Construction projects: procurement methods
On the right lines
5 December 2014
Kevin Joyce looks at some of the key factors in selecting the appropriate procurement method for the delivery of projects
One of the key determining factors for the outcome of projects is the procurement method, and the choice of contract depends on certain conceptual considerations for the employer:
- time economy or time certainty?
- price economy or price certainty?
- general fitness for purpose
- obligation or specific standard of design to ensure quality?
Design and build
At one end of the scale is the design and build form of contract, where the employer has less control in the design and construction process but has the benefit of much greater price certainty. This form of procurement became increasingly common during the recession, and is typified by the contractor taking both design and construction responsibility based only on a set of functional and aesthetic requirements developed by the employer.
From the employer's perspective, the single point responsibility and greater price certainty are major advantages. This means that the risk of time and cost overrun sits with the contractor, subject only to very few adjustments (such as for the employer's changes/variations to their functional requirements).
The disadvantages, however, include the loss of design control, the absence of consultant support and the inflexibility of the contract in accommodating design changes.
Two-stage tendering and early contractor involvement are variants of the design and build approach, and enable the contractor to provide input at a much earlier stage, better enabling the parties to identify and manage risk.
In traditional procurement, the employer enters into contracts with various consultants to design the project, and signs a separate contract with a contractor for the construction work.
The main advantage is that if a lump sum payment mechanism has been selected and the design is largely complete, this provides the best opportunity for securing a definite price with limited opportunity for cost increases. The employer can also exercise a greater degree of control over the quality/development of the design.
The uncertainties in construction and infrastructure projects, such as the increase in materials prices or unforeseen grounds conditions, will always exist, but the chances of the successful delivery are greatly increased if a proper appraisal of the procurement options takes place at the outset
However, the division of responsibility between the consultants and the contractor can make it difficult to ascertain responsibility for many problems, ranging from delays in construction to defects in the completed project. This method of procurement is also slow and inflexible on a significant project, making it difficult to take advantage of market changes.
Furthermore, because both the processes involved in construction and the projects themselves have become increasingly sophisticated (and more and more work is being undertaken by specialist subcontractors), the distinction between responsibility for design and responsibility for construction is proving increasingly artificial.
In construction management forms of contract, the employer retains control over the design and construction process but also the risk as to time and cost.
The main advantage is that projects can be fast-tracked and early packages let to trade contractors, enabling construction to start before the design of later packages is completed. This overlap between design and construction saves time, and allows early input to the design process from the construction manager and specialist trade contractors, bringing consequent savings in time and costs.
However, construction management also has a number of disadvantages. The main difficulty is that, in the quest for speed, the employer will not have a fixed cost for the project prior to the last package being let.
Collaborative contracts and partnering
At the other end of the scale are collaborative and partnering contracts, such as the NEC3.
These contracts accord with principles of integrated working, effective communication and good project management. They focus in non-adversarial style on the causes and management of risk, rather than its effect and the most common forms – the target cost – are intended to align the parties’ commercial interests to ensure that the project is a success.
The contractual mechanisms, such as the early warning notices and the accepted programme, are designed to ensure that the contract is operated on an open, 'real-time' and transparent basis so that both parties are better able to identify, manage and mitigate risk.
The uncertainties in construction and infrastructure projects, such as the increase in materials prices or unforeseen grounds conditions, will always exist, but the chances of the successful delivery are greatly increased if a proper appraisal of the procurement options takes place at the outset. Naturally, the appropriate strategy and accompanying risk management structures should also be put in place.
Kevin Joyce is a Partner with law firm Pinsent Masons LLP and runs a free Legal Helpline Service for RICS members
- Related competencies include: Construction technology and environmental services
- RICS members with queries regarding construction contracts can email the free Legal Helpline Service
- This feature is taken from the RICS Construction journal (November/December 2014)