Procurement and Contract

Management

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 1. INTRODUCTION
1.1 General Description
Procurement:
procurement can be defined as the purchase of goods
and services at the best possible prices, delivery dates
and legal terms.
Procurement is a process used to select the lowest
competitive and qualified bidder for procuring
services or works or goods from potential
competitors based on reasonable relevant criteria.
That is competitive procurement which in turn
implies a contractual acquisition/procuring of
goods or services or works.
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 1.1 General Description
Why Procurement & Contract management is
to be discussed?
It ensures:
Fair competition and
Fair distributions of obligations and rights among
stakeholders
Fair competition helps
To acquire the rights the owner is entitled to
To value market principles & effective utilization of finance
to get impartial and neutral opportunity for business

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 1.1 General Description
Fair distributions of obligations and rights helps:
To allocate appropriate risks among contractual parties
To entitle remedial rights to contractual parties

In general the following things determine the construction

process involved and the relationships and roles of
stakeholders along the process.
The delivery system chosen
the procurement method adopted
the contract types decided

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 1.2 Contract and procurement management
Procurement and Contractbasics
Management involves three major
processes:
Contract Planning,
Procurement Management and,
Contract Management which in turn consists of the following

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 1.2.1 Contract Planning
Procurement and Contract Management processes shall be
based upon the approved contract planning provisions; that
is,
the contract delivery system,
the procurement method and
contract types decided upon.

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 1.2.1 Contract Planning
The approved contract provisions can only be changed
following the change process stated in the contract planning
document and if and only if:
the Environment and Context considered are not
correctly analyzed or changed,
their application can remarkably affect the objective of
the project, and
procurement management process justifies change of
the Contract Types.

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 1.2.2 Procurement Management
Procurement Management is a process of selecting
individuals or organizations to carry out the intended
services and / or works. It is based on provisions made on
contract planning phase.
It involves
the preparation of procurement documents
invitation and submission of tender proposals
Opening and Evaluation of tenders

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 Procurement Management
The following issues are necessary for a successful
Procurement Management phase:
knowing and ensuring the implementation of
procurement related National and International laws, rules
and regulations,
adherence to the provisions made during the contract
planning phase including their change processes,
establishment of a flexible procurement team, and
adhering to the principles of Proof of competition,
Impartiality, Neutrality, Accessibility and Formality.

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 1.2.3 Contract Management
Contract Management: is a process of reaching contractual
agreement for implementation, its administration and finally
concluding the contract. It based on provisions made on
contract planning phase.

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 Contract Management
The following issues are necessary for a successful Contract
Management phase:
knowing and ensuring contract related National and
International laws, rules and regulations,
adherence to the provisions made during the contract
planning phase including their change processes,
identifying, recognizing and involving all potential or key
stakeholders to form a contract team,
understanding, mapping and monitoring all contract
conditions agreed upon, and
ability to administer changes, claims and disputes.
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 2. Procurement and Contract Delivery
2.1 Types, Definition & Development

Procurement and Contract Delivery system is the way

Project Owners together with Project Regulators and
Financiers determine the assignment of responsibilities to
Project Stakeholders along the Construction Process.
A formalized contractual approach which allows an owner to
secure planning and design services and build a project,
assuring effective management throughout.
Procurement and Contract Delivery system is often
determined during the Basic Planning phase of Construction
Project.

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 2.1 Types & Development
Project Delivery method is an organizational concept which
assigns specific responsibilities and authorities to people and
organizations and which defines relationship of the various
elements in construction of a project.
Methods of project delivery system
Force Account,
Design Bid Build (DBB),
Design Build (DB) or Turnkey,
Finance / Build Operate transfer System (BOT),
Construction/Facility Management Consultancy
Alliances and Outsourcing.
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 2.1.1 Force Account
When the Project Owners engage themselves to undertake
the project, it is called a force account delivery system. This
system is promoted for
Comparative advantage of cost, quality and time
Scale of projects and technology (large, small)
Remote projects
spatially scattered and maintenance projects

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 2.1.2 Design-Bid-Build
(Two Separate Contracts for Design & Construction)

Owner

General
A/E Contractor

Responsible for Design Responsible for

15 Costs & Schedule
 Design bid build

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 Typical Design-Bid-Build Process
(The Four Phases)
NEED

Planning Design Bid Construction Occupancy

Typical
Design-Bid-Build
Process

Design Team Contractor

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 Merits of DBB
Contractors bid competitively ,based on complete design
documents to maximize the built product for the price
The owner selects the Designer on the basis of qualifications
or ability
The Designer is active in construction administration, so
design intentions are followed.
Design and construction roles are clearly defined, and
responsibilities and liabilities clear.
Owner is an active participant in design process.

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 Demerits of DBB
Fragmented contract for the project owner
Severe Adversarial relations between the contracting parties,
rather than foster a cooperative atmosphere
Non - Impartiality of the Design and Contract Administration
services
Project owner responsibility for risks associated with the
design and contract administration
Design-Bid-Build construction phases are sequential and may
require more time
No built-in incentives for contractors to provide enhanced
performance (cost, time, quality, or combination thereof)
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 Demerits of DBB
Owner is at risk for final construction cost. Actual
construction costs are not known until design and bidding are
complete.
The inability of design and contract administration consultants
to cope up with new construction technologies and
constructability issues of their designs.
The indirect contractual obligation assigned for the Design and
Contract Administration consultants.
Often prone to adversarial positions that lead to disputes and
claims

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 2.1.3 Design Build/Turnkey
DB approach
Enhance the Force Account System
Reducing fragmentation, adversarial relations and Project
Owners risk
Employ only one procurement process
Single contractor to provide the entire Construction Process
(Design and Construction Implementations)

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 Design-Build (Turnkey)
Owner

Design-Build
Firm

Designers and Consultants Subcontractors and Suppliers

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 Design-Build

OWNER

DESIGN-BUILD
FIRM

design
subcontractors construction
design subcontractors
subconsultants
23 suppliers
 Typical Design/Build Process
(The Four Phases)

NEED

Typical Planning
Design/Bu Design
ild Process Construction
Design/Build
Team Occupancy

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 Design Build/Turnkey
A design-build contract may also include responsibilities that
extend beyond the design and construction phases of a
project, shifting more performance risk to the private sector.
These have include
Design-Build-Warranty
Design-Build-Maintain
Design-Build-Operate

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 Advantage of DB
reducing fragmentation and adversarial relations between
designers and constructors;
minimizing Project owners risk transferable due to Designers
faults;
accountability and entire responsibility for both design and
construction is onto a single contractor;
employers responsibility to co-ordinate is avoided;
single point responsibility minimizes the opportunity to claims
the client budget or financial requirement is defined early enough
Earlier schedule and cost certainty

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 Advantage of DB
Accelerated project delivery by:
Fast-tracking design and construction
Close coordination between designer and contractor
Early contractor involvement to enhance constructability
of plans
Innovation and quality improvements through:
Alternative designs and construction methods suited to the
contractors capabilities
Flexibility in the selection of design, materials, and
construction methods

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 Disadvantage of DB
The disadvantage of this delivery system is
loss of control,
cost of tender and
cost of risks.
Accelerated construction can potentially overextend the
workforce.
Traditional funding may not support fast-tracking
construction or may require accelerated cash flow.

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 2.1.4 Build Operate Transfer
Build - Operate Transfer(BOT) is a form of procurement
and contract delivery system that promotes Public Private
Partnership (PPP) in which a private company is contracted
to finance, design, construct, and operate for a certain period
(usually 10 years) and transfer.
the project owner is not responsible for any liability other
than force majeure and agreed upon claim adjustments.
The Operation period between completion and transfer gives
the contractor an opportunity to verify the quality of the
output of the services and works
BOT project involves a potentially complex contractual
structure
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 BOT Contractual Structure

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 Advantages of BOT
This delivery system is advantageous because of
It minimizes owners scarcity of financial resources;
It devoid of considerable risks from the project owners
the facility is well operated and transferred with free of
charge or minimum compensations to project owners.
Integrates the process of design, construction, operation,
and maintenance.
Projects completed faster

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 Disadvantage of BOT
Disadvantages of BOT are:
Cost more in the long run
Longer tendering process
Costly tendering
Future political change may disrupt prior agreement
No capable local contractors
Contractors not interested in all works

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 2.1.5 Construction/Facility
Management Consultancy
response to problems associated with DB and BOT
Construction management consultancy firm is used to
coordinate all activities from concept inception through
acceptance of the facility.
Facility management consultancy adds operation of facility
during operation to Construction Management
Consultancy.

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 OWNER

ARCHITECT
LIMITED
CONSTRUCTION
ADMINISTRATION

DESIGN
DATA DETAILED
CONSTRUCTION
COORDINATION

FEASIBILITY
+COST DATA

Architects
design GENERAL
consultants CMa CONTRACTOR

subcontractors

Construction Management: materials suppliers

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Agency Form
 Construction Management consultancy
CM is involved in the whole construction processes where as
all the others involve only during the implementation phase
after major decisions was made during the Basic planning phase
Construction Management Consultants then represents Project
Owners to carry out the following services:
Feasibility studies of Construction related services
Plan and Monitor the Triple Constraints of Project
Performances
Lead and Organize regulatory systems of the Construction
Industry
Valuation, Quantity Surveying and Procurement and
Contract Management Services
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 Construction Management
Construction management is a broad term covering a variety of
project delivery scenarios in which a construction manager
becomes an integral part of the team, at early stages in the
project, to oversee such elements as schedule, cost, and
construction methodologies and procurement strategies
The general Construction Management variations are
Construction Management-at-Fee (CM at-Fee) and
Construction Management-at-Risk (CM-at-Risk),

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 CM at-Fee
CM-at-fee is a delivery method similar to the DBB
In CM-at-fee method,
the construction manager is responsible for project and site
management,
but is not involved in actual construction work.
The construction manager monitors cost, time, quality and
safety,
but does not take responsibility for them.
The construction manager is paid a fixed or time based for
services provided
The construction management organization takes an advisory
role or role of an agent to the client
The CM has limited risk because construction contracts are
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between the owner and individual contractors.
 Construction Management-at-Fee
(CM at-Fee)

Owner

Agency
CM

A/E
GC

Designers and Consultants

Subcontractors and Suppliers

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 Advantages of CM at-Fee
Advantages of CM at-Fee:
Managing and administering all phases of a project.
Treats Planning, Construction and Design, as an Integral
Task.
Cost and Schedule Control
Constructability input at design stage

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 Disadvantages of CM at-Fee
Disadvantages of CM at-Fee
No contractual relationships with trade contractors
No contractual responsibility for outcomes of a project
Client retains the risks
Additional cost for the Construction Manager

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 CM at-Risk
In CM-at-risk, the construction manager, apart from providing
constructability inputs at the design stage, is also responsible for
construction means and methods and delivery of the completed
work, including quality and performance of the asset
All procurement in the project is done by the construction
manager,
owner contracts with the designer and the construction
manager-at-risk,
construction manager-at-risk contracts with the subcontractors.
But, still, the client retains the final decision in project delivery

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 Advantages of CM at-Risk
Advantages of CM at-Risk
Good for clients with insufficient staff
Owner flexibility
Responsible for cost and time overruns
Holds and manages trade contractors
Constructability design review
Legal position as a General Contractor
Works closely as a teaming effort and encouraging
trust and partnering
Phased construction (fast tracking) possible

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 Disadvantages of CM at-Risk
Disadvantages of CM at-Risk:
Lack of capable construction managers
Demanding work organization
Lack of cost certainty for each work packages
Lack of contractors who can provide both construction
management and construction services
Fragmentation, as compared to DB& BOT
No exactly defined work packages (bill quantities)

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 2.1.6 Partnering, Alliances
which focuses most on management of relationships and value
adding to ensure quicker, cheaper and quality services and
products with less disputes are recent developments.
This is a method where an owner/developer and a contractor
agree to work together by freely sharing resources, risks and
knowledge during the course of the project
These systems require to overcome cultural and behavioral
barriers among interest groups and control motivated
performance based management

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 Partnering, Alliances
This type of project procurement can be distinguished from
others by
collective performance of obligations by the
owner/developer and contractor,
decision-making by consensus,
commitment to resolve disputes without resort to
litigation

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 Partnering, Alliances
The advantages of partnering are
increased opportunities for cost saving by continual
improvement,
lack of an adversarial atmosphere,
cultivation of good public relations and increased prospects
of repeat business,
incentives for innovations and improved cost, time and
quality outcomes.

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 Partnering, Alliances
However, partnering is not an easy solution. It requires
commitment, discipline and trust and can demand significant
adjustments in the relative, traditional positions of an
owner/developer and a contractor.

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 Choice of Project Delivery
Methods: Some Considerations
Choice of project delivery methods can be pictured in a
different context, which displays the project delivery methods
viewed by means of two criteria. This is based on whether the
project delivery methods are based on:
approach (segmented or integrated), and
Source of finance (direct or indirect funding)
If the goal is to seek traditional or segmented delivery
methods, then the client would consider the following
delivery methods.
Design-Bid-Build (DBB)
Construction Management (CM) at fee.
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 Some Considerations
If the goal is to seek integrated delivery methods, then the
client would consider the following delivery methods.
Design-Build (DB)
Construction Management (CM at-Risk)
Design-Build-Operate-Transfer (BOT)
And if the intention is to seek direct project funding, the owner
may consider the following options:
Design-Bid-Build (DBB)
D-B (Design-Build)
Construction Management (CM) at fee and at risk.

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 Some Considerations:
If the goal is to seek external financing (indirect funding), then
the client would consider the build-operate-transfer (BOT ).
Note: It is worth mentioning that the above division is
based on the normal procedure or the usual practice. It may
vary as agreed up on.

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