5/21/13

PROCUREMENT

5/21/13

Agenda
¨  Common Tendering Systems
¨  Procurement Methods

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Agenda
¨  Common Tendering Systems
¨  Procurement Methods

Common Tendering Systems

¨  Competitive / Open-bid:
¤  (Qualified) contractors are invited to bid for the
construction of a designed facility.
¤  Final bids are:
n  Lump sum: total price to complete work
n  Unit price: a set of prices per unit quantity of task
n  Used when there is a lot of uncertainty in quantity of material
and labour required.

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Common Tendering Systems

¨  Competitive / Open-bid:
¨  Negotiated Contract:

¤  Negotiationwith one or more contractors selected by

client, based on:
n  Trust, Reputation, Expertise, Etc.
= Fixed %
¤  Flexibility in Tender Price = Fixed Fee
n  Tender Price = Direct Cost + Fee =Variable Fee
n  = Target Estimate
n  = Guaranteed Maximum Price/Cost
¤  Flexibility in Start Time
n  Construction may start before design is finished.

Agenda
¨  Common Tendering Systems
¨  Procurement Methods

¤  Traditional Procurement

¤  Design-Build

¤  Management Contracting

¤  Professional Construction Management

¤  Private Finance Initiative (PFI)

¤  Prime Contracting

¤  Partnering

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Traditional Procurement

Traditional Procurement
¨  Advantages: ¨  Disadvantages:
¤  Known Lump sum cost ¤  Design, then Bid, then
¤  Best contract price Build
¤  Firm completion date ¤  Too often, delays

¤  Client retains control ¤  Too often, budget is

over design and overspent

quality. ¤  Too often, disputes

¤  Variations and contract

changes are
identifiable.

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Design-Build
¨  Also called Design-Bid-Build
Design-Build
¨  Advantages:
¤  Early higher certainty
in price
¤  Early decision on
completion date
¤  Risk transferred to
contractor
¤  Single point of contact
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¨  Disadvantages:
¤  High price (risk)
¤  Difficulty in comparing
tenders
¤  Long tender period
¤  Less control on design
¤  Potentially expensive
design changes
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Management Contracting
Management Contracting
¨  Advantages:
¤  Optimal overlap
between design and
construction
¤  Early completion date
¤  Risk transferred to
contractor
¤  Single point of contact
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¨  Disadvantages:
¤  High price (risk)
¤  High uncertainty in cost
¤  Less advantageous
cash-flow situation for
contractor -> delay in
payments of subs.
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Professional Construction Management

Professional Construction Management

¨  Advantages: ¨  Disadvantages:

¤  Optimal integration of ¤  High uncertainty in cost
design and construction
¤  High level of quality

¤  Improved buildability

(v. Management
Contracting)
¤  Less adversarial
relationship with
contractor.

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Private Finance Initiative (PFI)

Private Finance Initiative (PFI)

¨  Advantages: ¨  Disadvantages:
¤  Financingprojects that ¤  High risk for contractor
would otherwise not be -> High tender price
possible ¤  Long bidding process
¤  Design-Build-Operate ¤  Complexity
advantages (quality) ¤  Differed cost
¤  Quality risk at transfer
period

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Prime Contracting
¨  Owner has many projects continuously happening.
¨  Strategic initial selection of Prime Contractor

¨  Prime Contractor fully integrates the Client’s team

¨  Examples of clients:

¤  NHS, Department of Defence

Prime Contracting
¨  Advantages: ¨  Disadvantages:
¤  Long-term savings on ¤  High risk concentrated
contractor selection at initial selection
and procurement stage
¤  High integration ¤  No flexibility in case of
between client and problems
contractor
¤  Flexibility in
contractual
arrangements for each
project

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Partnering
¨  Not really a procurement method:
“A structured methodology for organizations to set up mutually
advantageous commercial arrangements, either for single
projects (project partnering) or in long-term strategic
relationships (strategic partnering), which help their people
work together more effectively.”
[CIB]
¨  Defines mutual objectives, non-conflictual methods
for problem resolution, continuous improvement,
shared losses and gains
¨  Example: Marks & Spencer and Bovis

¨  Controversial idea

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