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Last edited 03 Aug 2022
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 route should follow a strategy which fits the long-term objectives of the client's business plan. Considerations are likely to include:
- Traditional contract 86%
- Single-stage design and build 41%
- Two-stage design and build 39%
- Management contract 18%
- PFI 10%
Admeasurement contracts are commonly used on civil engineering projects. Rates are provided in the contractor’s tender, either as part of the priced bill of quantities, or within a schedule of rates. Then the actual quantities of work carried out are measured and the rates are applied to those quantities. As a result, the quantities paid for may vary from the original estimate.
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.
 Contractor led
Contractors provide a design team to develop a concept design as proposals for the tendering process, typically leading to two teams proceeding to Stage 3. During stage 3, assessments are finalised, and one construction team is appointed preferred bidder.
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.
Design and build is a procurement route in which the main contractor is appointed to design and construct the works. Design and build can be attractive to clients as it gives a single point of responsibility for delivering the project.
'Develop and construct' is a variation on design and build, in which most of the design is completed before the contractor is appointed. This avoids some of the potential problems of design and build, but also misses some of the opportunities.
 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.
For more information see: Design Build Finance and Operate, PFI and PPP, Design Build Finance Transfer (DBFT), Design, build, finance, maintain DBFM, Design Build Finance Operate Maintain DBFOM and Design construct manage finance DCMF.
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.
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.
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 role of a consultant during the construction phase.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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. 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.
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).
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.
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.
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.
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.
The 'traditional' procurement route (sometimes referred to as design-bid-build) is a single-stage, fully designed project where the design is developed in detail by a consultant teamworking 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.
See also: Traditional contract - pros and cons.
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.
- August 2020 construction PMI survey results.
- Automated vendor selection.
- Availability payments.
- Bidding tactics.
- Build lease transfer BLT.
- Build operate transfer BOT.
- CIC Roadmap for Change.
- Competitive procedure with negotiation.
- Complex project.
- Connected procurement.
- Construction contract.
- Construction manager.
- Copronet digital hub is designed to improve the construction industry.
- Corporate objectives for procurement.
- Crown Commercial Service CCS.
- Design and build procurement route
- Design and manage procurement route.
- Design build finance and operate.
- Design, build, finance, maintain DBFM.
- Design Build Finance Operate Maintain DBFOM.
- Design build finance transfer (DBFT).
- Design, build, manage contractor.
- Design build operate maintain DBOM.
- Design Build Operate Transfer DBOT.
- Design construct manage finance DCMF.
- Difference between procurement and purchasing.
- Down payment chain.
- Dynamic purchasing system under the Single Procurement Document (Scotland).
- ECA welcomes the Value Toolkit for the construction industry.
- Engineering procurement and construction contract.
- ESPD and the decline of the PQQ.
- European Single Procurement Document ESPD.
- Exclusion grounds under the Single Procurement Document (Scotland).
- Fast track construction
- Framework contract
- Guaranteed maximum price for construction contracts.
- Innovative partnership procedure.
- Job order contracting.
- Lump sum contract
- Maintenance Repair Operations MRO.
- Management contractor
- Managing the procurement process.
- Methods used by construction companies to facilitate materials.
- Negotiated Procedure without Prior Publication NPwPP.
- New deal for infrastructure 2020.
- OJEU procurement procedures
- Partnering in construction
- Private finance initiative
- Procurement policy.
- Procurement policy note PPN.
- Procurement route options pros and cons.
- Procurement strategy.
- Public private partnerships PPP
- Public procurement
- Renovate, operate, transfer (ROT).
- Restricted procedure under the Single Procurement Document (Scotland).
- Reverse auction.
- Schedule of rates for construction.
- Shadow tolls.
- Single Procurement Document (Scotland).
- Single-stage tender
- Source to pay software S2P.
- Subcontract procurement.
- Tender processes for construction contracts
- The Value Toolkit.
- Traditional contract for construction.
- Transforming Public Procurement Green Paper.
- Two-stage tender
- Typical tender process for construction projects
- Vendor Managed Inventory VMI.
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