Analysis of Procurement Methods for Design and Construction

1.0 Introduction

A client brief has been provided for the development of a new facility in the University of Salford. In this report, a review will be carried out based on the requirements of the client in the brief and critically analyse the potential procurement methods for both the design and construction of the project. Recommendations for the appropriate procurement route and forms of contract supporting by detailed reasons will be suggested in the report.

The Client, The University of Salford, is aspiring to become an outstanding University renowned for the quality of its engagement, humanity, global reach and leadership in research, innovation and education. Strategic plan has been developed to achieve the University’s goal which is to be ranked amongst the very best of UK universities and recognized internationally by 2017.

To achieve this objective, the School of the Built Environment is intended to develop a new facility within the university campus. The building is to be a prestigious and high aesthetic facility which will replace an older building in the university. The new proposed building will contain facilities listed as below:

• State of the art lecture theatres
• Meeting rooms
• Extensive classroom and studio facilities
• Office accommodation
• Laboratory accommodation
• Learning Resource Units
• External works

In addition, the Client requires the new facility to be carbon neutral to be in accordance with the University policy.

Furthermore, the Client has allocates a budget of £ 20 million to cover the total development cost of the project. This cost will include construction works, external works, statutory and professional fees. This proposed building must be completed and handover by 1st of August 2012. The completion date is critical as the facility must be ready for the new academic year.

In short, the Client’s key requirements and objectives of this new build building are listed as follows:

New university facility which will realise the University’s goal to become a high reputable and internationally renowned university.

The facility is to be constructed in highest aesthetic and qualitative standards.

The budget of the project is £ 20 million.

The construction time is important as the building is needed by 1st of August 2012 at the very latest.

To carry out the construction works of this new facility, the Client needs to understand the various procurement methods available for the project. Hence, this report will analyse the key procurement issues for the Client to consider.

2.0 Procurement Assessment Criteria (PAC)

Turner (1990) says that ‘the procurement route that is appropriate to the overall balance of objectives and to client priorities for each project should arise from those objectives and priorities’. There are several procurement assessment criteria being set as a guide to choose the appropriate method of procurement:

• Time
• Complexity
• Quality
• Cost
• Risk
• Flexibility

In this case, three main criteria which are time, cost and quality will be focused and assessed in the following sections for this particular project to find the most suitable procurement route that balance between these three criteria.

3.0 Traditional Procurement

The traditional system, probably the most commonly adopted procurement strategy in UK, sometimes referred as ‘design-bid-build’ method. This is because the traditional route separates the responsibility for the design of the project from its construction with a ‘tendering’ period (Cooke & Williams, 2009). Initially, the client appoints consultants for design and for cost control and contract administration of the project. After the design is completed, the tender stage starts by using two stage tendering or negotiation to appoint a contractor for the project. The appointed contractor will then enters into a direct contract with the client and responsible to build and deliver the project. The organizational structure of traditional procurement is shown in Figure 3.1. In addition, due to the design must be completed before the tender stage, the cost of construction can be determined with reasonable certainty before the construction commences on site (Morledge, Smith & Kashiwagi, 2006).

Client

Consultant

Contractor

QS, structural engineer

Architect

Subcontractor

Supplier

Figure 3.1: Traditional procurement (Morledge, Smith & Kashiwagi, 2006)

The traditional procurement is commonly used because of its particular advantages. These advantages are listed as follows:

The design is complete before tendering ensures price certainty for the client.

The design does not substantially change during construction therefore contract variations can be kept to a minimum.

The client able to have direct influence and retains control over the design team, thus quality in the design can be assured.

Detailed information such as drawings and Bills of Quantities provide a common basis for tendering and evaluation is relatively easy.

The procedures are well known and enabling confidence to be assured in parties which involved throughout the process.

Variations and contract changes are relatively easy to handle.

Firm contractual date for completion.

While this procurement route has its advantages, there are also criticisms. The main disadvantages are:

The duration of project may be longer than other procurement methods as the strategies is sequential and construction cannot be commenced before the completion of design.

A longer duration of project may make the cost of project higher because of the increased period of interim financing charges and interim payment to the contractor and consultants. These may cause the cost of project exceeds the client’s budget.

All the design risk is carried by the client.

The contractor has no input into the design and planning of the project.

The sequential nature of this system can result in poor communication between the client and the project team and can be cause of expensive disputes.

3.1 Cost

By adapting this method of procurement, the cost is agreed as a lump sum fixed price between the University and the contractor thus provides overall cost certainty for the University before the construction commences on site. Besides, the project cost can be estimated, monitored and controlled by the Client’s cost consultant during the whole project period and therefore large cost overruns will not occur which is an important advantage to the Client. In addition, traditional method could provide the Client value of money. As explained before, since the design stage is completed before the construction, the design and cost consultant team of the Client will corporate to ensure the design is value for money.

3.2 Time

With this procurement route, as the design is carried out before the tender process, the length of time spent to develop the design and prepare the tender documents by the consultant team can be very long. This process tends to prevent the construction works to be started on site. In fact, traditional procurement is identified as the slowest method of procurement compare to others. Hence, this is a disadvantage for this new university facility project as the date of completion is critical.

3.3 Quality

The traditional procurement provides the high degree of certainty that the quality and aesthetic standards will be met (Masterman, 2002). This is because the University can select the most appropriate design team for this project to complete the design before the tender stage. During the design stage, the University has direct control and influence over the design therefore can ensure the high aesthetic and quality standards for the new facility are fulfilled.

4.0 Design and build Procurement

Ashworth (2006) defined design and build as ‘a procurement arrangement where one single entity or consortium is contractually responsible to the client for both the design and construction of the project’. In other words, under a design and build strategy, a single contractor takes the risk and responsibility for designing and building the project. The client will employ a design team to carry out some preliminary design or scheme design. The client will then appoint a contractor to assume the responsibility for the design as well as the construction process. The contractor needs to develop the scheme design to a detailed design. Figure 4.1 illustrates the relationships between the parties that involved in the project. In this method of procurement, the construction can start before the detailed design is completed, but at the contractor’s risk (Morledge, Smith & Kashiwagi, 2006). In practice, design and build procurement consist of a range of variable. The two common variants of this type of procurement are client-led design and build and contractor-led design and build.

Client

Architect or QS advisers

Contractor

Subcontractor

Suppliers

Architect and other designers

Figure 4.1: Design and build (Morledge, Smith & Kashiwagi, 2006)

In client-led design and build, also known as develop and construct, a small number of contractors will be invited to tender for the project when the design is virtually completed possibly with full bills of quantities or notional bills. In this procurement route, study of Cooke & Williams (2009) indicates that the client is fully involved in the design development and therefore the design risk is taken fully by the client as the contractor has little involvement to the fundamental design. Additionally, the client will be responsible for all design fees from start to ends of the project. There is an alternative to this method which is a popular practice in the construction industry. Once the contract has been awarded, the design team including the client’s architect and other members of the design team will be novated to the contractor. In other words, the contractual obligation to complete the detail aspect of design is legally passed over to the contractor. In this way, the client will maintain an interest in the design but the contractor will be responsible to the continuing design fees and the entire design (Cooke & Williams, 2009).

On the other hand, in contractor-led design and build, the client may provide minimal information in the outline brief to the contractor. Thus, the contractor is fully responsible for the conceptual and detailed design. As a result, the contractor has to produce a building which meets the client’s requirement. In this situation, the contractor takes all of the responsibilities, risks and rewards of design. The contractor may provide an in-house design facility or engage independent design teams (Cooke & Williams, 2009). It is preferable to appoint a design team coordinator to ensure the flow of information between the design team and the project team.

The main advantages of design and build procurement are listed as follows:

The client has only to deal with one firm since the contractor provides single-point responsibility for design and construction.

Price certainty is obtained before the commencement of construction works provided the client’s requirements are adequately specified and changes are not introduced.

The total cost of project is usually lesser than other types of procurement systems.

The overall project period is reduced because of overlapping activities as construction can be started before the design is completed.

Despite its advantages, design and build has many arguments among the practitioners and client of the industry. The drawbacks of this procurement method are:

Tender bids are difficult to compare since each design will be different result in different project time and prices.

The tender period and negotiation tends to be much longer

Changes of client to project scope can be expensive.

No guarantee in terms of design and quality because has less control over this aspect.

The client may find difficult in preparing an adequate and sufficiently comprehensive brief.

4.1 Cost

The design and build approach enables the contractor to be more positive about the final cost to the Client at an earlier stage (Masterman, 2002). The price would be agreed between the Client and the contractor before construction commences on site. Besides, the initial cost and final cost of using this procurement system are usually lower than other procurement approaches. This is mainly because of the reduction in design costs and the integration of design and construction process. However, value for money is difficult to assess in this type of procurement. This is because there is usually limited information available at the tender stage, not to mention there are different methods, designs and services can be offered by the contractor. As a result, the Client may not be able to judge the efficiency of the design.

4.2 Time

The specialty of this procurement route is that the contractor is responsible for both design and construction. Therefore, it allows the overlap of design and construction phases thus reduce the overall project period. This would be an advantage for the University because it ensures the construction works of the new facility can be commenced early. According to Masterman (2002), design and build projects have a better record in terms of completion on time. Hence, the University would be able to have the new building ready for new academic year by using this method of procurement.

4.3 Quality

This method of procurement would not be a suitable procurement for this high aesthetic and quality standards project. Design and build is belief that most suitable for simple uncomplicated project which the aesthetic and quality of the project is low. The reason for this is that the contractor is responsible to develop the detailed design of the project. In some circumstances, inevitably the contractor will economise the cost of design to boost the profit margins which will caused a negative effect on the project quality. Additionally, in a design and build project, if the Client unable to provide a satisfactory brief, it is possible result in the Client’s functional and quality requirements being unsatisfied.

5.0 Management Procurement

5.1 Management Contracting

In this procurement strategy, a management contractor is engaged by the client to manage a number of work package subcontractors in return for a fee. Morledge, Smith & Kashiwagi (2006) stated that the management contractor has direct contractual links with all of the subcontractors and carries the responsibility for the construction works without actually carrying out that work. In this method of procurement, the works are let in forms of work package and subcontractors will bids competitively for each work package to obtain the work. The relationship between the parties in management contracting is shown in Figure 5.1.1.

Client

Consultants

Contractor

QS, structural engineer

Architect

Work contractor

Figure 5.1.1: Management contracting (Morledge, Smith & Kashiwagi, 2006)

Management contracting is a ‘fast track’ strategy says Morledge, Smith & Kashiwagi (2006). The work package approach allows the maximum overlap design and construction activities. In more general terms, provided that the work package is completed, the subcontractor may starts works on site before all of the design works are completed. Therefore, the overall project period can be reduced.

Due to the nature of this type of procurement, cost certainty cannot be achieved until all packages of work is tendered and let. Hence, strict control of the work package budget is essential for the success of the project (Cooke & Williams, 2009). In this strategy, the client reimburses the cost of the work packages to the appointed management contractor who will then pay the subcontractors. So, it is important to appoint the management contractor carefully and ensure that the management fee is appropriate.

As the common characteristics of management contracting are previously described, the advantages of this procurement route can now identified:

Overlapping of the design and construction processes tends to save time for the overall project thus enables earlier completion to be achieved.

The nature of the procurement enables the contractor contribution to design and project planning.

Changes can be accommodated provided that packages affected have not been let and there is little or no impact on those already let.

Quality of the project can be assured as the design can be developed in stages and site supervisor can be appointed to ensure the quality standard is achieved.

On the other hand, there are also weaknesses in this procurement method. The disadvantages are listed as follows:

Poor price certainty at the early stage and the potential cost commitment depends on the design team estimates.

The total cost of project is usually unknown until the project is well into the construction programme.

The client must provide a good quality brief to the design team as the design will not be completed until the client has committed significant resources to the project.

The client is responsible for the majority of the project risks.

Damages of delay are difficult to pin on one subcontractor.

5.2 Construction Management

Under a construction management strategy, Morledge, Smith & Kashiwagi (2006) points out that the client does not allocate risk and responsibility to a single main contractor. The client employs the design team and appoints a construction manager based on a negotiated fee simply to manage, programme and co-ordinate the design and construction activities carried out by the work package contractors. Unlike the management contracting, the each work package contractors have direct contractual link with the client and is paid directly by the client (see Figure 5.2.1).

Client

QS, structural engineer

Architect

Construction manager

Trade contractor

Trade contractor

Figure 5.2.1: Construction management (Morledge, Smith & Kashiwagi, 2006)

The construction manager will provides professional construction expertise without assuming financial risk because there is no contractual link with design team or work package contractors. Hence, by using this procurement route, Morledge, Smith & Kashiwagi (2006) stated that the client has to be involved closely in the design and construction phases and take necessary actions based on the recommendations from the construction manager. Therefore, this method of procurement is not suitable for inexperienced client. It is recommended to use this procurement for large and complex project or a high degree of design innovation where the client wants deep involvement.

Basically, the construction contracting has the similar advantages and disadvantages with the management contracting. Therefore, they will not discuss more in this section and please refer to the previous section if necessary.

5.3 Cost

The uncertainty of price will be seen as a disadvantage for the management procurement system. However, the benefit of this ‘fast track’ strategy may result in cost savings and offsetting extra construction costs. Therefore, it could reduce the overall expense of the project. Besides, in this procurement, the cost of the project can be minimised by improving buildability and by work package contractors undertake the works at competitive prices.

5.4 Time

For projects which need fast design and construction period, this would be the appropriate type of procurement to be used. The overlapping of design and construction phases will allows an early start of construction works on site and therefore saving in time can be achieved. Since the time of completion is an important issue in this project, the Client would be suggested to consider to adopting this procurement methods.

5.5 Quality

Under this procurement route, the quality of the completed project can be achieved which fully meet the Client’s needs provided that the design team is working closely with the management contractor on all aspect of the project to ensure he is fully aware of the design constraints as well as the Client’s requirements. Besides, due to the management contractor is appointed at the early stage, he will be able to contribute his construction expertise to achieving an efficient quality standard for this project.

6.0 Justification of procurement strategy

6.1 Procurement Matrix

After considering and evaluating the options of procurement available for the project, the most appropriate procurement system that suitable for the project can be selected. This can be achieved by assessing and setting the priorities of the project objectives in terms of time, quality and cost and the client attitude to risk.

A universal procurement selection technique which is a procurement matrix is employed to help to select an appropriate procurement strategy for this particular project. The University’s key objectives and requirements of this project are taken into account during the assessment. After completing this procurement matrix, the result shows that Management Contracting would be best suited procurement system for this new university facility project. Please see the attachment for the completed procurement matrix for this project.

6.2 Procurement strategy

After a critical analysis of the procurement options as discussed above and completing the procurement matrix, the Management Contracting route is highly recommended to be adopted for this new build facility project. The reasons of this suggestion is being made are discussed as below.

6.2.1 Cost strategy

In terms of cost issue, the Management Contracting probably is not the most recommended procurement systems compare to Traditional and Design and Build. This is because it is not the greatest at providing price certainty to ensure the budget of £ 20 million can be met at the beginning of the project. However, Morledge, Smith & Kashiwagi (2006) points out that this does not mean that the Client has less control over the project cost as strict supervision can be exerted over this aspect of the project. Due to that each package of work are being let by competition between contractors, the Client can monitor the cost closely and if necessary, adjust later work packages in order to cover any cost overruns in the previous work package.

Furthermore, the University has to appoint the Management Contractor so that he can advise and contribute at the design process based on his professional expertise and carry out value engineering works to ensure the project is being built within the budget.

6.2.2 Time strategy

The completion on time is a key requirement of this project. The Client has specifically required that the new facility must be completed on 1st August 2012. Under this circumstance, Management Contracting would be appropriate to meet the deadline. Due to the rapid progress of this procurement which provides overlapping of design and construction phases allows early commencement of works on site and therefore results in time saving.

Moreover, the key strategy to ensure the project is completed on time is to make sure that all of the information from the design team is continuously issued on time to the Management Contractor and to ensure that the Management Contractor is always being updated. Hence, these could avoid any misunderstandings and delays during the construction works.

Besides, the competency and experience of the Management Contractor will also ensure this ‘fast track’ procurement can be carried out efficiently. A high level of experience Management Contractor who familiar with this type of procurement route must be appointed so that the works on site are well manage and control throughout the whole process.

6.2.3 Quality strategy

The Management Contracting would ensure the required high quality and aesthetic standards of this new build project can be successfully met. This is because this type of procurement method allows the Client to appoint and oversee the design team to develop detailed design which fulfills the specific requirements. Furthermore, to ensure the quality and aesthetic standards of this university facility are met, the Client has to make sure that the design team are aware and focus from the beginning of the project to develop the design based on these commitments. Additionally, all of the detailed drawings and specification produced by the design team must go into the contract between the Client and the Management Contractor so that the requirements of the Client are well informed thus can be managed efficiently the works on site to ensure the requirements are met.

7.0 Form of Contract

A contract is defined by Cooke & Williams (2009) as a means of formalising the relationship between the contracting parties in which the rights and obligations of the parties are agreed and the balance of risk between the parties established. The contracts also establish how administrative procedures and the serving of formal notices are to be conducted and mechanisms for dealing with contract payments, delays, compensation and disputes says Cooke.

There are several of contracts produced by different bodies used in the construction industry but by far the JCT (Joint Contracts Tribunal) is the most popular forms of contract in use. Hence, the JCT 2005 Management Building Contract is recommended to be used in this project. The JCT 2005 Management Building Contract comprises (Hackett, Robinson & Statham, 2007):

Management Building Contract

Management Works Contract Tender & Agreement

Management Works Contract Conditions

Management Work Contract / Employer Agreement

Under this forms of contract, the management contractor tenders on the basis of a management fee and the works contract are being let by separate packages when the design of those packages are developed (Cooke & Williams, 2009). The management contractor is legally bound with these work package contractors under the Management Works Contract. In other words, the management contractor is responsible to manage the work package contractors.

Moreover, during the design stages, the contract also requires the management contractor to cooperate with the consultant team such as architect, engineering and quantity surveyor. In addition, all necessary programmes for execution of the project which includes detailed construction programme are required to prepare by the management contractor (Cooke & Williams, 2009). Under the contract, the management contractor’s duties include maintaining and regularly updating the detailed construction programme.

8.0 Conclusion

In conclusion, the Management Contracting is the most suitable procurement route for this project. This procurement system allows the Client to design the new university facility according to his requirements and appoints the Management Contractor to manage the construction works on site.

Using the Management Contracting, the price certainty can be achieved with close monitor of the cost of each work packages so that the building can be built within the budget of £ 20 million. Furthermore, the advantage of this ‘fast track’ procurement method tends to meet the time of completion for this project. Last but not least, since this is a prestigious project, this type of procurement route ensure the high quality and aesthetic standards are met in accordance with the Client’s requirements. With these, it is recommended for the University to adopt the Management Contracting as the method of procurement to maximise the success of the project.