MODULE SIX

PROCUREMENT/CONTRACTING METHODS FOR PROJECTS

There are various methods of procurement which can be broadly classified under the following
headings: Each method has different aspects of risk transfer and no one method can be classed as
best overall.
• Traditional
• Design and Build
• Two Stage Tendering
• Public Private Partnerships / Private Finance Initiative
• Management Contracting
• Construction Management
• Framework Agreements

Traditional

In this method the Contractor builds to a defined scope of works for a fixed price lump sum. The
client retains the responsibility for the design and the project team. The contractor will be
appointed normally following a tender process or negotiation and will sign up to a contract for the
works. There are a number of standard forms of contracts available for this purpose.

Design and Build

The Client appoints a contractor, as before standard forms of contract are available for this purpose
to provide a service at an agreed cost and programme. The Contractor is responsible for design
and construction. The Contractor can be chosen through a tender process or through negotiation.
The Client can appoint a consultant to oversee the works. Maximum risk is transferred following
this method of procurement, although a commercial response to design in order to address contract
conditions can result.

Two Stage Tendering

An alternative is to appoint a contractor when designs have been developed in order to retain
control of the important elements of design and specification. The Design Team can then transfer
their contractual obligations to the contractor and complete the designs on behalf of the Contractor.
This process is called Novation.

In this process, the Contractor is appointed on the basis of a first stage tender which determines
the level of overhead and profit for each Contractor. The Contractor then works with the Project
Team during the second stage to develop the designs and establish detailed costings for separate
project work elements. This process will provide for a fixed price on a detailed design basis. The
provider can then enter into a contract on this fixed price basis and also pursue the opportunity to

1
novate the Design Team as with the Design and Build Procurement route as previously noted. This
process requires a long second stage period in which to design and tender the different work
elements and therefore a start on site would occur later than normal.

Public Private Partnerships / Private Finance Initiative

Public Private Partnerships (PPP), particularly Private Finance Initiatives (PFI) projects are created
for the provision of services and not specifically for the exclusive provision of capital assets such
as buildings. It is therefore preferable to investigate PPPs as soon as possible after a user need has
been identified rather than leaving it until a conventional construction project has been selected as
the solution. It should be noted that the tendering process in this procurement route is expensive
and requires negotiation rather than competitive tendering. In comparison with other procurement
routes the time from commencement of the project to attaining a start on site is substantially longer.

Management Contracting

This is a fast track strategy which overlaps the design and construction stages and allows early
elements of the project process to be commenced before design has been completed. The
Management Contractor is engaged to manage the overall contract in return for a fee. The
Management Contractor can therefore be appointed early in the design and can advise on
buildability and programming. In addition to the contract with the Management Contractor, the
contracts for the individual work packages are between the Management Contractor and the
individual sub-contractors. A cost plan is utilized to control the development costs although actual
costs cannot be obtained until the final work package has been awarded.

Construction Management

This is also a fast track strategy where individual elements of the project are let before the design
of later work packages or elements have been completed. The provider will appoint a Construction
Manager to manage the overall contract in return for a management fee as with Management
Contracting. Also, as before, the project can benefit from early involvement of the Contractor. In
this process the contracts for the sub-contractors are placed directly between the Client and the
sub-contractor and the Client will need to have a high level of involvement during the design
development and the construction phases of the work. As with Management Contracting, the final
costs will only be known once the final work elements have been awarded.

Framework Agreements

Framework Agreements can be established with single suppliers or with a limited number of
suppliers. Frameworks can allow suppliers to be brought together with the relevant expertise and
experience which can result in savings to both parties where a number of projects are involved.
These agreements can cover different forms of procurement including Design and Build,
Traditional, etc. Call off Orders fall under this category of contracting.

2
PROCUREMENT SELECTION CRITERIA

Conventional procurement selection criteria are based around the concepts of time, cost and
quality. While the use of such criteria can be used as a guide to assist decision-makers with an
initial understanding of the basic attributes of a particular procurement method they should not be
used as the sole basis for selecting the procurement method. This is because of the underlying
complexity associated with matching client needs and priorities with a particular procurement
method. The decision as to what procurement method to use should be made as early as possible
and underpinned by the client’s business case for the project. An array of variables can influence
the choice of a procurement method. The following factors should be borne in mind when
determining the most appropriate procurement method are:

• External factors – consideration should be given to economic, commercial, technological,

• Client characteristics – a client’s knowledge and experience with procuring building projects
will influence the procurement method adopted. Procurement selection is influenced by the culture
of the organization and the degree of desired client involvement

• Project characteristics – The size, complexity, location and uniqueness of the project should be
considered as this will influence time, cost and risk.

• Ability to make changes –Changes in projects are inevitable. The desired level of flexibility for
the client to make changes during the project will influence the selection of a procurement method

• Cost– An assessment for the need for price certainty prior to commencement of construction by
the client should be undertaken. If price certainty is required, then design must be complete before
construction commences and design changes minimized.

• Time – Most capital works project are required within a specific time frame. If early completion
is a critical factor then a procurement method that supports speedy completion may be favored.

Case study:

The project comprised of a large-scale shed that was converted into a machine room. The State Government contracted
Densen Steel with a consultant engineer, both of whom are based in Northam to design and construct the plant

3
breeding shed due to their ability to undertake regional work throughout country and their extensive experience
specializing in agricultural sheds for farmers, both small and large, in regional agricultural areas. The most suitable
procurement approach to achieve the Government’s goals was a Design & Construction (D&C) arrangement. This
project was successful as the plant breeding shed was completed on time, under budget and with all the minimum
requirements met.

i. Discuss the criteria used in selecting D&C as the most suitable method of contracting
ii. Assess the alternative methods of procurement DHW would deploy