Strategies in building procurement (summarized)

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A REVIEW OF PROCUREMENT STRATEGIES IN THE BUILDING INDUSTRY

GROUP 8

2STRATEGIES IN BUILDING PROCUREMENT

Briefly explain the concept of procurement

Establish the methods of building procurement

Highlight the attributes, pros and cons of each strategy

Briefly compare the strategies

IN THIS SLIDE WE INTEND TO:


Procurement describes the merging of activities

undertaken by the client to obtain a building. It is

essentially a series of considered risk that can be

transferred between stakeholders in the building

industry.


Traditional procurement method Design and build procurement method Turnkey procurement method Direct labor procurement method Public private partnership method Management Method

BASIC METHODS OF PROCUREMENT


Selection of an absolute optimal procurement

method is difficult, because even the most

experienced client or contractor does not know

all the potential benefits or risks for each

method. Procurement is, therefore, a succession

of ‘calculated risks’

6TRADITIONAL PROCUREMENT METHOD

Traditional method is one of the most common strategies of procuring a building.

The traditional method is sometimes called Design-Bid-Build (or design/bid/build, and abbreviated D-B-B or D/B/B accordingly) (Akram, et al., 2012).

The client who is also referred to as the employer consents that the projects design work is done independently from the construction work. The design team is different from the construction team.

For the design work, consultants are appointed for the design and cost control while the contractor carries out the construction works.

DESIGN BID BUILD

7TRADITIONAL PROCUREMENT METHOD

CLIENT (EMPLOYER)

ARCHITECT

QUANTITY SURVEYOR ENGINEERS

OTHER CONSULTANTS

CONTRACTOR

NOMINATED SUBCONTRACTOR

S

DOMESTIC SUBCONTRACTOR

S

NOMINATED SUPPLIERS

The contractor’s responsibility extends to all workmanship and materials including all works by sub-contractors and suppliers.

The contractor is usually appointed by competitive tendering.

But may if necessary be appointed earlier by negotiation on the basis of partial or notional information.

There are three types of contract under the traditional procurement method:

1. Lump sum contracts 2. Measurement contracts 3. Cost reimbursement (Davis, Love, & Baccarini , 2008)

8SEQUENTIAL PHASES TO THE TRADITIONAL DELIVERY METHOD

Design Stage Schematic design is carried out,

reviewed and approved. Concept and preliminary

specifications are further developed.

Final drawings and specifications are prepared to form the contract documents

Bidding (Bid) Stage The Owner obtains competitive

bids from a number of qualified contractors.

Each contractor obtains a copy of tender documents which is fully priced by them or split by sub components.

Project is awarded to the lowest bidder.

Construction Stage In this stage, almost every component of the

project is supplied and installed by specialized subcontractors.

The contractor is responsible for undertaking all of the works including provision of all materials, labour, plant and equipment;

also controls the sequence and coordination of works to ensure that construction is undertaken in an ordered and logical way.

9ADVANTAGES

Easily understood by all

There is accountability due to

a competitive selection

It is design lead; the client is has direct

influence and control.

It is a ‘tried and test’ method of procurement

which the market is very familiar

with.

Price certainty at the award of the contract

Variations (changes) to the contract are relatively easy to

arrange and manage.

competitive equity as all tendering

contractors bid on the same basis

10DISADVANTAGES

Can be a timely process to produce the full

contract documentation.

Tenders documents from an incomplete design can be produced but can lead to cost and

time uncertainty, and may lead to disputes.

Overall project duration may be longer than other procurement

methods.

As the general contractor is brought to the team

post design, there is little opportunity for input on

effective alternates being presented.

11DESIGN AND BUILD PROCUREMENT

DEFINITION DESIGN-BUILD (D-B) - According to

the Design-Build Institute of America (DBIA), the design-build form of project delivery is a system of contracting whereby one entity performs both architectural & engineering and construction under one single contract.

12DESIGN AND BUILD PROCUREMENT

ATTRIBUTES OF D-B (NICHOLSON, 2005) Dynamic:

Efficient:

Single-source:

13DESIGN AND BUILD PROCUREMENTCATEGORIES OF DESIGN-BUILD

(D-B) STIPULATED PRICE: With stipulated price design-

build a public agency specifies how much it will pay for construction of a particular building

CONSTRUCTION MANAGEMENT: With construction management design-build the public agency awards a contract to a "construction manager"

14ADVANTAGES

Price CertaintyAgency May

Avoid Conflicts and Disputes

Builder Involved in Design Process

Faster Project Delivery

Agency Needs Less Technical

StaffBetter

communicationFewer disputes and

litigationHigher quality

outcomes

Clear roles, responsibilities and

accountabilityLess administrative

burden

Reduced risk to the client (because the design–build entity

assumes more)

15DISADVANTAGES

Limited assurance of quality control.

Subjective Contract Award

Limited access for small contractors.

Typical project management issues (establishing liability,

writing contracts, scoping estimates and

schedule)

Conflict of interest and ethical issues

Greater business and financial risks

associated with architect taking on general contractor

responsibilities

16TURNKEY PROCUREMENT

DEFINITION A turnkey or a turnkey project is a type of

project that is constructed so that it could be sold to any buyer as a completed product


DEFINITION It is also described as a contract which a

firm agrees to fully design, construct and equip a manufacturing, business, service facility and turn the project over to the purchaser when it is ready for operation for remuneration.

18ADVANTAGES

The project is usually owned by

the contractor.

It gives the client enough time to seek financing.

There is no room for inexperienced clients to make

wrong decisions.

Contractual relationship with

one person.

Total commitment from the

contractor.

19DISADVANTAGES

Lack of control by the client.

Remuneration is usually high.

Difficult to find clients.

No intervention by the client.


SUMMARY The project is usually owned by the

contractor until the end of the project.

Lack of control by the client over design decisions.

It takes more time to setup initially.

21DIRECT LABOUR PROCUREMENT

DEFINITION Direct labour is a system that entails the

client’s usage of own resources to realize his projects (Ogunsanmi et. al; 2003; )

CLIENT

TRADESMEN

22DIRECT LABOUR PROCUREMENT

ATTTRIBUTE It is a method whereby the client design

and produces his project by himself with the aid of in-house professionals void of the use of contractors (Kadiri & Odusami, 2003).

23ADVANTAGES

Tax effect, tax deduction is

almost impossible

Cheaper than the other

procurement methods

Cost monitoring and control is

easier compared to other methods

Greater client satisfaction

Safety in construction.

24DISADVANTAGES

Limited to non-complex projects

Sub-standard finished product, where the

client doesn’t have a good knowledge of

construction.

The client shoulders the greater risk

25PUBLIC PRIVATE PARTNERSHIP (PPP) PROCUREMENT

DEFINITION Is a legally-binding contract between

government and business for the provision of assets and the delivery of services that allocates responsibilities and business risks among the partners.

GOVERNMENT

BUSINESS

PPP


ATTRIBUTES In a P3s method, the government remains

actively involved throughout the project’s life cycle.

The private sector is responsible for the more commercial function such as PROJECT DESIGN, CONSTRUCTION, FINANCE & OPERATIONS.

The goal is to combine the best capabilities of both partners for mutual benefits.

PPP are best for large projectsSource: Google Images


CHARACTERISTICS Executed between public and private sectors.

Risk sharing between the parties.

Long-term relationship between the parties.

Ultimate regulatory responsibility remains in the public sector.

Encompass diverse types of infrastructure.

28ADVANTAGES

Increase in efficiency of a

project’s delivery, operations & management.

Availability of additional resources to meet the growing

need of investment in the sector.

Reduces public sector risks.

Makes better use of assets.

Encourages “Life cycle” approach

to planning & budgeting.

29DISADVANTAGES

The Private sector might not be interested in a project due to

perceived high risks or may lack technical, financial or managerial capacity to implement the project.

A P3s project may be more costly.

30MANAGEMENT BID

DEFINITION Management procurement has three

basic forms Management contracting Construction management (similar to

design and build) Design and manage

31MANAGEMENT BID

The client employs both the design consultant and a management contractor.

The Contractor is in charge of ensuring timely completion of project

MANAGEMENT CONTRACTINGClient

Design team

Management team

Worksmen

32MANAGEMENT BID

The client employs all the consultants, the project manager, and the tradesmen directly and goes into contractual agreement with them directly

CONSTRUCTION MANAGEMENT

Client

Design team Management team Worksmen

33MANAGEMENT BID

This is similar to management contracting, however, in this type the contractor is paid a fee to assume the responsibility for both the construction team and design team

DESIGN AND MANAGE Client

Management contractor

+ Design Works

Worksmen

34COMPARISM

FACTOR TRADITIONAL

DESIGN & BUILD TURNKEY DIRECT

LABOUR PPP MANAGEMENT BID

SCALE OF PROJECT

SMALL-MEDIUM

LARGE REPEATITIVE ALL SMALL VERY

LARGE MEDIUM-LARGE

RISK CONTRACTOR CONTRACTING FIRM

CONTRACTING FIRM CLIENT GOVT AND

PRIVATE BIZ SHARED

COMPLEXITY - - SPECIALIZED SIMPLE - -


Briefly explain the concept of procurement

Establish the methods of building procurement

Highlight the attributes, pros and cons of each strategy

Briefly compare the strategies

RECAP: WE HOPE WE HAVE BEEN ABLE TO:

36REFERENCES

Akram, S., Cavallini, C., Dizdar, A., Mukherjee, A., Kluczuk, P., Kujawa, Z., . . . Zaręba, K. (2012). Manual “Procurement Strategy In Construction”. Europe: Lifelong Learning Programme.

Davis, P., Love, P., & Baccarini , D. (2008). Building Procurement Methods. Bribane Qld 4001: Cooperative Research Centre For Construction Innovation.

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THANK YOU`

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Strategies in building procurement (summarized)