John Boon

ZUT November 2010

Procurement Systems

The organisation of the interaction between the purchaser of a new building and the suppliers of goods and services that enable the new building to be created.

user

owner

developer

Design team

contractor

subcontractor

supplier

Procurement system

financiers

2 basic procurement systems:Separated systems: the design of the

building and its construction are procured separately

Integrated Systems: the design and construction are procured from a single company.

Separated system

user

owner

developer

design team

contractor

subcontractor

supplier

Procurement system

financiers

Integrated system

user

owner

developer

design team

contractor

subcontractor

supplier

Procurement system

financiers

In the west, the most common form of procurement system is the separated system.

Design firms are separated from construction firms

It is easier to run a competitive tender process for construction than for design and construction

Until about 1980 in most western countries the professional body (institute) for architects, engineers and quantity surveyors fixed the fees for their services

The most common way of selecting a contractor is for the design team to complete the design and then a bidding process is conducted and the contract awarded to the contractor offering the lowest price.

Design firms are also often selected by bidding

Conventional Design - bid - Build

Feasibility Design Construction

Appointment of design

team

Appointment of contractor

Concept design

Developed design

Constructiondrawings

Within the separated system there is:

Means of selection Price formula

Competitive process (bid) Negotiation

Lump sum fixed price Lump sum with provision for

adjustment for: Variations Cost escalation

Measure & value Formula for negotiating lump

sum Guaranteed maximum price Cost + overheads + profit

With or without gainshare / painshare

Separated system

Feasibility Design Construction

Appointment of design

team

Appointment of contractor

Selection of contractor• competitive tender (bid)• negotiation

Lump sum fixed price

The contractor undertakes to build the building as designed with no adjustment allowed to the price unless the client requests a change to the design.

Not normally used as the contractor has to price for risks they are unable to control

Lump sum with provision for adjustment of the price for:

1. Errors in the contract documents If errors are found in the drawings, specification or schedule of

quantities the price is adjusted for this.

2. Changes to the clients design requirements

3. Costs incurred by the contractor due to being delayed by the client / design team

4. Changes in the price of labour and materials By reference to a price index By comparing actual costs to those allowed in the bid price

Contracts involving 1 – 3 are common

4. is only used in contracts with a long time span or in an environment of high inflation

Measure and value (schedule of prices)

Prices for units of quantity of the work are agreed before the contract is signed (by bidding or negotiation)examples: $200 per m3 of concrete

$23 per m of 100 * 50mm timber framing$135 each per door.

As the work proceeds it is measured and the contractor is paid according to the amount of work done.

Common in civil engineering projects (roads, dams etc) unusual in building projects

Formula for agreeing lump sumTypical process Contractors price build up1. A bid process is run in which

the competing contractors submit their: Preliminary and general costs ($) Overhead % Profit %

2. The contractor with the lowest bid is selected

3. As the design is completed the contractor conducts bidding exercises for each sub-contract package – the lowest bidder is selected.

4. When the design is complete and all sub-contract packages bid a lump sum (with provision for adjustment) is agreed

Preliminary and general items Project managers and

supervisors Site accommodation Cranes and other large plant Insurance etc

Cost of work done by sub-contractors

Contractors overhead costs (%) Head office etc

Contractors profit (%)

Used to enable the contractor to be appointed before the design is complete

Formula for agreeing lump sum + guaranteed maximum price

Same as last but the contractor guarantees the maximum price the client will pay (GMP)

Often there is provision for the client and contractor to share the savings in cost below the GMP

Formula for agreeing lump sum + guaranteed maximum price

Feasibility Design Construction

Appointment of design

team

Contractor selected and GMP agreed

Cost + overheads + profitSimilar to the last:

Overheads and profit % are agreed in advance by bidding or negotiation.

All costs are reimbursed to the contractor + % as work proceeds

Sometimes a “target outturn cost” (TOC) is agreed and the contractor and client:share the saving below the TOC (gainshare)share the additional costs over the TOC

(painshare)

Next lecture Integrated Systems