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This section of the report outlines both traditional and design and build forms of procurement to aid clients in understanding and selecting the appropriate method.
The most well known and widely accepted form of procurement in the construction industry. Traditional procurement caters for all types of client from individuals constructing a project for the first time too large complex projects where the function of the building is paramount.
Client / Employer
Civil / Structural Engineer
Contractual LinkThe traditional organisation diagram highlights how contractual links are formed within traditional procurement. As the client you are contractually bound to the design team. This is important and should be considered seriously as the contractor is at no direct contractual link to the architect.
The primary procurement method in traditional procurement is the two stages tender. Initially the client must produce a brief which outlines what your requirements. This must include relevant figures such as budget and time constraints. Now a team of consultants needs to be appointed, this will comprise primarily of an architect who will guide you through the design and construction processes. Other members will need to be appointed based on the scope of the project. These include a quantity, structural engineer and a client's representative on larger projects.
(Stage one) Design and tender documents can now be produced. A select number of contractors will be invited to tender on the partially completed tender documents. This will include a build up of the price of the project via a document called the bill of quantities.
(Stage Two) A contractor is now selected based upon the price and having the relevant resources required to complete the project. The contractor now has involvement with the design team to negotiate a finalised price for completing the construction works. Also he can have involvement in finalising the design.
This form of procurement is considered low risk as the risks to overspending, delays and failures in the design are reduced. This can only be achieved however, if the design has been thoroughly produced by the architect and completion date targets specified are unreasonable.
Design and Build procurement:
This procurement method differs from traditional procurement as the contractor is largely responsible for the design work. This relieves some of the contractual pressure on the client. With the contractor being involved in the project from the design stage it allows their expertise to be incorporated into the design phases. One of the largest advantages to design and build is the reduced time scale that projects can run to. Design information can be still being produced while construction work commences. This doesn't come without its risks however.
Client / Employer
Civil / Structural Engineer
Design and Build Organisation
Tendering for design and build projects is more costly than traditional projects therefore the number of contractors tendering is reduced. This is due to the time and resources it takes for a contractor to produce the relevant design and pricing information. Cash flow within a design and build project can be more substantial in the beginning than traditional as the contractor requires money for the design as well as construction. This is also due to larger risk being imposed on the event of an issue in the design being raised by the client as the contractor is the first point of contact. This will then cover the costs of having to transfer this information. This is not required in traditional forms of procurement as the client is in direct contact with the architect.
Types of Contract
(The information for types of contract has been cited from "deciding on the appropriate JCT contract 2008" available from the CIS published by Sweet & Maxwell limited)
Lump sum contracts - The agreed sum of construction is agreed based on a design and specification. A bill of quantities is produced for the contractors to price the works.
Measurement contracts - The end price of the construction works is not agreed until the end of the construction project.
Cost reimbursement contracts - Price of labour, plant and materials is calculated at the end of the project. Overheads and profit is then added onto this.
Design and Build:
Package deal or turnkey contract - A package is selected usually from a set standard of specification from a contractor.
Design and Build contracts - This form of contract will cover the contractor's obligations to the design and build of the project.
Standard building contract with quantities:
This form of contract is suitable for the traditional procurement method. The client must appoint an architect, contract administrator and quantity surveyor to administer the work. Contractors will tender the works based on the drawings and a set of bill of quantities.
Design and build contract:
Standard form of contract for design and build works. Contractor is principally responsible for the design and construction of the project.
JCT contract also provides an outline for setting up a partnering agreement between select members of a construction project. Everyone throughout the supply chain is bound to the agreement to work collaboratively and to have everyone best interests in mind. This should be considered as a form of contract that Hotels R Us should look into in the future when they have sufficient experience in the industry.
This form of contract is suitable for civil engineering works such as bridges, roads and dams. The project will be designed by a team of engineers and qualified contractors will tender for the work. The engineer is the principal administrator acting on behalf of the client.
NEC 3 compensation and event clauses
The NEC 3 contract was derived from Ice form of contract. The principle goals of the NEC contract are to provide a contract that is flexible, simple and clear to understand. There are many different types of NEC contract which cover traditional and design and build types of procurement. This section is going to cover early warning procedures, compensation and event clauses.
Early warning clauses can be found in section 16 of the NEC contract. These are basically a set of rules that the project manager and contractor must adhere to when they are aware of a cost or time issue on the project. It is there duty under contract to notify one and other and request an "Early warning meeting" which relevant members should be invited such as the client, architect or quantity surveyor. During these meeting the issue will be discussed and the relevant actions that need to be taken should be appointed. The advantages to this system of traditional methods of the contractor submitting a formal notice is that issues can be resolved in the most economically viable method, this offers clients more safety in terms of cash flow.
Compensation events are covered in section 60 of the contract. These are claims made by the contractor requesting either more time or money for the project. The project manager can also notify the contractor if he is aware of such an issue. NEC3 outlines the methodology behind compensation events, the contract has eight weeks to notify being aware of a compensation event and must make a claim within this period.
As a client entering into the construction industry for the first time it is often difficult to understand how and why construction projects can run over budget and cost more money. The compensation events detailed in the NEC3 contract try to justify how such events can occur.