5/21/13
PROCUREMENT
5/21/13
Agenda
¨ Common Tendering Systems
¨ Procurement Methods
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Agenda
¨ Common Tendering Systems
¨ Procurement Methods
Common Tendering Systems
¨ Competitive / Open-bid:
¤ (Qualified) contractors are invited to bid for the
construction of a designed facility.
¤ Final bids are:
n Lump sum: total price to complete work
n Unit price: a set of prices per unit quantity of task
n Used when there is a lot of uncertainty in quantity of material
and labour required.
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Common Tendering Systems
¨ Competitive / Open-bid:
¨ Negotiated Contract:
¤ Negotiationwith one or more contractors selected by
client, based on:
n Trust, Reputation, Expertise, Etc.
= Fixed %
¤ Flexibility in Tender Price = Fixed Fee
n Tender Price = Direct Cost + Fee =Variable Fee
n = Target Estimate
n = Guaranteed Maximum Price/Cost
¤ Flexibility in Start Time
n Construction may start before design is finished.
Agenda
¨ Common Tendering Systems
¨ Procurement Methods
¤ Traditional Procurement
¤ Design-Build
¤ Management Contracting
¤ Professional Construction Management
¤ Private Finance Initiative (PFI)
¤ Prime Contracting
¤ Partnering
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Traditional Procurement
Traditional Procurement
¨ Advantages: ¨ Disadvantages:
¤ Known Lump sum cost ¤ Design, then Bid, then
¤ Best contract price Build
¤ Firm completion date ¤ Too often, delays
¤ Client retains control ¤ Too often, budget is
over design and overspent
quality. ¤ Too often, disputes
¤ Variations and contract
changes are
identifiable.
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Design-Build
¨ Also called Design-Bid-Build
Design-Build
¨ Advantages: ¨ Disadvantages:
¤ Early higher certainty ¤ High price (risk)
in price ¤ Difficulty in comparing
¤ Early decision on tenders
completion date ¤ Long tender period
¤ Risk transferred to ¤ Less control on design
contractor ¤ Potentially expensive
¤ Single point of contact design changes
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Management Contracting
Management Contracting
¨ Advantages: ¨ Disadvantages:
¤ Optimal overlap ¤ High price (risk)
between design and ¤ High uncertainty in cost
construction ¤ Less advantageous
¤ Early completion date cash-flow situation for
¤ Risk transferred to contractor -> delay in
contractor payments of subs.
¤ Single point of contact
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Professional Construction Management
Professional Construction Management
¨ Advantages: ¨ Disadvantages:
¤ Optimal integration of ¤ High uncertainty in cost
design and construction
¤ High level of quality
¤ Improved buildability
(v. Management
Contracting)
¤ Less adversarial
relationship with
contractor.
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Private Finance Initiative (PFI)
Private Finance Initiative (PFI)
¨ Advantages: ¨ Disadvantages:
¤ Financingprojects that ¤ High risk for contractor
would otherwise not be -> High tender price
possible ¤ Long bidding process
¤ Design-Build-Operate ¤ Complexity
advantages (quality) ¤ Differed cost
¤ Quality risk at transfer
period
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Prime Contracting
¨ Owner has many projects continuously happening.
¨ Strategic initial selection of Prime Contractor
¨ Prime Contractor fully integrates the Client’s team
¨ Examples of clients:
¤ NHS, Department of Defence
Prime Contracting
¨ Advantages: ¨ Disadvantages:
¤ Long-term savings on ¤ High risk concentrated
contractor selection at initial selection
and procurement stage
¤ High integration ¤ No flexibility in case of
between client and problems
contractor
¤ Flexibility in
contractual
arrangements for each
project
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Partnering
¨ Not really a procurement method:
“A structured methodology for organizations to set up mutually
advantageous commercial arrangements, either for single
projects (project partnering) or in long-term strategic
relationships (strategic partnering), which help their people
work together more effectively.”
[CIB]
¨ Defines mutual objectives, non-conflictual methods
for problem resolution, continuous improvement,
shared losses and gains
¨ Example: Marks & Spencer and Bovis
¨ Controversial idea
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