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development through partnershipcidb
Infrastructure Delivery Management Toolkit:
2010 Edition
Practice Guide 2: Construction Procurement Strategy
1
development through partnershipcidb2
• Introduction• Challenges in current construction procurement
practice• Traditional approach to construction• Alternative delivery options• Alternative pricing strategies• Framework Agreements• Construction Procurement Strategy
Contents of this presentation
development through partnershipcidb3
To name a few:•Too many projects•Few people to manage and monitor projects•Too many relationships to manage•Scarcity of professionals in the public service•Consultant driven•Low skill levels and poor quality•Building in contractor development and job
creation objectives•Too little time•Long decision making processes – regulations
& policies •Stop – start implementation•Political influences
Challenges in the current construction practice
Fundamental considerations in delivery
cost
quality / performance
delivery / time
Bottom line – infrastructure delivery needs to meet expectations
Quantum - service delivery targets
Current capacity constraints
CIDB (2006) attributed the SA capacity constraints within government to deliver infrastructure to:
•the project approach where for each and every project, consultants are appointed, briefed, directed and overseen by a gradually disappearing cadre of skilled staff
•unbundling strategies aimed at reducing the size of contracts in order to target small or local enterprises which place increased demands on the client’s resources to manage and oversee these small contracts
CIDB proposalCIDB inform practice note No 1: SCALING UP DELIVERY AND ACCELERATING EMPOWERMENT (August 2006)
In a nutshell•Use larger contracts•Use longer contracts•Adopt a programmatic and a systems approach
What this does is to:
1) Reduce the work load of the SCM units
2)Reduce the number of relationships to a manageable level which frees up government’s capacity to brief service provides, manage contracts and to make payments3)Allow skills to be rapidly replicated and certain tasks to be de-skilled4)Improve job creation and SMME development outcomes
Search for alternative delivery modelsProblem statement
Capacity constraints exist due to the continued use of an outdated delivery approach
Solution
Require a delivery model which:
•matches the capabilities and capacities of the client to effectively oversee its implementation
•takes account of the capabilities of the private sector
•accommodates current socio-economic delivery imperatives
Have in place well developed targeted procurement procedures to address this aspect of delivery
CIDB / National Treasury IDMS 2010
Procurement strategy for traditional approach to delivery
- One project one contract (or a group of smaller contracts)
- Discipline specific consultants appointed on a percentage fee basis
- Open tenders are called for when the design is complete
- Contractors are contracted on a bills of quantities basis
Traditional approach to construction
No need to consider procurement strategy – a one size fits all approach suffices
Traditional approach to construction
Stage 1: Preparation
Stage 2: Definition
Stage 3: Design Development
Stage 4: Production information
Outline statement
Scope of work for construction work
contract
Procure consulting services
Procure construction works
Priced contract based on
lump sums or bill of
quantities
Scope of work for consulting
services contract
Fee based on percentage of cost of construction – allows project to be
developed as it unfolds
Servant
Master
Master –servant
relationship
Traditional approach to constructionJohn Smeaton in 1768 during the construction of the Clyde Canel (Scotland) established the master / servant between designers and contractors
Sir Joseph Bazalgette’s standard form of contract for London’s major sewer projects and the embankments on the Thames 1860s was adopted by the Metropolitan Board of Works
Institution of Civil Engineers’s standard form of contract published in 1945 based on the 1860 standard form of contract
South African current traditional forms of contract based on ICE form of contract
Are their different ways of delivery projects to improve outcomes?
Design by EmployerDesign by Employer
Contract under which a contractor undertakes only construction on the basis of full designs issued by the employer.
Suitable where:
• The client wishes to make significant technical inputs into design process and design details.
• The client requires flexibility in the development of the design. • The risks are to be balanced between the parties, or• Reasonable certainty in cost and time is required before a
commitment to build is made. • Suitable client accepted production information is available to
be incorporated into the scope of work for the contract.
Alternative allocation of design responsibilities
Design and construct
Contractor designs a project based on a brief provided by the client and constructs it
Develop and construct
Contract based on a scheme design prepared by the client under which a contractor produces drawings and constructs it
Alternative contracting strategies
Design and construct contract
NoteContractor responsible for later
design stagesConsultant reviews contractor’s
design against project brief
Award works contract
Scope of work based on concept
report
Stage
1 Preparation
2 Definition
3 Design development
4 Production information
5 Manufacture, fabrication and construction information
6 Works
7 Handover
8 Close out
Design and ConstructDesign and Construct
Contract in which a contractor designs a project based on a brief provided by the client and constructs it
Suitable where the employer requires• Integrated design and construction and single point
accountability • That most risks lie with the contractor in return for price
certainty, or • The cost and completion date is almost guaranteed when a
commitment to build is made. Suitable for simple and moderately complex projects,
particularly where the client has limited technical capability.
Alternative contract strategies
Develop and construct contract
NoteContractor responsible for later
design stagesConsultant reviews contractor’s
design against project brief
Award works contract
Scope of work based on design
development report
Stage
1 Preparation
2 Definition
3 Design development
4 Production information
5 Manufacture, fabrication and construction information
6 Works
7 Handover
8 Close out
Develop and Construct Develop and Construct
Contract based on a scheme design prepared by the client under which a contractor produces drawings and constructs it.
Suitable where the employer requires• Integrated detailed design and construction and
single point accountability • Reasonable certainty in cost and time before a
commitment to build is made.
Suitable for simple and moderately complex projects
Alternative allocation of management responsibilities
Management contractor
Contractor is responsible for planning and managing all post-contract activities and for the performance of the whole of the contract
Management Contract Management Contract
Contract under which contractor provides consultation during the design stage and is responsible for planning and managing all post contract activities and for the performance of the whole of the contract.
Suitable where:• The employer has limited capability or capacity to advance
the work beyond a strategic brief.• The employer retains most of the risks • The contractor needs to work alongside the design team to
develop the programme for construction design and tender.
Suitable for sophisticated projects, particularly where the client has limited technical capability.
Management contractor relationship
EmployerEmployer
Subcontractor(construction
work sub contract)
Subcontractor(construction
work sub contract)
Design consultant
(professional service
contract)
Design consultant
(professional service
contract)
Subcontractor(construction
work sub contract)
Subcontractor(construction
work sub contract)
Subcontractor(construction
work sub contract)
Subcontractor(construction
work sub contract)
Design consultant
(professional service
contract)
Design consultant
(professional service
contract)Management contractorManagement contractor
Example
Management contractor subcontracts out the bulk of the work
Alternative contracting strategies
Managementcontractor
NoteContractor can be made responsible for all or some of the design and all
construction
Award works contract
Scope of work based on design
strategic
Stage
1 Preparation
2 Definition
3 Design development
4 Production information
5 Manufacture, fabrication and construction information
6 Works
7 Handover
8 Close out
Alternative
Alternative
Alternative
Construction ManagementConstruction Management
Contract under which a contractor is responsible for planning and managing all post-contract activities and for the performance of the whole contract.
Where it is desirable to • Have direct contracts with specialists trade
contractors or small contractors, and • Manage the interfaces between interrelated
packages within a project.• Suitable for projects where a number of trade
contractors are appointed.
Alternative pricing strategies
Starting pointTender prices can be built up by considering a number of components including:
•General items: items to cover the charges for compliance with contractual obligations
•Construction (work) content: price of constructing all the items that are to be constructed or built
•Overheads: operating (every day) expenses incurred in the upkeep of the business and its offices that are not directly attributable to individual contracts
•Risk allowance: an allowance (contingency) to cover the perceived risk associated with uncertainty
•Profit
Bill of quantities
General item orConstruction content – labour, materials, plant and equipmentorSubcontracted work
Overheads Risk allowanceProfit
Item No. Description Unit of Measure Quantity Rate Total
Build up of tender price
Bill of quantities
• is useful only to develop a tender price for the contract
• cannot be used to control costs on site
Bill of QuantitiesBill of Quantities
• Client takes the risk for changes• Contractor takes the risk of rate changes
• Use where• a clear, unambiguous scope of works exists,
which is complete save for uncertainty on the actual quantity of work to be done e.g. earthworks
• Where little or no change to programme is envisaged
• The level of risk is low and quantifiable
24
Alternative pricing strategiesTIME IN WEEKS: W1 W2 W3 W4 W5 W6 W7 W8
W9
No ACTIVITY
1 Establish Site; Set Out…
2 Excavation
3 Foundation Concrete & Brickwork.
4 Superstructure
5 Roof
6 Services (1st; 2nd; Final)
7 External Works
8 Finishing and cleaning
9 Hand over to client
Break the scope of work down into activities related to a programme and price each activity as a lump sum
Pricing strategies: Activity schedule
General item orConstruction content – labour, materials, plant and equipmentorSubcontracted work
Overheads Risk allowanceProfit
ItemNo.
Programme Reference
Activity description Price excluding VAT
An Activity Schedule is a list of activities which represents the activities expected to be carried out
The Contractor enters lump sum prices against each of these activities (Total = contract sum)
Paid for completed activity
Activity schedule
Build up of tender
price
Lump sum
Lump sum
Contractor is paid a lump sum to perform the works
(Interim payments which reflect the progress made towards the completion of the works may be made)
Contractor is :•at risk for costs associated with completing the contract•not compensated for any errors or omissions of his own
Price list
Contractor is only paid amounts in Price List for priced work
Price list / schedule
Contractor is paid the price for each lump sum item in the Price List that has been completed and, where a quantity is stated in the Price List / Schedule, an amount calculated by multiplying the quantity which the contractor has completed by the rate
Lump Sum, price list, activity scheduleLump Sum, price list, activity schedule
Price-based strategy
•Contractor takes the risk for changes in quantities•Client takes risk of change of scope
•Use where • A clear, unambiguous scope of work exists, which is
complete in all respects and as such can be priced with certainty.
• Changes to requirements are not anticipated
29
The primary purpose of a bill of quantities is to arrive at a tender price within relatively short time frames so that a tender can be evaluated and a contract awarded
The employer is liable for increases in the tender price arising from increases in quantities and mistakes in compiling the bill of quantities
In lump sum, activity schedules and pricing list contractor is at risk as price is all inclusive
Bill of quantities vs other price-based pricing strategies
What about other pricing strategies?Price based:
•bill of quantities•activity schedule•lump sum •price list
Cost based:
•cost reimbursable•target cost
Cost ReimbursableCost Reimbursable
• Contract in which the contractor is paid for his actual expenditure plus a percentage or fee.
• Use where an emergency exists • the scope of work cannot be priced ahead of the
works• the employer cannot transfer the project risk to the
contractor or the risk pricing is prohibitive• the contract is likely to be disrupted by
uncontrollable events
32
Wages and salaries
Materials at open market
rates
Site overhead
percentage
Equipment at agreed rates, market related
rates or percentage up or down on a hire list
Subcontract costs
Fee
Fee
+
+
Cost reimbursable contract
Fee includes profit and overheads
Fee includes profit and overheads
Target cost contract
gain (share of savings)
Target Price (initial)
Target Price (final) adjusted for compensation events
Final “cost”
Scenario 1: Contractor gain
pain (share of
cost overrun)
Scenario 2: Contractor pain
payment to contractor (cost + fee)
Sharing of cost savings /
overruns
Target Cost PricingTarget Cost Pricing
• Cost reimbursable contract in which a target cost is estimated and on completion of the works the difference between the target cost and the actual cost is apportioned between the employer and contractor on an agreed basis.
• Use where:• The employer wishes to reward strong contractor
performance, share financial risk or promote collaboration
• An early contractor involvement is required to make inputs into the design process
• Framework agreements are entered into
35
Target price contractsProcurement of contractors
Option 1 (design is not sufficiently developed)
•Tenderers tender cost parameters
•Target price negotiated when sufficient information available to price the works
Option 2 (design is sufficiently developed to price)
•Tenderers tender cost parameters
•Assumptions are made about any uncertainties so that the tenderers can price the works (adjust target if assumptions turn out to be incorrect e.g. quantum of reinforcement)
•Tenderer tenders a target price
Management contractor relationship
EmployerEmployer
Subcontractor(construction
work sub contract)
Subcontractor(construction
work sub contract)
Design consultant
(professional service
contract)
Design consultant
(professional service
contract)
Subcontractor(construction
work sub contract)
Subcontractor(construction
work sub contract)
Subcontractor(construction
work sub contract)
Subcontractor(construction
work sub contract)
Design consultant
(professional service
contract)
Design consultant
(professional service
contract)Management contractorManagement contractor
Example
Management contractor subcontracts out the bulk of the work and is paid on a cost reimbursable basis i.e
subcontract amount plus a fee +prices for work done by the contractor himself
This allows cost to be controlled
Pricing strategies
Employer’s risk Contractor’s incentive / risk
Min Max
Max Min
Activity schedule (lump sum)
Bill of Quantities
Target cost
Cost reimbursable
Em
plo
yer’
s fl
exib
ility
to
eff
ect
sco
pe
ch
ang
es
Min
Max
Pricing strategy
Activity schedule / lump sum
Bill of quantities
Target cost
Cost reimbursable
Employer’s riskContractor’s risk
Employer’s flexibility to effect change
Price List
Benefits of Target Cost PricingBenefits of Target Cost Pricing
• Allows early contractor involvement
• Facilitates collaborative / partnering / developmental relationships
• Suitable for use in framework agreements because:
− allows the employer to procure work on an as-instructed basis over a set term without necessarily committing to any quantum of work
− offers flexibility in attaining secondary procurement objectives as requirements can be adjusted from one package order to another
39
To provide higher value and less waste the fragmentation in design needs to be addressed, preferably before 25% of the design is complete
Lean construction
Target cost contracts can enable this to happen even where a design by employer approach is adopted
This allows a specialist in construction to be appointed at the same time as the design team
Such a contractor may or may not be responsible for managing the design team
Consideration NEC3 JBCC GCC FIDIC
Contracting strategy
Design by employer
Yes
Yes Yes Red
Management contractNo
No Silver
Develop and construct Yes Yellow &SilverDesign and build
Pricing strategy Lump sum & breakdown
Activity schedule
Yes
No No No
Lump sum Yes Yes Yellow & Silver
Bill of quantities Yes Yes Red
Cost reimbursable No No No
Target cost No No No
ISO 10845-1, Construction procurement – Part 1: Processes, methods and procedures
A framework agreement is an agreement between an employer and one or more contractors, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged
Allows the employer to procure construction services to provide work packages on an as-instructed basis (call offs) over a set term without necessarily committing to any quantum of work
What is a framework agreement?
Client appoints a professional team to design the works
Open tenders are called once the production information has been finalised by the professional team
(production information = final detailing, performance definition, specification, sizing and positioning of all systems and components)
Contractor prices the production information
Contractors are contracted on a bills of quantity basis for a single project (which may or may not include budgetary items to cover aspects of the works which have not been finalised)
Current paradigm
Packages in a framework contract
Develop concept for
works
Scope works
Document works
Construct works
Hand over works
Package orders
P #1
P #2
P#3
Design works
P#4
Packages delivered
over a term by a single contractor
Concept
Procuring a service over a period of timeetc
University of the Witwatersrand
Chamber of Mines – fourth quadrant (R70
m)
Package #1 Package #2
Undergraduate Science Centre– phase 1 (R178 m)
Wits Art Museum (R68m)
Package #4Package #3
Refurbishment of Chamber of Mines –
(R45m)
Start October2010
Start November
2009
Start January 2009
April 2010
Same contractor but different professional teams
Principles of Framework AgreementsFramework agreements
• are entered into following a competitive selection process
• need to establish the following as a minimum:
- the basic terms of the contract- the term of the contract (3 -4 years)- the scope of the work which may form the basis
of a package order- the basis by which contractors are to be remunerated for instructed work- the manner in which competition between framework contractors may take place
• A package is works within the scope of work of a framework agreement which is instructed within a stated period of time (start and end date)
• A package order is an instruction to carry out a task and may only be issued within the term of the agreement
• A framework contract is only entered into with those who have the capability and capacity to carry out the likely work
Essential elements of a framework
Start date End dateFramework contract
Package orders
Start EndStart End
Start
Start End
End
Outcomes of Alternative Delivery Approaches
FROM
• Master-servant relationship of adversity
• Fragmentation of design & construction
• Allowing risks to take their course
• Short-term “hit and run” relationships
• Constructability & cost model determined by design team and consultant only
• “pay as you go” delivery culture
TO• Collaboration towards shared
goals• Integration of design and
construction• Proactive, collaborative risk
management and mitigation• Long-term relationships
focused on maximising efficiency & shared value
• Constructability and cost model developed with contractor’s insight
• Discipline of continuous budget control
48
Key question
Question:
How does one appoint a contractor in the absence of a scope of work?
Answer:
Look at:
•cost based pricing strategies as apposed to price based strategies•rates based contracts (where P and G costs are fairly constant and work is very straightforward)
A framework agreement is a contract where the terms of payment are agreed in the absence of a detailed scope of workPricing strategies
Lump sum
Bills of quantities
Activity schedule
Price list
Cost reimbursable
Target cost
Not suitable –require scope of work to price the work
Suitable – as cost parameters can be pre-agreed and target can
be initially tendered and thereafter negotiated
Yes – if linked to a management contractor
Pricing strategies for framework contracts
Possibly in simple works but need to deal with costs
associated with different sites
Consideration NEC3 JBCC GCC FIDIC
Activity schedule / lump sum
Yes
Yes Yes Yellow & Silver
Bill of quantities Yes Yes Red
Cost reimbursable No No No
Target cost No No No
Lump sum & breakdown
Standard provisions for pricing strategies
Look at NEC3
eThekwini AC secondary water mains• identified a project for the replacement of
2500 km of AC water pipes over a period of 3 years
• appointed one programme manager + 4 design consultants + 4 contractors
Time frames
Feb 2007 - concept introduced and work shopped with officials, consultants and contractors
Mar 2007 - calls for expressions of interest
May 2007 - shortlisted respondents invited to tender
May 2007 - tenders closed
June 2007 - tenders evaluated and awarded
1 July 2007 - work starts (new financial year)
eThekwini AC secondary water mainsExpenditure R400 million spent in first 14 months Productivity: 80 km of water mains replaced each month. Socio economic:• ± 3800 temporary unemployed workers employed to
excavate trenches and are rotated every 4 months to allow others to financially benefit
• Temporary workers paid 21% of total project expenditure.• 16 subcontractors (or “co-contractors”) developed to
increase their share of the construction work from 10% to 20% over time (should double their
turnover over time)• A full time mentor engaged to assist the “co-contractors” in the establishing of business systemsStaff demands on client: one staff member
eThekwini AC secondary water mainsAwards
• won the coveted KAMOSO award for Best Construction Project in the Infrastructure category (Department of Public Works which recognizes and rewards excellence in the implementation of Expanded Public Works (EPWP) programmes•Philiswe Mthethwa of Abangani Projects, an emerging sub contractor came third in the CIDB National Women in Construction Excellence Awards
All subcontractors have doubled their CIDB grading during the term of the contract!
Construction procurement strategy
Construction procurement strategy is the combination of:
•delivery management strategy•contracting arrangements•procurement arrangements
A procurement strategy can be developed for:
• a single project• a programme of projects • a portfolio of projects
It identifies the best way of achieving objectives and value for money, whilst taking into account risks and constraints
Portfolio = the total extent of infrastructure controlled or used by an institution
Package = works which have been grouped together for delivery under a single contract or a package order issued in terms of a framework agreement
Portfolio of projects over
next few years
Programmes
A strategic approach
packages
development through partnershipcidb57
The central objective of developing a construction procurement strategy is:
• to determine possible procurement and contracting options
• that will maximise value-for-money, • deal with capacity constraints • and ensure long term sustainability• Different options are most suitable under different
conditions• The choice of options is dependent on local conditions.
The Benefit of Developing a Procurement StrategyThe Benefit of Developing a Procurement Strategy
1 – Delivery Management Strategy1 – Delivery Management Strategy
3 - Procurement 3 - Procurement ArrangementsArrangements
2 - Contracting 2 - Contracting ArrangementsArrangements
PPP – follow NT PPP procedures
PPP – follow NT PPP procedures
Own ResourcesOwn Resources
OutsourcingOutsourcing
LeasingLeasing
Another organ of state FA Another organ of state FA
Implementing Agent (IA - SLA)Implementing Agent (IA - SLA)
ConstructionConstructionProcurementProcurement
StrategyStrategy
Gather & Analyse
information
Gather & Analyse
information
Formulate procurement
objectives
Formulate procurement
objectives
Make strategic delivery management decisionsMake strategic delivery management decisions
Decide on delivery mode
Decide on delivery mode Package WorksPackage Works
1 2 3 4 5
Decide on quality strategy
Decide on quality strategy
Decide on targeted
procurement strategy
Decide on targeted
procurement strategy
Decide on tender
evaluation procedure
Decide on tender
evaluation procedure
1
3
4
Decide on procurement arrangements
Decide on procurement arrangements
2Pricing Strategy
Activity based / lump sum
Bill of QuantitiesCost reimbursable
Target Cost
Pricing StrategyActivity based / lump
sumBill of Quantities
Cost reimbursableTarget Cost
Contracting StrategyDesign by employerDevelop & ConstructDesign & Construct
Construction Management
Management Contractor
Contracting StrategyDesign by employerDevelop & ConstructDesign & Construct
Construction Management
Management Contractor
Version 1.1March 2011
Organisational Analysis
Organisational Analysis
Spend AnalysisSpend Analysis
Market AnalysisMarket Analysis
SecondarySecondary
PrimaryPrimary
Individual ProjectsIndividual Projects
Programme of Projects
Programme of Projects
PackagesPackages
FA opportunitiesFA opportunities
Allocate risks for packages
Allocate risks for packages
Establish requirements for
outsourced professionals
Establish requirements for
outsourced professionals
Package professional
service contracts
Package professional
service contracts
Allocate risks for professional
service contracts
Allocate risks for professional
service contracts
1
2
3
4
Service Requirements
Service Requirements
Pricing StrategyPricing Strategy
Form of ContractForm of Contract
Contracting Strategy
Contracting Strategy
Type of ContractType of Contract
Pricing StrategyPricing Strategy
Form of ContractForm of Contract
Form of ContractNEC3FIDICJBCC
GCC 2010
Form of ContractNEC3FIDICJBCC
GCC 2010
Quality Strategy OptionsSpecifications
Life cycle costingPre-qualification
Evaluations CriteriaUndertakings at tender
stagePreference
Eligibility Criteria
Quality Strategy OptionsSpecifications
Life cycle costingPre-qualification
Evaluations CriteriaUndertakings at tender
stagePreference
Eligibility Criteria
Procurement Procedure Options
Competitive selectionNegotiation
Competitive negotiation
Procurement Procedure Options
Competitive selectionNegotiation
Competitive negotiation
Targeted Procurement Procedure Options
PreferencingIncentives for KPI’s
Mandatory Subcontracting
Contractual Obligations
Targeted Procurement Procedure Options
PreferencingIncentives for KPI’s
Mandatory Subcontracting
Contractual Obligations
Decide on delivery management strategy
Meet need for works through:
a PPP
an Implementing agent (IA)another organ of state’s framework agreement (FA) leasing of property outsourcing own resources
Gather and analyse information
Formulate procurement objectives
Make strategic delivery management decisions
Package works
Decide on delivery mode (project or
programme)
Contracting arrangements Allocate risks for packages
Establish requirements for outsourced
professional services
Allocate risks for professional service contracts
Package professional service contracts
Options for services: construction construction & maintenance maintenance construction, maintenance & operation
Contracting strategy Design by employer Develop & construct Design & construct Construction management Management contractor
Pricing strategy: Priced contract with a
priced list Cost reimbursable Target cost Activity based / Lump sum Bill of quantities
CIDB accepted Form of Contract
Discipline specific or multidisciplinary service
Package specific, programme related or framework agreement
Priced contract, percentage of cost of construction, cost reimbursable or target cost
development through partnershipcidb61
Contracting arrangementsActivity 1: Allocate risks for packages -
Options for service requirementsOption Pricing strategy Form of contract Construction only
Activity based / lump sum
Bill of quantities
Cost reimbursable
Target Cost
NEC3 Engineering and Construction Contract
NEC3 Engineering and Construction Short Contract.
FIDIC Conditions of Contract for Construction and Building and Engineering Works Designed by the Employer
FIDIC Conditions of Contract for Plant and Design
FIDIC Conditions of contract for EPC Turnkey Projects
FIDIC Short Form of Contract General Conditions (Short Form)
JBCC Principal Building Agreement
JBCC Minor Works Agreement
GCC 2010 Maintenance only
Priced contract with a priced list
Cost reimbursable
Target cost
CIDB General conditions of contract
NEC3 Term Service Contract
NEC3 Short Term Service Contract
Maintenance and construction
As for maintenance and construction services
NEC3 Engineering and Construction Contract with or without NEC3 Term Service Contracts
Construction maintenance and operation
As for maintenance and construction services
FIDIC Conditions of Contract for Design, Build and Operate Projects
NEC3 Engineering and Construction Contract plus NEC3 Term Service Contracts
Deciding on the procurement arrangements
Decide on quality strategy
Decide on procurement procedure
Decide on targeted procurement strategy
Decide on tender evaluation procedure
Step 1: Decide on Quality StrategyStep 1: Decide on Quality Strategy
Refer to Practice Guide 2, Section 7.2, page 41, Table 14 for options and decision criteria for building quality into the procurement arrangements.
Quality may be achieved through:• Specifications• Life cycle costing• Prequalification• Eligibility criteria• Undertakings at tender stage• Preference• Evaluation criteria
63
Step 2: Decide on Procurement ProcedureStep 2: Decide on Procurement Procedure
Practice Guide 2, Section 7.3, page 42, Table 15
You will select one of the three basic procurement procedures, using the criteria set out in Table 15:
•A negotiation procedure where a tender offer is solicited from a single tenderer
•A competitive selection procedure
•A competitive negotiation procedure
•Eligibility criteria (Call for expressions of interest)
64
Options withinOptions within Competitive SelectionCompetitive Selection
•If you have chosen a competitive selection procedure, you must make further choices:• Nominated• Open• Qualified• Quotation• Proposal procedure using the two-envelope system• Proposal procedure using the two-stage tendering
system
65
Options within aOptions within a Competitive Negotiation Competitive Negotiation
If you have chosen a competitive negotiation selection procedure, you must make further choices.
Restrictive competitive negotiations Open competitive negotiations
66
Step 3: Decide on Step 3: Decide on Targeted Procurement StrategyTargeted Procurement Strategy
There are four options for targeted procurement procedures:
• Preferencing• Incentives for KPIs• Mandatory subcontracting• Contractual obligations.
You will select one or more of the targeted procurement procedures for your packages.
67
Step 4: Decide onStep 4: Decide on Tender Evaluation ProcedureTender Evaluation Procedure
• Method 1: Financial offer
• Method 2: Financial offer and
preferences
• Method 3: Financial offer and quality
• Method 4: Financial offer, quality and
preferences.
68
Document choices
Procurement strategy for works
Document choices Procurement strategy for professional services
Document choices
Contents1 Background 2 Delivery management strategy 2.1 Nature and spatial arrangement of projects and clusters 2.2 Client organisation characteristics 2.3 Market characteristics2.4 Primary procurement objectives3 Contracting arrangements3.1 Risk allocations for packages4 Procurement arrangements4.1 Quality strategy4.2 Procurement procedure5 Satisfying primary and secondary procurement objectives5.1 Construction procurement strategy
2.5 Secondary procurement objectives
2.6 Delivery management plan2.7 Delivery mode2.8 Packaging strategy
3.2 Professional service contracts
4.3 Targeted procurement strategy4.4 Tender evaluation procedure
5.2 Issues to be dealt with in the contracts which are not addressed elsewhere
Challenges
Envisaged challenges to rolling out the methodology
• Client difficulty in deciding on objectives
• Clients unwilling to balance opposing objectives
• Absence of open-minded programme managers
• Resistance to change, particularly from professional service providers
Dr Sean Phillips Construction symposium: The project management profession: adding valueUniversity of the Witwatersrand (August 2009)
development through partnershipcidb73
Documenting a procurement strategy
The procurement strategy arrived at by applying the aforementioned procedures needs to be documented in such a manner that the logic behind the choices that are made at each step can be communicated to and reviewed by others. Accordingly, the specific inputs and outputs of the actions at each step in the stages of the development of a strategy need to be documented.
A procurement strategy at a portfolio level should be documented in a tabular form which links each category or portion of a category of spend to a number of high level descriptions. Procurement strategies at a programme level can be similarly presented, with perhaps, more detailed descriptors. The strategic brief that is developed for a package during the package information stage of the package planning phase must, however, set out all the choices made in relation to the package in sufficient detail to enable procurement documents to be drafted to enable the necessary procurement processes to commence.
Conclusion and questions
74
cidb
Thank you
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