10_Contract Procurement Methods

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Contract Procurement Methods


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Traditional

This method usually uses the standard form ofcontract by the Joint Contracts Tribunal (JCT) or asimilar

The contract requires the contractor to carry out theconstruction according to the drawings andspecification drawn up by the design team

All work is supervised on behalf of the client by the

design team leader, which is normally the architector on civil engineering projects, the Consultant CivilEngineer.


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Fixed Price Contract

A Fixed Price Contract involves the contractoragreeing to construct the building as specified in thedrawings and Bills of Quantities (B of Q) for the client

for an agreed sum, by an agreed date. Although it is called a fixed price contract it does

allow for the contractor to claim additional costs forany variations to the specification.

Allowance can also be claimed by the contractor foran extension of time if there is a delay which isbeyond his control.


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When constructing new buildings it is possible

to assess the cost of the work to be done, in

which case a fixed price can be the basis for

the contract.

A fixed price can, however, be on the whole

contract, a section of work or can apply to a

unit rate. The price is fixed although the

amount of work is not known.


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Fluctuating Price Contract

Used if the contract is due to last more than

12 months has provision to be made for the

results of inflation.


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Reimbursement Contract

In refurbishment contracts it is more difficult

to assess the cost of work to be done, in

which case a Cost Reimbursement contract

can be used which reimburses the contractor

for the amount that it costs him to carry out

the work, plus a fee to cover overheads and

profit.


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Payment of the Contractor

The contractor is paid according to the value of thework done which is assessed each month by theQuantity Surveyor,

It is normal to withhold 3%, which goes into theretention fund. The moneys due to the contractormust be paid within 14 days.

If the JCT Contract is used, half of the retention fundis paid to the contractor on practical completion and

the balance is paid on the architect's final certificate.Alternatively, the whole of the retention money ispaid on the final certificate.


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Advantages

All parties have a clear picture as to the extent

of their commitments.

It gives a clear breakdown of the cost of allaspects of the project.

The unit rates allow ease of valuation for the

stage payments of work carried out and for

any variation to the original design.


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Disadvantages

Length of time taken in the design and

preparation of the Bill of Quantities

Cost of preparation for the Bill of Quantities(approximately 3.5% of the contract sum).


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Design And Build

Contractor who is responsible for the design,

specification and the construction

The contract may be on a fixed price or costreimbursement basis, which may be either

negotiated, or subject to tender.


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Uses

Normally used for standard type buildings i.e.

industrial units.

Useful for repetitive types of buildings, whichthe contractor has constructed previously

Past experience and familiarity of the design

and construction should result in cost savings

for the client.

Design And Build


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Novated Design' or Develop and

Construct'

A variation is for a design team to be

appointed to produce concept drawings for

the project prior to going out to tender.

Design And Build


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Advantages

The developer is only dealing with one

organisation that has sole responsibility for

the success or failure of the design and

construction.

It allows the developer to be aware of the

total amount of financial commitment prior to

the commencement of construction.

Design And Build


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Management Contracting

design team to specify the building requirements

specialist subcontractors are supervised and co-ordinated bythe management contractor to carry out the construction.

The management contractor receives a fee, which may be a

set fee or a percentage of the contract cost. The management contractor will be responsible for providing

site accommodation for which he will be reimbursed either atcost or as a laid down lump sum in the tender document.

Generally used on complex projects that require a short

contract period, though which must have flexibility formodifications during construction.


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Subcontractors

Subcontractors enter into a standard JCT type ofcontract with the management contractor carry outconstruction work.

It is the management contractor who has acontractual relationship with the subcontractors whocarry out the work, not the client.

If any problems arise it is the managementcontractor who must pursue the subcontractor for a

remedy. Subcontractors are normally appointed by

competitive tendering based on the drawings andbills of quantities.


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Advantages

To the contractor: very few risks as they are guaranteed a return of costs

and they do not have the problems associated with theemployment of labour.

important that the project manager and quantity surveyorcontrol costs, for the management contractor has noincentive to control costs within the cost budget, althoughincentives can be introduced.

Any costs that exceed the budget are borne by the client.

To the developer work can begin as soon as the first few work packages are

produced, thus allowing design and construction tooverlap.


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Construction Management

Construction management is similar in most respectsto management contracting except that whereaswith management contracting the contract isbetween the client and the contractor (the

subcontractors are engaged through the maincontractor) in construction management thecontracts for the work packages are with the client.

The construction manager is employed to managethe construction work. This system tends to be usedonly on large, specialist technical projects such aspower stations.


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Project Management

"the overall planning, control and co-

ordination of a project from inception to

completion aimed at meeting a client's

requirements and ensuring completion on

time, within cost and to required quality

standards".


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Project management can be used on

projects of any size, though it is normally

used on larger developments. Becoming increasingly popular and is

reducing the architect's influence within

the construction industry.


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Project Manager

May be an organisation or an individual.

Guides the client in the selection of a suitableprocurement system, appoint all members of

the construction team and control andorganise the project.

Appointed on a fee basis, which is notdependent on the cost of the contract. This

tends to ensure that the project managerworks solely for the client's interest, as heearns no commission.


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Partnering

The creation of a special relationship betweencontracting parties in the design/constructionindustry.

This relationship encourages the parties tochange their traditional adversarialrelationships to a more co-operative, teambased approach, which promotes theachievement of mutually beneficial goals,including the prevention of major disputes.


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Features

Commitment from top management

Continual improvement

Time for benefits to emerge

Based on equality of all partners

Interest in mutual profitability

Free and open exchange of information

Keeps project teams together

Well thought out incentive schemes

Problem Resolution

Mutual Objectives


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Consideration

All parties seek a win-win solution

Value is placed on long-term relationships

Trust and openness are encouraged

An environment for long-term profitability exists All are encouraged to openly address any problems

All understand the no one benefits form exploitingthe other

Innovation is encouraged

Each partner is aware of the others needs, concerns,objectives and is interested in helping their partnerto achieve this

Overall performance is improved.


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Objectives

Improved efficiency

Reduction in costs

Guaranteed profits

Reliable product quality

Speedier construction

More reliable completion time

Continuity of workload

Shared risk

Reliable flow of design information

Lower legal costs


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Potential Benefits

Reduced exposure to litigation

Better productivity

Lower risk of overrun in time and cost

Better quality

Lower costs

Greater potential for profit

Better decision and problem solving systems


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Cost Implications

Reduction in:

Project cost - approx 5%

Client cost approx 6%

Profits increase by between 4% and 9%


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Potential Problems

Lowest bid mentality

Complacency

Intellectual Property Corruption

The wrong people used

Loss of opportunity


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Private Finance Initiative (PFI)

An arrangement where public sector assets

and services are acquired through private

sector funding which reduces

government/public sector borrowing.

Used for roads, bridges, schools, hospitals,

prisons normally over 20 million value


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Procedure

Public sector sponsor establishes abusiness case strategy

Project advertised in the Official Journal

of European Union (OJEU)

Bidders short listed (Normally aconsortium set up specifically for the

project which forms a Special PurposeCompany (SPC)

Contract awarded and notified in OJEC


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Finance

SPC provides 10% of finance remainder from

banks

Finance is recouped of 25-30 years from tollsor service charge


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Advantages

Potential for high returns

Continuity of work

Involvement in design Buildability input

More control over programme


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Disadvantages

Very high bidding costs

Competitive market

Long bidding process

High level of resources required

Complex and demanding

Tough contract terms

High level of liquidated and ascertaineddamages

Fixed price for contractor

10_Contract Procurement Methods

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