Aksum University

Aksum Institute of Technology (AiT)

Faculty of Civil Engineering and Construction Management

Department of Construction Technology and Management

CONSTRUCTION LAW

3 – Project Delivery Systems and Methods of Procurement

June 2024
Aksum – Ethiopia
 Construction Law
3 – Project Delivery Systems and Methods of Procurement

1. PROJECT DELIVERY SYSTEMS

Definition

Contract or Project 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. It is often
determined during the Basic Planning phase of the Construction Project.

Types of Project Delivery Systems

Project delivery systems are basically classified in to two broad areas:

1. Force Account; and

2. Outsourced

Force Account:

When the project owners engage themselves to undertake the project, it is called a force account delivery system.
Such a system is often promoted if the Project Owners believe that there is a comparative advantage in cost, time and
quality.

Outsourcing:

Most of the project delivery methods/systems are found under the category of outsourcing. The following are some of
them.

 Design-Bid-Build (D-B-B);
 Design-Build (D-B);
 Construction Management (CM At Free & At Risk);
 Design –Build- Operate (D-B-O);
 Design-Build-Operate-Maintain (D-B-O-M);
 Design-Build-Finance-Operate (D-B-F-O);
 Full Delivery or Program Management;
 Build-Own-Operate (B-O-T);
 Build Own Operate Transfer(B-O-O-T);

Categories: Those project delivery methods under the category of outsourcing may be categorized under the following
category. The criteria for such category are based on: segmentation, integration and financing. These are:

 Integrated Process Delivery Methods

▪ Design-Build-Operate;
▪ Design-Build-Operate-Maintain;
▪ Design-Build-Finance-Operate;
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3 – Project Delivery Systems and Methods of Procurement

 Segmented Delivery Methods

▪ Design-Bid-Build;
▪ Design-Build;
▪ Construction Management;
▪ Pure Operations and Maintenance (O&M)

 External Financing Methods

▪ Design-Build-Finance-Operate;
▪ Build-Own-Operate;
▪ Build-Own-Operate-Transfer;

1. Design-Bid-Build

After Project Owners did prepare the Basic Planning that identifies construction project programs, they call upon the
participation of Design and/or Supervision Consultants. This Consultant will carry out the design together with the
necessary tender documents which will be the basis for tendering to select Contractors. This process is called Design-
Bid-Build and hence the name for such delivery system.

Advantages may include:

 Long history of acceptance;

 Open competition;
 Distinct roles are clear;
 Owner flexibility;
 Easy to tender;

Disadvantages may include:

 Innovation not optimized;

 Usually cost overruns;
 Disputes between parties;
 Client retains risks;
 Usually low bid-incentive for change orders;
 Owner responsible for errors and omissions;

2. Design-Build

Design Build or Turnkey, in principle, reduces numbers of procurement processes engaged in the fragmented process
and employ only one procurement process and a single contractor to provide the entire Construction Implementation
Process (Design and Construction Implementations). In this arrangement both the design and construction liability
rests with the Contractor. The following are some of the basic features of Design-Build:
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Employer’s Requirements and Contractor’s Proposals;

 The employer approaches a contractor with a set of requirements defining what the employer wants.
 The contractor responds with proposals, which will include production as well as design work.
 The scale of design work included depends on the extent to which the employer has already commissioned
such (design) work from others.
 The contractor’s design input varies from one contract to another, ranging from the mere detailing of a fairly
comprehensive design to a full design process including proposals, sketch schemes and production
information.
 The Design-Build contractor, in any way be responsible for both the design and construction.

The Pricing Mechanism;

 The other feature is that Design-Build delivery method deals is a guaranteed maximum price (GMP).
 This helps clients to feel reassured that they are not signing a blank cheque.
 As an incentive to the contractor, any savings made by completing the project for a price below the GMP may
sometimes be shared between the client and the contractor.

Roles and Responsibilities of the contracting parties in the design-build process;

 There is lack of an independent certification role in the contract.

 There is no architect or contract administrator to settle differences.
 There is no independent quantity surveyor responsible for preparing the basis up on which contractors
tender.

Advantages may include:

 Single source responsibility both for design and construction;

 Integrating design and construction;
 Reduction in administration;
 Innovation;
 Cost savings;
 Constructability optimized;
 Most risks transferred to the design-builder;
 Usually GMP;
 Design reflects;

Disadvantages may include:

 Limiting competition;
 High tendering costs;
 New method and unfamiliarity;
 Client needs quicker decision making;
 Clients bringing design requirements (30%) (reduces design innovation);
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3. Construction Management

Under Construction Management the Owner contracts separately, but somewhat simultaneously, with a design
consultant and with a firm whose primary expertise is construction (the Construction Manager). The owner procures
the management services of the Construction Manager (in most cases a general contracting construction firm) early
in the design phase. Construction Management should not be confused with Project Management. Project Management
implies a much broader set of responsibilities than Construction Management. Project Management is the overall
management by, or on behalf of, the Owner of all aspects of a project from its inception through design, construction
and use.

CM is of two types: (i) CM At Free/as Agent and (ii) CM At Risk/as Constructor. This distinction determines the
contractual approach to CM.

Construction Manager (CM) as Agent

 This is a form of CM under which the Construction Manager acts as an agent of and advisor to, the Owner.
 The Owner enters in to multiple trade contracts with the trade contractors and suppliers.
 The Construction Manager is retained on a fee for services basis and acts on the Owner’s behalf in managing
and coordinating the trade contracts in the best interests of the Owner.
 The Owner retains all of the contracting risks inherent in each of the trade contracts.
 It essentially involves the Owner acting as its own general contractor, with the assistance of a Construction
Manager.
 This form of CM is sometimes also referred to as the "CM as Advisor" or "owner contacted form of CM".

Construction Manager (CM) At Risk (as Constructor)

 This is a form of CM under which the Construction Manager enters in to multiple trade contracts with the
trade contractors and suppliers.
 The Construction Manager assumes responsibility for the performance of the trade contracts (subcontracts)
much as a general contractor under the traditional method, and is paid for the trade contract work on a cost
reimbursable basis.
 The Construction Manager may, or may not, also provide a guaranteed maximum price and schedule to the
Owner under a cost-plus type of arrangement, or enter into a stipulated price contract, when the design is
sufficiently complete.

Advantages may include:

 CM At Free

▪ Provides a managing and administering for all phases of a project;

▪ Treats planning, design, construction as an integrated tasks;
▪ Some costs and schedule control;
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 CM At Risk

▪ Good for clients with insufficient staff;

▪ Owner flexibility;
▪ Responsible for time and cost overrun;
▪ Holds and manages the trade contractors;
▪ Constructability design review;
▪ Same legal position as a General Contractor;
▪ Provides a GMP;
▪ Works closely as a teaming effort and encouraging partnering and trust;

Disadvantages may include;

 CM At Free

▪ No contractual relationship with trade contractors;

▪ No contractual responsibility for outcomes of a project;
▪ Client retains the risks;

 CM At Risk

▪ Duplication of administration and additional paperwork;

▪ More paperwork for the client;
▪ Some duplication of administration;
▪ Fast tracking difficult to control with designer and CM;
▪ Sometimes difficult to manage all phased packages with costs, changes and schedules;

4. Design-Build-Operate

According to FIDIC, the D-B-O approach to contracting combines design, construction, and long term (ex. 20 years)
operation (and maintenance) of a facility in to one single contract awarded to a single contractor (who will usually be a
joint venture or consortium representing all the skills for in a D-B-O arrangement).

Advantages of D-B-O

The advantages are categorized in terms of: time, finance and quality.

 Time: With possibilities to overlap some design and build activities it will be possible to minimize delays and
optimize the smooth flow of construction activities.
 Finance: With cost restraints and commitments and other risks being carried by the contractor, there is less
risk of price over-run.
 Quality: With the contractor responsible for 20 years operation, he has an interest to design and build quality
plant with low operation and maintenance costs. Not only will then plant be "fit for purpose" but it will be built
to last. The FIDIC has now prepared conditions of contract which facilitate the D-B-O process.
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5. Full Delivery or Program Management

Under full delivery method the selected contractor shall under take the whole range of activities from thought to finish
and operation inclusive of maintenance. The possible activities include:

 Planning and acquisition;

 Finance;
 Design;
 Construction;
 Operation;
 Maintenance;
 Upkeep and Improvements;

Advantages may include;

 Shorter time to project competition;

 Fully integrated process from project inception;
 Maximization of planning and reduction of problems during execution;
 Knowledgeable alternative funding sources;
 Good for large and complex projects;
 Single source expertise;

Disadvantage may include:

 Difficult to tender and not knowing the costs;

 Compatibility issues with client;
 Quality based selection process (Negotiated);
 Client needs to make decisions quicker;

6. 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, operate for a certain period (usually 10 years) and
transfer the facility to the Project Owner. The typical BOT project contract is the process whereby a government
grants a concession to a project development company to develop and operate what would normally be a public sector
project, for a given period of time known as the concession period. BOT project involves a potentially complex
contractual structure.
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 Construction Law
3 – Project Delivery Systems and Methods of Procurement

2. FORMS OF CONTRACT

Definition

 Form of contract means the type of conditions of contract used for the procurement of ex. construction
works.
 Form of contract shall suit to the selected project delivery system.

Basis for the Classification

Form of contract may be based on the following two bases. These are: (i) method of pricing and payment; and (ii)
function/responsibility taken by the contracting parties;

(i) Method of Pricing and Payment

Based on the method of pricing and payment, the following types of contracts are identified:

 Re-measurement Contract;
 Cost-reimbursable Contract; and
 Lump Sum Contract;

Re-measurement

 Re-measurement Contract based on unit rates and prices; (the New FIDIC Red Book, 1999, the FIDIC MDB
Harmonized Edition, 2006);
 Re-measurement: The Ministry of Works and Urban Development Conditions of Contract (1994);
 The PPA Conditions of Contract for Works (January, 2006);
 Re-measurement contract is also called admeasurement type of contract.

Cost-reimbursable

 Cost plus percentage fee contracts;

 Cost plus fixed fee contracts;
 Cost plus fluctuating fee contracts;
 Target price contracts;
▪ The contractor is reimbursed for the actual cost of carrying out of the work plus an additional
amount of money in respect of profit.
▪ In all these contracts, very detailed and extensive day-to-day professional administrative services
are required to check the quality and quantity of work done.

Lump Sum

 The FIDIC Orange Book;

 The PPA Conditions of Contract (January, 2006);
 Its basic characteristic is firmness in contract price.
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(ii) Function Responsibility

 This form of contract is based on the very obligation(s) assumed by the contractor and/or the employer
under the relevant contract.

 The possible function or obligation could be construction, design and construction, financing, design and
construction or financing, design, construction and operation, or management,

 The following forms of contract are identified.

▪ Design-Bid-Build: FIDIC 4th Edition (Red Book) Conditions of Contract for Works of Civil Engineering
Construction (1987) under which the contractor is responsible for construction;

▪ Design-Bid-Build: The Ministry of Works and Urban Development Conditions of Contract for
Construction Works (1994), under which the contractor is responsible for construction;

▪ Design-Bid-Build: The PPA Conditions of Contract for Works (January, 2006), under which the
contractor is responsible for construction;

▪ Design-Bid-Build: FIDIC Conditions of Contract for Construction for Building and Engineering Works
(1999 the New Red Book) under which the contractor is responsible for construction;

▪ Design-Bid–Build: FIDIC MDB Harmonized Edition 2006 Conditions of Contract for Construction (the
Red Book) under which the contractor is responsible for construction;

▪ Design-Build: FIDIC Conditions of Contract for Electrical and Mechanical Works including Erection
on Site (1987 3rd Edition, the Yellow Book) under which the contractor is responsible both for design
and construction;

▪ Design-Build: FIDIC Conditions of Contract for plant and Design–Build for Electrical and Mechanical
Plant, and for Building and Engineering Works (the New Yellow Book 1999) under which the
contractor is responsible both for design and construction;

▪ Engineer-Procure-Construct (EPC) FIDIC Conditions of Contract for EPC/Turnkey Projects (the

Silver Book, 1999), under which the contractor is responsible for design, construction and/or
financing, operation, this may also be adaptable to BOT and other related arrangements;

▪ Design-Build-Operate: the FIDIC New Conditions of Contract for Design Build and Operate, under
preparation, under the intended contractual arrangement, the contractor is to be responsible for
design, build and operate a given facility;

▪ Construction Management Conditions of Contract for at Risk and at Free, in England;

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3. METHOD OF PROCUREMENT

Definition

 Method of procurement is the procedure by which the Government solicits offers, establishes terms and
conditions, and selects a contractor
 Type of procurement is different from method of procurement. It could be classified in very many ways.

Classification of Methods of Procurement

 Based on the level of competition involved in the process, methods of (public) procurement may be classified,
as follows. These are, according to Sue Arrowsmith, & et el., in Regulating Public Procurement:

▪ Formal tendering procedure;

▪ Less structured methods of competitive procurement; and
▪ Single source procurement;

 Formal tendering

Single stage tendering

 In which tenders are sought in response to procurement documentation setting forth the
contract terms and conditions and detailed technical specification.
 Tendering may be open to all interested parties or may be restricted to a limited number of
firms from whom the goods, works, or services are available.

Two stage tendering

 In which tenderers submit only technical information in the first stage of the procedure.
 Price discussions are typically held with all or some of the tenderers who submit technically
acceptable tenders.

 Less structured

Request for proposal

 In which detailed technical and cost proposals are sought.

 Technical and cost evaluations are conducted, and negotiations with prospective providers may
be held.
 This method of procurement permits a procuring entity to include broad performance
parameters in a request for proposals and to seek technological or innovative solutions from
interested firms.
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Competitive negotiation

 The word negotiation may be used to refer to a competitive request for proposals type
procurement.
 Competitive negotiation may refer to a very informal and unstructured competitive process.
 The meaning is therefore different in different countries.

Requests for quotations/shopping

 Typically used for commercial or "off-the-shelf" items of low financial value.

 Single source

In which a procuring entity considers only one candidate.

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Source Materials for Project Delivery Systems, Forms of Contract and Methods of Procurement

1. Susan I. Arrowsmith, John Linarelli & Don Wallace, Regulating Public Procurement, National and International
Perspectives, Jr. Kluwer Law International, 2000

2. Construction Management, An Owner Guide to Using the ‘Construction Management’ Project Delivery System
on Alberta Infrastructure Funded Building Projects, April 10, 2001

3. Wubishet Jekale Mengesha (Dr.Ing) Procurement & Contract Management,.), April, 2006

4. FIDIC International Standard Conditions of Contract (Various editions);

5. Public Procurement Agency (PPA) Conditions of Contract (January, 2006);

6. Ministry of Works and Urban Development Conditions of Contract (1994);

7. The Ethiopian Federal Government Procurement and Property Administration Proc. No. 649/2009;
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