Episode 32:

Hello and Welcome to the Part3 with me podcast, 

The show that helps part 3 students jump start into their careers as qualified architects and also to provide refresher episodes for practicing architects. I am your host Maria Skoutari and this week we will be talking about Procurement — PC5 - Building Procurement of the Part 3 Criteria.

As I’m sure you’re all aware, procurement is quite an extensive subject so I will be covering it over a few episodes to make sure I cover everything you need to know for Part 3 and as professionals in practice. 

Let’s start by initially defining what does procurement mean?

Procurement is the process of acquiring goods, works and services covering both acquisition from third parties and from in-house providers. There are many different routes by which the design and construction of a building can be procured and the selected route should fit the projects objectives and clients requirements. 

So what are the typical Procurement Contracting Methods, these involve:

• Traditional
• Design and Build
• Public Private Partnerships / Private Finance Initiative
• Management Contracting
• Construction Management
• Framework Agreements

So what factors can influence the choice of the preferred procurement route:

Items to factor include:

• Time
• Cost
• Quality
• Project Constraints
• Risk (client or contractor)
• Asset Ownership
• Financing

When one of these factors is altered it will as a result affect the others to maintain the balance, the key ones being time, cost and quality. For example on a project that needs to be built quickly so more time based, the quality and cost will suffer as a result - the balancing of these factors will of course be informed by their suitability to the client and project.

So looking more closely at the Cost, Time and Quality factors. Starting with Cost:

Lump sum contracts tend to be the most attractive to clients because they offer the promise, at least in theory, of cost certainty. Design and Build or Management contracts have been let on the basis of a guaranteed maximum lump sum, although the design information tends to be incomplete at the time of tendering unlike traditional contracts. Despite the risks from other factors and the conscious shift from immediate costs of a project to a more whole life cycle costing outcome, the Most Economically Advantages Tender (MEAT) and sustainability, the lowest price still seems to be the determining factor of the preferred procurement method. To address some key factors for the client and to help them determine their position of cost that will in return inform the preferred procurement route, the lead consultant can impose the questions of:

• Is there a Contract Sum limit set that cannot be exceeded
• Do the  precise costs of the operations need to be known before start on site
• In the event of vacations can the client incur additional expenditure
• Regardless of other factors will the client go for the lowest tender
• Will the tenderer allow for inflation of labour and materials when pricing
• Is total accountability a key factor
• Does the client require evidence of competition when sub-contractors or suppliers are invited to tender

Moving on to Quality,  it it vital to determine with the client what quality is to them both in respect of services and the finished project and to what standard they expect the works to be carried out. These can be determined by the lead consultant imposing a few key questions, such as:

• Will commercial prestige and public image be influencing factors to the degree of quality desired
• Are high quality materials expected to be used
• Are the works to be carried out on a historic building or to Passive Haus standards that will require higher than average standards of craftsmanship
• Are all matters of design and specification to be under the control of the design team and specialist sub-contractors to be named or selected by the client
• Will certain design details be entrusted to the contractor’s own organisation without the quality of the design concept being impaired
• Will the building be intended to be maintenance-free
• Will the client require constant monitoring of the site to monitor the contractors quality of work
• Will some or all of the work be performed by a firm with specialist expertise

And now moving to Time, speed can be achieved through the use of prefabricated methodologies and systems but their fast production will depend on the conditions of the factory and if they have been produced under monitored and controlled conditions. Good supply chain management can reduce both waste and time. Time and cost savings can also be achieved through overlapping detailed design and construction stages. Real time saving comes from effective management and not taking premature rushed decisions and starts. Whatever method of procurement is adopted, its key to allow sufficient time for all relevant matters to be properly considered at the pre-contract stage. For example if using Design and Build, its success relies on whether the clients requirements have been carefully worked out and enough time has been allowed for this process to be carried out. Similarly with the other two factors mentioned, the lead consultant can impose a few key questions to determine the clients requirements when it comes to time by asking:

• Is there enough time for a full brief to be developed to ensure the client requirements can be properly reflected in the tender documents
• Does the client have any financial commitments that will impact the date for completion 
• Are there any external pressures imposing a certain completion date
• Will phased or section completion be required
• Is phased possession by the contractor desirable limiting successive parts of redevelopment of the works to enable business to continue during construction

So once these factors have been considered the procurement method can be determined. In the UK, the most common ones from the ones I mentioned earlier tend to be the traditional or conventional approach in which design and construction are seen as separate elements, then you have design and build which has a more integrated approach and then management by which either the client or contractor assumes the central management responsibility. Now let's look more closely at these three key procurement methods. 

Starting with Traditional Procurement, with this method:

The design is separated from construction and the basic assumption is that the contractor is to carry out and complete the work as shown on or described in the documents supplied by the client and they are responsible for their own working methods.

• Its required that a full set of documents is prepared before tenders are invited and adequate time must be allowed for this
• Under traditional procurement, it is assumed that the design will be by the appointed consultants and usually the contractor doesn’t have any design obligations. If this service is required by the contractor or specialist sub-contractor it should be specified within the contract 
• The client appoints consultants to advise on design and cost so the client retains control over the design and quality required
• The client therefore, has the direct contractual relationship with the consultants.
• The client may be named as the ‘Contract Administrator’ - I will be covering this role in another episode
• Where the client selects sub-contractors or suppliers they should be advised to use collateral agreements to the protect their interests.
• This method provides cost certainty, whereby a lump sum is known before work starts 
• The contractor depends on the information and instructions from the architect being issued on time. If any delays occur there is a risk of claims that’s why information release dates are sometime agreed beforehand but making these contractually binding needs to be considered with caution to avoid future disputes
• The contractor will be responsible for any defects.
• The client can decide which specialist firms the contractor is to use if stated so in the contract 
• All matters of valuation and payment are the responsibility of the clients consultants
• If it's not possible to define the precise quantity or nature for some of the work, it is still possible to adopt a traditional method on the basis of approximate quantities, provisional sums or cost reimbursement. But the more precise the information is the higher likelihood of cost certainty. 
• There is potential to use a two-stage tendering process or negotiated tendering, often referred to as ‘Accelerated Traditional Method’, whereby the design and construction can run in parallel to a limited extent - this enables early start on site but with less certainty on cost.
• Under the traditional method the consultants are highly involved up until RIBA Stage 4 where the tenders go out and the contractor is appointed. Then the contractor is responsible to carry out the works during stage 5 as per the clients requirements stated within the building contract and then for Stage 6 both the contractor and consultants assist the building user with the initial occupation and review of project performance in use.

So typically under traditional procurement there are three types of building contracts available which includes:

• Lump sum contracts: where the Contract Sum is determined before construction starts and the amount is entered in the agreement
• Measurement contracts: where the Contract Sum is accurately known only on completion 
• Cost reimbursement contracts: where the Contract Sum is arrives at on the basis of the actual costs of labour, plant and materials with an additional feee added from overheads and profit.

Moving on to Design & Build, with this method:

• The contractor is responsible to a greater or lesser extent for design, carrying out the work and potentially appointing their own consultants.
• The arrangement between the client and contractor may be for total design and construction or for design development and production information based on a scheme design supplied by the clients consultants. 
• So you could essentially have the consultants simply putting together the strategic brief with the client and outlining their requirements and then the contractor takes the brief and moves the projects through detailed proposal, tender, mobilisation and completion with the consultants assisting with the building users occupation. 
• In the most ideal scenario, there is usually a single point of responsibility allowing the client to only have to deal with one firm, in real practice, however, the clients requirements are often detailed to the extent that the contractors design contribution and liability are diminished. 
• The client lacks control over detailed aspects of design.
• Can follow a single stage or two-stage approach
• Construction can start earlier since a great deal of detailed design work can be carried out in parallel - the contractor benefits from operational flexibility.
• On time completion rests wholly with the contractor and there is little risk claims since the contractor can’t blame the client for late information issue. This obligation on the contractor to be responsible for the flow of his necessary information is one of the most attractive features of design and build.
• There is greater certainty of cost, even to the extent that, if required, responsibility for investigating site and sub-soil conditions can be made entirely to the contractor. But any significant changes in the client’s requirements will affect the Contract Sum and are likely to prove costly.
• Often the client requires that the contractor appoints the client’s consultants to develop the design under a consultant switch agreement or by novation. If this is not the case, it is always advisable to ask for information about who the contractor intends using as designer. Adequate professional indemnity insurance should be determined in such a scenario.
• The main contractual link is between the client and the contractor
• The client should appoint consultants to advise on the preparation of the requirements, and adequate time should be allowed for these to be properly prepared.
• The requirements might include specific items, or even provisional sums, but generally prescribe performance criteria should be highlighted, so that a high degree of reliance is placed on the contractor.
• In the absence of clarification, the contractor’s design obligations are absolute and their obligations are reduced to the professional’s duty of using reasonable skill and care.
• Valuation of changes by the client is entirely the responsibility of the contractor, and the client has no quantity surveyor to intervene on his behalf.
• It is often difficult to evaluate design and build tenders objectively where both schemes and prices are submitted. Tenderers should be informed of the criteria to be used, and whether price is likely to be the prime consideration.
• Benefits can arise from designers and estimators having to work closely together. The contractor’s awareness of current market conditions and delivery times can ensure that a contract runs smoothly, economically and expeditiously.
• The client’s agent or representative should be selected with great care and the extent of the agents powers to act for the client will need to be clearly established.
• It is possible under design and build, to modify a traditional ‘work and materials’ agreement where is desirable to make the contractor responsible for design of part of the works e.g. pilling but of course these should be limited otherwise it falls under traditional procurement.
• There is also a two-stage tendering process with design in build which usually involves appointing the contractor at the first stage through a competitive tender to act as adviser to the design team and at the second stage the client and preferred contractor enter negotiations over time as the scope becomes clearer with the aim of arriving at a fixed price for the works. The element of competition is meant to be maintained by keeping the original first-stage tenderers that are willing and able to step in to pick up the main second-stage work packages. But if the tenderers leave this mean the client will not achieve the best price. 

And moving to the Management procurement method, with this method: 

• The client usually starts by appointing consultants to prepare the project drawings and a project specification. 
• With this method you typically have a lead designer responsible for the overall design, a construction manager responsible for the management and coordination of work and the client responsible for directing the project and entering into all the trades contracts - so the client takes on greater risk.
• The management contractor is selected through a tender process and interviews and is paid on the basis of the scheduled services, prime costs and management fee. 
• The management contractors role is purely to manage the execution of the work and is not usually directly involved with carrying out any of the construction work which is done in ‘packages’ by works contractors
• In some instances the management contractor may take on design liability, also known as Design, Manage, Construct.
• Works Contractors are directly and contractually responsible to the management contractor. 
• This method has greater operation speed and efficiency due to its coordinated approach.
• Management procurement is best suited for large, complex, fast-moving projects seeking to complete fast
• This methods relies on a high degree of confidence and trust as the decision to go ahead has to be taken on the basis of an estimate on the project information
• Early appointment of the management contractor or construction manager is essential to assist the design team before construction
• Detailed design work can proceed in parallel with the site operations for some packages resulting in a faster start on site date 
• The client has greater design flexibility as it can be adjusted during the construction process without having to sacrifice cost control - but this may result in coordination errors
• Specialist contractors can be appointed in good time to enable selection of materials and so on avoiding the complexities that come with traditional nomination procedures
• So with this method the management contractor will be involved through the whole process of the project with works contractors coming on board at tender stage until the completion of the project.

So typically under management procurement there are two key types of building contracts available which includes:

1. Management contracts: where the client appoints an independent professional team and a management contractor. The management contractor will act as advisor pre-construction and during construction will be responsible for executing the works using direct works contractors. This contract offers early start on site achieving early completion. It’s flexibility allows the client to develop the design during construction. The management contractors fee will typically be in the form of a percentage of the total project cost. The client takes on most of the risk because of the uncertainty with costs or programme. 
2. Construction management: similar to the management contract where the construction manager is appointed through a careful selection process and paid a management fee. The key difference with this contract is that the trades contract are direct between the client and trade contractors unlike the management contract where it is with the management contractor. So in essence the client takes on all of the risk and the construction manager is essentially the coordinator and cannot guarantee cost and time certainty. 

So to sum up what I discussed today:

There are a number of procurement routes a project can choose to follows, which includes:

• Traditional
• Design and Build
• Public Private Partnerships / Private Finance Initiative
• Management Contracting
• Construction Management
• Framework Agreements

The three most commonly used in the construction industry is Traditional, Design and Build and Management contracting.

When analysed against the key factors of speed, complexity, quality, flexibility, certainty, competition, responsibility, and risks: 

Traditional Procurement is:

• In terms of speed, not the fastest method and all information is required by tender stage
• Relatively straightforward in terms of complexity - complexities may arise if the client requires a certain sub-contractor to be used
• In terms of quality, it must meet the clients set standards and the contractor is expected to achieve the stated quality
• In terms of flexibility, the client control the design and variations 
• This methods offers cost and time certainty with clear accountability and cost monitoring at all stages
• Competitive tenders are possible for this methods - negotiated tendered reduce the competitive element
• The responsibility is split between design and construction of consultants and contractor
• The risk is fairly balanced between the parties
• Generally traditional procurement offers benefits in cost and quality but at the expense of time

Design and Build Procurement is:

• In terms of speed, is relatively fast - pre-tender time depends on the amount of detail in the clients requirements. Construction time can be reduced because design and building can proceed in parallel.
• In terms of complexity, it provide an efficient single contractual arrangement integrating design and construction expertise within one accountable organisation
• The client has no direct control over the quality produced and the contractor’s performance on site and the client has little say in the choice of specialist sub-contractors
• In terms of flexibility, there is virtually none for the client once the contract has been signed without them incurring heavy cost penalties. There is flexibility in the development of details or making substitutes to the contractor’s advantage
• In terms of certainty, there is a guaranteed cost and completion date
• In terms of competition, it is made more difficult for the client to compare proposal which include both price and design. No benefit passes to the client if the contractor seeks greater competitiveness for specialist work and materials. 
• In terms of responsibility, it can be a clear division between client and contractor but can get confusing where the clients requirements are detailed which in result reduced the reliance on the contractor for design or performance.
• Most of the risk will lie with the contractor.
• Generally with design and build, it offers benefits in cost and time but at the expense of quality. 

And lastly, Management Procurement is:

• In terms of speed, offers early start on site long before tenders have even been invited for some of the works packages
• In terms of complexity, design and construction skills are integrated at an early stage reducing complexity. Complexity comes in where sophisticated techniques come in fro construction and operation
• In terms of quality, the client requires certain standards to be shown and described and the managing contractor is responsible for quality of work and materials on site.
• In terms of flexibility, the client can modify or develop the design requirements during construction and the managing contractor can adjust the programme and costs to suit. 
• In terms of certainty, the client is committed to starting building on a cost plan, project drawings and specification only, so slightly less certainty offered
• In terms of competition, there isn’t a great deal when it comes to the management contractor as they need to be appointed on the basis of their expertise in management procurements rather than because of fees. Competitiveness can be retained for the works packages.
• In terms of responsibility, success of the project depends on the management contractors skills so an element of trust is essential.
• The risk lies mainly with the client 
• Generally management procurement, offers benefits in time and quality but at the expense of cost.