Construction procurement

Construction procurement can be defined as obtaining a wide spectrum of goods, materials, plant and services in order to; design, build and commission a building that delivers the best possible value for money for the client over its’ life cycle. Traditionally, the criteria for the selection of a contractor or sub-contractor has been the cheapest or lowest priced bid, however recently the emphasis has switched away from cheapest cost to overall best value over the life cycle of the building, (discussed later) including taking disposal and recycling costs into account. 

“As I hurtled through space, one thought kept crossing my mind…………… 

every part of this capsule was supplied by the lowest bidder”.


John Glenn US astronaut

Construction procurement processes should be;

 

  • Fair 

  • Accountable 

  • Inclusive 

  • Transparent  

  • Simple to engage with for all parties from 

  • Large organisations to SMEs.

 

However, it seldom is and for some procurement will be primarily about allocation of risk. Why is risk important? Because risk ownership usually comes with financial implications.

 

Risk and procurement

 

A widely accepted definition of risk is; an uncertain set of circumstances that could, should it occur, have an effect on the achievement of the project objectives. Construction, in whatever form, is a process that involves various amounts of risk and various procurement strategies and forms of contract have different mechanisms for the allocation of risk. 

 

From a client’s perspective risk can manifest itself in the following ways;

 

  • Cost risk – the risk that the final cost may exceed the initial estimate,

  • Time risk – the risk that the project will be delivered later than planned, and

  • Design or quality risk – the risk that the client is unable to easily influence and evaluate the quality of the project.

 

From a contractor’s / sub-contractor’s perspective risk can manifest itself in the following ways;

 

  • Cost risk – will it be possible to achieve the planned profit margin?

  • Time risk – will it be possible to complete the project within the contract period and avoid costly financial penalties?

  • Design risk – has the drawn data been correctly interpreted at the estimating stage and allowed for in the programme?

 

The questions that should be addressed are;

 

  • What are the risks?

  • What will their impact be?

  • What is the likelihood of the risks occurring and most importantly?

  • Who will be responsible for the management of risk?

 

The popularity of construction procurement paths is influenced by a variety of factors. Currently design and build tends to be a popular choice for clients as risk is transferred to the contractor as illustrated below.

Procurement drivers are sometimes illustrated in the somewhat simplistic model as shown below. The surveyor, when determining the appropriate procurement strategy asks the client; which of the drivers is important? Depending on the response a procurement strategy is chosen that matches most closely the client’s requirements.

 

For example; a project where it is considered that design quality and cost are high priorities but where completion is not critical, traditional lump sum procurement based on drawings and a bill of quantities may be considered.

It is not a paradigm that I support as the basic premise appears to be that procurement is just a compromise and clients can not expect to have a building delivered on time, to cost and to standard !

In addition to design and building there are many other procurement options. Listed below is a sample of the procurement alternatives that are available, choose the wrong option or fail to analyse were the risk lie and the consequences can be disastrous.

 

  • Single stage 

  • Two stage 

  • Management contracting

  • Construction management

  • Guaranteed Maximum Price

  • Target cost

  • Cost reimbursement

  • Public Private Partnerships

  • Frameworks / Prequalification 

 

Life-cycle costs

 

A client’s financial commitment to a newly procured building increases dramatically once the building is completed and occupied. Life-cycle costs predictions enables advice on maintenance and replacement costs to be given to the client before procurement decisions are made.

Soft landings

 

Traditionally when a construction project is complete and handed over the client is left on their own to work out how best to maximise the performance of the new asset. Soft landings smooth the hand-over process for the client and ensures seamless occupancy.

 

Tendering procedure

 

It is vitally important for integrity of the bidding process that the system is seen by all participants as fair and transparent. The key questions are; 

 

  • What is the process for arranging a fair and transparent system for obtaining contractor’s or sub-contractor’s bids?

  • What document will be required?

  • How is due diligence carried out on the submitted bids?

  • How are attempts by contractors to distort costs or win an unfair advantage spotted?

  • How is a tender report produced?

 

Sustainable procurement

 

Increasingly pressure is being placed on the construction industry to reducing its’ substantial carbon footprint.

 

Sustainable Procurement is 'a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy, whilst minimising damage to the environment'.

 

Procurement professionals should understand how sustainable issues can be considered and included in procurement practice.

 

Duncan Cartlidge Online gives 24/7 access to a series of clear video tutorials from the author of the best-selling pocketbooks. Each video goes through the selection criteria for a wide range of procurement paths stage by stage analysing the advantages and disadvantages of each.

 

An analysis of the risk profile of various approaches to procurement are included. In addition, the case for sustainable procurement is analysed. Tendering procedure is explained with reference to the latest government guidance.

Extensive experience both in practice and in education allows Duncan Cartlidge to address the common problems encountered when advising on procurement paths. Each video contains a set of self-assessment questions to gauge progress and a question and answer facility will be available to subscribers.