Introduction

The implications of the procurement were indeed discreet as it were in more than many ways
was unclear. As this assignment was going on, it has become even clearer to me as it was to
elaborate in brief each of its designated uses. Also there on the understanding of the more deep
meaning roles of the client, the contractor and the consultant were understood significantly.
Task-01

Description of the common needs of public and private clients

Client is the main part of a construction industry. According to that, the constructions will grow
on client’s requirement. This organization is dividing under two categories. They are;

1. Private Sector

2. Public Sector

According to that;

Private Sector Public Sector

Industrial Government Departments

Commercial Nationalized Industries
Social Statutory Authorities
Charitable Local Authorities
Professional Development agencies

The Private sector is non-government department and also public sector is under the government
department. Private sector is usually composed of organizations that are privately owned and not
part of the government. These usually includes corporations (both profit and non-profit),
partnerships, and charities.

An easier way to think of the private sector is by thinking of organizations that are not owned or
operated by the government. For example, retail stores, credit unions, and local businesses will
operate in the private sector. The public sector is usually composed of organizations that are
owned and operated by the government. This includes federal, provincial, state, or municipal
governments, depending on where you live.

It is the type of client that that affects both type of project and the procumbent method. For
instance if we take charitable client from the private sector he might pay all the financial
requirements and leave the work for the appointed team on the other hand a government
department project will be thoroughly supervised and checked by the client as he may also plays
the role of consultant most of the times.
Clients Duties

On all projects clients will need to:

 Check competence and resources of all appointees.

 Ensure there are suitable management arrangements for the project including welfare
facilities.

 Allow sufficient time and resources for all stages.

 Provide pre-construction information to designers and contractors.

 Appoint a CDM co-ordinator.

 Appoint a principal contractor.

 Make sure that construction work does not start unless a construction phase plan is in
place and there are adequate welfare facilities on site.

 Provide information relating to the health and safety file to the CDM co-ordinator.

 Retain and provide access to the health and safety file.

Public Client Expectations

Public and private clients are equally entrenched in their demands for perfection. However, they
are discussed separately here because of their different perspectives. Included in the list of public
clients who may demand perfection are state departments of transportation, city/county
governments, utility/service districts, transportation agencies, school districts, and the like. This
list could also include program management firms hired by public clients to manage their
projects.
Occasionally, agencies will call “sister” agencies to determine what policies and systems they
may have in place to control consultant costs and avoid paying for “deficiencies.”

 Design professional being required to pay for all additional costs caused by “any” error or
omission.
 Standard of care beyond the normal negligence standard.
 Various studies underway to develop and implement procedures to recover cost from design
professionals on some basis other than professional negligence.
 Invoices sent to design professionals to pay for construction cost increases – after the fact,
with no justification to do so, and with no involvement of the design professional in resolving
the problem or settling the claim between the client and the construction contractor.
 Withholding payment pending resolution of a potential claim.
 Design professionals being required to correct “any” deficiency, without further
compensation when the agency determines, at its sole discretion, the services are
“unacceptable.”

Private Client Expectations

Many private sector clients (e.g., residential developers, institutions, health care providers,
private utilities, industry, high tech clients) exhibit the same expectations of perfection. Often
private sector clients demand design professionals fix imperfections to their satisfaction at no
extra cost to them – it does not matter whether contractual terms support their position. This
attitude is fostered by a general inclination on the part of private clients to equate design
professionals with construction contractors for purposes of contractual requirements and
performance expectations. Frequently, private sector clients request/require design professionals
to sign “standard subcontract” agreements that contain onerous indemnity and satisfaction
requirements, creating uninsurable performance requirements.

Furthermore, some private clients view the design professional’s insurance portfolio as an asset
to be made available for purposes of resolving claims, offsetting increased costs, or resolving
defect litigation. For example, some private clients may want to be named as an “additional
insured” on the design professional’s professional liability insurance policy, even though such
endorsements are not available.
Task-02

Analysis of the project’s variables

Traditional

Traditional procurement helps to achieve,

 Cost certainty

 Good workmanship

 Good functionality

 aesthetic

 Time predictability

 Suitable for all type of clients

 Suitable for complex projects

 Not suitable for fast track projects

In this type of project the client consider very much about the aesthetic appearance of the
relevant building. Thus he is interested in making his building beautiful, attractive and unique,
compared to other building.

Ex-

 House project
 Textile project

This is probably the most commonly used method and it is suitable for:

 All clients, including inexperienced clients

 Complex projects and projects where functionality is a prime objective

 Time predictability

 Cost certainty.

However, it is not suitable for fast track project.

Design & build

This procurement system is mostly required by the public sector. Only client and contractor are
involved in this method. All responsible to contractor this is similar to traditional system and use
for fast track projects but aesthetic requirement is not needed.

It is used projects as follows is traditional procurement helps to achieve,

 Early start of the project

 Faster completion but no aesthetic requirement

 Cost certainty

 Single point responsibility

 Suitable for all type of clients

 Not suitable for the complex buildings & non-finalized client briefs

Design-build successfully delivers office buildings, schools, stadiums, transportation and water
infrastructure projects with superior results.

This method of design and build involves the contractor being responsible for design as well as
construction, it can be suitable for:

 All clients, including inexperienced clients and those requiring distance from the project.

 cost certainty

 Faster track

However, it is not suitable for:

 An uncertain or developing client brief

 Complex buildings
Built Operate and Transfer

This is a new system in which land is acquired by government and contractor is asked to build
the civil works, operate it by collecting some fee from its users to collect the cost of construction
and once the cost is collected, to transfer it to the owner i.e. government. No investment is made
by government under this system. Drawings, estimates are prepared by government and
contractor is required to execute the work as per designs and specifications given by engineer.

Mostly bridges and highway roads ports are constructed and developed by this particular system
of contract.

Package deal

Package deal procurement helps to achieve,

 Early start of the project

 Technical quality

 Less variation

An offer or agreement involving a number of related items or one making acceptance of one item
dependent on the acceptance of another the contractor is responsible for design, construction
planning, organization and control.

Under this system service of the contractor will include the preparation of the project brief,
sketch and final working drawings, getting all the approval from authorities, project financing,
construction, finishing and commissioning of all equipment and accessories and handing over the
project to the client.

Turnkey

Turn Key procurement helps to achieve,

 Less responsible client

Starting from designing to handing over, the contractor takes the full responsibility.
PFI – Private Finance Initiative

PFI procurement helps to achieve,

 Client shares the financial risk with private sector

 Suitable for long contractual projects such as highways, fly-overs & airports

 Built Own Operate Transfer (BOOT) & Built Own Operate (BOT) contracts come under
this category.

Under this arrangement, a contractor is commissioned to undertake the responsibility for

everything necessary and required for the construction, completion, commissioning and hand
over the project. A turnkey system is a system which is designed, specified, purchased, installed,
and started up by a single company. Turnkey systems are built in the "design-build" style of
contracting, as opposed to the traditional "design-bid-build" style of contracting in which the
Owner contracts out the design and installation/construction himself while procuring all of the
equipment.

This system was used during the construction of apartments and flats. The person who wants a
flat; is required to complete the paper work and transaction work and enter into his own house
simply by turning the key. i.e. opening the door. This system is becoming very popular in world.
In big cities or towns; most of the bungalows are constructed with this type of system of contract.
Here the owner fully gets relieved of all problem come across during construction.

Management Fee

Management Fee procurement helps to achieve,

 Team working

 Early start

 Flexibility in changes

 Suitable for experienced clients

 Suitable for complex projects

Design Variables Influence Estimates in Construction
Design variables often affect construction estimates. Construction materials and components
vary by manufacturer and those responsible for putting construction projects together to
completion often make choices based on personal preferences and familiarities.

I. Design Variables Ripple Out

Design variables produce ripple-effects on construction projects. If a mechanical designer opts
for a particular fire-protection system, that decision might affect such related components as
structural attachment devices, hangers, accessibility, utility space and more. Construction
projects take on an energy that needs to be fed constantly with updates and real-time information,
if efficiency and effectiveness are to be optimal.

II. Crucial Communications

Many construction projects have several independent arms working simultaneously and it is a
constant battle to keep communications flowing to keep all involved updated. Design variables
chosen in one arm must be communicated throughout the entire project team as soon as possible
to avoid costly tear-outs and reconstruction.

III. Considerations
Ideally, real-time communications are taking place and today's construction workers are often in
direct contact with others on the project team via cell phones or hand-held computers, which help
minimize negative impact of design variables. Software systems help to collect real-time data on
a variety of construction issues, from the actual time taken to complete a task versus the
estimated time, to information about a last-minute substitution in mechanical equipment
components.
Task-03

Choosing a procurement method for the project and analysis for the selection.

Procurement

Procurement is a term which describes the activities undertaken by a client or employer who is
seeking to bring about the construction or refurbishment of a building.

It is a mechanism which provides a solution to the question: "how do I get my project built?"

On most projects, clients (usually through their advisers or in-house teams) will start the
procurement process by devising a project strategy. The strategy entails weighing up the
benefits, risks and budget constraints of a project to determine what the most appropriate
procurement method is, and what contractual arrangements will be required.

With every project, the client’s concerns focus on time, cost and quality (or performance) in
relation to both the design and construction of the building.

The client’s policies, resources, organisational structure, and preferred contractual arrangements
will all need to be taken into account in choosing the right procurement method for their project.
Understanding risk is essential, as although each procurement method follows a well-established
set of rules and procedures, there are risks associated with choosing any particular route.

Successful procurement relies on all parties involved in the project complying with their
respective obligations, and identifying and dealing with risk appropriately from the outset.
Criteria for Procurement
The client will ultimately decide on which method of procurement to choose from as the method
chosen will always have an effect on their project. Therefore the client must decide on what
their key requirements are and chose the one most suited to their needs. But before we make any
recommendations to our client we will need to look at the various procurement methods
available as each method all have pros and cons and each are all reflected in the key criteria such
as:

 Time - speed or certainty of completion date

 Cost - price level or cost certainty

 Quality - functionality and performance

The emphasis on only one of the key criteria will almost certainly have a negative effect upon
the others. The business case will help determine which criteria are most important and which
could constitute the greatest risk. All will need to be looked into further before we are able to
provide our client with a recommendation on which procurement route to take, thus allowing
them to make an informed unbiased decision.

Procurement Methods

There are four main procurement methods. Click on one of the options below to view in more
detail:

 Traditional/Conventional

 Design and Build

 Management

 Integrated
Traditional/Conventional method

The traditional or conventional procurement method has been a standard practice in the
construction industry for 150 years, following the emergence of general contracting firms and
independent client consultants. There are two main features of the traditional method:

1. The design process is separate from the construction

2. Full documentation (i.e. drawings, work schedules, bills of quantities) must be supplied
by the client before the contractor can be invited to tender for carrying out the work.

Other features of the traditional/conventional procurement method:

 A contractor is usually selected and appointed by competitive tender, but sometimes by

negotiation.

 The terms of many traditional contracts require the client to appoint a professional consultant
(i.e. architect, quantity surveyor, contract administrator) to act as an independent contract
administrator.

 Full documents are needed for the tendering process – including that from specialist sub-
contractors. Time is needed to adequately prepare this.

 The client has control over the design through their appointed consultants (i.e. architect).
Generally there is no design responsibility on the contractor.

 There is reasonable certainty on the cost of the project because the contract figure is usually
known at the outset. The contract does have provision for cost to be adjusted later, if
required.

 Speculative risks are balanced between the parties. A lump sum contract is more in favour of
the client whereas a measurement contract is less so. A traditional lump sum approach in
terms of design, quality and cost is relatively low risk procurement option for a client,
however the time required for the project overall is likely to be longer than other
procurement methods.
Types of traditional/conventional contract

Lump Sum Contracts

With lump sum contracts, the contract sum is determined before construction work is started.
Contracts ‘with quantities’ are priced on the basis of drawings and firm bills of quantities.
‘Without quantities’ means a contract priced on the basis of drawings and usually another
document, such as a specification or work schedules.

Measurement Contracts

The contract sum for measurement contracts is not finalised until completion of the project,
where it is assessed on remeasurement to a previously agreed basis. This type of contract can
arise where the works to be carried out by the contractor cannot for good reason be accurately
measured before tender. Normally the design will be reasonably complete and an accurate
indication of quality will be available to the tenderer. The contract of this type with least risk to
the client is probably that based on drawings and approximate quantities. Measurement contracts
can also be based on drawings and a schedule of rates or prices. A varient of this is the measured
term contract under which individual works can be initiated by instructions as part of a
programme of work, and priced according to rates related to the categories of work likely to form
part of the programme.

Cost reimbursement Contracts

Sometimes referred to as ‘cost-plus’ or ‘prime cost’ contracts, these work on the basis that the
sum is calculated from the actual costs of labour, plant and materials to which an amount is
added to cover overheads and profit. The overhead and profit amount can be a fixed-sum,
percentage, or some other reimbursement payment. This type of contract is only generally used
where the circumstances of the project preclude other alternatives or where a partnering ethos is
in place, as it can be quite high risk for the client.
Design and Build

Design and Build procurement works on the basis that the main contractor is responsible for
undertaking both the design and construction work on a project, for an agreed lump-sum price.

Design and build projects can vary depending on the extent of the contractor’s design
responsibility and how much initial design is included in the employer’s requirements.
Nevertheless, the level of design responsibility and input from the contractor is much greater on
design and build projects than a traditional contract with a contractor’s designed portion.

Adequate time must be allowed to prepare the employer’s requirements (the employer usually
appoints consultants to facilitate this), as well as time for the contractor to prepare their proposal
and tender price. It is vital that the proposal matches all of the employer’s requirements before
any contract is entered into.

The employer has control over any design elements of the project that are included in their
requirements, but once the contract is let responsibility over design passes to the contractor, so
the employer has no direct control over the contractor’s detailed design.

The contractor can carry out the design in a number of ways. Often they will appoint their own
consultants or use their own in-house team. It is also common practice for the contractor to take
on the employer's consultants and continue to use them to complete the detailed design under
what is known as a novation agreement.

Other Features of Design and Build Procurement

 As design and construction can be carried out in parallel, the overall programme time of
design and build projects can be shorter. However this depends on how much design the
contractor is responsible for.

 There is reasonable certainty over costs because the contract price is known at the outset.
Provided the employer does not order changes during the construction of the work, the
contractor will be obliged (subject to the conditions) to complete the project for the contract
sum. If the employer does require design or specification changes during the construction
period, the contractor advises as to the effect this may have on costs or additional time
needed.
 Design and Build is a relatively low risk procurement option for the employer, in terms of
cost and time. There can be a risk related to design and quality, particularly if the employer's
requirements were not properly gathered and if insufficient time went into examining the
contractor's proposal.

Types of Design and Build Contract

 Package deal or turnkey contracts - This is where the employer accepts a proposal
based on a standard design from the contractor, effectively providing a single point of
responsibility as the contractor is responsible for the design and construction of the entire
project.

 Design and build contracts - This is where project documents are compiled with the
contractor's design obligations relating to the whole of the works in mind.

Management

Management procurement is a method where construction work is completed using a series of

separate works or trade contracts which the main contractor is responsible for managing. The
contractor does not actually do the physical work, but is paid a sum for managing the project
through the various works packages.

The employer starts by appointing consultants and a contract administrator to prepare drawings,
a project specification and cost plan. The employer has control over design throughout the
project through their professional team. The contractor is appointed by negotiaiton or tender, and
interview. The works packages are usually let by competitive tender.

It is beneficial for the proposed contractor to be involved as early as possible as they will provide
expertise in terms of buildability and programming of the works packages.
Other features of management procurement

 Design can proceed in parallel with construction, and much of the design might be of a
specialist nature related to a specific package of work. Early starts on site are often possible
and overall project time can be reduced as a result.

 There is no certainty over cost at the outset and work proceeds on the basis of the cost plan.
The final cost of the project will not be known until the final works package is let, however
costs can be monitored and controlled by the employer's professional team.

 Design changes are possible during the construction phase, provided that the changes do not
affect work on packages already let, which can result in aborted work.

 Completion within the contract period is an obligation of the contractor, and extensions of
time cannot be granted without permission from the contract administrator.

 Risk is largely with the employer, in respect of costs and time. A degree of trust and in-
house expertise is required for management procurement projects. However this is a low
risk option for the employer in terms of design and quality because of the control they have
over the professional team.

Management Contracting vs. Construction Management

Management procurement generally works on the basis of two different methods:

Management Contracts

With management contracts, the employer appoints a professional team and a management
contractor who is responsible for managing the works. The management contractor does not
directly undertake any of the construction, this is spilt into packages and carried out by works
contractors. The management contractor appoints the works contractors, and they are directly
and contractually accountable to the management contractor. A pre-construction phase will allow
a programme of works packages to be developed from the drawings, specification and cost plan,
which are then let out by competitive tender.
Although contractually responsible for the works contractors, the management contractor is not
liable for any default by a works contractor, provided they have complied fully with the terms of
the management contract.

A variation on this method is 'design and manage' where the management contractor is
responsible for the design team as well as the works contractors.

Construction Management

With construction management contracts, the employer will appoint a professional team with
either an in-house manager, or enters an agreement with a construction manager to oversee the
work. The construction manager does not directly undertake any of the construction work, this is
split into packages and carried out by trade contractors. The employer appoints the trade
contractors and is directly responsible for them. The construction manager manages the works,
but the employer has a major role in directing the project.

Integrated

Integrated procurement, sometimes known as collaborative procurement or partnering, is

intended to focus the participants of a project on the mutual objectives of delivering a project on
time, to budget and to quality. It is about working as a team, regardless of organisation or
location, to meet a client's needs.

So in my point of view for this project, traditional contract is most suitable. Advantages are
above mentioned.
Task-04

Comparison of main contractual arrangements between common forms of contract

The common forms of contract are Lump Sum Contracts and measure and pay contract.

Lump Sum Contracts

Clients using lump sum contracts generally engage consultants to design and document projects.
The client then uses the completed documents as a basis for calling tenders. After an evaluation
process, the client enters into a contract with a builder (generally a head contractor using a
number of subcontractors) to construct the works for an agreed lump sum.
Payment is usually made in progressive installments.

It is often the responsibility of the principal consultant (usually an architect or project manager),
to manage the deliver y of the project within the specified time, cost and quality targets.
Some advantages that lump sum contracts offer are:

 A clear understanding of the end product before construction begins

 Design advice, independent of the builder
 A relatively low risk to the client if the scope of the work is well defined and client
variations are limited or excluded
 A relatively certain project end cost (subject to variations).

Lump sum contracts are widely accepted in the building industry and are well suited to small,
medium or single trade projects. Lump sum contracts are not currently favored for very large
projects. This is due to the extensive time required to complete documentation before any work
can star t. Many government building works in Victoria have been delivered using lump sum
contracts. The Office of Building and Development has prepared special conditions applicable to
government agencies using lump sum contracts (based on the National Public Works Council
Special Conditions).
Advantages:

1. Lower financial risk to Employer.

2. Higher financial risk to Contractor.

3. Minimum Owner supervision related to quality and schedule.

4. Contractor has higher incentive to achieve earlier completion and better

performance.

5. Contractor selection is relatively easy.

Disadvantages:

1. Changes difficult and costly. (but it usually is)

2. Need to substantially complete design prior to bidding.

3. Contractor inclined to choose lowest methods / materials to comply with

specification.

4. Hard to build relationship. Each project is unique.

5. Bidding expensive and lengthy.

6. Contractors may include high contingency within each Schedule of Rate item

Payment method

Lump-sum payments are often used in structured products that typically provide payouts
over a series of times, such as annuities or other retirement vehicles. This type of payment is
also used in structured settlements, and in some corporate retirement packages, in which the
company will incentivize employees to retire early by providing all retirement funds up
front.
Measured Work or Measured Term Contracts

As the name suggests, the Measured Work Contracts do not have a fixed Contract shape or
cost, they are based on estimates of work and paid on actual works executed, as measured.
The Measured Work or Term Contracts are of two main types:

1. Bills of Quantities (BOQ)

2. Schedule of Rates (SOR)

A few basic differences between the BOQ and Schedule of rates are:

BOQ Schedule of Rates

Quantities in the Contract are fairly accurate Quantities are only indicative and not possible
and are normally taken off from IFC/AFC to estimate due to lack of details.
drawings by Contractor or provided by Clients

BOQ form part of the Contract BOQ does not form part of the Contract

BOQ is almost an indication of a definite BOQ, if present is a collection of all possible

requirement and included for work items that may or may not be required (it is
measurement and/or payment more a collection of rates)

Contract normally is for a term of 2-3-4 years

Contract normally has a fixed period and in extended durations prices could come
with escalation provisions

Contract price can be estimated to the

Contract price cannot be estimated
final/end price with a degree of accuracy

Bills of Quantities (BOQ)

BOQ type of a Contract could commonly be seen in the civil building and construction related
industry. FIDIC contains standard forms mainly dealing with such types.

The BOQ is a list of items required under the scope with the technical specifications normally
forming an integral part of it. It describes the work to be carried out with units of measurement,
quantities, unit rates and total amount for each item, all finally adding up to a lump sum price.
This lump sum price is an estimated lump sum based on quantities and Client does not guarantee
work upto the quantities stated in the bills. The total Contract price is arrived at only for Clients
evaluation and selection of the lowest Tenderer or other reasons and hence not guaranteed.

This type of a Contract is used where the design and specifications are developed to a high
degree to enable Tenderer to make a detailed estimation and measurement of the work scope
required under the Tender. As part of the ITT, Tenderers are issued IFC (Issued for
Construction) or AFC (Approved for Construction) Drawings or other appropriate documents
and are required to estimate or “take-off” quantities of work required. Subsequent to thorough
examination of such documents, Tenderers are required to submit a BOQ, with unit rates to
include for all obligations under the Contract.

Under circumstances, Client could well provide quantities/take-off’s to avoid multiple Tenderers
putting in the effort and Client taking responsibility for any errors and omissions, which again
would reduce Contractors responsibility to that extent.

Schedule of Rates (SOR)

Schedule of rates Contracts are also called unit price Contracts, item rate Contracts, piece rates,
or with such other names. Under this type, the nature and scope of work is known but the extent
or its requirement itself are not known and cannot either be estimated. Tenderers are required to
quote unit rates in a schedule, for each item of work (potentially) required under the Contract.
Schedule of rates Contracts can also have quantities but these are mere estimates and are subject
to adjustment as work gets completed. Quantities are included for a Tenderer to make their own
assessment of the extent and accordingly take calculated risks in case of early termination.

Thus in this type of a Contract, since there is no guarantee that any given quantity of work is
executed, each unit rate item could carry a higher overhead cost.
Such Contracts are useful where works are required over a period of 2-3-4 years, or indefinite so
to speak and where there is not much need or possibility to define the precise work extent
upfront e.g. plant maintenance Contracts.

Since these Contracts require a lot of detailed information to be accurately provided for work
items, a lot of time and effort needs to be spent prior to Tendering. By their nature they must
attempt to cover all likely requirements, providing full and detailed descriptions.

Contractors could negotiate price/rate escalation provisions in case the Contract is for an
extended period.

The main advantages and disadvantages of using measured work Contracts are listed hereunder.

Advantages:

 A fully detailed design or specification is not essential at Tender stage.

 Large number of Tenderers could be invited to Tender.

 Provides a good basis for selection of Contractor when bills of quantities are used.

 Tendering is relatively quick and therefore cost effective.

 The evaluation of variations and amendments arising from changes in

design/specifications is relatively simple.

 Client can exercise a greater degree of control and supervision over the Contractor and
select specialists to carry out certain elements through use of provisional or prime cost
items.

 Flexible framework permits changes to quantities or scope requirements.

 Measured Term Contracts provide access to Contract services as and when required
without delays of Tendering/Contract award.

Disadvantages:

 Possibility of front loading of costs.

  Final cost of the Contract is not known at commencement, though with a fair a degree of
accuracy, the estimated final cost could be arrived at based on an estimated usage.

 Contract administration is often more expensive and labour intensive in agreeing and
processing monthly valuations and payments to Contractors.

 Additional involvement and technical personnel required post-Contract to handle

Contractor queries and finalise design/specification requirements.

 In case of early termination, Clients exposure to liability for payment of certain fixed
costs such as mobilisation and demobilisation of costly vehicles and equipment,
insurance, bank guarantees, etc.

Task-05

Explanation and evaluation of issues related to procurement and contractual procedures

In a global economy, international procurement is a term used to describe the process of allowing
firms around the world to bid on contracts for goods and services. The concept has gained
popularity as shipping and transportation costs have decreased due to an influx of cheap, readily
available fuel. The globalization of large corporations has allowed them to obtain the benefits of
lower labor and materials costs while still selling the same quality and quantity of products.

There are three primary benefits to international procurement:

1. Lower costs

2. motivation of a global economy

3. Increased consumer base.

The lower costs that can be achieved through purchasing services or goods from other counties
are derived from currency valuation and the effects of product specialization. Both of which are
core concepts in economics. A number of procurement systems exist in the marketplace. One
increasingly popular method of procuring contracts is through e-procurement systems. E-
procurement programs generally operate in the same way as regular procurement programs,
except that procurement information is exchanged through the Internet or other electronic
network systems. Web-based enterprise resource planning, e-sourcing and e-tendering are
common e-procurement methods.

Construction procurement contracts are a common type of procurement agreement. A

construction procurement contract is usually issued when a seller is providing new works,
refurbishment or maintenance project services to a buyer. Construction procurement agreements
can be more complicated than other types of procurement agreements. Given the complex nature
of these contracts, buyer and sellers may require the services of an attorney who specializes in
construction law.

The choice of procurement route depends on the Client’s required balance of time/cost/quality
and an analysis of how that can be achieved. This is in the context of the Client’s other
requirements, not least being his required level of involvement in the design and construction
process and the extent to which he may change his mind or wish to alter the specification during
construction.

Those considerations promote a useful set of criteria for selection of the form of contract. In this
guide each contract form is summarized in terms of the following key criteria:

 Speed - design and construction

 Cost certainty
 Dealing with complexity
 Client’s involvement
 Capacity for variations
 Clarity of remedies
 Separation of design and management

The contracts included in this guide cover the principal procurement methods:

 General contracting
 Design and build
 Construction management
 Partnering
 Management contracting

In Sri Lanka we are very commonly use, familiar with Traditional system.

Traditional Procurement System

Time
Due to its linear or sequential approach, the traditional procurement system has been identified
as the slowest project delivery approach. However, this approach is more preferable because it
provides clear accountability and better design and construction control by the client. Since the
pre-contract stage of this system is longer, more time is available for the client and the project
team to scrutinize and review the design before construction.

Cost

This system provides more price certainty to the client at the very early stage of the project. It
also gives the client firmer and more competitive price because the design plus the complete
working drawings have been fully developed and detailed out prior to tendering. It eliminates
any design or construction ambiguity or uncertainty which often causes the contractors to
unnecessarily inflate the price. In the case where bill of quantities is used, the bidding tend to be
more fair as such the project cost is also lower. The system also better cost control as such cost
increase due to variations is minimized, but works were often disrupted when there are too many
variations and it tend to cause the cost to inflate.

Quality

The traditional procurement system also provides a high degree of quality certainty and
functional standards. It is also a system that provides an opportunity for the building owner to
combine the best design, management and construction expertise between consultants and
contractor. It also provide more time for client and consultants to review and fully develop the
design and specification thus allowing better documentation preparation. However, this system
does not provide opportunities for contractor to contribute his construction technology and
management expertise because they only come into the scene after the design has been fully
developed and approved.

Procurement steps

Procurement life cycle in modern businesses usually consists of seven steps:

1. Identification of need: This is an internal step for a company that involves
understanding of the company needs by establishing a short term strategy ( three to five
years) followed by defining the technical direction and requirements.
2. Supplier Identification:

Once the company has answered important questions like: Make-buy, multiple vs. single
suppliers, then it needs to identify who can provide the required product/service. There
are many sources to search for supplier other suppliers and trade shows.

3. Supplier Communication:

When one or more suitable suppliers have been identified, requests for quotation,
requests for proposals, requests for information or requests for tender may be advertised,
or direct contact may be made with the suppliers. References for product/service quality
are consulted, and any requirements for follow-up services including installation,
maintenance, and warranty are investigated. Samples of the P/S being considered may be
examined, or trials undertaken.

4. Negotiation:

Negotiations are undertaken, and price, availability, and customization possibilities are
established. Delivery schedules are negotiated, and a contract to acquire the P/S is
completed.

5. Supplier Liaison:

During this phase, the company evaluates the performance of the P/S and any
accompanying service support, as they are consumed. Supplier scorecard is a popular tool
for this purpose. When the P/S has been consumed or disposed of, the contract expires, or
the product or service is to be re-ordered, company experience with the P/S is reviewed.

6. Logistics Management:
 Supplier preparation, expediting, shipment, delivery, and payment for the P/S are
completed, based on contract terms. Installation and training may also be included.

7. Additional Step - Tender Notification:

Some institutions choose to use a notification service in order to raise the competition for
the chosen opportunity. These systems can either be direct from their e-tendering
software, or as a re-packaged notification from an external notification company.

Task-06

The main objectives of ICTAD are:

 To improve training capacities of vocational training institutions and facilitate the qualitative
improvement of vocational training programmes to meet the needs of semi-skilled, skilled
and managerial personnel in the Construction Industry;

 To improve the quality and efficiency of the Construction Industry by encouraging

innovative approaches in technology and industrial development activities and in achieving
economy in construction work.

The construction regulatory authority in Sri Lanka, Institute for Construction Training and
Development (ICTAD), also publishes guidelines specially aimed at the construction industry.
Unfortunately, both the Ministry of Finance and ICTAD take into account only public works in
preparation of these procurement guidelines. The documents are highly biased towards Measure
and Pay, even though; these guidelines are widely used by the private sector as well.
(Rameezdeen)

Very little effort has been taken by the ICTAD to promote other procurement methods in Sri
Lanka. Only as lately as year 2001, ICTAD published a guideline called “Standard Bidding
Document for Procurement of Works – Design and Build Contracts”. This is the first and only
guideline to be published by ICTAD for an alternative procurement arrangement.

In Sri Lankan context the growth pattern of D&B was positive up to year 1996 and then it began
to decline up to year 2000, but there after no significant changes shown in its growth. The
growth of D&B is not up to the expected level in Sri Lanka when comparing with the countries
mentioned earlier. The traditional procurement system remains widely procuring method and it’s
seems to be strong. Therefore, it is essential to explore why the D&B procurement is not popular
in the Sri Lankan context and identify the barriers preventing the popularity, in order to develop
the innovative procurement system in Sri Lanka.

Standard Bidding Documents Finalized by NPA & ICTAD

1) ICTAD/SBD/01 Standard Bidding Document - Procurement of Works

Recommended for use on works contracts between Rs.10 million and Rs.100 million.
May be used for works higher values which are not of a complex nature.

2) ICTAD/SBD/02 Standard Bidding Document - Major Contracts

Recommend for use on works contract over Rs. 100 million and for a contract for lesser value,
which are of a complex nature.

3) ICTAD/SBD/03 Standard Bidding Document - Minor Contracts

Recommend for use of works contract up to Rs. 10 million.

4) ICTAD/SBD/04 Standard Bidding Document - Design & Build Contracts

Recommend to use for work contracts where the contractor is responsible for the design and
construction of the works on specified approvals obtained from the employers.

ICTAD/SBD/02 Sub-Clause 4.2

Performance Security

The Contractor shall obtain (at his cost) a Performance Security for his proper performance of
the Contract, in the amount stated in the Contract Date. The Contractor shall deliver the
Performance Security to the Employer within 14 days after the receipt of the Letter of
Acceptance. The Performance Security shall be in the form acceptable to the Employer as
stipulated in Contract data.

ICTAD/SBD/02 Sub-Clause 4.4

Subcontractors
The Contractor shall be responsible for the acts or defaults of any Subcontractor, his agents or
employees, as if they were the acts or defaults of the Contractor.

ICTAD/SBD/02 Sub-Clause 4.14

Progress Reports
Unless otherwise stated in the Contract Data monthly progress reports shall be prepared by the
Contractor and submitted to the Engineer in two copies. The first report shall cover the period up
to the end of the first calendar month following the Commencement Date. Reports shall be
submitted monthly thereafter, each within 7 Days after the last day of the period to which it
relates.

ICTAD/SBD/02 Sub-Clause 4.15

Contractor’s Operation on Site
The Contractor shall confine his operations to the Site, and to any additional areas, which may be
obtained by the Contractor and agreed by the Engineer as working areas. The Contractor shall
take all necessary precautions to keep Contractor’s Equipment and Contractor’s Personnel within
the Site and these additional areas, and to keep them off adjacent land.

ICTAD/SBD/02 Sub-Clause 4.17

Quality Assurance
The Contractor shall institute a quality assurance system to demonstrate compliance with the
requirements of the Contract. The system shall be in accordance with the details stated in the
Contract. The Engineer shall be entitled to audit any aspect of the system.

ICTAD/SBD/02 Sub-Clause 5.3

Payments to nominated Subcontractors
The Contractor shall pay to the nominated Subcontractor the amounts, which the Engineer
certifies to be due in accordance with the subcontract.
ICTAD/SBD/02 Sub-Clause 7.6

Ownership of Plant and Materials

Each item of Plant and Materials shall, to the extent consistent with the Laws of the Country,
become the property of the Employer at whichever is the earlier of the following times, free from
liens and other encumbrances.

ICTAD/SBD/02 Sub-Clause 8.1

Commencement of Works
The Engineer shall give the Contractor not less than 7 Days notice of the Commencement Date.
Unless otherwise stated in the Contract Data, the Commencement Date shall be within 14 Days
after the Contractor receives the Letter of Acceptance.

ICTAD/SBD/02 Sub-Clause 8.3

Programme
The Contractor shall submit a detailed time programme to the Engineer within 14 Days after
receiving the notice under Sub-Clause 8.1.

ICTAD/SBD/02 Sub-Clause 8.4

Extension of Time for Completion
The Contractor shall be entitled subject to Sub-Clause 19.1 (Contractor’s Claims) to an extension
of the Time for Completion if and to the extent that completion for the purposes of Sub-Clause
10.1 (Taking Over of the Works and Sections).

ICTAD/SBD/02 Sub-Clause 8.7

Liquidated Damages
If the Contractor fails to comply with Sub-Clause 8.2 (Time for Completion) the Contractor shall
subject to Sub-Clause 2.4 (Employer’s Claims) pay liquidated damages to the Employer for this
default.

ICTAD/SBD/02 Sub-Clause 8.12

Resumption of Works
After the permission or instruction to proceed is given, the Contractor and the Engineer shall
jointly examine the Works and the Plant and Materials affected by the suspension.

ICTAD/SBD/02 Clause 12.0

Measurement and Evaluation

ICTAD/SBD/02 Clause 13.0

Variation and Adjustments

ICTAD/SBD/02 Clause 14.0

Contract Price and Payment

ICTAD/SBD/02 Sub-Clause 15.3

Valuation at Date of Termination
As soon as practicable after a notice of termination under Sub-Clause of Termination by
Employer has taken effect the Engineer shall proceed in accordance with Sub-Clause 3.4
(Determination) to agree or determine the value of the works, goods and Contractor’s
Documents, and any other sums due to the Contractor for work executed in accordance with the
Contract.

ICTAD/SBD/02 Clause 17.0

Risks and Responsibilities

ICTAD/SBD /02 Clause 18.0

Insurance

ICTAD/SBD/02 Clause 19.0

Claims, Disputes and Arbitration

Identify key issues in interim and final valuation

Prior to the Architect issuing an interim certificate it is usually necessary for the quantity
surveyor to prepare an interim valuation. The key issues to be considered in an interim valuation
are as follows,

1. Measured work including preliminaries.

2. Value of variations and extras (applicable for above mentioned project).

3. Value of nominated subcontractors and suppliers work.

4. Fluctuations (this is applicable for above mentioned project).

5. Unfixed materials on site.

6. Retention monies & previous payments.

7. Mobilization advance of recovery.

8. Government due taxes.

A valuation for an interim certificate should be as accurate as is reasonably possible. The

contractor is entitled to the total value of the work properly executed, less a specified percentage
for retention. If the valuation is depressed, it has the effect of increasing the retention which must
be contrary to the terms and spirit of the contract.
Task-07

Differentiation of international methods of procurement. Discussion on their advantages

and disadvantages

Procurement using traditional methods

In the traditional approach, the client accepts that consultants are appointed for design, cost
control, and contract administration, and that the contractor is responsible for carrying out the
Works. The responsibility of the latter extends to all workmanship and materials, including work
by sub-contractors and suppliers.

In some cases the client will select some of the sub-contractors to be engaged by the contractor
(variously referred to as named, nominated, or pre-selected). In such cases the contractor may
take full responsibility for their performance, or the contractor's responsibility may be limited in
some way, in which case a collateral warranty between client and sub-contractor will be
essential. The contractor is usually chosen after competitive tendering on documents giving
complete information. However, the contractor can be appointed earlier, either through
negotiation or on the basis of partial or notional information.

The traditional method, but using two stage tendering or negotiated tendering, is sometimes
referred to as the 'Accelerated Traditional Method'. By this variant, design and construction can
run in parallel to a limited extent. Whilst this allows an early start on site, it also entails less
certainty about cost.

Design & build

This procurement system is mostly required by the public sector. Only client and contractor are
involved in this method. All responsible to contractor this is similar to traditional system and use
for fast track projects but aesthetic requirement is not needed.
It is used projects as follows is traditional procurement helps to achieve,

 Early start of the project

 Faster completion but no aesthetic requirement

 Cost certainty

 Single point responsibility

 Suitable for all type of clients

 Not suitable for the complex buildings & non-finalized client briefs

Design-build successfully delivers office buildings, schools, stadiums, transportation and water
infrastructure projects with superior results.

This method of design and build involves the contractor being responsible for design as well as
construction, it can be suitable for:

 All clients, including inexperienced clients and those requiring distance from the project.

 cost certainty

 Faster track

However, it is not suitable for:

 An uncertain or developing client brief

 Complex buildings

Built Operate and Transfer

This is a new system in which land is acquired by government and contractor is asked to build
the civil works, operate it by collecting some fee from its users to collect the cost of construction
and once the cost is collected, to transfer it to the owner i.e. government. No investment is made
by government under this system. Drawings, estimates are prepared by government and
contractor is required to execute the work as per designs and specifications given by engineer.

Mostly bridges and highway roads ports are constructed and developed by this particular system
of contract.

Package deal

Package deal procurement helps to achieve,

 Early start of the project

 Technical quality

 Less variation

An offer or agreement involving a number of related items or one making acceptance of one item
dependent on the acceptance of another the contractor is responsible for design, construction
planning, organization and control.

Under this system service of the contractor will include the preparation of the project brief,
sketch and final working drawings, getting all the approval from authorities, project financing,
construction, finishing and commissioning of all equipment and accessories and handing over the
project to the client.

Turnkey

Turn Key procurement helps to achieve,

 Less responsible client

Starting from designing to handing over, the contractor takes the full responsibility.

PFI – Private Finance Initiative

PFI procurement helps to achieve,

 Client shares the financial risk with private sector

 Suitable for long contractual projects such as highways, fly-overs & airports

 Built Own Operate Transfer (BOOT) & Built Own Operate (BOT) contracts come under
this category.

Under this arrangement, a contractor is commissioned to undertake the responsibility for

everything necessary and required for the construction, completion, commissioning and hand
over the project. A turnkey system is a system which is designed, specified, purchased, installed,
and started up by a single company. Turnkey systems are built in the "design-build" style of
contracting, as opposed to the traditional "design-bid-build" style of contracting in which the
Owner contracts out the design and installation/construction himself while procuring all of the
equipment.

This system was used during the construction of apartments and flats. The person who wants a
flat; is required to complete the paper work and transaction work and enter into his own house
simply by turning the key. i.e. opening the door. This system is becoming very popular in world.
In big cities or towns; most of the bungalows are constructed with this type of system of contract.
Here the owner fully gets relieved of all problem come across during construction.

Management Fee

Management Fee procurement helps to achieve,

 Team working

 Early start

 Flexibility in changes

 Suitable for experienced clients

 Suitable for complex projects

Task-08
Type of contractor

Sub-contractors are appointed by main contractors to carry out part of the works on their behalf.
As construction has become more complicated and more specialist construction techniques have
been developed, it has become increasingly common for contractors to sub-contract others rather
than employing a large workforce themselves.

The use of sub-contractors enables the main contractor to undertake more complex projects
whilst not unacceptably increasing their risk, however, concerns have been expressed about the
prevalence of sub-contractors because of a perception that the main contractor has less control
over the skills and training of sub-contractor employees and so there may be a negative impact
on quality and health and safety on site.

Sub-contractors can be classified as:

 Domestic sub-contractors.

 Named sub-contractors.

 Nominated sub-contractors.

In addition, on management contracts the works will be carried out by 'works contractors' and
on construction management contracts the works will be carried out by 'trade contractors',
although technically trade contractors are not sub-contractors as they are contracted by the client,
and only managed by the construction manager.

A domestic sub-contractor is any sub-contractor, other than a nominated-sub contractor, that the
main contractor sub-contracts to carry out part of the works. The work of the sub-contractor is
the responsibility of the main contractor as far as the contract between the main contractor and
the the client is concerned.

A sub-contractor can be considered domestic if:

  They were freely selected by the contractor.

 They were selected by the contractor from a list of at least three possible sub-contractors.

This means that named sub-contractors in effect become domestic sub-contractors once they
are appointed by the main contractor. There can be uncertainty about whether a sub-contractor is
domestic or is nominated, where for example, the contractor is free to select from a list, but it
transpires that only one of the sub-contractors named on the list is actually capable of carrying
out the works required.

Nominated subcontractor

A nominated sub-contractor is is one that is selected by the client to carry out an element of the
works. Nominated sub-contractors are imposed upon the main contractor after the main
contractor has been appointed. The mechanism for nominating is an instruction in relation to a
prime cost sum to which a main contractor is entitled to add its mark up and attendance costs. It
allows the client to have direct separate negotiations with major suppliers of goods or services
and feed their appointment and design input into the contract after works by the main contractor
have commenced.

Contractual Arrangements

The cost consultant values the work of the nominated sub-contractor separately and the amount
due is shown on interim certificates and is notified to the nominated sub-contractor. The contract
may allow the client to pay the nominated sub-contractor directly if the main contractor fails to
do so.

As the contractor has no choice in the selection of the nominated sub-contractor, they cannot be
held responsible for failure of the nominated sub-contractor to perform. As the contract for the
nominated sub-contractor is with the main contractor, not with the client, the client should ensure
that they have a direct warranty with the nominated sub-contractor to guarantee performance and
to indemnify the client if any default allows a claim for loss and expense or extension of time by
the main contractor. For instance delays by a nominated cladding contractor might give the main
contractor entitlement to an extension of time.
The contractual arrangements allowing nomination are very complicated, attempting to cover all
possible eventualities both between the client and the main contractor and also between the main
contractor and the nominated sub-contractor. This may include; objections by the main
contractor to the nomination, insolvency of the nominated sub-contractor, the need for re-
nomination and so on.

Some forms of contract (such as Joint Contracts Tribunal (JCT) contracts) no longer include
provision for the nomination of sub-contractors. The use of named sub-contractors is generally
considered to be a simpler alternative.

Allocation of Preliminaries

The allocation of preliminaries between the main contractor and sub-contractor depends on
whether the the nominated sub-contractor is appointed before or after the main contractor.

Normally the main contractor is appointed first. In this case it is wise to get the main contractor
to specify the general preliminaries available to the sub-contractor, such as; welfare buildings,
craneage, site security, hoists, water, power and lighting and general scaffolding etc, but also to
set out specific items of preliminaries to be provided by the sub-contractor, such as; site offices
and stores, special scaffolding or cranes and waste disposal to a certain point. Before any order is
placed the main contractor should be consulted as to whether the sub-contractor's proposals are
acceptable including matters relating to preliminaries.

If the sub-contractor is appointed before the main contractor, it is wise to send them the proposed
preliminaries requirements to be imposed on the main contractor and request that the sub-
contractor clearly states in their tender what preliminaries are included in their bid and what
preliminaries they anticipate will be provided by the main contractor.

Named subcontractors
Named subcontractors are often used in public sector projects and for projects based on the form
of contract where there is no provision for nomination. If a named subcontractor has not been
appointed at the time that the tender documents are ready for dispatch then a provisional sum is
included for provision of the works to be carried out by the named subcontractor. The main
features of named subcontracting are as follows.

 The tender documents include the names of potential named subcontractors. The main
contractor has the opportunity to reasonably object to any firm on the list.

For the main contractor, the advantages are:

 subcontractors are used as and when required, thereby reducing overheads;

 avoids having to pay operatives when work is scarce or having to pay redundancy; and
 Introduces the potential for innovation.

The disadvantages to employing subcontractors are:

 control and co-ordination of subcontractors;

 quality of work: and
 Potential for clashes of culture and philosophy.

Take into consideration that standard forms of contract vary in the amount of information they
are required to provide about sub-contractors, and the degree of authority vested in those
responsible for giving permission for work to be sub-contracted. (There are three types of
subcontractor)

Task 9
Evaluation of forms of contracts regarding suppliers

The terms of the quotation:

These should ideally be on the same conditions as the main contract. They should identify
discounts required.

After the considering information given by the contractor, suppliers will do the relevant works
according to contractor’s requirement. In the construction industry there was having several
suppliers.

They are,

01. Material Suppliers

02. Plant and equipment suppliers

I explained how the suppliers are working with the contractors.

Material Suppliers

01. The materials comply with the specifications.

02. The materials will be available to meet the requirements of the construction programme.

03. No special delivery conditions have been imposed by the supplier.

04. The method of delivery complies with the contractor’s requirements and intended method

of unloading and handling on site.

05. The conditions contained in the quotation do not amount to an alternative offer being at

variance with the terms and conditions of the enquiry.

06. The quotation is valid for the required period.

07. Prices are given for small quantities and other items if required.

Plant and Equipment Suppliers

 01. Quotations must be scheduled to ensure that;
02. The plant complies with the project requirements.
03. Plant is available to meet the needs of the construction programmed.
04. Delivery and collection charges can be identified.
05. Where applicable, all operator costs are included and the operators will comply with the
intended working hours of the site.

Supply chain management

Supply chain management (SCM) is the management of a network of interconnected businesses

involved in the provision of product and service packages required by the end customers in a
supply chain. Supply chain management spans all movement and storage of raw materials, work-
in-process inventory, and finished goods from point of origin to point of consumption. A supply
chain, as opposed to supply chain management, is a set of organizations directly linked by one or
more of the upstream and downstream flows of products, services, finances, and information
from a source to a customer.

Supply chain is the linkage of companies that turns a series of basic materials, products or
services into finished product for the client.

01. Main components

02. Supply chain strategy
03. Logistics management
04. Procurement
05. Information Management
06. Supply chain planning
07. Assets Management

In business, the term word sourcing refers to a number of procurement practices, aimed at
finding, evaluating and engaging suppliers of goods and services:
The terms of a supply contract often define everything from the means whereby the products are
delivered, terms of payment, and any other aspect of the relationship that the two parties have
determined to be necessary.

This may include the terms for shipping, or any additional charges that may apply for expedited
shipping above the terms defined in the contract. Some contracts include guarantees of shipment
within a specific time frame after the order is placed, such as within twenty-four hours of
receiving the order.

This may include terms as payment by postal mail, online payment options, or even an electronic
transfer of funds from the customer’s bank to the supplier’s bank. This section usually also
defines the options open to the supplier in the event that the customer fails to pay invoices within
terms, including rendering the contract null and void, or revoking the discount extended to the
customer off the standard unit price.

In turn, the supplier knows what the client is likely to need and how payment will be submitted.
As long as both parties honor their responsibilities to one another, the business relationship is
likely to be a profitable one for everyone involved. (wisegeek)

Fulfillment Services Agreement

This document should not be used if the Service Provider is an individual. A Work for Hire,
Consulting Agreement, or Subcontract or Agreement documents can be used for that purpose.
This document only deals with services purchased from a business, and therefore, does not
address issues related to independent contract or status.

The basic elements of a Fulfillment Services Agreement are:

 Identification of the parties.

 A description of the services to be performed.
 The dates or scheduled dates for performance of the services.
 Any conditions or limitations placed on either of the parties or warranties related to the
performance of services.
 Payment terms.
Purchase Order
A purchase order generally specifies payment terms, item identification, quantities, shipping
address and such other details. This document can be created by a customer seeking to purchase
particular items or by the vender as a standard order from listing all available products.

Production Contract

A Production Contract should outline every aspect of the production required in order to avoid
confusion and mistakes in the production of the final product. This Agreement will cover every
aspect of the parties' agreement including the quantity, price, specifications, and liability of the
parties.

Purchase Agreement

If the property that will be transferred has been pledged as security for a loan, it may be
necessary to obtain a release from the party to whom the loan is owed. In such cases, it is
advisable to consult with a lawyer.

The Purchase Agreement should be signed by both the Buyer and the Seller, and becomes
effective as of the date provided in the text of the document.

Purchase Order

A purchase order generally specifies payment terms, item identification, quantities, shipping
address and such other details. This document can be created by a customer seeking to purchase
particular items or by the vender as a standard order from listing all available products.

Supplier Agreement

This Contract is only intended for use where both parties to the Contract are businesses.