AINOBUSHOBOROZI ANTONY KYAMBOGO UNIVERSITY BACHELOR OF SCIENCE IN BUILDING ECONOMICS (YEAR THREE) 0702872330 nyinetinka@gmail.

com
QUESTION

Does a procurement route determine the type of contract to be used?

DEFINING KEY WORDS PROCUREMENT Procurement is the process of establishing the most appropriate method of managing the construction project and selecting the best team to design, deliver and sometimes operate the required facility. Procurement route: The term 'procurement route' is used to describe the often complex network of relationships which are formed between clients, consultants and construction companies, to enable a building project to be realized. It is important to distinguish the contractual relationships from managerial links, and in complex modern procurement systems this is sometimes far from easy. CONTRACT From a Legal Point of View, a contract is a mutual agreement between two or more parties that something shall be done, an agreement enforceable at law.

According to FIDIC, a contract means the General Conditions, the Supplementary Conditions, the Specifications, the Drawings, the Bill of Quantities, the Tender, the Letter of Acceptance, the Contract Agreement, and such further documents as may be expressly incorporated in the Letter of Acceptance or Contract Agreement.

SOLUTION From my personal perspective, the procurement route determines the type of contract to use but to some extent. This means that the decision of the procurement identifies the contract structure and thus the contract type but is not the only factor in perspective when determining the choice of contract type to use; as there are other factors, such as risk, cost certainty, time, type of client, and many more other factors. According to Method of Payment, the agreement of how the owner will pay the contractor for work performed such as a lump-sum or cost-plus payment. The choice of contract flows from the procurement route chosen for the project. The choice of procurement route depends on the Clients required balance of time/cost/quality and an analysis of how that can be achieved. This is in the context of the Clients other requirements, not least being his required level of involvement in the design and construction process and the extent to which he may change his mind or wish to alter the specification during construction. Those considerations promote a useful set of criteria for selection of the type of contract.

EXAMPLES OF PROCUREMENTS ROUTES WHICH SUITE DIFFERENT CONTRACT TYPES Design and Build procurement route suites the lump sum/ fixed price contract type; This is because an integrated supply team (Design and Build contractor) is appointed to design and construct the facility and is paid a combined fixed price for both the components of the project.

Traditional method suites lump sum contracts, measurement/ Unit price/ Item wise contracts and cost reimbursement contracts; this is because the traditional route is the most common and bottom line route and thus for instance for the cost reimbursement contracts such as cost plus contracts where the contractor is paid for the actual cost of labour + materials + charges for overheads and profits this to many clients seems to be simple type of contracting thus suiting the traditional method where the client (with his consultants) appoint a contractor for the construction works.

TYPES OF CONSTRUCTION CONTRACTS Two broad categories: Price Given in Advance Contracts (Priced-based Contracts) Cost Reimbursement Contracts (Cost-based Contracts)

Fixed price or lump sum contract; with this kind of contract the contractor agrees to do the construction and completion of the building at a designated time for a fixed price or lump sum.

Unit rate contract; this kind of contract is based on estimated quantities of items included in the project and unit prices which have been agreed to. the final price of the project is dependent on the quantities of the items needed to carry out the work.

Labour contract; in this type of contract, the owner buys and supplies all the material required for the construction to the labour contractor and only uses his labour.

Cost + contract; this is a contract agreement wherein the owner agrees to pay the cost of all labor and materials plus an amount for contractor overhead and profit (usually as a percentage of the labor and material cost).

Project management contract; is a type of contract where the architect agrees to manage the contract, as defined by the scope of the agreement, for a specified duration of time for monetary consideration.

PROCUREMENT ROUTES There are various methods of procurement which can be broadly classified under the following headings:

Traditional Design and Build Two Stage Tendering Public Private Partnerships / Private Finance Initiative Management Contracting Construction Management Framework Agreements

Each method has different aspects of risk transfer and no one method can be classed as best overall. Traditional Procurement This involves the employer/owner in separate relationships with each of its consultants whose task it is to prepare the design and specification. The contractor's job is then to carry out the designed work under the direction of the architect/engineer. In this method the Contractor builds to a defined scope of works for a fixed price lump sum. Design and Build Procurement Under a design and build' contract, the contractor takes the lead role and is responsible to the employer/owner for both the design and construction of the works. The Contractor can be chosen through a tender process or through negotiation. The Client can appoint a consultant to oversee the works. An alternative is to appoint a contractor when designs have been developed in order to retain control of the important elements of design and specification. The Design Team can then transfer their contractual obligations to the contractor and complete the designs on behalf of the Contractor. This process is called Novation.

Two Stage Tender Procurement In this process, the Contractor is appointed on the basis of a first stage tender which determines the level of overhead and profit for each Contractor. The Contractor then works with the Project Team during the second stage to develop the designs and establish detailed costing for separate project work elements. This process will provide for a fixed price on a detailed design basis. The provider can then enter into a contract on this fixed price basis and also pursue the opportunity to novate the Design Team as with the Design and Build Procurement route as previously noted. This process requires a long second stage period in which to design and tender the different work elements and therefore a start on site would occur later than normal. Public Private Partnerships Under a Private Finance Initiative (PFI) or Public Private Partnership (PPP), a government typically grants a concession to a developer under which the developer has the obligation to build and, for a fixed period, operate the facility. The developer usually finances the development, either from one bank or a syndicate of banks and the loans are repaid from tariffs paid by the state or the users of the facility over the life of the concession. At the end of the concession period the facility is usually expected to be transferred into state ownership. Management Contracting Under this approach, the client appoints designers and a management contractor separately and pays the contractor a fee for managing the contract (construction works). A feature is the early appointment of the contractor to work alongside the design team to develop a programme for construction and contribute to the design and costing of the works. The works are let competitively by the management contractor to subcontractors and specialist in appropriate work packages. This approach often means that design and the start on site overlap, with the design and tender packages becoming available just in time to suite the construction programme.

Construction Management This is an interactive procurement concept involving the combined efforts of the client, construction manager, design consultants, and a multiple of trade/ package consultants. The Client contracts directly with all the trade/ package contractors while the construction manager, on behalf of the client, programmes and manages the entire delivery process from inception to completion. Under this route, the project is split into packages and the contractor enters into separate contracts with each works contractor. They appoint a management team and a construction manager on a fee basis, which can be obtained by competition. Framework Agreements Framework Agreements can be established with single suppliers or with a limited number of suppliers. Frameworks can allow suppliers to be brought together with the relevant expertise and experience which can result in savings to both parties where a number of projects are involved. These agreements can cover different forms of procurement including Design and Build, Traditional, etc.

REFERENCES
http://staff.fit.ac.cy/eng.ls/Skevi/ACEC438/ACEC438%20Contract%20types%20presentation.pdf http://www.publicarchitecture.co.uk/knowledge-base/publications/standard_forms%5B1%5D.pdf http://faculty.ksu.edu.sa/algahtani/GE%20404/GE404-Topic_10-contracts.pdf