure that suppliers will supply the right materials with proper installation to reduce the maintenance cost. The advantage considered by the suppliers/sub-contractors is as they are closed to HD this may guarantee any future development or project.
Project partnering: is a short-term relationship, which will last for one single project. As the project is a prestige and complex project so altering the design at construction stage is widely expected, implementing partnering with contractor will enable HD to make such changes with less cost as all parties agree for open book cost. Also, Project partnering can be adopted with material suppliers like Ceramic, granite and light fitting because one main factory for project delay is the delay in supplying those materials. Partnering with those suppliers at early stage will give them the time to prepare a special design for the project and ensure delivering the materials to site before enough time of fixing schedule. The suppliers will gain a good reputation for supplying the material to a prestige project with better quality and on time. Also, project partnering can be adopted with some sub-contractor.
Our experiments proof that implementing partnering arrangement in construction project will reduce the overall cost by 5 to 10 %. Also, implementing partnering in some project decrease the construction time by 35%.
Because the project is a complex and prestige development and based on the recommended procurement rout (fast track), Richard Arton highly recommend Heriot Developments to adopt the partnering strategy to benefit from:
Reduce the changes cost.
Improve the project performance.
Decrease the conflicts and speed solution of disputes.
Reduce the total project cost.
Reduce the construction time.
Partnering arrangement:
Partnering arrangement preferably should be adopted at early stage. To obtain maximum success from implementing partnering strategy all parties should be informed about your intention to adopt a partnering approach at early stage and partnering should be their strategy. Potential partners will still be selected using normal tendering procedures, so competition is not compromised.
Partnering charter
Partnering charters supplement the contract. The partnering charter is signed by all individuals in the partnering arrangement. It should contain an express provision making it clear that the charter is not intended to be legally enforceable.
8. Contractual arrangement:
Heriot developments will be engaged in two separate contracts: the design firm and the management contractor. Both contracts are based on fees, as they are not performing any construction works themselves. Meanwhile, the works contractor and suppliers will have their sub-contracts directly with management contractor directly. You are advised not to nominate any sub-contractor or supplier as this will increase the risks assigned to you.
The following figure shows the contractual relationships.
At early stage, you have to sign a consultancy agreement, which consists of the letter of engagement and the conditions of engagement. The conditions of engagement will include, but not limit to, consultant services in different stages, preliminary, design, bidding and construction, agreed fees and method of payments, dispute, applicable laws and breaching and termination of the contract.
Later on, you have to sign a contract with the management contractor, advised JCT Management Contract 1998 Edition. The contract usually covers the pre-construction and construction stages. The contract will consist of letter of acceptance/award, form of agreement, conditions of contract, any amendments, instruction and clarification issued within bidding stage, drawings, bill of quantities and general and particular specifications. The conditions of contract will be in two parts. Part-I is a general conditions and will include, but not limit to, definitions and interpretation, general obligations, architect’s instruction, work, materials and goods, royalty, variations, contract sum (after setting the VAT agreement), defects liability, assignment and subcontracting, required insurance, certifications and payments, essential dates, extension of time, fluctuations, settlement of disputes-adjudication-arbitration-legal proceeding, performance, suspension, remedies and schedules. On the other hand, part-II is setting the conditions of particular application, as clarifications, modifications and exceptions to some clauses.
9. References:
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Fédération International des Ingénieure Conseils (FIDIC) Condition Of Contract For Works Of Civil Engineering Construction Fourth Edition 1987
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Jack W.E. Masterman (First Published 2002), Second Edition, An Introduction to Building Procurement System, Spon Press, ISBN 0-415-24641-5(hbk)
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Jimmie Hinze (Second Edition), Construction Contracts, McGraw-Hill
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Martyn Jones & Mohammed Saad (2003), Managing Innovation in Construction, Thomas Telford, ISBN 07277-3002-9
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Murdoch & Hughes (2000), Third Edition, Construction Contracts, Spon Press, ISBN 0-419-26170-2(hbk)
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Office of Government Commerce, Achieving Excellence in Construction, The Integrated Project Team, CP0062/01/07
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Richard Fellows and Peter Fenn (2001), JCT standard Form Of Building Contract 1998 Edition, A Commentary for Students and Practitioners, Palgrave.
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Scottish Executive (2005), Construction Procurement Manual
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Sir John Edgan Report (1998), Rethinking Construction, Department of Trade and Industry
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Sir Michael Latham Report (July 1994), Constructing the team, DDP Service, ISBN 011752994X
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The National Audit Office, Modernising Construction, (11th January 2001)
Web sites:
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Constructing excellence – procurement (accessed 10-06-2007) http://www.constructingexcellence.org.uk/pdf/fact_sheet/procurement.pdf
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Construction Management Association of America (accessed 16-06-2007) http://www.cmaanet.org/best_deliver_method.php
- Economic Regulation Authority of Western Australia - Conditions of Engagement for Consultants to The Economic Regulation Authority (accessed 16-06-2007) http://www.era.wa.gov.au/cproot/4932/20385/Conditions%20of%20Engagement%20for%20Consultants%20to%20the%20ERA%20-%20Apr%2004.pdf
- Nebraska Department of Aeronautics, Sample Consultant Agreement For FAA Projects (accessed 16-06-2007)
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The Associated General Contractors Of America (accessed 16-06-2007)
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US, Environmental Protection Agency, Office of Emergency and remedial Response (accessed 16-06-2007) http://www.epa.gov/superfund/whatissf/sfproces/rdrapdfs/expediting.pdf
