VergabeformenVergabeformenBuilding Procurement – Building Procurement –
Contract strategyContract strategy
Procurement Systems – an initial Procurement Systems – an initial overviewoverview
Proper choice of delivery system can Proper choice of delivery system can help to reduce conflicts on construction help to reduce conflicts on construction projectsprojects
Judit Gyulay
05. 06. 2007
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Right Right BuildingBuilding
Right TimeRight Time Right PlaceRight Place
Successful Successful InvestmentInvestment
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Participants of a construction project have different Participants of a construction project have different interestsinterests
Claims and litigationsClaims and litigations
How to reduce conflicts/risk of construction projectsHow to reduce conflicts/risk of construction projects
One area, generate conflicts: Procurement system One area, generate conflicts: Procurement system (project delivery system)(project delivery system)
Possibilities Possibilities ConsequencesConsequences
ContentsContents
Of choice the procurement systemOf choice the procurement system
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Civil Engineer/Architect is involved the processCivil Engineer/Architect is involved the process in different phasesin different phases in different „roles”in different „roles”
IdeaIdeaAreaAreaMoneMoneyy
Investment ProcessInvestment Process
InitiationInitiation Hand-over and useHand-over and use
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Common goal of participants to perform a Common goal of participants to perform a buildingbuilding
Meeting the client’s requirements, ensuring Meeting the client’s requirements, ensuring completioncompletion
On On timetime Within Within costcost To required To required qualityquality standards standards
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
(T(The incompatibility of cost, quality and time)he incompatibility of cost, quality and time)(Kharbanda et al. 1980.)(Kharbanda et al. 1980.)
CostCost
CheapestCheapest
EconomicalEconomical
ReasonableReasonable
QualityQuality
BestBest
AdequateAdequate
TimeTime
FastestFastestIn In addition: addition: participant’participant’s individual s individual interestinterest
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Directly involvedDirectly involved client, designer, client, designer, contractorcontractor
Indirectly involvedIndirectly involved advisor, project manager, advisor, project manager, supervisorsupervisor
ExternalExternal bank, authoritybank, authority
Participants of a construction projectParticipants of a construction project
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Participants – common goalParticipants – common goal
Conflicts, claims and litigation seems to be Conflicts, claims and litigation seems to be inevitable part of construction projectsinevitable part of construction projects
Areas generate conflictsAreas generate conflicts One-sided contract (Client drafted contract)One-sided contract (Client drafted contract) Procurement system (project delivery Procurement system (project delivery
system)system) Site conditionsSite conditions Site services, etc.Site services, etc.
ButBut
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
AnalysisAnalysis
Not clear understanding peculiarities of that Not clear understanding peculiarities of that specific procurement and contracting systemspecific procurement and contracting system
Responsible partiesResponsible partiesDoes not recognise orDoes not recognise orDoes not want to acceptDoes not want to accept
Lack of identification of own interest leads to one-Lack of identification of own interest leads to one-sided contractsided contract
responsibilityresponsibility
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
The The CClientlient
Shares: Shares: activitiesactivities
responsibilitiesresponsibilities with the partnerswith the partners
risksrisks
Will choose procurement system and contract Will choose procurement system and contract formform
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Procurement:Procurement:
Total management processTotal management process used when used when obtaining a buildingobtaining a building
System of contractingSystem of contracting among among client, client, designer, and contractordesigner, and contractor
Idea Idea Hand-over and useHand-over and use
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
PlanningPlanning OrganisingOrganising LeadingLeading CommandingCommanding ControllingControlling
PP rr oo jj ee cc tt
Has to be managedHas to be managed
Who will Who will manage?manage?In which system In which system ??
To produce To produce /create/perform/create/perform
aa buildingbuildingaa bridgebridgeaa roadroad
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Typical management structure with project managerTypical management structure with project manager
ClienClientt
Project managerProject manager
Quantity surveyorQuantity surveyor EngineerEngineer ArchitectArchitect Contractor(s)Contractor(s)
Project co-ordinatorProject co-ordinator
(Roger Waterhouse)(Roger Waterhouse)
Typical management structure with project coordinatorTypical management structure with project coordinator
ClientClient
Quantity surveyorQuantity surveyor EngineerEngineer ArchitectArchitect Contractor(s)Contractor(s)
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Client’s main decisions:Client’s main decisions:
In-house project managerIn-house project manager In-house and external project management teamIn-house and external project management team External project managementExternal project management
(Help: principal adviser)(Help: principal adviser)
Organisation for the Management of the ProjectOrganisation for the Management of the Project
Organisation for Design and ConstructionOrganisation for Design and Construction
TraditionalTraditional Design and buildDesign and build
Turnkey Turnkey Package dealPackage deal
ManagementManagement
Construction Construction Management Management Management Management Contracting OthersContracting Others
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Need of change in procurement methodsNeed of change in procurement methodsTraditional Traditional Project ManagementProject Management
More More complex complex projectsprojectsLack of timeLack of time
ClientClient
DesignerDesigner
ContractorContractor
ClientClient
Project Project ManagemeManagementnt
Preparation Preparation DesignDesignTender/biddingTender/bidding
ConstructionConstruction
DesignerDesignerContractorContractor
PreparationPreparationDesignDesignTender/biddingTender/bidding
ConstructionConstruction
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Procurement/project delivery systemProcurement/project delivery system
„„Improper choice or misunderstanding generate Improper choice or misunderstanding generate conflicts”conflicts”
Traditional procurement systemTraditional procurement system Design and build, turnkey or othersDesign and build, turnkey or others Management typeManagement type
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Traditional procurement system Traditional procurement system characteristicscharacteristics
Long construction periodLong construction period Consecutive organisationConsecutive organisation Clear contracting relationsClear contracting relations
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Innovative Project delivery systemsInnovative Project delivery systems Construction managementConstruction management Management contractingManagement contracting Project or management service contract and Project or management service contract and
other variationsother variations
General characteristicsGeneral characteristics An organisation is employed to manage An organisation is employed to manage
the project the project the constructionthe construction
To coordinate the design with constructionTo coordinate the design with construction Overlapping between design and constructionOverlapping between design and construction Series of tenders: work packagesSeries of tenders: work packages
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Client needs representation/protection by neutral Client needs representation/protection by neutral expertexpert
Traditional Traditional deliverydelivery Design and buildDesign and build systemsystem Turnkey, Package dealTurnkey, Package deal
ClientClient
DesignerDesigner
ContractorContractor
ClientClient
DesignerDesigner
ContractorContractor
InspectoInspector r
SupervisSupervisor Q.S.or Q.S.
Inspector Inspector SupervisorSupervisor
SubcontractorsSubcontractors
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Design and build turnkey/package dealDesign and build turnkey/package deal
CharacteristicsCharacteristics Single point Single point
responsibilityresponsibility Can be overlappedCan be overlapped Client can be sure of Client can be sure of
maximum cost before maximum cost before final commitmentfinal commitment
Integrated design and Integrated design and constructionconstruction– Improves buildabilityImproves buildability– Fits to constructor’s Fits to constructor’s
expertise, working expertise, working condition, condition, organisationorganisation
PreparatioPreparationn
DesignDesign
TenderTender ContracContracttConstructionConstruction
CostCost
costs should be costs should be lower shorter time lower shorter time on siteon site
ThusThus
(Savings are not passed to the client in lower prices)(Savings are not passed to the client in lower prices)
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Construction Construction Management CMManagement CM
Management Management Contracting MCContracting MCClientClient
DesignerDesigner
ContractorContractorss
ClientClient
DesignerDesigner
Inspector Inspector SupervisorSupervisor
ConstructioConstructionnManageManagerr
ManagemeManagementnt
ContractorContractor
Inspector Inspector SupervisorSupervisor
ContractorContractorss
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Management contracts (CM, MC…)Management contracts (CM, MC…)
CharacteristicsCharacteristics
Management team is involved at early stageManagement team is involved at early stage Design can be influenced (buildability)Design can be influenced (buildability) Claims can be solved, delays reducedClaims can be solved, delays reduced Save time – series of tenders, work packagesSave time – series of tenders, work packages Flexibility in design Flexibility in design to suit the client to suit the client
to suit the budgetto suit the budget More risk in design – higher requirement in More risk in design – higher requirement in
designdesign No assured final cost at the start of constructionNo assured final cost at the start of construction
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
Comparison of procurement systems, Comparison of procurement systems, source of risks and conflictssource of risks and conflicts
Responsibility for decisionResponsibility for decision
Constriction is Constriction is started without started without knowing the knowing the construction costsconstruction costs
PreparationPreparation DesignDesign
TenderTender
ConstructionConstruction
CostCost
StartStart
Modern Modern managerial managerial
typed typed systemsystem
Construction is Construction is being started being started knowing the knowing the construction construction costscosts
PreparationPreparation DesignDesign
TenderTender
ConstructionConstruction
CostCost
StartStart
TraditionTraditional systemal system
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
ConsequencesConsequences
Use of non-traditional delivery system can create Use of non-traditional delivery system can create greater risk of misunderstanding Scope of work / greater risk of misunderstanding Scope of work / compensation are changing continuouslycompensation are changing continuously
Innovative project delivery systems can blur the Innovative project delivery systems can blur the traditional roles and responsibilities of traditional roles and responsibilities of participantsparticipants
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
One step towards a successful projectOne step towards a successful project
To choose appropriate procurement system and To choose appropriate procurement system and appoint the manager as early possible for appoint the manager as early possible for maximum benefitmaximum benefit
Characteristics of the delivery system have to be Characteristics of the delivery system have to be understood by the participantsunderstood by the participants
Contract has to contain reasonable allocation of Contract has to contain reasonable allocation of activities, responsibilities and riskactivities, responsibilities and risk
All the participants have to recognise responsibilities, All the participants have to recognise responsibilities, act in partnershipact in partnership
Building Procurement – Contract strategyBuilding Procurement – Contract strategy
Budapest University of Technology and EconomicsBudapest University of Technology and Economics Judit GyulayJudit Gyulay Department of Construction Technology and ManagementDepartment of Construction Technology and Management 05.06.200705.06.2007
ProcurementProcurement
Can help to reduce conflicts on constructionCan help to reduce conflicts on construction projectsprojects
Proper choice and fully Proper choice and fully understanding of delivery systemunderstanding of delivery system