Procurement refers to the sequence of calculated risks and allocation of responsibilities that align with the objectives and specifics of a specific project. The main methods of procurement include traditional design and build, management contracting, and construction management procurement. When implemented correctly, all procurement options can offer satisfactory performance within the golden triangle, emphasizing one specific objective such as time, cost, or quality that can influence priority and different levels of risk.
Traditional Procurement
Traditional procurement, as well referred to as general, involves the manual management of relevant functions, with a heavy reliance on paperwork, making calls with different people to get updates and other activities aimed at reaching the goals within the stipulated timeframe. Traditional tendering has been linked to the open tendering process, which entails competitive bidding that requires companies to advertise locally, have objective measures of evaluation, be open to all bidders qualified for the project, as well as have unbiased and coherent technical characteristics. The first advantage of the traditional method is that it allows ensuring a specific contractual completion date given that there has been a well-developed design. At the same time, uncertainties have also been eliminated before the tender stage. Such an approach can minimize the costs of tendering and ensure competitive fairness because contractors are bidding on the same basis.
In terms of disadvantages, the traditional method of procurement has a fragmented, sequential, and adversarial nature, which results in more extended construction periods, poor communication between the client and the project team, as well as issues in buildability. Because of such challenges, a tender can only be completed when there is a full design commissioned, leading to an extended program of construction. Another limitation takes place when there is input in the design or planning of the project because the majority of the design risks are incurred by the client.
Design and Build Procurement
The design and build approach to procurement implies that the main contractor is appointed to design and construct the works. In this method, the project’s contractor is responsible for the design, organization, planning, control, and construction of the works based on the requirements of employers. The advantage of design and build procurement is that the dates of completion are fixed early at the stages of design, thus allowing for reduced total project time because of overlapping the activities during scheduling. In addition, it is beneficial for the client to deal only with one company, thus considerably cutting the need to allocate time and resources to contracting designers, architects, or constructors separately.
When it comes to disadvantages, issues occur when clients need to provide a sufficient and adequate brief that would state detailed requirements for contractors’ proposals. Because early design is necessary, the client is required to establish a commitment to a concept design at the first stages to ensure clarity in implementation. This means that when changes need to be made to the project, they can be expensive and disrupting to the process, increasing the expenses and causing issues of design and quality control.
Management Contracting
Management Contracting represents a procurement route in which different kinds of work are completed by different contractors who are subjected to one management contractor. The management contractor is usually appointed by the client at the initial stages of the design process to involve their expertise in the improvement of the cost and buildability of proposals. This method of procurement enables some work contacts to get tendered earlier compared to others, even before the design of the project is completed. This allows decreasing the time necessary for completing the project, although there may be price uncertainty until all stages of design are complete.
Management contracting can play a beneficial role in complex and specialist projects comprised of a number of different packages that have to be individually appointed by the contractor based on suitability. Another advantage of the method is that it provides significant benefits to the time of completion because the design and construction processes can overlap. The high level of supervision and quality control by the management contractor ensures the high quality of outcomes. The method suits complex projects in which the design is broken down into work packages that are issued at competitive prices, hence allowing to get the best value for customers.
The disadvantage of the method is the limited certainty regarding the total cost of the project because some of the costs are estimated further into the process of construction. In addition, any matters associated with damages for delays that contractors produce are passed to the client by the management contractor, which leads to further money and time lost on negotiations. However, the early-stage costs of the project are usually higher because of the emphasis on creating a good quality brief for the design team. Notably, management contracting may be an unsuitable route of procurement for clients who have little experience in projects. When there is a lack of competent specialists to help with projects, there may also be unproductive gaps in the work that must be completed.
Construction Management
The final type of procurement is construction management, which entails a professional service that offers the client effective management of the schedule, costs, quality, safety, scope, and other aspects of the project. Importantly, this method can be applied together with other methods of project delivery. Construction management is a procurement approach that has expanded in popularity, with many developers introducing their schemes on both in-house and quasi-construction management bases. Within their schemes, developers take on the role of construction managers themselves and give project assignments to the subcontractors that they employ. The advantage of the method is that it allows saving time when overlapping design and construction alongside quality improvement.
Besides, it is possible to accommodate changes in design later without paying an excessive amount, provided that trade packages have not been issued yet. Overall, in construction management, developers tend to create virtual main contracting capability in-house to bring such benefits as improved project implementation and the genuine connection between the project objectives and construction capabilities.
When it comes to the disadvantages of the method, significant importance is placed on the client to choose a responsible and committed team of workers. The team will be responsible for delivering all necessary design information required for the procurement of a work package while also ensuring minimum delays in project implementation. Besides, the team is tasked with ensuring the correct budgeting, which makes selecting the suitable personnel challenging because not all team members can meet the high standards.
The Tendering Process
A tender refers to the submission made by a potential supplier when responding to an invitation to tender, thus creating an offer for the supply of goods and/or services. In construction, the critical process of tendering entails the selection of a contractor responsible for completing the works. However, as the routes of procurement have become more complicated, the types of tendering have also expanded. The methods of tendering include open, selective, negotiated, serial, framework, and single- and two-stage tendering.
In the open tendering, the sequence begins by allowing a large number of contractors to submit a tender to supply the products and services in which the client is interested. Such an approach gives equal opportunity to any contractor to submit their tender. In large projects, a pre-qualification process is needed to create a shortlist of suppliers, with those who get on the list invited to prepare tenders. In selective tendering, however, contractors are only allowed to submit their tenders by invitation, which is a shorter process compared to open tendering in terms of the time it takes between project initiation and getting to the construction site. To cut time, a pre-chosen list of potential suppliers is selected so that no time is wasted on approvals and additional interviews. This gives clients greater confidence in the capabilities and competencies of their contractors.
Negotiated tendering occurs when there is a pre-determined agreement with a single supplier whose expertise meets the highly specialized contract. It reduces the expenses associated with tendering and allows for the early involvement of contractors on-site, with the competitive element reduced. Compared to the two previously-mentioned methods, negotiated tendering takes less time because it entails already existing connections between the potential contractor and the client, which means that it takes less time to get to actual construction work.
Serial tendering rather works not for one project but several because it encourages suppliers to submit lower rates to secure an ongoing work program. In framework tendering, framework agreements are used for commissioning work to reduce timescales, learning curves, and other risks related to contracting. Such an arrangement allows clients to invite tenders from goods and service suppliers to be implemented when required and on a call-off basis.
The project of building a £9m one-level factory of 8,000 m2 requires the appointment of a knowledgeable and skilled contractor who may get involved in the tendering process quickly and begin work efficiently. In both open and selective tendering, the sequencing of steps is much longer because the step of choosing the contractor can last up to several months. Among the mentioned methods, the negotiated tender fits the most because it is a single-stage tender that is implemented between the client and one contractor. The client is recommended to obtain the tender and invite one contractor, who is the most skilled and professional, to complete the project.
The sequence between starting the project and getting to the worksite is the shortest in negotiated contracting because the choice of contractors is highly limited, which allows to increase the speed with which a price is obtained for proposed works. In addition, the negotiated tenders have higher chances of being accepted as satisfactory by clients because the process of selection is based on the prior successful arrangements with the contractor. Thus, to cut tendering periods and ensure the high quality of project completion, it is recommended for the factory to be built on the basis of negotiated tendering.
Tender Documents
Tender documents can be prepared for a variety of contracts, including the supply of equipment, the main construction contract, the contractor’s design, enabling works, demolitions, and other processes. In a perfect scenario, tender documents should be divided into a series of several packages, even if there is only one main contract, each with its own specifications suitable to be issued to the contractor. There are several types of contracts in construction, such as cost-plus construction, design and build, guaranteed maximum price, incentive construction, integrated project delivery, lump-sum, time and materials, and unit price contracts.
Distinguishing between the options available is important for choosing the suitable alternative for the project. Specifically, in a cost-plus contract, contractors are expected to get paid for all of the construction-related expenses. In a design-build contract scenario, the expenses associated with design and construction are addressed simultaneously, with the construction process starting before the completion of the final design. In a guaranteed maximum price (GMP) contract, there is a cap placed on the maximum amount the client will have to pay, with any additional expenses incurred beyond the cap having to be covered by the contractor, thus limiting cost-risk for customers. In incentive construction contracts, the contractor is provided with a pre-determined payment if the project is completed by a certain date and at a specific point.
In an integrated project delivery (IPD) contract, a single contract for design and construction will be used, including the shared model of risks and rewards, guaranteed costs, liability waivers between team members, any operating system considerations, and others. Importantly, such a contract is a multi-party agreement between the client, the contractor, and any other parties involved in the construction process, such as the design firm. In a lump-sum contract, the project is delivered at a pre-set price, with the contractor providing the final project price instead of bidding on deliverables. In a time and materials (T&M) contract, the customer is expected to pay a pre-determined fee that is grounded on time and materials necessary for the project, as well as the projected profit rate. Finally, a unit price contract includes specifications of prices per unit, including a range of variables ranging from materials to expected profit. The client is expected to pay for the units based on the agreed-upon rates.
Because the client attained funding from the government, it is necessary to ensure that the contract being signed aligns with the principles of transparency and accountability. This means that estimations or payments as work goes along are not appropriate. Instead, it is necessary to establish a contract that is as detailed as possible when it comes to making quotes on expenses and reporting them. From the available alternatives, the unit price contract fits this purpose the most because it allows differentiating the total work necessary to complete the project into manageable units that are easier to track, measure, and report.
The contractor is expected to provide the owner with price estimates for each work unit instead of making an estimate for the project in general. In the construction of a factory, most of the work is repetitive and highly reliant on the cost of materials. Besides, the amount of work may fluctuate once the project starts because some contracting teams tend to be more efficient and need fewer workers while others require larger teams.
The benefit of unit price contracting in the mentioned construction project is that the invoicing is simplified, which allows for the increased transparency that the customer requires due to the government funding. It is easy for the client to understand where each expense goes, and they have an idea of the final price because each unit price is pre-determined. In addition, such a strategy is helpful in avoiding arguments and disputes when the time comes to pay for the expenses.
Besides, if more work is required to be done on the project, the profit margin stays the same because the cost per unit has already been established. This makes it better not only in terms of transparency and accountability but also in terms of the improved management of change orders and other modifications to the project scope. Notably, most of the risks incurred during project implementation lie with the client because they are expected to reimburse the unexpected unit costs that are being added. Nevertheless, the high degree of transparency that they offer is a significant benefit to all parties involved in a contract.
Thus, the negotiated tender will be carried out on the basis of a unit price contract. Essential parts of the tender document should include the conditions of participation, accreditation and quality standard, specifications, conditions of contract, and conditions of the offer. The conditions of participation is a section of the document outlining the most crucial conditions that suppliers must meet in order to be considered by the client. In a negotiated tender, it is expected that the contractor will provide financial records, any relevant licenses, documents on insurance, as well as past project records as proof of eligibility for the tender.
The contractor is also expected to show that they are prepared to meet the client’s needs and requirements under the conditions of the negotiated tender. They will provide quality certifications or authority accreditations. In this section, any relevant processes and procedures will be outlined by the contractor to show that they will provide the highest quality of services.
The specifications section of the contract will provide the information about the project that the client may find relevant. Such specifications can include the services and material required, the projected time frame for project completion, as well as any associated requirements and needs associated with pricing, performance, and delivery. Such information can play a significant role in the evaluation that a client makes. The conditions of a contract -is a section of the document that will provide all necessary and relevant information concerning the rights and responsibilities of the contractor and the client. The terms and conditions of the tender that must be met are to be clearly mentioned in the document.
This section is essential because it is instrumental for ensuring quality, comprehension of the contract, as well as transparency in the process of a transaction. Finally, the document must include the section naming the condition of the offer to ensure that the contractor gives their official agreement to the established terms and conditions of the contract. Notably, the section will include an estimated project timeline as well as the location where the work will be performed.
