Polytechnic University of the Philippines

College of Engineering
Bachelor of Science in Civil Engineering

CIEN 30293
Construction Methods and Project Management

Module-2
Procurement Management

Dr. J. Berlin P. Juanzon, CE, MSCM

Learning Objectives
 Understand the importance of project
procurement management and the increasing use
of outsourcing for construction projects
 Describe the procurement planning process,
procurement planning tools and techniques, types
of contracts, and statements of work
 Discuss what is involved in solicitation planning and
the difference between a request for proposal and
a request for quote
 Explain what occurs during the solicitation process

CM 607 – Construction Procurement Management

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Learning Objectives
 Describe the source selection process and
different approaches for evaluating
proposals or selecting suppliers
 Discuss the importance of good contract
administration
 Describe the contract close-out process
 Discuss types of software available to
assist in project procurement
management
 Discuss the Construction Bidding Process

CM 607 – Construction Procurement Management

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Why Outsource?
 To reduce both fixed and recurrent
costs
 To allow the client organization to
focus on its core business
 To access skills and technologies
 To provide flexibility
 To increase accountability

CM 607 – Construction Procurement Management

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 Project Procurement Management Processes

 Procurement planning: determining what to procure

and when
 Solicitation planning: documenting product
requirements and identifying potential sources
 Solicitation: obtaining quotations, bids, offers, or
proposals as appropriate
 Source selection: choosing from among potential
vendors
 Contract administration: managing the relationship
with the vendor
 Contract close-out: completion and settlement of
the contract
CM 607 – Construction Procurement Management

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 Figure 1- Project Procurement
Management Processes and Key Outputs

CM 607 – Construction Procurement Management

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Procurement Planning
 Procurement planning involves identifying
which project needs can be best met by using
products or services outside the organization.
It includes deciding
 whether to procure
 how to procure
 what to procure
 how much to procure
 when to procure

CM 607 – Construction Procurement Management

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Procurement Planning Tools and Techniques

 Make-or-buy analysis: determining

whether a particular product or service
should be made or performed inside the
organization or purchased from
someone else. Often involves financial
analysis
 Experts, both internal and external, can
provide valuable inputs in procurement
decisions
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Make-or Buy Example
 Assume you can lease an item you need
for a project for $150/day. To purchase
the item, the investment cost is $1,000,
and the daily cost would be another
$50/day.
 How long will it take for the lease cost
to be the same as the purchase cost?
 If you need the item for 12 days, should
you lease it or purchase it?

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 Make-or Buy Solution

 Set up an equation so the “make” is equal to the “buy”

 In this example, use the following equation. Let d be the
number of days to use the item.
$150d = $1,000 + $50d
 Solve for d as follows:
 Subtract $50d from the right side of the equation to get
$100d = $1,000
 Divide both sides of the equation by $100
d = 10 days
 The lease cost is the same as the purchase cost at 10 days
 If you need the item for 12 days, it would be more
economical to purchase it
CM 607 – Construction Procurement Management

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 Types of Contracts
 Fixed-price or lump-sum: involve a fixed
total price for a well-defined product or
service
 Cost-reimbursable: involve payment to
the seller for direct and indirect costs
 Time and material contracts: hybrid of
both fixed-price and cost-reimbursable,
often used by consultants
 Unit price contracts: require the buyer
to pay the seller a predetermined
amount per unit of service
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 Statement of Work (SOW)
 A statement of work is a description
of the work required for the
procurement
 Many contracts, or mutually binding
agreements, include SOWs
 A good SOW gives bidders a better
understanding of the buyer’s
expectations

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Solicitation Planning
 Solicitation planning involves preparing several
documents:
 Request for Proposals: used to solicit
proposals from prospective sellers
 Requests for Quotes: used to solicit quotes
for well-defined procurements
 Invitations for bid or negotiation and initial
contractor responses are also part of
solicitation planning

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Solicitation
 Solicitation involves obtaining proposals or
bids from prospective sellers
 Organizations can advertise to procure goods
and services in several ways
 approaching the preferred vendor
 approaching several potential vendors
 advertising to anyone interested
 A bidders’ conference can help clarify the
buyer’s expectations

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Source Selection

 Source selection involves

 evaluating bidders’ proposals

 choosing the best one

 negotiating the contract
 awarding the contract
 It is helpful to prepare formal evaluation
procedures for selecting vendors
 Buyers often create a “short list”

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 Figure 5- Sample Proposal Evaluation
Sheet

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 Figure 6- Detailed Criteria for
Selecting Suppliers

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 Contract Administration
 Contract administration ensures that the
seller’s performance meets contractual
requirements
 Contracts are legal relationships, so it is
important that legal and contracting
professionals be involved in writing and
administering contracts
 Many project managers ignore contractual
issues, which can result in serious problems

CM 607 – Construction Procurement Management

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Contract Close-out
 Contract close-out includes
 productverification to determine if all work
was completed correctly and satisfactorily
 administrative activities to update records to
reflect final results
 archiving information for future use
 Procurement audits identify lessons learned in
the procurement process

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THE BIDDING PROCESS
Bidding Process

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Qualification of Bidders
 Pre-qualification documents:
 Information about the firm
 Owners
 Organization chart
 Company background
 General office location
 Business licenses
 Business permits
 SEC/DTI registration documents
 BIR registration
 Contractors license
 SSS/Pagibig registration
Qualification of Bidders
 Pre-qualification documents:
 Technical capabilities
 Years of experience
 List of projects completed
 List of technical personnel
 List of equipment
 Experience in related projects
 Financial capabilities
 Financial Statements
 Balance sheet and Income statements
 List of accredited suppliers with credit lines
 Bank references with credit lines
Bidding Information

 The bid documents are sent out with the drawings and
specifications to the qualified bidders.
 This section of the documents contains:
 Invitation to Bid
 Instruction to Bidders
 Bid Forms
Bidding Information
Invitation to Bid
The invitation to bid is a request for
pricing. The owner usually prepares it with
the assistance of the designer or construction
manager.
It contains:
1. The type of project.
2. The size of project
Bidding Information
Invitation to Bid
3. Location of the project
4. Bid due date
5. Start and completion dates
6. Bonds
7. Document location
8. Legal requirements
Bidding Information
Instruction to the Bidders
The instruction to bidders are usually bound in the
specification. Although they may repeat some of the
information in the invitation to bid or on the bid form, the
instruction are mostly concerned with the following:
1. Bid due date
2. Instruction about filling out the form
3. Places to indicated fees for additional work
4. Unit Prices
5. Location to deliver the bid
6. Method of awarding contracts
7. Expected dates of award and start of project
Bidding Information
Bid Form
The bid form is the document on which the bidder submits the price. The
form is usually prepared by the designer, with blanks left to be filled out by the
bidder. This makes the bids more easily comparable.
Items may include some or all of the following:
1. Name of contractor
2. Price both in numbers and in words
3. Price breakdown for major trades, which can guide progress payments
4. Amount of bonds
5. Fees for additional work
6. Unit prices if quantities are unclear
7. Key subcontractors
8. Legal status: (Single proprieor. Corporation or partnership)
9. Signature of authorized representative of the firm, title and date
Contractual Information
 The contract issued with the construction documents goes to the firm
that will perform the work. This includes:
 Agreement
 General Conditions
 Special Conditions
 Sample of Bonds
 Insurance requirements
Contractual Information
 Agreement
 Identification of the parties
 Description of the project and the work
 Date of start
 Date of substantial completion
 Liquidated damages
 The contract sum
 Progress payments
 Interest rate
 Retainage
Contractual Information
General Conditions
 The purpose of the general conditions is to establish he
legal responsibilities, obligations, authority, and rights of
all parties involved in the project.

Special Conditions
The special conditions are sometimes called supplementary conditions or
special provisions of the contract.
They are intended to supplement the general conditions and are project-
specific.
Special conditions include additional owner requirements such as provisions
for prevailing wages and additional insurance requirements
Contractual Information
 Bonds
 If the contractor fails to perform in accordance with the
contract, a bond will protect the owner.
 There are four types of bonds commonly required in
construction:
 Bid bonds
 Performance bonds
 Payment bond
 Guarantee bond
Contractual Information
 Bid Bonds
These are furnished with the bids and basically guarantee that the contractor will
enter into a contract with the owner for the price of the bid.
 Performance bonds
 These guarantee that the contractor will perform the contract with the terms of
the agreement. If the contractor goes bankrupt or otherwise cannot complete the
work, the bonding company becomes liable for it.
 Payment Bonds
Also called labor and material bonds, these assure the contractor will pay all bills,
thus leaving the owner unharmed by claims and liens.
 Guarantee bonds
 These guarantee that the contractor will guarantee the quality of work completed
within a period of one year prior to release of retention money to the contractor.
Contractual Information

 Insurances
 To be purchased by the contractor as required by the contract to
protect the contractor against risks during the construction
period.
 Types of insurances:
 Workers’ compensation
 Comprehensive liability
 Contractor’s All Risk (CAR)
Contractual Information

 Workers’ compensation
 This insurance covers disability and medical treatments for
injuries resulting from accidents that occur during the
construction employment
 Comprehensive liability
 This provides protection from third-party claims. It covers injury
to non-workers at the site, damage caused by construction
vehicles, damage caused by sub-contractors.

 Contractors’ All Risks (CAR)

 This is essentially property insurance for the building while it is under
the control of the contractor. It covers losses resulting from fire,
smoke, water, explosions, vandalism, and theft.
Technical Information

 The technical information is resented in two

formats: drawings and specifications.
 These two different formats (one graphic and one
narrative) do not exist independently but as a unit.
Technical Information
Technical Information
 Technical Specifications
 The technical specifications are written descriptions of the quality of
the project.
 They detail the materials, equipment, and workmanship to be
incorporated into the project
 Types of Specifications:
 Design specifications
 Performance specifications
 Proprietary specifications
 Open specifications
Technical Information
 Design Specifications
 These are also known as descriptive specifications.
 They are detailed descriptions of materials, workmanship,
installation, and erection procedures.
 The contractor’s obligation is to follow the instructions as laid out in
the specifications
 Performance Specifications
 These lay out the expected results of the work and leave the methods
to the contractor.
 Performance may be expressed in terms of:
 Operational capacity
 Functional qualities
 Appearance
 Finish
 Color, texture, structural tolerance
Master Format Specifications
Thank you very much!