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A successful construction firm meets the clients needs while making profit in the process. Owners often searching for a qualify construction firms that can deliver the project with quality within the low cost and completed in a reasonable time. To begin a project, the client must decide a suitable procurement method that can be choose from based on the project's requirement such as traditional method, design and build method, build-operate-transfer method (BOT), management contracting method and professional construction management method and etc. After deciding a procurement method, the owner must proceed to the next procedure that is tendering process. There are only a few of tendering types that are being used in today's construction industry such as open tendering, selective tendering - single stage & two-stage, negotiated tendering and joint ventures. Last important procedure that needs to be considered based on the construction's principals design is the Standard Form of Contract. In Malaysia, there only two types of Standard Form of Contract that being used such as Public Work Department (PWD) for government projects and PersatuanArkitek Malaysia (PAM 2006) for private projects. While for the international projects there are FédérationInternationale des Ingénieurs-Conseils (FIDIC), Joint Contractors Tribunals (JCT), Institution of Chemical Engineers (IChemE) and etc. The following case study show the scenario of a Singaporean company (Client) entered into a contract with Alpha Design Tech. Pvt. Ltd (Architect), a Singaporean design consultant that would responsible to find a Malaysian builder company (Contractor) for joint venture to build a hotel in City Square, Johor. The purpose of the case study were conducted is to explore the existing common practice of procurement method, tendering process and Standard Form of Contract for international project in Malaysia.
Procurement may be defined as the process which creates, manages and fulfils contracts relating to the provision of supplies, services or engineering and construction works, the hiring of anything, disposals and the acquisition or granting of any rights and concessions. If procurement is indeed a process, it can be documented as a succession of logically related actions occurring or performed in a definite manner which culminates in the completion of a major deliverable or the attainment of a milestone. Processes in turn are underpinned by methods (i.e. a documented, systematically-ordered collection of rules or approaches) and procedures (i.e. the formal steps to be taken in the performance of a specific task, which may be evoked in the course of a process), which are informed and shaped by the policy of an organization. Methods and procedures can likewise be documented and linked to processes. (CIDB)
Procurement activities commence once the need for procurement is identified and end when the transaction is completed. There are six principal procurement activities and a number of generic steps that need to be taken to proceed from one activity to another.
Establish what is to be procured
Decide on procurement strategies
Solicit tender offers
Evaluate tender offers
Administer contracts and confirm compliance with requirements
There is also a need to establish the relationship of the following three factors for the benefit of a project.
time (speed or certainty of completion date)
cost (price level or cost certainty)
quality (functionality and performance)
Although there are various types of procurement systems in construction industry but let's focus on few of the technique that are being used in Malaysia.
Figure 1: Sequence of the Traditional Procurement Method
This probably the most commonly used method of procurement and it is suitable for:
All clients including inexperienced clients
Complex projects and projects where functionality is a prime objective.
However, it's not suitable for fast track projects.
The client provides a brief and budget and appoints a team of consultants to prepare a design, plus tender documents. The client appoints the building contractor to construct the works to the design, by the contract completion date and for the agreed price. The consultants administer the contract on behalf of the client and advise on aspects associated with design, progress and stage payments which must be paid by the client. This strategy is a low-risk option for clients who wish to minimize their exposure to the risks of overspend delays or design failure. However, the exposure to risk will increase where the design phase is rushed, where unreasonable time targets are set or where the tender documents are not fully completed.
Design and build method
Figure 2: Sequence of the Design and Build Method
This method of procurement 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.
However, it is not suitable for an uncertain or developing client brief or a complex building.
The main contractor takes responsibility for both design and construction and will use either in-house designers or employ consultants to carry out the design. The contractor tenders against a client brief and will often follow an initial concept design prepared by consultants appointed to advise the client. The design will be developed by the contractor and the works will e completed, usually for a fixed price.
The Design-Build approach gives the client a single point of contact. However, the client commits to the cost of construction, as well as the cost of design, much earlier than with the traditional approach. Whilst risk is shifted to the contractor, it is important that design liability insurance is maintained to cover that risk. Changes made by the client during design can be expensive, because they affect the whole of the Design-Build contract, rather than just the design team costs.
Figure 3: Sequence of the Build-Operate-Transfer Method
BOT is a relatively recent procurement method. Developers/ concessionaire use their own funding sources to build a public facility in return for the right to operate it and charge a fee for its use. At the end of an agreed period the facility may revert to the landholder, which would often be the Crown. This type of contract focuses on final service delivery and relies upon the required performance standards being properly documented. Building contractor involved in this type of development is usually part of a consortium. The consortium has responsibility for the design, construction and delivery of the project. Government and its agencies, as either direct or indirect purchasers of services from BOT projects bear some level of financial and viability risk. The BOT process can be modified to suit particular needs. A few variations already in use are BOOT (Build, Own, Operates, Transfer) and BOO (Build, Own, Operate).
Comparison of data for case study
Based on the case study that is given, I think the most suitable procurement system is the novated design and build method. This technique can be define as once the client's consultant has developed the project to tender stage and a contractor has been awarded the contract, the contractor then employ the same design consultant to complete the post- contract design stage. The reason is clear as it was stated a Singaporean company proposes to build a 40- storey hotel with 2 levels of basements at City Square, Johor. The Singaporean company entered into a contract with Alpha Design Tech. Pvt. Ltd, a Singaporean design consultant as their consultant and the consultant must find a Malaysian contractor to execute the construction work with a condition that the contractor must enter into a contract with Alpha Design Tech Pvt. Ltd that will be treated as the contractor's consultant team. Below is shown how the novated design and build method's sequence work.
Appointed by owner
Contract and functional relationship
Figure 4: Sequence of the Novated Design and Build Method.
Purpose of the tendering process
To select a suitable contractor at a time appropriate to the situation of the project.
To obtain from the contractor selected at the proper time, and acceptable tender or offer upon which a contract can be let.
There are three main factors that can affect in selecting a contractor for tendering process.
The contractor prequalification criteria in building construction projects.
Financial stability, financial status, Bank arrangement and bonding capacity.
Failure to have completed projects, schedule overruns, cost overruns, past failures, owner/contractor relationship.
Technical expertise, possessed plant and equipment, experience.
Past performance and quality, project management organization, experience of technical personnel.
The contractor tendering criteria in building construction projects.
Fixed capital cost, variable tender costs during the contract period, maintenance costs.
Design quality, technical expertise.
Program of works, division of works into sub-contracts, key performance indicators, reporting and recoding systems.
Quality standards, target performance level; tender price, variations and final cost.
The contractor tendering procedure in building construction projects.
Tender quality (technical evaluation); tender price (financial evaluation); determine lowest bid; responsiveness, and responsibility.
Sealing and marking of the tenderers, tender forms and tender specification document; tender terms and condition for bid preparation; post offer negotiation.
Prequalification and Registration
A tendering process can be divided into three categories as below:
This tender is completely free and fair way of offering work to the local or other contractor. The local authorities are accountable for public expenditure - wishing that they obtained the best bargain as possible for public money. It also will ensure a good competition since there is no obligation to accept and offer. This process can preventing the contractor from forming a ring or agreed on the price to be submitted.
Advantages of open tendering
A familiar method to all sectors of the engineering and construction industry.
Endure the test of time and its limitations are appreciated.
The Employer having a larger choice of potential tenderer - leading to a better competition and 'value for money'.
No restrictive list of tenderers.
Does not allow favoritism.
No obligation to tender - tender receive will be genuine.
Disadvantages of open tendering
High cost - client must bear the cost reproducing multiple copies of drawings, BQ.
Lengthy operation - requiring skilled estimating.
The lowest tender may not be necessarily be a 'bargain' as it may result a poor work quality.
Less profit for the contractor.
Selective tender is different from open tender as it limits the numbers of contractors to tender. Selection criteria are both general and project specific, and seek to reduce the possibility of awarding a contract to a contractor who cannot perform according to the client's requirements.
Advantages of selective tendering
Reduced documentation, shorter tender period, and better management of the tender process.
The unfavorable contractors have already pull out at the pre-selection stage.
Disadvantages of selective tendering
The time and resources required to conduct the evaluation process and keep up to date approval lists.
The competitiveness is decreased in proportion to the size of the tender list.
That the criteria used in selection may not sufficiently well developed.
3.3 Negotiation tender
In negotiation tender process, the contractor is selected and contract price agreed upon not through competition but on the basis of negotiations between parties.
Advantages of negotiation tendering
Alternatives for emergencies or high security projects.
Disadvantages of negotiation tendering
The price can be relatively higher.
3.4 Comparison of data for case study
In a tendering process, the choice of tender technique may be determined by external factors, such as requirements of the client. As in this case study, it shown that the client is concerned about a few of the aspects such as façade, lighting, acoustic system, mechanical engineering, marine engineering and fire engineering. After considering all the criteria in the tendering process and review on the case study scenario, I choose selective tender as the most suitable tendering process as it can help the client to save time in selecting a qualify contractor to complete the proposed hotel .
4.0 STANDARD FORM OF CONTRACT
There were various types of Standard Form of Contract that for international projects such as FIDIC, JCT, NEC and IChemE. While in Malaysia, it has only two types Standard Form of Contract that were used like PWD for public or government project and PAM 2006 for the private sector. A comparison table of the Standard Form of Contract for international project and domestic project will be use to further explain their purpose and types of contract.
Types Form Of Contract
Mostly for Public and Government sector
Building and Engineering works
Building works only
Civil engineering, Mechanical and Electrical works
Standard Form Of Contract
1. 203 (Rev 10/83)
2. 203A (Rev 10/83)
3. 203N (Rev 10/83)
4. 203P (Rev 10/83)
- nominated supplier
5.PWD Form DB/T
- Design and Build
1. PAM 2006
2. PAM 2006
3. PAM NSC 2006
1. IEM Condition
IEM CE. 1/89
(2nd reprint 1994)
- Civil engineering
2. IEM Condition
IEM CES 1/90
(1st reprint 1994)
3. IEM Condition
(1st edition 1994)
- Mechanical and
Table 1: Comparison Standard Form of Contract in Malaysia.
Types Form Of Contract
Standard Form Of Contract
1. Red Book
- Construction for Building and Engineering Works Designed by the Employer.
2. Yellow Book
- Plant and Design- Build.
3. Silver Book
- EPC / Turnkey Projects.
4. Green Book
- Conditions of Short Form of Contract.
5. Blue Book: Contract for Dredging and Reclamation Works.
6. MDB/FIDIC Contract:
- FIDIC conditions incorporated in the standard bidding documents of multilateral development banks
7. White Book
- Client/Consultant Model Services Agreement
8. Gold Book
- FIDIC Design, Build and Operate Projects.
1. Standard Building
2. Design & Build (DB)
1. Red Book
- lump sum or fixed price contract
2. Green Book
- reimbursement contract
3. Burgundy Book
- target cost contract
Table 2: Comparison Standard Form of Contract for FIDIC, JCT and IChemE.
4.1 Comparison of data for case study
In this case study, I think the most suitable Standard Form of Contract will be FIDIC's Yellow Book for plant and Design - Build to be used as a guideline as it was widely used for international projects and best describes the contract between the Singapore and Malaysia company in the scenario. The Yellow Book of FIDIC is recommended for the provision of electrical and / or mechanical plant, and for the design and execution of building or engineering works. Under the usual arrangements for this type of contract, the Contractor designs and provides, in accordance with the Employer's requirements, plant and / or other works; which may include any combination of civil, mechanical, electrical and/or construction works.
4.4 Employer's Rights
4.3 Contractor's Obligation
An international contract may be defined as a contract in which one of the parties is from a different country to the country of the project. In many cases the requirements outlined in the Conditions of Contract for international contracts are similar to those for domestic contracts, but there are additional matters such as different legal systems, or local customs and procedures, currency which must be considered.