Achieving project quality

• Should not be assumed nor taken for granted as a consequence of selecting a particular procurement route, and the client
• must emphasise and define the quality levels required throughout the process.
• Takes account of appropriate compromises needed to be made between time and cost in the full knowledge of any consequential impact on quality to be delivered.
• Requires provision to be made for innovation (virtually every building is a prototype) and how to allow differentiation between offers from potential contractors.
• Should take account of wider factors including whole-life considerations, choice of materials and products and recognising that the long-term operational cost for an asset is likely to far exceed the once-off capital cost of creating the asset.

Achieving cost certainty

• Depends on the probability of completing a project’s scope within the budget agreed between a client and contractor before the commencement of construction.
• Relies on a client organisation’s own cost benchmarking capability analysis and experience that might influence or undermine cost certainty.
• Is influenced by budgetary and/or regulatory or legal restrictions.

Achieving time targets

• Relies on the reliability of completing projects on time compared with that planned and
• Requires the identification of internal and external factors that could cause delay or disruption to the schedule, eg third party consents, product or service availability (scarcity), approvals and governance.

Dealing with technical complexity

• Depends on the client organisation’s prior experience in delivering a project of the type under consideration and the impact this has on:
  • Risk allocation between it and the contractor (s).
  • The shape of its delivery organisation.
  • The clarity, precision and manner of specifying the client’s requirements.

Providing the flexibility to accommodate change

• Requires the client to have an understanding of the level of flexibility required to allow for changes in requirements at various work stages.

Understanding and managing project risk

• Requires clients to grasp the extent of uncertainty of funding, their organisation’s requirements and the nature of any constraints or dependencies in these areas.
• Needs clients to assess the amount of foreseeable changes and the definition of processes or allowances that should be aimed at securing best value during the procurement process.
• Needs an answer to the question of who is best able to own and/or manage the risks:
  • Client.
  • Contractor.
  • Others?

• Needs clients to ask themselves whether they are able or willing to carry risks and
• Demands procedures for ownership, monitoring and mitigating risks aligned with any commercial principles.

Complying with statutory constraints and considerations

• Needs clients to be aware of the application of the regulations and, if so, what procurement procedure is best suited to the project? (See below).
• Requires clients to be aware of any specific planning requirements and constraints ie Section 106 Agreements, development consents, listed building consents, or similar conditions and restrictions on development.

Procurement timing depends on client capability

• Identifies the pre-contract organisation including all procurement, legal and subject matter experts, senior management stakeholders, approval and corporate governance processes.
• Achieves an early identification of the post-contract organisation and devising appropriate interventions to improve, enhance or augment capability.
• Liaise and manage the handover between the pre-contract and post-contract teams during the transition to the post-tender phase of the project.

Structured procurement processes

• Providing a clearly defined, unbiased process for the selection of suppliers (including transparent evaluation systems and criteria) that determines the ability of suppliers to meet the specified requirements⁵ and add value.

Quality-based selection processes

• These can enable the identification of potential suppliers with relevant experience, and selection of the most appropriate firm on a qualitative basis, thoroughly discussing the project details with the best-qualified firm.
• When applied to larger projects, suppliers should be pre-qualified based on (in part) their implementation of best practice, where responsibilities are written into tender and contract documents.
• Offer non-adversarial selection methods that do not force costs down compromising resources such as staff and materials.
• Means that the most important quality-based attributes by which a supplier’s suitability to carry out a particular project can be judged regardless of the selection process are:
  • Technical competence (including safety).
  • Managerial ability.
  • Availability of resources.
  • Corporate integrity.

Achieving best value

• Is achieved by choosing the right type and level of competition.
• Is gained by adopting processes where the design and construction teams can and should work together as an integrated team.
• Means taking a ‘whole-life’ approach to specifying and costing the project.
• By regarding value chain evaluation as a multi-value system where each of the stakeholders evaluates value from its particular perspective.

Turnkey or GMP

• Also known as ‘GMP’ (guaranteed maximum price).
• Usually based on bespoke terms (only one standard form – FIDIC Silver Book).
• Contractor takes most of the risk.
• Contractor usually deals directly with the employer.

See Figure 4.2 on facing page.

▯ Figure 4.2: Organogram for Turnkey or GMP procurement

D&C (Design and Construct)

• Can either be single Stage Two stage or Develop and Construct (hybrid two stage).
  • In single stage the contractor provides
  • a fully detailed offer based on comprehensive employer’s requirements,
  • For Two Stage the contractor is selected via an initial tender based on preliminary costs and programme, based on outline employer’s requirements.
  • Contractor takes specified risks.

See Figure 4.3, below.

▯ Figure 4.3: Organogram for Design and Construct procurement

Develop and Construct

• Mechanism
  • Design team initially appointed by the employer, in contemplation that it will be novated to the contractor after RIBA Stage C or D.
  • The employer separately appoints project manager, employer’s agent, cost manager and CDM coordinator.
  • The design is completed to Stage C or D; meanwhile the contractor is selected and appointed on a pre-contract services basis.
  • The contractor’s initial appointment is typically made on a qualitative assessment (with or without the cost of preliminaries, overhead and profit for the works to be comprised in the Building Contract).
  • The design team is usually (but not always) novated to the contractor upon its appointment.
  • The contractor works with the design team and employer to develop the scheme in accordance with the brief and budget.
  • Downstream procurement strategy is developed jointly by the contractor, employer and employer’s advisers.
  • The contractor may elect (or may be required) to involve key subcontractors in the design development and tendering processes.

• Advantages
  • Effective management underpinning a fair allocation of design, performance and construction risk.
  • Early validation of strategic programme and construction logistics.
  • Full integration of design and construction through collaborative working.
  • Overlapping of design and procurement without risk of unpriced design development.
  • Reduced need for an additional shadow design team, where the original team is novated.
  • Progressive coordination of the work of specialist contractors.
  • Risk of information release lies with the contractor.
  • Option for contractor to engage employer’s architect and engineers directly.
  • Risk of design detailing rests with the contractor.
  • High scope for value engineering.
  • Low employer risk to cost and programme overruns.
  • Single point responsibilities with contractor.
  • Shorter tender documentation period.
  • Capable of conversion to guaranteed maximum price.
  • Contractor buy-in to cost and programme.
  • Early contractor input on programme, construction methodology and content of subcontract packages.

▯ Figure 4.4: Organogram for Fixed Price procurement

• Disadvantages
  • May attract cost premium for post-contract design development and risk.
  • Quality needs to be carefully defined and supervised.
  • Post-contract changes unlikely to be uneconomic.
  • More difficult for employer to control choice of subcontractors.

Traditional fixed price

• The traditional form of contract is based on a fixed price (lump sum) derived from full drawings, a detailed specification and either bills of quantities or an activity schedule.
• The work is subject to re-measurement if the scope varies.

See Figure 4.4, above.

• Mechanism
  • Competitive tenders are based on complete design drawings for all elements.
  • Measured bills of quantities or, alternatively, activity schedules are part of the tender documentation package.
  • Detailed preliminaries are provided.
  • Some elements may be the subject of Contractor Design Portion Supplements (CDPS) within the contract for specialist products and services for example cladding.

• Advantages
  • Greater cost certainty provided; total cost known at outset of contract (providing scope remains unchanged).
  • Better cost control of variations.
  • Programme certainty – time frame established at outset of contract.
  • Design responsibility remains with client.

• Disadvantages
  • Relies on full design information prior to tender.
  • Longer overall pre-commencement period required to develop complete design prior to seeking competitive tenders.
  • Full design not usually achievable; leading to some Contractor Design Portion Supplements.
  • Client is penalised if major changes introduced during contract.
  • Cost risks remain with the client.

Target cost (may be used for traditional or D&B)

• Mechanism
  • A target cost for carrying out the works is agreed between the employer and contractor.
  • The contractor is paid the actual cost incurred (less some disallowed costs) up to the agreed target cost.
  • If the final cost of the works is less than the target cost, the contractor and employer each benefit from receiving a pre-agreed percentage of the shortfall.
  • If the final cost of the works exceeds the target cost, the contractor is liable for a pre-agreed percentage of the overspend.

Managed/management contracting

• Mechanism
  • Design team appointed and retained by the employer throughout the project.
  • Shortlisted contractors are invited to bid on the basis of their fees, method statements and preliminaries based on available information and the requirements of the strategic programme.
  • Bidding contractors are interviewed formally following the submission of their bids
  • to discover their corporate and personal credentials, to ensure that the successful bidder will fit well with the employer’s team.
  • A management agreement usually (but not always) consists of two parts: pre-construction and construction.
  • The management contractor subcontracts construction works as a series of works contract ‘packages’.

• Advantages
  • Rapid method of procuring a contractor.
  • Enables an early start on-site.
  • Early validation of strategic programme and construction logistics.
  • Facilitates ‘fast-track’ construction.
  • Well-suited to large complex projects.
  • Flexibility – design can extend into the construction period.
  • Flexibility – later procurement of finishes to suit the design programme.
  • Easier incorporation of changes into the contract.

▯ Figure 4.5: Organogram for Management Contracting procurement

• Early contractor input on programme, buildability and the contents of subcontracted packages.
• Programme and cost plan agreed with the design team before the work starts.
• Engages the employer in rolling decision-making throughout the construction period.
• The content of works contract packages can be precisely detailed prior to procurement.
• In practice, subcontractors take more ownership of programme and quality issues.
• Useful employer participation in the choice of subcontractors.

• Disadvantages
  • Minimal risk for the contractor.
  • Close attention is required to optimise the interfaces between the subcontracted packages.
  • The subcontract strategy may not always align with the design method.

See Figure 4.5, above.

▯ Figure 4.6: Organogram for Construction Management procurement

Managed/construction management

• Mechanism
  • Procurement of construction manager as for management contractor.
  • Work packages are arranged by the construction manager as discrete trade contracts between the employer and trade contractors.

• Advantages
  • Rapid method of procurement.
  • Enables an early start on-site.
  • Flexibility – design can extend into the construction period.
  • Flexibility – later procurement of finishes to suit the design programme.
  • Easy incorporation of changes into contracts.
  • Benefits from the early input (from the construction manager) on programme, buildability and the contents of trade contract packages.
  • Programmes and cost plans are agreed with the design team, including information release dates before the work starts.
  • Trade contract content can be precisely detailed prior to procurement to minimise works which fall between packages.
  • In practice, trade contractors take greater responsibility for programme and quality issues.
  • Creates the ethos of the ‘single commercial team’.
  • Provides greater employer input into the choice of trade contractors, which requires a higher level of employer involvement in making decisions throughout the programme.
  • A direct relationship between the employer and the trade contractors may be attractive to the latter and can lead to their improved performance.
  • The employer retains the ability to influence the direction of the project.

• Disadvantages
  • The construction act places the employer at risk of direct adjudication from trade contractors.

▯ Figure 4.7: Organogram for an alliance model for construction procurement

• There is a greater administrative burden to the employer who has to deal with numerous trade contract documents.
• Requires careful definition and scoping of roles and responsibilities.
• There is no construction manager buy-in to cost and programme – project delivery risk lies mainly with the employer.
• Approximately 15% of project costs are cost-fixed when the employer enters into the first trade contract.
• Close cost control and detailed reporting is required.
• Close control of procurement and construction programmes is required.
• There is a risk to the programme, enduring well into the construction phase as the scope of work develops.
• The employer is exposed to greater contractual risks.

See Figure 4.6, on facing page.

Alliance

There are a number of alliance models in current use, particularly within the infrastructure sector. Alliance models can differ in structure but the fundamental principles (as discussed above) are common to all.

• Mechanism (for the model shown in the diagram above):
  • Operates as a series of separable bilateral agreements between the employer and each member.
  • Alliance members are both individual contractors and professionals.
  • Bilateral (commercial) agreements
  • are based on a target cost contract mechanism (see above), where benefits and liabilities are transferred into and out of a central sinking fund held by the employer.
  • A multilateral alliance agreement binds the members together.
  • Each member benefits from a pre-agreed percentage of the sinking fund.

See Figure 4.7, above.

PPP (public/private partnerships)

• PPPs can cover all types of collaboration between the public and private sectors to deliver policies, services and infrastructure.
• PPPs are arrangements typified by joint working between the public and private sectors.
• Where the delivery of public services involves private sector investment in infrastructure, the most common form of PPP is the private finance initiative (PFI).
• The perceived advantages of PPP include value for money, better risk allocation and reduction in whole life costs, while providing better incentives to perform.
• However, the downside is loss of public sector control by the public sector over budget, privatisation of public services and greater cost in the long term.
• Figures 4.8 and 4.9, on the facing page, summarise PPP possibilities and processes.