Procurement and Contract

Management

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 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 or
procuring of goods or services or works.
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  "Construction" means all work associated with
the construction, reconstruction, demolition,
repair or renovation of a building, structure or
works, such as site preparation, excavation,
erection, building, installation of equipment or
materials, decoration and finishing,
as well as services incidental to construction
such as drilling, mapping, satellite
photography, seismic investigations and similar
services provided pursuant to the procurement
contract,
if the value of those services does not
3 exceed that of the construction itself;
  "Goods" means objects of every kind and
description including
raw materials, products and equipment and
objects in solid, liquid or gaseous form, and
electricity,
as well as services incidental to the supply of
the goods
 if the value of those incidental services
does not exceed that of the goods
themselves;
 "Services" means any object of procurement
other than goods or construction
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 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
5
 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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Procurement and Contract Management involves three
major processes:
• Contract Planning,
• Procurement Management and,
• Contract Management which in turn consists of the
following

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 Procurement and Contract Management
processes shall be based upon the approved
contract planning provisions; that is,
 the project delivery system,
 the procurement method and
 contract types decided upon.
With Provisions for alterations b/c to
meet regulatory requirements such as:
Ethical, Economical, Accountable , HSE
and Transparent.
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 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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 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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 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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 Contract Management: is a process of
reaching contractual agreement for
 implementation,
 its administration and
 finally concluding the contract.
It is based on provisions made on
contract planning phase.

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 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
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ability to administer changes, claims and disputes.
  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 the

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
14 Construction Project.
 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.
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 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 Responsible for

17 Design Construction (Costs &
Schedule)
 Design bid build

18
 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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  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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  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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  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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 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
25 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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 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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  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
28  Earlier schedule and cost certainty
 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 contractor’s capabilities
 Flexibility in the selection of design, materials, and
construction methods
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 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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  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
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structure
 BOT Contractual Structure

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 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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 Disadvantages of BOT are:
Cost more in the long run
Longer tendering process
Costly tendering
No capable local contractors (for our case)
Contractors not interested in all works

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  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.

35
 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
36 Contract Management Services
 OWNER

ARCHITECT
LIMITED
CONSTRUCTION
ADMINISTRATION

DESIGN
DATA DETAILED
CONSTRUCTION
COORDINATION

FEASIBILITY
+COST DATA

Architect’s
design GENERAL
consultants CMa CONTRACTOR

subcontractors

Construction Management: materials suppliers

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“Agency” Form
 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 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
39 between the owner and individual contractors.
 Owner

Agency
CM

A/E
GC

Designers and Consultants

Subcontractors and Suppliers

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  The Construction Management contract for a particular
project will usually include a more detailed and
comprehensive scope of services, which includes
 Planning &Design Phase:
 Assists in development of overall project concept.
 Provides advice on availability of materials, equipment
and labour.
 Prepares a work breakdown structure and updates it as
the design progresses.
 Prepares a project schedule and updates it as the design
progresses.
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  Planning &Design Phase:
 Prepares a construction cost estimate and updates it as
the design progresses.
 Evaluates alternative design concepts, materials and
systems, taking into consideration
construction methods,
cost, schedule, quality and performance,
including durability, serviceability and
maintainability issues (value analysis).

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  Bidding & Construction Phase:
 Arranges for and provides temporary services and
site facilities.
 Establishes procedures for materials delivery, storage
and handling (particularly for congested sites and
user occupied facilities).
 Ensures that all necessary construction permits and
approvals are obtained.
 Provides advice on and coordinates the packaging and
sequencing of trade work for bidding.
 Solicits, receives and evaluates trade contract bids and
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makes award recommendations to the Owner.
  Bidding & Construction Phase:
 Arranges for the execution of trade contracts and ensures
that required bonding, insurance, etc. is in place.
 Establishes and administers a health and safety program for
the site, usually assuming the role of "prime contractor" as
defined in the Occupational Health and Safety Act.
 Coordinates and supervises work of all trade contracts.
 Performs 'own forces' construction work to the extent
permitted by the Owner.
 Expedites the processing of product data, shop drawings
and other submittals.

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  Bidding & Construction Phase:
 Expedites the processing of trade contractor and
supplier invoices.
 Negotiates and processes changes in the work, in
consultation with the design consultant and Owner.
 Submits progress reports, including construction cost
and schedule updates, to the Owner on a regular
basis.
 Ensures that record drawings, operating and
maintenance data, etc. are properly delivered to the
Owner.
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  Post-Construction Phase:
 Inspects the work for defects and deficiencies.
 Assists the Owner's operating staff to ensure a
smooth take-over.
 Administers warranties provided by trade
contractors and suppliers.

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 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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 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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  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
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delivery
 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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 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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 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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 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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 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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 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 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)
56 Construction Management (CM) at fee.
 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.
57
 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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