Construction Contract Administration

[Construction Contract Administration]January 15, 2010

TABLE OF CONTENTS

21.0 INTRODUCTION

22.0 THE PROCUREMENT SYSTEMS

42.1 TRADITIONAL SYSTEM OR DESIGN-BID-BUILD

72.2 INTEGRATED PROCUREMENT SYSTEMS

7(I)Design and Build

10(ii) variants of design and build

122.3 MANAGEMENT ORIENTED PROCUREMENT SYSTEMS

13(i) Management Contracting

16(ii) Construction Management

19Concept of Construction Project Management

203.0 TYPES OF CONTRACTS

203.1 Lump Sum Contracts

203.2 Continual Contracts

213.3 Measurement Contracts

213.4 Cost Reimbursement Contracts

224.0 THE BASIS OF CHOICE OF PROCUREMENT STRATEGY

245.0 PUBLIC PRIVATE PARTNERSHIPS

256.0 PUBLIC PROCUREMENT ACT OF KENYA AND THE EFFECTS OF BUREAUCRACY

266.1 Purpose of the PPDA

266.2 Procurement Procedures

276.3 An Effective Public Procurement System

296.2 Public Entity Procurement Inefficiency

327.0 CONCLUSION

328.0 REFERENCES

1.0 Introduction

The procurement of construction project is vast in scope because it involves the gathering and organizing of myriads of separate individuals, firms and companies to design, manage and build construction products such as houses, office buildings, shopping complex, roads, bridges etc. for specific clients or customers. Procurement comes the word procure which literally means to obtain by care or effort; to bring about and to acquire. System is about organized method, approach, technique, process or procedure. In this context, project procurement is very much concerned with the organized methods or process and procedure of obtaining or acquiring a construction product such as a house, shopping complex or just a building. It also involves arranging and coordinating people to achieve prescribed goals or objectives. 2.0 The Procurement systems

Procurement systems differ from each other in terms of allocation of responsibilities, activities sequencing, process and procedure and organizational approach in project delivery. These differences have invariably affected the project performance. Today, there are several types or variations of project procurement systems being widely used in the construction industry. They range from the traditional system to the many variations of fast-tracking systems. The introduction of many variations of project procurement system was induced by the quest for more efficient and speedier project delivery system and better project performance. They are innovations to the traditional delivery method aimed at meeting the changing demand of clients or customers. The different procurement systems present have brought changes not only to the process and procedure of project delivery but also the aspects of management and organization.Procurement phase is identified as being crucial to eventual project success and a significant component in project failure.Classification Of Construction Project Procurement Systems Mastermann (1994) classify project procurement systems into several categories based on the relationship and critical interaction between design and construction responsibilities. The categorization of the various procurement systems are as follows: 1) Separated and Cooperative System

2) Integrated System

3) Management Oriented System

The different category and sub-classification of construction project procurement systems can be as shown below:

Figure 1.0 Category of Building Procurement Systems Source: Masterman J W E (1996) Building Procurement Systems: An Introduction

2.1 Traditional System or Design-Bid-Build

This is also the Separated and Cooperative Procurement Systems. Under this system, the responsibilities of designing and construction of the project are separated and are carried out by different independent organizations namely the designers and contractors. It is sometimes called linear or sequential contracting system or multiple responsibilities contracting approach. It is a system where the project development activities that start from feasibility study, preliminary design, documentation to construction and hand over, are carried out sequentially one after another. Traditionally, the complete working drawings or design has to be prepared by the designers before tender and construction activities can take place. It is sub-divided into 2 sub-categories Traditional System and Variants of the Traditional Systems. The Variant System is further sub-divided into (i) Sequential Method, and (ii) Accelerated Method.

Under the sequential method or a single stage tendering approach, the building owner will appoint a team of consultants to act on his behalf to produce construction drawings, specifications and tender documents and to administer the tendering processes to select a contractor. Once selected and awarded the contract, the contractor will carry out based on the drawings and specifications prepared by the clients consultants.

Limited delegated power as agent

Figure 2.0: Traditional design-bid-build

Client and Consultants responsibility Contractors responsibility

Figure 3.0 The Linear or Sequential Process of the Traditional Procurement System

Contract for construction is between client and main contractor. Design is usually completed prior to procurement and commencement of construction Price from the Contractor is based upon a bill of quantities, or working drawings and specification, which describes the works in detail. Final cost is measured, based on the actual quantities of work carried out. Usually much of the work is sub-contracted to specialist firms but the contractor remains liable. The consultants administer the contract on behalf of the client and advise on aspects associated with design, progress and stage payments which must be paid by the client. The separation of the contractor from the design can mean missed opportunities for contractor or specialist contractor to input. Specialist elements are tendered separately and the selected contractors appointed as nominated sub contractors to the main contractor. This strategy is seen as the least risk approach as there is a level of certainty about design, cost and duration inherent in the strategy if it is properly implemented. However, the exposure to risk will increase where the design phase is rushed, where unreasonable time targets are set or where the tender documents are not fully completed. Cost constraints in traditional projects make it even more difficult for owners to assure project quality. A design professional that reduces its fee as a consequence of the owners negotiation pressure is likely to devote a reduced number of hours to the project, often at the expense of

quality control. An owner who uses competitive bidding to obtain the lowest possible construction price may find that the low bid represents an unrealistically low construction cost and that the contractor intends to cut corners, adopt an obstructionist or adversarial approach to the project, and seek excessive change orders or other claims with which to make up the profit that it left out of its competitive bid.

The accelerated method can be considered as an innovative approach to speed up the selection of contractor and the commencement of construction. The method can be divided into 2 sub-categories i.e. two-stage and negotiated tendering methods. Both methods involve preliminary discussion with selected few contractors, submission of fixed tender and/or cost negotiation. Some construction projects are fast-tracked, which means that construction commences while the final finishing details are still being added to the construction documents. A less aggressive alternative is to bid or price the project from scope documents (construction documents which are approximately 70% complete) so that the bidding/pricing phase considerably overlaps the end of the design phase. In two- Stage tender, the Contractor is appointed on the basis of a first stage tender which determines the level of overhead and profit for each Contractor. The Contractor then works with the Project Team during the second stage to develop the designs and establish detailed costings for separate project work elements. This process will provide for a fixed price on a detailed design basis. This approach increases the risks of an increase in overall price and a less certain completion date but contractor involvement is likely to increase the likelihood that both these criteria are realistically established. Advantages of Traditional Procurement systems Competitive fairness, since all tendering contractors are bidding on the same basis

Design-led, with the client able to have direct influence, thus facilitating a high level of functionality and bespoke quality in the design.

Reasonable price certainty at contract award based upon market forces ( subject always to design changes or client-led changes which will have cost implication)

Where public expenditure or audit demands are rigid the strategy is satisfactory in terms of public accountability since it is transparent and based upon competition.

Single Contractual Relationship for Construction Stage

The procedures are well known, enabling confidence to be assured in those involved throughout the supply chain

Phased tendering of mechanical/electrical/fire protection sub-contracts - can award later

Nominated Sub-Contracts for key specialist elements possible

Disadvantages It is possible to attempt to speed up the process by producing tender documents from an incomplete design, but this will usually result in less cost and time certainty and can be the cause of expensive disputes.

The overall project duration may be longer than for strategies as the strategy is sequential and construction cannot be commenced prior to the completion of design with no parallel working.

There is no input into the design or planning of the project by the contractor who will not be appointed at the design stage.

Does not facilitate early involvement of key specialist elements

The strategy is based on price competition and this can result in adversarial relationships developing.

Suitable for: All clients, including inexperienced clients, complex projects and projects where functionality is prime objective time predictability, cost certainty. However, it is not suitable for fast track projects. Particularly attractive to clients with a strictly limited budget or a limit to their borrowing powers since construction costs can be determined with reasonable certainty before commencement of construction.

2.2 Integrated Procurement Systems

This system, as the name implies, integrates or combines the responsibilities of design and construction of the project (Ashworth, 2001). Both responsibilities are contracted out to a single contracting organization. It is also called a parallel or single responsibility procurement system whereby the client will only need to deal with a single organisation for both the designing and constructing the proposed project. In this case, the contractor will have to engage and be responsible for design and construction teams. Design and build system falls under this category of project procurement system. Under this system, the client together with his/her consultants will prepare a tender or bidding document that include the project brief and clients requirements and invite a number of contractors to bid. For the purpose of submitting tenders, the invited contractors will produce their own design, construction and cost proposal. Very often the successful contractor will enter into a contract based on lump sum price and a fixed duration (Ashworth, 2001; Edmond, 2003) (I)Design and Build

Design and build method of procurement enables one building contractor or a construction company to take full responsibility and carry sole liability for the design and construction of a building. Hence, in effect, apart from the construction clients role, design and build essentially combines all the fundamental tasks in construction project design, production and management in a single package. After identifying the need for a building, the client satets his requirements adequately in terms of physical design needs as well as the intended physical use. A selected number of building contractors are invited to submit their proposals together with estimated costs. The system invokes design competition which is absent from other construction procurement systems and permits the optimization of design and production costs.

Whilst risk is shifted to the contractor, it is important that design liability insurance is maintained to cover that risk. Changes made by the client during design can be expensive, because they affect the whole of the Design-Build contract, rather than just the design team costs.

Fig. 4.0 : Design and Build process

Fig.5.0 : Organisation structure of design and build

Contractors project team

Contractors site team

Contractual relationship

Organisational relationship

Client and Consultants responsibility Contractors responsibilityFigure 6.0 The Integrated Process of Project Designing and Construction in the Design and Build Procurement System

Criteria for choosing design and build option

Main characteristics under which the D&B procurement option may be appropriate for a clients construction project are when:

Early delivery of project is required

Project is of technical complexity There is need for early start on site Price certainty (usually lumpsum) is required prior to production Construction project is prestigious and hence, single point responsibility is required. Economy (time, cost, function, quality, value for money) is required.

(ii) variants of design and build

The variation or innovation to this mode of project delivery systems includes (1) Package deal (2) Turnkey (3) Develop and construct. These systems that entail the contractor to be responsible for both the design and construction of the project, allow for the early start of construction through the reduction of the pre-tender activities as such they reduce process time.

Package deal or commonly called the all in contracting is a type of procurement method where a contractor is given the responsibility for everything that is required and necessary for the design, construction and delivery of the project. Under this system, the services of the contractor will include the preparation of project brief, sketch and final working drawings, getting all the approval from authorities, project financing, construction, furnishing and commissioning of all equipments and accessories and handing over the project to the client. In otherwords, the contractor provides an off-the-shelf building. Typical examples are farm, factory, warehouse and straightforward office buildings. Turnkey contract is an American term for all in or package contract. Under this arrangement, a contractor is commissioned to undertake the responsibilities for everything necessary and required for the construction, completion, commissioning and hand over the project. The word turnkey means that, upon completion, the client is given the key and he can then enter the project by turning the key. The contractor will have to do everything from preparing project brief, getting approval, designing, financing, construction, furnishing and decorating to commissioning and handing over completed, cleaned and ready for use project (Allen, 2001). Develop and construct is another of the integrated procurement approach which is very much similar to design and build. In this case, the contractor is still given the responsibility for both the design and construction of the project. The difference is that, under this method the clients design consultants prepare the concept sketches or designs and passed them to the contractor who will develop them and produce the detailed working drawings. The contractor then takes on finishing off the design and construction of the project based on what it has developed and produced. Design, Build and Operate This approach would involve the Client Body in selecting a company or consortium who would carry out the design and construction of the facility, but would also act as the operations company to manage the facility after construction.

Single Contractual Relationship for all design / construction - This approach has the benefit of allowing the Client to hand over the complete project (design and construction) to one company

More price certainty from early stage depending on price variation clauses

Suitable for well defined work packages, based on performance specification

You get input from the operations personnel directly at the design stage.Advantages of Integrated procurement systema. The integrated design and construction allows for design and management input fro the building contractor and this leads to production efficiency in terms of cost and time

b. The method allows for simplified contractual arrangement between client and contractor with single-point responsibility and improved communication channels between parties to contract.

c. Project duration is shortened due to contractors familiarity with his system and parallel working on design and construction

d. Clients total financial commitment os known at an early stage and, provided the client does not introduce major alterations, this will not change

e. Client obtains competition in design as well as price

f. The closer contractor/client relationship leads to a more efficient design

g. Client obtains a design cost element lower than which an independent designer would charge under other methods

h. Construction projects using the system have the potential for early completion and lower overall costs.

i. Innovation in construction production is encouraged under this procurement system and the building contractor, being in charge of design, can reap the benefit of innovative products and processes.

Disadvantages a. The building contractors in-house design expertise may be insufficient to solve the client's needs efficiently

b. Tendering costs are high as contractors must design and produce accurate proposals as well as estimates

c. An inexperienced client will still require construction professionals to advise during preparation of brief, tender information and evaluation of quality and cost of design

d. The building contractor requires adequate insurance to cover for the design failures as well as construction

e. Tender comparison becomes complex as it involves evaluation of design, quality and construction cost.

f. The client finds it difficult and/or costly to introduce variations once production has commenced on site.Suitable for: Complex Construction facilities - requiring specialised skills (technical in nature) or expertise for instance museums, monuments or buildings that require non-exposure due to security reasons or due to their sensitive functions like embassies.

For facilities where expected risks could be very high hence Design and Build becomes a way to avoid the risks before they occur.

2.3 Management Oriented Procurement Systems

It is a system that gives greater emphasis on the management and integration of the design and construction of projects. Under this system, the management of the design and construction a project is contracted out to a contractor who acts as a management consultant on behalf of the client. The construction itself is commissioned to many specialists or sub- contractors who enter into contract with either the management contractor or the client. This procurement approach that was introduced based on the conception that a builder or contractor has more expertise to manage the design and construction of a project. As management consultant, the appointed contractor does not itself, carry out the design or construction of the project. Its main responsibility is to manage the design and construction by the design consultants and the many specialist contractors, respectively.

(i) Management Contracting

Management contract is a contractual arrangement in which a client appoints a construction company termed as the management contractor (MC) to manage and coordinate the design and production phases of a construction project. On appointment the MC works alongside the clients professional advisers and this gives the client expertise not normally available at pre-contract stages of construction projects executed under the traditional procurement method. The early appointment of MC enables that person to contribute to the design of the project. Although the MC does not directly design or construct any part of the permanent works, he/she gives expert advice on construction techniques and uses on-site knowledge to avcoid the design of sections/elements that will be problematic to produce. He also seeks to meet the design requirements by the provision of specified common user and service facilities (e.g tower cranes, scaffolding, site offices, storage facilities, security) and letting each element of the project to a number of sub-contractors in works packages. The MC provides the necessary coordination and back-up services to the works contractors and is responsible for both the terms of their contract and the management of their works. The MC is paid for the provision of common user and service facilities in addition to an agreed fee based on a percentage of the estimated construction cost, for management input.Fig. 7.0 Organisation structure for management contract

Contractual relationship

Organisational relationship

Package Contractors

responsibility

Client and Consultants responsibility

Management Contractors responsibilityFigure 8.0 The Process of Project Designing and Construction in the Management Contracting & Professional Construction Management Procurement System Criteria for choosing a management contract 1. Early start on site: Where time is of the essence and production cannot wait until design is fully defined and, hence, the production must proceed in parallel

2. Complexity of project requirements: complex technologically and therefore require input of multiplicity of specialist designers and ultimate users with diverse requirements.

3. Size: Project fairly large and require complex organization and coordination

4. Maximisation of competition: client require maximum competition in respect of price for production management expertise and resources

5. Early completion: client requires early completion hence compressed and expedited development programme

6. Efficient use of resources: client wishes to capitalize on efficient use of resources and his awareness that contractors advice on buildability at design phase achieves this objective

7. Lack of in-house management resources

8. Flexible budget: client has flexible budget and can take major risky financial decisions for

9. Contractors expertise: required at design phaseAdvantages of Management contract Early contractor involvement at design phase may lead to better design and detailing which facilitates productivity and savings on production cost.

The traditional design/construct split is eradicated, enabling the contractor to advise on quality, buildability, suitability and availability of labour, plant and materials and construction methods during the design phase.

Design and construction are overlapped as well as overlapping the various work packages. This saves on project time.

Risk of potential contractual claims is minimized as, from the projects onset, the MC identifies contentious project information and recommends its modification prior to contract.

The them and us attitude is eradicated as; from the projects onset the MC becomes part of the project team working together to achieve a clients objectives of time, cost and quality. Price is not the only criterion for selection of MC. Rather, in addition, the ability to make some technical and managerial contribution to the design and production of a prohect is also considered. Advance purchasing of essential materials/components and plant can be effected to ensure their availability for use when required. Early management contractors appointment enables him to give information on the organization of construction work, site layout, possible works contractors and tendering arrangements. Client obtains keener prices owing to the increased competition for his construction project.Disadvantages Problems of coordination can lead to production delays and be grounds of contractual claims

Client pays twice for duplication of site services, attendances and general preliminaries

Client is not aware of the financial commitment before the commencement of project on site

Client may have no redress against a MC in respect of performance and quality, work contractors work, late completion and recovery of damages for late completion. Client has two sets of fees to pay for the professional services of design and construction management.

Full financial commitment not known at outset of construction

Need large contingencies for work interfaces

Suitable for:

This approach is generally considered to be appropriate for large, complex fast-track projects particularly where there is a requirement for maximum flexibility and to overlap design and construction phases.

(ii) Construction Management Fig. 9.0 Organisation structure for construction management

contractual relationship

organizational relationship

Design consultants responsibility

Package Contractors responsibility

Construction managers responsibilityFigure 10.0 The Process of Project Designing and Construction in the Design and Manage Procurement System

The Construction management (CM) approach to construction procurement emerged due to clients demand for better quality and faster production at lower costs. Under this strategy, the client does not allocate risk and responsibility to a single main contractor. Instead, the client employs the design team and a construction manager is engaged as a fee-earning professional to manage, programme and co-ordinate the design and construction activities and to facilitate collaboration in order to improve the buildability of the design. Construction work is carried out by trade contractors through direct contracts with client for distinct trades or work packages. The construction manager supervises the construction process and coordinates the design team.

This is a strategy with little certainty for the client at the outset and one usually adopted where the primary objective for the client is relative speed for completion. In adopting CM strategy, the client will be closely involved in each stage of design and construction. The client must have administrative and project management staff with time and ability to assess the recommendations of the CM and take necessary action. The client needs to maintain a strong presence of through a project management team that is technically and commercially astute. This strategy is therefore not suitable for inexpert or inexperienced clients. The work packages are tendered individually, for a lumpsum price usually on basis of drawings and/or specifications. The final costs will only be known once the final work elements have been awarded.Criteria for choosing a construction management a. Early completion of the construction project is required by clientb. The project is of fairly large size and technologically complex

c. Complicated requirements of the project

d. Design and production phases must overlap to expedite production

e. Input comes from several sponsors/ultimate users with diverse requirements

f. The requirement of a maximum price

g. The demand of an effective utilization of production resources

h. A need for management input at design phaseAdvantages of Construction Management Allows overlapping design/construction stages - Shorter Duration

Work can commence once first Contract Package is awarded

Construction expertise can be deployed during design process (especially in specialist areas) hence their contribution to the design and project planning- advance ordering of items More direct control and influence over production by client due to contractual relationship with the design team, CM and works contractors. Fixed price tenders are likely due to timing of Tenders and Works

The client has direct contracts with the trade contractors and pays them directly ( There is evidence that this results in to lower prices due to improved cashflow certainty)

Changes in design can be accommodated later than some strategies, without paying a premium, provided the relevant trade packages have not been let and earlier awarded packages are not adversely affected. More control over each element of the works and hence control of Quality

Roles, risks and responsibilities for all participants are clear.Disadvantages Full financial commitment not known at outset of construction- price certainty not known till last trade package is let. Budgeting depends heavily on design team estimates.

An informed, pro active client is required is required to operate such a strategy

The client must provide a good quality brief to the design team as the design team will not be complete until the client has committed significant resources to the project Multiple Construction Contracts with Client Close time and information control is required. Risk of conflict at Sub-Contract interfaces need for co-ordination Client pays more in professional fees

Client is exposed to a high degree of risk as CM does not take responsibility of late completion, faulty workmanship etc.Suitable for: Considered appropriate for large / complex projects particularly where there is a requirement for maximum flexibility and overlapping of the design and construction phases and where there is high degree of design innovation where clients wants hand-on involvement. Construction Management requires constant involvement by the client so it is really only suitable for experienced clients.Concept of Construction Project Management

Construction project management (CPM) is a management function in construction design and production which comprises the planning, costing evaluating and controlling projects on behalf of the client, so that it is completed on time, to specification and within budget. Under this system, the client appoints a construction professional (project manager) who is given the responsibility for various functions of site identification, land assembly, approval, funding, design, construction and marketing and he is paid an agreed fee based on a percentage of the total cost of the construction project. Generally, the project manager is the bridge between the client and the project team and is responsible for the task of helping to establish the overall project objectives and directing , controlling, planning and coordinating the efforts of the project team to the achievement of those objectives.

Note that, construction project management is not a construction procurement system. The role of the project manager is to select the most appropriate procurement system for the project. CPM is therefore concerned with management of the whole construction project i.e the translation of clients needs into finished functional physical product. The project management covers:

Coordination of the diverse interests of ultimate users of completed facility and the client in order to formulate unified client requirement.

Organization of the process of design and construction of project to comply with the clients requirements economically and timely.

Advantages of Construction Project Management Clients brief is prepared by skilled construction professional adequate briefing document The them and us confrontation is averted as the PM welds all participation into effective construction project team Client benefits from having only one person to deal with in all matters concerning the project The architect is released from the tasks and problems associated with managing the project and hence concentrates on design matters the PM performs an independent and disinterested role and uses this position well in directing, coordinating and solving construction problems

Design can be tailored to overlap production, thereby reducing the overall project time

Disadvantages Clients project cost increases due to engagement of a representative, PM s fees

PM carries no financial risk and can only be sued for damages incase of profdessional negligence or breach of contract.3.0 Types Of Contracts Regardless of the procurement systems one chooses, the type of contract the parties enter into plays a crucial role in determining the allocation of risks in execution and administration of the project.

3.1 Lump Sum ContractsWhere the contract sum is determined before construction work is started.

Under this contractual arrangement, the contractor consents to execute the entire work described or specified for a stated total sum. Agreed sum is based on information from drawings, specifications, BQs or site inspection. To arrive at pre-estimated price, contractor takes in account all contractual risks, condition of construction market and current workload. No variations allowed. Lumpsum contract may be procured either lumpsum or fixed. Adjustment to contract sum for labour, plant and materials price changes is permissible in former but not in latter, except statutory fluctuations like taxes.

Suitable for: On minor and maintenance works or where there is adequate information to enable client know his financial commitment.

3.2 Continual Contracts When the client wishes to pursue a programme of construction, his or her professional advisers may recommend one of the following contractual arrangements to effect a saving in tendering cost and expedite production.a. Serial contracts contractor undertakes to enter into series of separate lumpsum contracts in accordance with the terms and conditions set out in initial offer. Standing offer may be determined by competitive pricing of key items in the proposed projects.b. Continuity contracts when client wishes to obtain benefits from continuity of work, building contractor may be asked to enter into negotiations based on original lump sum contract. One of the negotiations are completed and an agreement reached, the contractor executes the construction works as separate contract packages within their own parameters. c. Term contracts client commissions a building contractor to undertake specified construction works within a defined cost limit for a definite period, often 12-36months duration. Valuation of the contractors work is priced on either schedule of rates or a cost reimbursement basis. Suitable for: low-value ongoing repair and maintenance work where contractors submit invoices for payment on completion of the specified works.3.3 Measurement ContractsWhere the contract sum is not finalised until after completion, but is assessed on remeasurement to a previously agreed basis.

Prices of sections of work are pre-estimated but the total price cannot be ascertained until work is measured and valued on completion. Evaluation of measured construction work is by application of agreed unit rate from either BQ or schedule of rates. Can be procured on approximate BQs (client s requirements not known in advance) or schedule of rates (clients requirement insufficient to permit production of approximate BQs). A schedule of rates is commonly used where the extent of works has not been or cannot be fully determined.Some uses include: Earthworks, Foundations, Below ground services works, Maintenance period contracts.

Measurement contracts are suitable for projects where clients requirements are not clearly defined or where prompt commencement on site is required.3.4 Cost Reimbursement ContractsWhere the sum is arrived at on the basis of prime (actual) costs of labour, plant and materials, to which there is added an amount to cover overheads and profit.The client undertakes to pay contractor the prime cost (actual cost of labour, plant and materials utilized in the execution of the works). In addition to the prime cost, the contractor is paid an agreed sum to cover for profits and establishment charges.

Suitable for projects where:

Client may wish to influence the execution of works hence, assume entire risk of site operations

An early start is required but the extent of work cannot accurately be predicted.

High standard of work is required

Work is of emergency, repair.

Variations to this contractual arrangement may be introduced to motivate and enhance the contractors site performance.

a. Fixed fee contractor is paid agreed fee based on estimated cost of works. This induces contractor to work efficiently for profit.

b. Target cost An estimate is produced for construction project, and once the estimate is agreed, it becomes the target price which establishes basis for the determination of a fee for overhead charges and profit. On commencement of site production, contractor is paid the fee which is adjusted to correspond with increase or decrease of prime cost over target cost. Main problem of this approach is reaching an agreement of realistic target and the effects of costly variations which eventually take the construction cost over the agreed target price. 4.0 The Basis Of Choice Of Procurement Strategy The choice of an appropriate procurement method and type of contract is influenced by various factors. Once the client establishes the primary strategy depending on nature of the business case and priorities of the client, the following factors should then be considered:

a. Factors outside control of the project team Consideration must be given to economic, commercial, technological, social, political and legal factors which influence the client and the project team or are likely to do so during the lifetime of the project. These may include

Changes to interest rates

Increases in level of fluctuations affect product and trades to be used in the works

Changes in national or local demand for construction affect tender price levels

Changes to legislation affect design of work or achievement of the design

By adopting a simple risk analysis judgement can be done whether contingency sums should be budgeted for.

b. Client resources The clients knowledge, the experience of the client companys organization and the environment in which it operates are vital in assessing the appropriate procurement strategy. The extent to which client is prepared to take a full or active role is a major consideration.

c. Project characteristics The size, complexity and location of the project should be carefully considered and particular attention given to projects with novel elements. e.g if building is large and complex, there may be a bigger risk of time and cost overrun. Novel projects present special risks.

d. Ability to make changes It is preferable to identify the total needs of the project at early stages but it is not always possible. Rapidly changing technology often means late changes. Changes in scope of project often means increased costs, especially if during construction. Some procurement strategies are better than others in handling the introduction of changes later in the project and reducing the possibvility of having to pay some form of specific premium.

e. Cost issues The following cost issues are important:

- Estimates of costs of future buildings at early stage are notoriously inaccurate but necessary for decision purposes. Where theres need for price certainty, this influences both project timing and the procurement strategy to be used. Generally design should be complete if price certainty is required before construction commences.

- Inflation will inevitably affect total cost where level of variance and increased proce clauses exist

- Changes to design should be avoided if cost certainty is to be maintained during construction. Changes whether by client or consultant have cost and time implications. It is important to fix a date of no more changes or then choose a procurement strategy that enables such changes and accepts the consequences.

f. Project timing Most projects are needed within a time frame or by a specific date. Timing will influence whether subsequent can occur as planned and in many cases may severely affect those factors identified as critical or high priority in business case. The programmes of a project is influenced by many factors and usually a large and complex is likely to require more time for design, specification, and construction than would for a simple small building. Some procurement strategies enable overlap between the design and construction stages, so construction can start earlier than sequential strategies and offer the potential for earlier completion. Time has both a cost and a value. If the worth of a project is identifiable then the cost of relatively late completion and the value of relatively early completion can be assessed and may form an important factor in decision-making process referred to as time/cost trade off.

g. Construction times Total construction time is a consequence of design. More complex structures will almost certainly take longer given the same cost or size, and may require resources. Although it is possible to work longer hours on site or increase resources, the law of diminishing returns will have influence because of the limited space and the nature of traditional construction methods (such as concreting, bricklaying).

h. Performance - The required performance of the project measured in terms of both its response to the needs of the client expressed in the business case and the quality of individual elements should be clearly identified. If quality and performance are particulary important the client will probably want to keep direct control over the development of the design. This can be achieved by employing the design team directly.i. Assessment of risks - For example is this to be a contract with the lowest possible risk to the client overall; what are the priorities in apportioning the risks concerning cost, time, and quality or performance; where are the speculative risks intended to lie? Your risk management strategy will strongly influence your choice of procurement method.5.0 Public Private Partnerships

Public Private Partnerships (PPPs) are increasingly becoming the main form of procurement for large projects e.g in the transport, schools sector. With PPP, one contractor provides and operates the assets over an extended period, usually 25-30 years. PPP is still a relatively new form of procurement and its application is developing rapidly. PPP at present typically involves the client specifying outputs as opposed to inputs. The benefits of PPP solutions include: greater risk transfer to the private sector partner; use of private sector management to reduce costs; more innovative solutions that offer the possibility of higher quality provision, wider social benefits from more ambitious schemes, and commercial utilisation that can cross-subsidise the project. PPP procurement is more complex than traditional methods and therefore is less well suited to small building contracts under about 10 million in value.

total package options boot, bot, boo.BOOT is a relatively recent procurement method. a clients project need is met by an entity that contracts to design, build, operate, own for some period of time and transfer the facility back to the owner. Developers use their own funding sources to build a public facility in return for the right to operate it and charge a fee for its use. At the end of an agreed period the facility may revert to the landholder, which would often be the Crown.

This type of contract focuses on final service delivery and relies upon the required performance standards being properly documented. Building contractors involved in this type of development are usually part of a consortium. The consortium has responsibility for the design, construction and delivery of the project.

Government and its agencies, as either direct or indirect purchasers of services from BOOT projects, bear some level of financial and viability risk. The BOOT process can be modified to suit particular needs. A few variations already in use are BOT (Build, Own, Transfer) and BOO (Build, Own, Operate).

This arrangement is more common for infrastructure projects than buildings because the concession allows for tolls or other payments to be made by end-users to cover the cost of both procuring the facility and its operation. Extensions of this idea have been cited where buildings have been renovated and leased back on this basis and other where the facility is required to be removed and the site returned to an acceptable environmental standard. An advantage of this is that it extends the ideas of constructability further to embrace lifecycle cost effectiveness. If the entity proposing the design solution is responsible for maintaining and operating the facility then they will have the incentive to reduce long term costs and thus develop a highly cost effective product over the product lifecycle.

The BOT entity undertakes financing, design, and construction as well as operation and so the client is taking no direct cost risk other than the possibility that the facility does not meet its needs or that the concession agreement is unsatisfactory. The cost of establishing the arrangements can be considerable, as there are legal and financing costs to be met. These should be compared with the clients legal and finance costs in undertaking the project in other forms or options. Clearly the option is unlikely to be viable for projects of small scope, However, governments are increasingly using this option for hospitals, prisons and other projects previously undertaken through other procurement scenarios.

Experience with BOO/BOT/BOOT schemes reveals some notable failures. Generally, theses have been based on failures of trust and/or communication.

6.0 Public Procurement Act Of Kenya And The Effects Of BureaucracyThe Public Procurement and Disposal Act (PPDA), effective as of 1st January 2007, applies to all procurement of goods, works and services, as well as the disposal of assets by public entities. Public entities are those that procure goods, services or works utilising public funds. The definition of public funds includes donor funds in so far as donor stipulations do not supersede the Act. If they do, the donor terms and conditions take precedence. As such, public entities include the central and local governments, courts, commissions, state corporations, cooperatives, and educational institutions such as colleges, schools and universities.

6.1 Purpose of the PPDA

This Act does not directly seek to regulate the private sector, though it does regulate its interaction with public entities. The PPDA was established in order to:

Maximise economy and efficiency,

Promote competition and ensure that competitors are treated fairly,

Promote the integrity and fairness of procurement procedures,

Increase transparency and accountability in those procedures,

Increase public confidence in those procedures,

Facilitate the promotion of local industry and economic development.

In order to achieve these objectives, the Act establishes procurement and disposal procedures. It also sets up the necessary structures to ensure that the procedures are followed and to provide oversight and compliance through Public Procurement Oversight Authority (PPOA). Its primary role is to ensure that procurement procedures established under the Act are adhered to. In doing this, the PPOA is required to advise, establish standards, and train procurement

entities and persons, as well as advise government on policy issues.The Act also establishes the Public Procurement Administrative Review Board, which handles complaints, reviews and appeals stemming from procurement. Public sector procurement can be broken down into two categories:

Project specific procurement- goods, works or services are sought for a particular initiative (e.g. a new road, a hospital, plant and equipment).

General consumable procurement relates to items that are required for a ministry or authority to perform its duties (e.g. fuel, stationery, vehicle parts, road maintenance and security).6.2 Procurement ProceduresThe PPDA makes provision for the following forms of procurement:

1. Open tendering

2. Alternative procurement procedures, under which fall:

Restricted tendering

Direct procurement

Request for proposals

Request for quotations

Procedures for low-value procurements

Specially permitted procurement procedures

6.3 An Effective Public Procurement SystemMust be effective in all the following four pillars of the system:

Pillar I legislative and regulatory framework This covers the legal and regulatory instruments from the highest level (national law, act, regulation, decree, etc.) down to detailed regulation, procedures and bidding documents formally in use. Pillar II. Institutional Framework and Management Capacity

Pillar II looks at how the procurement system as defined by the legal and regulatory framework in a country is operating in practice through the institutions and management systems that are part of the overall public sector governance in the country.

Pillar III. Procurement Operations and Market Practices

This Pillar looks at the operational effectiveness and efficiency of the procurement system at the level of the implementing entity responsible for issuing individual procurement actions. It looks at the market as one means of judging the quality and effectiveness of the system when putting procurement procedures into practice. This Pillar is distinguished from Pillars I and II in that it is not looking at the legal/regulatory or institutional systems in a country but more at how they operate. It looks at the efficiency of the operations and operational practices as implemented by the procuring agencies. Efficiency is considered to mean that the operational practices result in timely award of contracts at competitive market prices as determined by effective and fair implementation of procurement procedures. There are four sub-indicators (a-d) to be rated under this indicator.

Pillar IV. Integrity and Transparency of the Public Procurement System.

Pillar IV covers indicators that are considered necessary to provide for a system that operates with integrity, has appropriate controls that support the implementation of the system in accordance with the legal and regulatory framework and has appropriate measures in place to address the potential for corruption in the system. It also covers important aspects of the procurement system that include stakeholders as part of the control system. This Pillar takes aspects of the procurement system and governance environment and seeks to ensure that they are defined and structured to contribute to integrity and transparency.

While respecting and acknowledging the goals and principles of the system of public procurement, the prevention of corruption in the system of public procurement is based on the following measures:

1. Strengthening the legal framework

The aim of strengthening the legal framework is to ensure that all procedures in which the state is a partner or a contractual party are subject to strict rules, thus reducing the risk of corruption. It is therefore necessary to regulate the overall system of public procurement, which, along with the conclusion of public contracts for products, works and services, includes concession contracts and public-private partnerships. By amending the legislative framework of public procurement, stricter rules and conditions for the participation of economic operators at competition tender procedures will apply if they are in any way (in terms of interests, ownership or family relations) connected with the contracting authority. In addition, the provisions on the nullity of public contracts will be amended if the conclusion of such contracts is a consequence of corruption by the tenderer or the responsible person in the tenderer. Transparent procedures contribute to reducing corruption risks.2. Strengthening the control mechanisms

Further strengthening of the control mechanisms will proceed in the domain of supervision and control. An anti-corruption body, which provides assistance to the system of public procurement through its visible work.

3. Co-operation with other control bodies

This is with the aim of better co-ordination and joint activity of internal and external institutions of control and audit, and to avoid any overlapping of competencies.

4. Training concerning anti-corruption and ethics

Methods and conditions of training in the public procurement system, along with other educational programmes for the system of preventing corruption in public procurement should be encouraged. This should include both basic and advanced knowledge of the professional integrity of all those involved in public procurement activities. The programme to include education of officials who work on public procurement in state, local and regional self-government units , and other persons involved in the procedures. The course should serve to acquire basic and advanced knowledge about the harmfulness of corruption, its appearance, recognition, risks, prevention and criminal prosecution of the perpetrators.

5. Raising awareness of the importance of preventing corruption in the system of public procurement

Activities aimed at raising public awareness of the importance of public procurement and the risks of corruption to be organised both independently and in co-operation with civil society organisations through campaigns, round tables and conferences, brochures, clips and posters, etc.

6. Encouraging the use of e-procurement

The use of new ICTs in all segments of public administration and the openness of access to information, in accordance with the legislation in the field of the protection of the secrecy of data and other regulations relating to the accessibility of data, may have a major role in preventing corruption through better transparency of the procedures of the authorities and economic operators involved in the processes of building and procuring new values.

7. Establishment of central public procurement bodies

By providing advisory and consulting services and implementing pilot projects, efforts are made to encourage the establishment of central public procurement bodies with a view to achieving financial savings by reducing costs and the number of staff conducting public procurement procedures, and the risks of corruption. 6.2 Public Entity Procurement Inefficiency The Public Procurement system in Kenya can be said to be ineffective to some extent arising from poor implementation of the Act and/or challenges that most organizations in application of the PPDA. Inefficiencies in public entity procurement cost the GOK about KSh.30 billion annually. Prime contributors to this inefficiency are:

i. Corruption

Corrupt practices are clearly evident in the procurement process. These practices permeate the systems and occur at every level. Confidential interviews with small enterprises indicate that in some instances it is the only way they are able to participate in the process. Officials all give the impression that their procurement processes are above board, yet meetings with suppliers waiting in corridors outside the offices give a totally different perspective. These enterprises often indicate that this is the cost of doing business with public entities, and the amounts they pay are all factored into their quotations. ii. Payment delays

As legislated, payment should take place within 30 days. The reality is that payments may take as long as 180 days. Delays are a result of several factors that work together. Failure to adhere to legislated accounting stipulations, excessive bureaucracy, insufficient funds, quarterly draw-downs by public institutions (procurement is done in one quarter and the entity has to wait for the next quarter to receive government funds to pay the supplier), corruption, staff absences, and poor work ethics all contribute to delays in payment. Contractors/Suppliers tend to factor in these delays in their quotations and raise their prices as a result. Given the bureaucracy attached to payments, authorisation takes long. Most suppliers are not aware of the penalty

provision. Even those suppliers who know of the provision do not try to enforce it. They feel that it would prejudice future business with the entity.

iii. Personnel constraints

Personnel capacity constraints are rampant in many of the public procurement entities. Constraints related to knowledge of the PPDA and its application. At central government level, POs may receive training on the application of the PPDA and Regulations, but on other levels training is sporadic. This aspect needs to be addressed through a comprehensive training programme. ROCUREMENT AND SUPPLY IN KENYA

iv. Limited use of information technology

An issue at all levels of the public entity procurement process is the limited use of information technology to record and manage the procurement process. The use of information technology is more advanced at the central government level, but is less so at the provincial, district and local authority levels. Computers are most often used to draft letters, prepare spreadsheets, and compile tenders. E-tendering would also relatively reduce tendering costs. Software that links the procurement process to the accounting authority would make the process much more efficient.

v. Poor planning

Despite being required by the PPDA, very little procurement planning seems to take place in public entities. This is particularly evident at provincial, district and local authority levels. It should be noted, however, that in many instances this is not the fault of the PO. POs rely on the various departments or ministries for their procurement plans and often do not receive them. In instances where they do receive them, procurement often does not take place as laid out in the plan, but rather occurs on an ad hoc basis. The resulting multiple small volume procurement not only significantly adds to the cost of goods, works and services, but also puts tremendous strain on the procurement and financial bureaucracy. Overall this results in high acquisition costs in both price and effort.Effect Of Bureaucracy In Procurement And DevelopmentMouzelis (1975) suggests that bureaucracy is the typical administrative apparatus corresponding to legal (legitimate) domination and has many distinct characteristics, e.g., high

degree of specialization, hierarchical authority structure with limited areas of command and

responsibility, impersonality of relationships between organizational members, recruitment of

officials on the basis of ability and technical knowledge, and differentiation of private and

official income (Weber, 1947; Mouzelis, 1975; Bozeman, 2000).Bureaucracy and corruption have long been considered to be intrinsically connected. Bureaucrats are stereotyped as greedy, corrupt drains on the economy, siphoning away public funds and extracting bribes for their own personal gain. Through various mechanisms, such as competition, heightened oversight, and increased efficiency of public services, it is possible that increases in the size of bureaucracy may lead to a decrease in the frequency and size of bribes.

Corruption can occur at different points of the government hierarchy and have varying effects. Public procurement is a complex matter in a two-dimensional way. First, it represents many different situations, anything from the construction work of a new international airport to the acquisition of pencils. Second, the tender procedures usually include several steps, from designing the tender to evaluating the bids. Both the procedures and the opportunities for corruption vary significantly among the categories of procurement.

Effect of bureaucracy in procurement systems

Many appeals and tribunals/committee

a. Cost and time overruns

b. Corruption

c. Inefficiencies

d. Product is comprised due to quality concerns

e. Improves accountability

f. Fairness is exercised

g. Firms can enter and exit

h. Lack of innovation and creativity7.0 Conclusion

The use of the various project procurement systems shows that the construction industry is now trying to meet the clients needs. This is because the different procurement method will have different effect on the cost, time and quality of the project. Each project procurement system has its own peculiarity in term of the pre-tender and post tender activities and processes, division of risks between client and contractors, and the effectiveness of project monitoring and control.

It is very important at the very outset of the project to carefully consider all factors when selecting the most appropriate procurement approach for a construction project. This is because each system has its own feature and peculiarity that will have effect on the cost, time and quality of the project i.e. the project performance. 8.0 References 1. Akintoye, A and Fitzgerald E (1995) Design and Build: A Survey of Architects Views, Engineering, Construction and Architectural management

2. Ashworth A (2001) Contractual Procedures in the Construction Industry, UNITEC, New Zealand

3. Chitkara K K (2005): Project Management - Planning, Scheduling and Controlling Tata McGraw Hill, New Delhi

4. Kwakye A A (1997) Construction Project Administration In Practice Longman, London

5. Lam, E W M, Albert P C and Chan D W M (2003) Is Design and Build the Preferred Option to Procure all Projects? Research Fellow, Department of Building and Real estate, The Hong Kong Polytechnic University

6. Masterman J W E (1996) Building Procurement Systems: An Introduction, E & FN Spon, London 7. Murdoch J and Hughes W ( 2000) Construction Contract: Law and Management: 3rd Edition E&FN Spon, London

8. Rowlinson, S (1987) Design and Build Its development and Present Status, Ascot CIOB

9. Songer A D and Molenaar K R (1996) : Selecting Design and Build Public and Private Sector Owner Attitudess, Journal of Management in Engineering, ASCE.

10. The Aqua Group (2001) Tenders and Contract for Building- 3rd. Edition Blackwell Science, London

PROCUREMENT SYSTEMS

SEPARATED & COOPERATIVE

INTEGRATED

MANAGEMENT ORIENTED

Traditional system

Variant of Traditional System

Design and Build

Variant of Design and Build

Management contracting

Construction management

Sequential method

Accelerated method

Package deal

Turnkey method

Develop and construct

Feasibility Study

Project Brief

Design concept

Detail design

Tender & contract

Construction

Commission & hand over

Detail design

Project brief

Tender documentation

Concept design

Feasibility study

Tender & contracting

Construction

Commission & hand over

Suppliers

Sub-contractors

Engineers: Electrical, Mechanical, civil/structural.

Quantity surveyor

Architect

Consultants

Contractor

Client

Works contractor

Design team

Construction manager

Site manager

Site engineer

Client

Site surveyor

Works contractor

Management Contractor

Design team

Client

Support staff

Contractors manager

Quantity surveyor

Architect

Engineer

Main contractor

Clients agents

Client

Successful contractor finalises design and produces the building

Successful contractor selected

Contractors proposal against client requirements evaluated

Contractor A

Contractor C

Contractor B

Submission of proposals

Detail design and/or shop drawings

Clients requirements prepared

Client expresses development need

Commission & hand over

Bidding & contracting

Concept design

Tender doc. & client req.

Feasibility study

Project brief

Construction

Detail design

Concept design

Project brief & client reqms

Bidding & contracting

Commission & hand over

Feasibility study

Construction

11.0 Introduction | Procurement Systems in Building Works