Last edited 28 Nov 2014

Procurement route

Procurement is the process of purchasing goods or services. There are many different routes by which the design and construction of a building can be procured. The selected procurement route should follow a strategy which fits the long-term objectives of the client's business plan. Considerations are likely to include:

  • Speed.
  • Cost.
  • Quality.
  • Specific project constraints.
  • Risk.
  • Asset ownership.
  • Financing.

Clients may need to appoint independent client advisers to help them decide on the most appropriate procurement route for their project. In 2012, an RIBA member's survey suggested that procurement routes commonly used by respondents were:

Contents

[edit] Construction management.

Construction management is a procurement route in which the works are constructed by a number of different trade contractors. These trade contractors are contracted to the client but managed by a construction manager. The construction manager, acts as an agent for the client, administering and co-ordinating the works contracts.

The construction manager is generally appointed early in the design process so their experience can be used to improve the buildability and packaging of proposals as they develop. This can enable some trade contractors to be appointed earlier than others, potentially shortening the time taken to complete the project. However, there will be price uncertainty until the design is complete and all contracts have been let.

For more information see: Construction management.

[edit] Custom build

Custom-build homes are a less 'hands-on' variation of self building in which the prospective home owner works with a developer that can take on the design and construction of the home on their behalf and may help find and acquire a site and arrange finance.

See Custom-build home for more information.

[edit] Design and build.

Design and build is a procurement route in which the main contractor is appointed to design and construct the works as opposed to a traditional contract where the client appoints consultants to design the development, and then once the design is complete, a contractor is appointed to construct the works. Design and build can appeal to clients as it gives a single point of responsibility for delivering the project. However it may be seen as only being appropriate for simple projects, where design quality is not the main consideration.

The contractor can either be appointed to carry out all of the design work, or if the client wishes to have greater influence over the design, a concept design and outline (or performance) specification can be prepared by a design team employed by the client, and then the contractor is appointed to complete the design and carry out the construction.

The contractor may use their own in-house designers to design the building, or appoint external designers, or the client's designers can be employed by the contractor to complete the design (either by novation or consultant switch).

Design and build projects can follow either a single-stage or two-stage tender processes.

For more information see: Design and build.

[edit] Design build finance and operate (PPP / PFI / DBO / BOOT).

A single contractor (perhaps a special purpose vehicle (SPV), with design, construction and facilities management expertise as well as funding capability) is appointed to design and build the project and then to operate it for a period of time. The contractor finances the project and leases it to the client for an agreed period (perhaps 30 years) after which the development reverts to the client.

As this is a very long-term relationship, entered into before any design work is undertaken, it is important that the client defines their requirements very carefully, in particular the quality that is required and how it will be judged. A great deal of risk is given to the contractor, however the price they offer will reflect this.

Variations include: Design Build Operate (DBO) and Build Own Operate Transfer ( BOOT).

An example of a design build finance and operate procurement route is Public Private Partnership (PPP), the most common form of which is the Private Finance Initiative (PFI).

For more information see: Design Build Finance and Operate, PFI and PPP.

[edit] Emerging cost contracts.

An emerging cost (Time and Materials or T&M) contract is a management contract for works and services where the management contractor is paid direct costs identified in an 'estimate of project costs'. It is often applied over a certain period of time. This means that design and workmanship should give greater consideration to long-term performance issues. Emerging cost contracts are often used on projects such as railway infrastructure contracts. They provide for sophisticated management services along with sub-contracting the construction of the works.

It is not a target-cost contract but does provide for value engineering and a right to terminate if the current cost estimate reaches an agreed percentage above than original estimate.

For more information see: Emerging cost contract.

[edit] Engineering procurement and construction contract (EPC) / turnkey contract

EPC contracts, sometimes called turnkey contracts are similar to design and build contracts, in that there is a single contract for the design and construction of the project, but generally with an EPC contract, the client has less say over the design of the project and the contractor takes more risk. On an EPC project, the client may seek tenders based purely on a performance specification and then have no input into the design, other than if variations are instructed.

Generally, EPC contracts are used on engineering and infrastructure projects, where the aesthetics of design might be considered less important than performance and cost certainty.

For more information see: Engineering procurement and construction contract.

[edit] Engineering procurement and construction management contract (EPCM)

EPCM contracts are similar to EPC contracts (see above), but the client employs the necessary trade contractors to construct the works. The 'contractor' acts as a construction manager, managing the trade contractors. Effectively they are performing the roll of a consultant during the construction phase.

For more information see: Engineering procurement and construction management contract.

[edit] Fast-track construction

Typically associated with construction management and management contract projects, fast-track construction overlaps project tasks (such as design and construction) to reduce the overall project duration.

For more information see: Fast-track construction.

[edit] Furniture, fixtures and equipment (FF&E)

FF&E refers to the procurement of Furniture, Fixtures and Equipment. This might be procured separately to the main construction contract, particularly by clients that may already have systems in place for procuring fixed and loose furniture, fittings and equipment, for example schools or hospitals. It is very important under such circumstances to define which contract every element of FF&E is within. It is also important to ensure that any building work required for installation is identified and procured, that any services required are identified and that installation is properly integrated into the main contract.

For additional information see: Furniture Fixtures and Equipment.

[edit] Framework agreements.

Clients that are continuously commissioning construction work might want to reduce timescales, learning curves and other risks by using framework agreements. Such arrangements allow the client to invite tenders from contracts to be carried out over a period of time on a call off basis as and when required.

For more information see: Framework contract.

[edit] Guaranteed maximum price

A guaranteed maximum price (GMP) is a form of agreement with a contractor in which it is agreed that the contract sum will not exceed an specified maximum. Typically this is a mechanism used on design and build contracts where the contractor has responsibility for completing the client’s design and for carrying out the construction works, so they are in a good position to control costs.

For more information see: Guaranteed maximum price.

[edit] Lump sum contract

A lump sum contract is the traditional means of procuring construction, and still the most common form of construction contract. Under a lump sum contract, a single ‘lump sum’ price for all of the works is agreed before the works begin. It is generally appropriate where the project is already well defined when tenders are sought and changes are unlikely. A lump sum contract is not a fixed price. There is more certainty over the final cost, but there are still mechanisms that allow the contract sum to change.

For more information see: Lump sum contract.

[edit] Management contract.

A management contract is one where the works are constructed by a number of different works contractors who are contracted to and managed by a management contractor. A management contract structure is similar to a traditional contract, however, instead of taking the risk associated with a fixed price, the management contractor is reimbursed the amounts paid to works contractors, and is paid a fee usually in the form of a percentage.

Early appointment of a management contractor may allow them to help improve the buildability and packaging of proposals as they develop. Management contracts can enable some works contractors to be appointed earlier than others, which can shorten the time taken to complete the project, but leaves price uncertainty until the design is complete and all contracts have been let.

For more information see: Management contractor.

[edit] Measured term contracts

Measured term contracts are used where the client has a regular programme of works that they would like to be undertaken by a single contractor. They are generally used for minor works or for maintenance work.

For more information see: Measured term contract.

[edit] Measurement contract (re-measurement or measure and value contract)

Measurement contracts (sometimes called 're-measurement' or 'measure and value' contracts) can be used where the design, or type of works can be described in reasonable detail, but the amount cannot. For example, excavation, where the quantity required is difficult to assess until after the works have begun. The contract sum cannot be determined when the contract is entered into, but instead is calculated on completion based on ‘re-measurement’ of the work carried out.

For more information see: Measurement contract.

[edit] Partnering.

Partnering arrangements are intended to enable full integration of design, construction and operation. Partnering arrangements are linked by bi-party contracts and can include contractors, suppliers and specialist designers. Collective and individual incentive schemes for delivery can be included in cost reimbursement and fee payments. Partnering requires heavy involvement from the client acting as employer and adjudicator of disputes.

For more information see: Partnering.

[edit] Prime cost contract / cost plus contract / cost reimbursable contract

Prime cost contracts are sometimes called cost plus contracts or cost reimbursable contracts. They might be used where the nature or scope of the work to be carried out cannot be properly defined at the outset, and the risks associated with the works are high. They are often used where an immediate start on site is required, for example for urgent alteration or repair work. This is a high risk form of contracting for the client as the final cost is not known when the contract is entered into (ie there is no contract sum).

Tendering proceeds based on an outline specification, any drawings and an estimate of costs. The Contractor is paid the prime cost (the actual cost of labour, plant and materials) and a fee for overheads and profit.

For more information see: Prime cost contract and Cost reimbursable contract.

[edit] Prime contracting / prime-type contracting

Prime contracting is a form of procurement in which the client enters into a long-term relationship with a contractor who provides a single point of contact (prime contract) for a supply chain to deliver one or more projects. This is one of the three procurement routes recommended by Government Construction Strategy for publicly-funded projects (where it is described as prime-type contracting).

For more information see: Prime contract.

[edit] Public procurement

The Common Minimum Standards, referred to in the Government Construction Strategy, state that '... Procurement routes should be limited to those which support integrated team working (PPP/PFI, Design & Build, the Prime-type Contracting approach and framework arrangements...).' Under each of these, the client appoints a single integrated supply team (including designers, contractors, suppliers and perhaps facilities managers) based on an output-based specification before design commences.

Public projects or publicly-subsidised projects may be subject to OJEU procurement procedures. These set out allowable procedures for the selection of contractors and require that certain contracts must be advertised in the Official Journal of the EU (OJEU) which can take up to 52 days.

For more information see: Public procurement, OJEU, PFI, Private developer scheme and Crown build.

[edit] Schedule of rates term contract

This form of contract is normally used when the nature of work is known but cannot be quantified, or if continuity of programme cannot be determined. In the absence of an estimate, tenderers quote unit rates against a document that is intended to cover all likely activities that might form part of the works. Indicative quantities may or may not be given to tenderers but do not form part of the contract.

For more information see: Schedule of rates term contract.

[edit] Self-build

Self building is an alternative to the traditional model of house building in the UK. Traditionally, houses are built speculatively by a developer, and then people buy them and move in. With self building, the prospective home owner instigates the development of the home themselves, whether by purchasing a kit house, employing a design and build contractor, employing consultants (such as an architect) and a contractor, or managing the entire process and ordering all the goods and services required themselves. Self building does not necessarily mean that the physical construction is undertaken by the home owner.

See Self-build home for more information.

[edit] Single-stage tender

Single-stage tendering is the traditional route for procuring in the construction industry. It is used when all the information necessary to calculate a realistic price is available when tendering commences and so the complete contract can be awarded based on tenders received.

For more information see: Single-stage tender and Two-stage tender.

[edit] Traditional contract (Design-Bid-Build)

A traditional contract is a single-stage, fully designed project where the design is developed in detail by a consultant team working for the client and a contractor is then appointed under a lump-sum construction contract which includes penalties for late completion. The contractor may have no responsibility for any design other than temporary works.

This remains by far the most popular form of contracting in the UK (ref NBS National Construction Contracts and Law Survey 2012).

For more information see Traditional contract.

[edit] Two-stage tender

Two-stage tendering is used to allow early appointment of a contractor, prior to the completion of all the information required to enable them to offer a fixed price. In the first stage, a limited appointment is agreed allowing the contractor to begin work and in the second stage, when more detail is available, a fixed price is negotiated for the rest of the contract.

It can be used to appoint the main contractor early, or more commonly as a mechanism for early appointment of a specialist contractor such as a cladding contractor. It may also be adopted on a design and build project. In this case, the contractor will tender a fee for designing the building along with a schedule of rates that can be used to establish the construction price for the second stage.

For more information see: Two-stage tender.

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