UNDERSTANDING

PROCUREMENT
STRATEGY
Webinar 6

Presented by Cost Umbrella In collaboration with PIQS

Table of Content
01 Strategic Foundations and Core Procurement Routes
1. What is Procurement?
2. Procurement Strategy
3. Key factors driving the procurement strategy
4. Flow Chart (4 Elements)
5. Procurement Routes
6. Procurement Route Governing factors
7. Traditional Procurement Route - Overview
8. Traditional Procurement – Advantages and Disadvantages
9. Traditional Procurement – Risks and Mitigations
10. Design & Build Procurement Route - Overview
11. Design & Build Procurement Advantages and Disadvantages
12. Design & Build Procurement - Risks and Mitigation

02 Advanced Routes
1. Management Contracting - Overview
2. Management Contracting Advantages & Disadvantages
3. Management Contracting - Risks and Mitigation
4. Construction Management - Overview
5. Construction Management - Advantages and Disadvantages
6. Construction Management - Risks and Mitigation

03 Contractor Selection – Tendering Methods

1. What is Tendering – Overview
2. Types of Tendering
3. Open Tendering
4. Selective Tendering
5. Negotiated Tendering
6. Serial Tendering

04 Financial Basis
1. Financial Basis – Types of Contracts
2. Lump Sum Contracts
3. Measurement Contract
4. Cost Reimbursable Contracts
5. Form of Contracts
01 - INTRODUCTION

Cost Umbrella Collaboration with PIQS & RIQS

Empower Delivering practical

Professionals knowledge and skills
 01 Introduction to PMO & RIBA stages
01 - INTRODUCTION
02 Feasibility Study & Viability Assessment

03

Webinars
Design Development Through Project Lifecycle

04 Fundamentals of Schedules & Basics of EOT

LIST OF TOPICS 05 Bidding (Techno-Commercial)

06 UNDERSTANDING PROCUREMENT STRATEGY

07 Cost Planning & Budgeting (Funding)

08 Value Management & Value Engineering

09 EVM & Progress Monitoring

10 Cost Controlling & Reporting

11 Risk Management (Auditing)

PIQS & CU Webinars 12 Quality Management

 CPD # 1
01
Continuing Bid Preparation
(Techno Commercial)
Professional Location KSA

Development
(CPDs)
CPD # 2
02
Cost Planning
(Pre-Contract)
Location KSA

CPD # 3
03
Career in Quantity
Surveying
Location Pakistan

Premium Courses
04 Launching Soon
PIQS & CU
 Powered by Cost Umbrella
We are pleased to announce the upcoming launch of two specialized training
programs designed to enhance professional competency in the construction and
consultancy industry:
Upcoming
Course 1
Professional 01 Bid Preparation (TECHNO Commercial)
Development Courses
Course 2
02 Cost Planning

These courses are part of Cost Umbrella’s initiative to raise industry standards and
build technical capacity across our profession. Developed by experienced practitioners
and aligned with real-world project demands, the curriculum emphasizes practical
application, strategic thinking, and up-to-date industry methodologies.
Each course will be accredited by internationally recognized professional bodies,
ensuring that participants gain not only advanced knowledge but also globally
respected credentials.
Stay tuned as we prepare to open enrolment soon. Whether you're an emerging
professional or a seasoned practitioner, these programs are designed to sharpen your
expertise and support your growth in today's competitive project landscape.
Strategic Foundations
and Core Procurement
Routes
What is Procurement?

The overall act of obtaining goods and services from

1. Overall Act
external sources (e.g., a building contractor).

Deciding the method/strategy for acquisition by reviewing the client’s

2. Includes
requirements (time, quality, cost) and their attitude to risk.
Procurement Strategy

Procurement Strategy
• Definition: Establishing a Procurement Strategy is vital early in a project. It involves understanding the client's goals
for time, cost, quality, and risk tolerance.
• Purpose: The strategy dictates how the project will proceed, be executed, and monitored.

Objectives of the Procurement Strategy

• To identify the best way to achieve the client's objectives.
• To ensure the selection of the most appropriate strategy based on the client's primary goals.
• To guarantee the client obtains the right project at the right price at the right time.
Key Factors Driving Procurement Strategy

Key Factors Driving Procurement Strategy

The main purpose is to meet the client's requirements. The strategy is derived from these key factors:
1. Understand clients' needs and wants.
2. Client's preference for Time, Cost, and Quality.
3. Allocate risk to the most suitable party.
4. Level of client involvement in the construction process.
5. Separation of design from management.
6. Complexity of the project.

7. Need for price certainty.

Flow Chart
(4 Elements)
Procurement Routes

Renowned routes practiced in public and private sectors:

1 2

Traditional Design and

(Design – Bid – Build) Build

3 4

Management Construction
Contracting Management
Procurement Route Governing Factors

Procurement Route | Governing Factors

Considerations for selecting the most appropriate procurement route:

Factor Client's Objective/Consideration

Time Early completion.

Cost Price certainty prior to start construction.

Quality Meet client-specified expectations.

Variations Avoid prohibitive costs of change.

Complexity Technically advanced or highly complex building.

Responsibility Single contractual link for project execution.

Risk Avoidance Desire to recover costs direct from the contractor.

Buildability Contractor input for economic construction.

 Traditional Procurement Route

Traditional Procurement Route

The most common and longstanding method. Project design is fully

completed before a contractor is selected via competitive bidding.

Contractual Client
Relationships Fee Contracts Lump sum Contracts

Contractor
Architect

Subcontractors
Sequence: Quantity Surveyor
Suppliers
Design Sub-subcontractors
Structural Designer
Tendering for CM & Packages
Construction
Others
Advantages & Disadvantages

Advantages Disadvantages

Focus Key Benefits

Quality is under Employer’s control Responsibility: No single point of responsibility for both
Quality & Design (Design Prestige). Full client control 1 design and construction (Dual point of responsibility).
on the design.
Time: Time consuming / Longer overall project duration.
Cost certainty. Less contractor risk 2
Cost & Risk premiums / low tender price. Fairly Design has to be fully complete before tendering.
even split of financial risk.
Adversarial Risk: Strategy based on price competition could
Power to change (Avoid prohibitive 3 lead to adversarial relations. Contractor's expertise is not
Flexibility cost of change). Changes easy to used in the design.
issue and value.
Certainty: Incomplete tender documents lead to
4
Relatively low tender preparation uncertainty and disputes.
Administration costs. Standard forms of contracts
widely used. Buildability: Lack of contractor expertise input
5
Accountability (competitive and (Buildability).
Accountability
transparent).
Risks and Mitigation

Key Risks for the Client Mitigation of Risks

Split Responsibility:
Perform due diligence on design and Bill of
01 01
Design and construction functions are split – no
Quantities (BoQ) to check fixed costs.
single point of responsibility.

Cost Overrun:
02 Insist on individual warranties with all parties.
02
Risk of cost increases due to changes,
inadequate PC sums, or quantities (in
remeasurement).
03 Cost checks on PC sums.

Program Overrun:
03 Increase Professional Indemnity (PI) or
If Client frequently requests changes. 04
change consultant.

Quality
04 05 Add an approval procedure for changes.
Design Team may lack relevant experience.
Design & Build Procurement Route - Overview

• The Contractor is responsible for both the design and construction of the works to
the employer's requirements for a fixed lump sum.
• The client prepares the Employer’s Requirements and the contractor responds
with the Contractor’s Proposals (including price).

Contractual Relationships
Advisers Client Employer's Agent

Sequence: Contractor
Architect
Design Subcontractors
Tendering Quantity Surveyor
Construction Suppliers
Sub-subcontractors
Structural Designer

Building Services
Engineer
Design & Build Procurement – Advantages & Disadvantages

Advantages Disadvantages

Responsibility: Single point responsibility for Design and Cost: Potential for higher cost due to risk premiums built
1 Construction (less design issues). 1 into the price.

Time: Less time consuming; Design and Construction Quality: Quality may be compromised (client has less
2 are overlapped and quicker. Earlier commencement on 2 control over design prestige).
site.
Tendering: Difficulty in comparing tenders; Harder to
Cost: Price is more certain prior to construction; Early price
3 3 determine value for money.
certainty is possible.

Buildability: Contractor's expertise is used in the design Flexibility: Variations from the original brief are difficult
4 4
(Constructability). and often expensive.

Risk: Reduced client risk. Client Brief: Client may find it hard to prepare a
5 5
sufficiently comprehensive brief.
Design & Build Procurement - Risks and Mitigation

Key Risks for the Client Mitigation of Risks

Outcome Thoroughly examine Employer's

01 01
The end result may not fully meet the Requirements and Contractor's Proposals.
Client's expectations.

Quality/Due Diligence Obtain access to actual designers via

02 02
Risk if D&B Contractor lacks proper PI warranties and their PI cover.
insurance for design or if in-house
designers lack track record.
Control Carry out design due diligence (architectural
03 03
and structural review).
Client has no control over design on
bespoke projects.
04 Carry out legal due diligence on contracts.
Advanced
Routes
Management Contracting - Overview
• Role: Management Contractor (MC) is employed to manage construction and contribute expertise
to the design, paid a fee for doing so.
• Contractual Links: The MC has direct contractual links with all Works Contractors (Sub-
contractors).
• Risk: MC is low risk; reimbursed for the cost of packages (prime cost) plus their fee.
• Time: Fast-track method where design overlaps construction.

Client
Contractual Relationships
Contractor
Architect

Sequence: Construction Manager

Design Quantity Surveyor

Tendering for CM & Packages
Construction Structural
Designer

Others
Management Contracting – Advantages & Disadvantages

Advantages: Disadvantages:
• Time: Early start and early completion (Design • Cost Certainty: Costs are not fixed at the outset
and Construction overlap). (typically only 20-40% fixed at start).
• Expertise: Contribution by experienced contractor • Responsibility: No single point responsibility for
(MC) to manage. MC's and specialist Sub- design and construction.
Contractors' experience used in design. • Client Involvement: Client involvement is high
• Flexibility: Can accommodate later design (high degree of interface and programming).
decisions / changes. • Risk: Client assumes a high level of Time and
• Cost Control: Each sub-contract is tendered Design risk.
individually, ensuring full competitiveness. • Conflict: Potential for conflict between sub-
• Buildability: Promotes buildability and contractors (e.g., one delays the other).
economical designs.
Management Contracting - Risks and Mitigation

Risks & Mitigation:

Risk Area Key Risks Mitigation Strategies

Add design contingency; Amend contract

Costs not fixed; MC not responsible for sub-
Cost for MC to be responsible for programme,
contractor problems (risk borne by Client).
disputes, workmanship.

Design not complete at the outset; MC not

Carry out design due diligence; Insist on a
Design responsible for design defects by sub-
system of PI cover and warranties.
contractors.
Construction Management - Overview

Construction Manager (CM) acts as a consultant to coordinate the design

Role: team and supervise the construction process. Paid a fee

Contractual Trade Contractors are in direct contract with the Client. The CM has no
Links: contractual links with them.

CM's role includes programming, breaking down packages, tendering,

Function: : coordinating, and supervising the works

Contractual Relationships Client

Fee Contracts Fee Contracts

Management
Architect
Contractor
Sequence:
Quantity Surveyor Works Contractors Suppliers
Design
Tendering for CM & Packages Lump Sum Contract
Construction Structural Design

Others
Construction Management - Advantages and Disadvantages

The process is similar to Management Contracting, with full overlap of design and construction,
but the Trade Contractors contract directly with the Client.

Advantages Disadvantages

Expertise: Cost Certainty:

1 1 Costs are not fixed at the outset
CM is a qualified advisor to the Employer. Specialist
Sub-contractor's experience used in the design.
Responsibility:
No single point of responsibility. More contractual
Time:
2 2 responsibilities for the Client.
Design and construction overlap – quicker.
Client Risk:
Control: Client assumes a high level of Time, Cost and Design risk
Direct contractual relationships; Cost could be Coordination:
3 3
controlled directly. Complex coordination & communication; High degree of
interface and programming required
Cost Control:
4 Each sub-contract is tendered individually, and so 4 Liability:
competitive CM is not liable for programme delay (e.g., L&A
damages).
Construction Management - Risks and Mitigation

Key Risks for the Client Mitigation of Risks

Add an additional design contingency to the

01 Cost/Time
01
budget.
Costs not fixed; CM is not liable for programme
delay (L&A damages) – risk of delays and cost
increases borne by the Client.
Convert CM appointment to one with risk of

02
Design/Liability 02 programme overrun (difficult, as CM is usually a

CM is not responsible for design defects due

consultant).
to sub-contractors; Lack of PI cover on sub-
contractors.
Insist on moving some sub-contractors into MC's
03
responsibility (if MC is used) or increase CM's PI
cover.

04 Consider a blanket PI policy for the entire project.

Contractor
Selection -
Tendering
Methods
Tendering - Overview

It is the bidding process used to

What is obtain a price for the work.

Tendering?
Tendering is an important phase in
It is the mechanism for
the procurement strategy:
appointing a contractor
Types of Tendering:

1 2

Open Tendering Selective

Any interested contractor can

Tendering
submit a tender

3 4

Negotiated Tendering Serial Tendering

A single contractor is selected, and Contractor selected for a series
negotiations are conducted. of similar projects
Open Tendering

Open Tendering

Advantages Disadvantages When to Use

Projects where
maximizing
High competition Time-consuming and
competition and
(lower price). costly evaluation.
transparency are
critical.

Transparency, Risk of receiving bids

opportunities for new from unqualified
companies. contractors.
Selective Tendering

Selective Tendering

Description: Only pre-selected contractors are invited to submit

tenders

Advantages Disadvantages When to Use

Ensures only qualified Projects requiring

Less competitive than
contractors are specific expertise or
open tendering.
considered. high-quality standards.

Reduces number of May be perceived as

bids, saving time. less transparent.
Negotiated Tendering

Description: A single contractor is selected, and negotiations are conducted to agree on terms.

Advantages Disadvantages When to Use

Flexibility to negotiate terms and tailor the Lack of competition may lead to higher For specialized projects where the contractor
contract. costs. has unique expertise.

Perception of favouritism and lack of In emergency situations where time is

Can be faster than competitive tendering.
transparency. critical.

Accountability and value for money may be

Low selection cost and less time involved.
compromised.

Mistakes in pricing can be reduced.

Serial Tendering

Description: A contractor is selected for a series of

similar projects over a period.

Advantages Disadvantages When to Use

Ideal for organizations

Consistency and with ongoing, similar
Less competitive
continuity in project projects (e.g., retail
process.
delivery. rollouts, standard
infrastructure).

Potential for cost Maintaining

Risk of complacency
savings through long- consistent quality and
from the contractor
term relationships efficiency is
over time.
(learning curve). important.
Financial
Basis
Financial Basis - Types of Contracts

These contract options are used in various procurement routes

(e.g., Lump sum is common in Traditional).

1. Lump Sum

2. Re-measured

3. Cost Reimbursable
Lump Sum Contracts

• Definition: A single 'lump sum' fixed price for all works is agreed before the works begin. Mechanisms for Varying the Contract Sum
The contractor is responsible for executing
• the complete contract work for this stated sum.
1. Variations 2. Relevant events
• Appropriate When: Project is well defined when tenders are sought, and significant
changes are unlikely.
3. Provisional sums 4. Fluctuations
• Risk Allocation: Apportions more risk to the contractor than other forms, giving the client
greater cost certainty. 5. Payments to nominated sub- contractors
➢ Note: It is not a fixed price or GMP; the price can change.

Advantages Disadvantages

Advantages & Minimal Client's risk

High Contractor's risk (poor
productivity/mismanagement).

Disadvantages Fewer variations expected.

Poor design details/specs can lead to
disputes

Client's cash flow is predictable. Procurement times can be long

Measurement Contract

Definition Process Contract Sum

Used when the design

can be described, but the Tenders are based on Calculated on completion,
amount/quantity cannot drawings and approximate based on re-measurement of
be accurately determined quantities/schedule of rates. actual work carried out and the
at the outset tendered rates
Cost Reimbursable Contracts

Definition Appropriate When Risk

Contractor is reimbursed the

actual costs incurred, plus an Nature or scope of work cannot High risk for the client as the
additional fee be properly defined at the final cost is not known when the
outset (e.g., emergency work), contract is entered into
and risks are high
.
Form of Contract

2. JCT 4. Other’s

1. FIDIC 3. ICE
Q/A Session
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