The significance of procurement strategy chosen in a construction project of any kind or scale is massive. Procurement strategy chosen should rightly balance the risk against project objectives in the initial stages.
After the World War II, in the 1960's, due to large requirements of building and repairing of infrastructure other methods of procurement were introduced and also due to the advent of economic recession in the later part of the century.
Gradually over the years the use of various methods like design and construct, construction management, managing contractor and other methods has increased.
In the current times although the use of lump sum contracting still remains the most common procurement strategy, other methods have an equal stake and are used for specific requirements of clients.
Lump Sum Procurement Model:
The first kind of procurement method initiated also called traditional method or build only method. The design team and the construction team are separate in this method.
Suitable for small scale and medium scale projects where quality and cost constraints are the main criteria.
In this method, the client first appoints a design team and gives them an initial brief of the project expectations and requirements
Then the design team comes up with the design and prepares the tender documents required for the project.
On the basis of competitive tendering processes, the client then selects the suitable contractor for the construction.
The contractor then goes on to take the risk of project completion on a fixed time, cost and quality.
After execution the client holds the mantle for management of the project completed.
During execution the contractor can independently take the services of a design team for clarifications and design inputs, but any changes or faults in design lead to claims by the contractor and that can prove to be costly for the client.
Advantages and Disadvantages:
Due to competitive selection the quality and accountability of the contractor is higher.
No single point of responsibility
Lengthy process as full document tendering has to be completed before construction
due to direct influence of client, design and construction quality is higher
Incomplete document tendering may lead to cost and time certainty.
price and time certainty
a clear idea of the end product
Client bears the design risk after tendering i.e. risk of claims by the contractor.
Easy and common method to understand for a normal client (no technical expertise).
Has the highest level of control of the project.
No input into design by the contractor can lead to loss in practical savings that can be made (issues of constructability).
A change in design after tendering is costly.
Functionality of project is higher.
No control of the client over sub-contractors, organisational disputes can be a liability.
Low risk for client, clarity in risk allocation.
The client pays the consultants fees before any construction.
Time risk after completion of the tendering is with the contractor.
Cost risk after tendering is with the client as there might be possibilities of claims
Also the client takes the design risk after tendering.
The overall design risk before tendering is with the design team and construction risk is with the contractor.
Design and construct model:
In this type of procurement, the contractor is responsible for both the design and construction of the project at hand.
This type of procurement is used when the building functionality is of more importance than the design quality and prestige, generally for medium and large scale projects.
The process that is carried out is that the client first gives an initial detailed brief to the contractor and the contractor tenders against it.
The design documents are prepared and the construction is started, sometimes in parallel to the design development sometimes not.
The contractor can use the services of in-house design members or can employ private consultants, but this decision is taken with the consent of the client during tendering.
Advantages and Disadvantages:
One stop shop, single point of accountability.
Client doesn't have control over the detailed design.
Cost certainty obtained before tendering.
Difficult to evaluate competitive tenders as the methods varies with every contractor.
The total risk is transferred to the contractor
Very low risk to the client
It is difficult for the client to provide the initial detailed briefing as the whole tender and contract depends on it.
Overlap of design and construction leads to saving time
Client relies a lot on the contractor and commits financially to the concept design before tender.
Expertise of the contractor is used in the design which helps in the constructability issues and helps make savings in the design.
Possibility of innovation.
Interference of the client in the design may lead to problems, both in administration and in cost entities.
Due to the total risk transfer the cost of the project will be higher compared to other forms.
No risk of claims.
All the obligations are on the contractor which is good for the contractor too as it gives him more financial scope.
Tendering process is very complex and may lead to confusion for the client as well as the builder.
After tendering the design, cost and time risks are with the contractor, but the client runs the risk of cost and time over run.
The total risk of the project is transferred to the contractor by the client.
After the completion of the project, the client has the risk of maintenance.
The contractor runs the risk of a novated design team from the contractor which may lead to organisational liabilities.
In this type of procurement the client hires a construction manager for the project as the head of the construction team.
The client directly hires the design team and also the trade contractors.
The design team prepares the design, then the client appoints specialist trade contractors for the different trades and novates them to the construction manager.
The construction manager is then responsible for the completion of the project on time and also according to the design.
He is paid in accordance of percentages of the project and is responsible for hiring new trade contractors if the existing ones can't complete the giving task.
He is also responsible for providing the trade contractors with the required preliminaries.
This type of procurement suits the clients when they are experienced as it requires constant involvement of the client.
It is used when the client lacks construction knowledge and also when the client requires flexibility in the programme of the projects.
Advantages and Disadvantages:
Potential for time savings are high
And also there is a single point of responsibility during the construction phase.
No single line of accountability, although the CM is responsible he is not legally bound for the cost and design constraints.
High control for the client, even though the management risk is transferred to the CM.
Administration complications are a liability.
Client contacts individual trade contractors for wrong-doings.
Possibility to take the project on a fast track mode.
Extra cost of a CM.
Freedom for the client to select individual design team and trade contractors.
The focus on the life cycle costs and future considerations is minimal.
Possibility for an early start and early completion of the project.
Cost certainty is blurred for the client.
The client bears most of the risk including design, cost and time.
The CM doesn't take any of the risks legally but is obligated by the responsibility put on him for management risks.
The CM can offer to take the cost control risks but only in specific cases it can happen.
In this form of procurement the client appoints a managing contractor (head contractor) who in turn appoints his construction team with the consent of the client.
The managing contractor works on parallel terms with the design team and can engage his own specialist consultant.
The client and the MC agree on a fixed amount to be paid as fees to the MC. The MC is also offered incentives for completion of works in quicker time and lesser cost.
The managing contractor is responsible for the delivery of the project and sometimes can assist with the design requirements of the client.
The project on a whole runs on a basic cost plan and it is flexible for the client to change the project schedule.
This kind of procurement strategy is suitable for complex designed projects and projects that ought to be on the fast track mode.
Advantages and Disadvantages:
Managing contractor appointed at an early stage - helps with design inputs.
Less cost certainty as the total cost is not known at the beginning of the project.
Possibility of early commencement of construction (working in parallel)- early finish of the project
An experienced client is required.
Close time and cost monitoring needed by the client.
Flexibility for change in design
Difficulty setting cost targets.
The client has the control over the design development stage, helps in project changes-more flexibility
Possibility of time and cost overrun is high for the client.
Work let out is competitive hence leaving a good scope for quality.
Mechanism available for sharing of profits.
The cost for managing contractors is high, which in turn increases project cost.
Client dealings with only one person- hence good co-ordination.
A high onus of the project's success is on the construction team.
The design risk is shared between the client and the MC but the MC can accept the design risk sometimes.
The client bears the risk of cost overrun.
The MC is responsible for the time constraints, management risks and also in providing preliminaries to the construction team.
The MC takes the risk of quality, time and cost for the period of the construction.
Current Usage Of Various Forms Of Procurement:
Lump Sum Model in the present market has a few more variations to it and it is called Negotiated lump sum procurement. The difference is at the point of tendering where the contractor is asked to tender twice, once at the initial stages of the design during the brief and then after the completion of the design and during the tender stage. Hence it is also called as a Two Stage Tender Procurement. Hence reduction in claims and design inputs from contractor can be achieved.
The model of design and construct also has variations to it where the contract can be offered to the contractor, for instance it can be offered at a halfway design stage and the contractor is asked to develop the design and then tender for the construction. Such strategies are called as Develop and construct form of procurement.
Construction management again has two models, individual consultant and as a contractor. The consultant is typical type but in the contractor model, the CM accepts time and costs risks and gets paid for that in percentages of the project.
Managing contractor in the present market is used mainly for the defence sector projects.