This week, the various procurement options and why they are used
This article focuses on the core competency of Procurement and Tendering (T062). The competency covers a wide range of issues in relation to both procurement and tendering methods within the construction industry and a candidate would be expected to have a good understanding of these matters at level 3.
This article focuses specifically on the various procurement options available, their differences and reasons for use. As a quantity surveyor working in either the private practice or contracting sides of the industry this is an issue that will be dealt with regularly and therefore you will be expected to understand and respond in detail.
The RICS guide outlines the requirements at Level 1 as ‘demonstrate knowledge and understanding of the main types of procurement. Demonstrate knowledge and understanding of the tendering and negotiation processes involved in procurement’. Competency at Level 1 is generally focussed on having a knowledge and understanding of the competency – ‘knowing’.
Question What are the main factors that govern procurement route selection?
Answer The three key issues are Time, Cost and Quality. Usually you cannot satisfy all three of these with one option but consideration must be given to the clients list of priorities and the implications of time, cost and quality to get the best route for the client.
Question What procurement options are you familiar with?
Answer You need to identify what procurement options you are familiar with and demonstrate a brief understanding of each:
• Traditional Procurement (Client engages design team and contractor direct)
• Design and Build (Client engages contractor who then employs designers)
• Management Contracting (Contractor performs the role of managing the works contractors who carry out the works)
• Construction Management (Construction manager is employed to arrange trade contracts and monitor them)
• Framework Agreements (a template contract is agreed for a series of projects)
• Two Stage Tender (Contractor is selected for first stage on basis of limited scope i.e. preliminaries, overheads and profit. In second stage a full price is negotiated through an open book tendering of subcontracts)
• PFI/PPP (Private sector designs, builds, operates and finances the asset for the public sector who pays an annual charge)
The RICS guide outlines the requirements at Level 2 as ‘Apply your knowledge to the implementation of the procurement routes selected for your projects and to carrying out tendering and negotiation processes relevant to them’. Competency at level 2 is generally focussed on having an application of knowledge and understanding – ‘doing’.
From a Quantity Surveying perspective this means demonstrating a working knowledge of the procurement options identified above including the advantages and disadvantages of each.
Question What are some of the benefits and pitfalls of the procurement options identified?
Answer You will need to identify the key advantages and disadvantages associated with each procurement option:
• Control over design process
• Direct reporting of design team to ensure quality control
• No built in contractor risk premium
• No one person is responsible for the design and construction
• Design needs to be developed as fully as possible
• Time / Cost more likely to escalate
Design and Build
• Well established in construction industry
• Single point of responsibility
• Early involvement of the contractor
• Cost Certainty
• Less control over the quality / specification of the work
• Contractor will build in risk premium
• Complex legal issue over novation of design team
• Management contractor has early involvement and manages works contractors
• Can appoint early
• No single point responsibility for design and construction
• Management contractor only responsible for workmanship to the extent that works contractor is responsible/able to pay
• Construction Manager is qualified advisor to employer
• Construction manager can exercise cost and quality control
• Construction Manager has no direct control with the trade contractors
• Difficult to control cost increases
• Only need to negotiate once for a series of projects
• Prospect of repeat business for consultants / contractors
• May not always be best value for money
• Public procurement regulations may impact
Two Stage Tender
• Early involvement of contractor in design / build ability issues
• Can start on site earlier
• Once contractor selected competition is lost and may impact on the pricing
• Difficult to walk away
• Risks transferred to private sector
• Specialist private sector manages construction and operation of asset
• Loss of control by public sector
• Can be hard to show value for money
The RICS guide outlines the requirements at Level 3 as ‘Give reasoned advice on the appropriateness of various procurement routes. Manage the tendering and negotiation process and present reports on the outcome’. Competency at Level 3 is generally focussed on the provision of reasoned advice and depth of technical knowledge – ‘advising’.
Question You have identified Project X in your critical analysis. Please outline the procurement strategy you adopted and your reasons for the selection of the particular procurement route. How did this tie into the client list of priorities?
Answer You will need to talk in detail about how and why you made the decision you did. Link this into the client’s priorities and the advantages and disadvantages identified above. Show a clear and well thought out plan with a sensible conclusion. Also identify options that were considered but rejected and explain why they were rejected.
Question What experience have you had of Partnering?
Answer Partnering is a concept that can be applied to any of the procurement routes above. In the Partnering scenario negotiation rather than competitive tender is the key and experience has shown that in the long run this achieves better results for both contractor and employer, particularly as both parties go into the contract with their eyes open and hopefully no surprises will ensue.
By Alasdair Thompson, divisional director, Franklin + Andrews, part of the Mott MacDonald Group
APC Trainer's advice is intended as guidance only and should not replace your own study