professional practice 1 (1)

School of Architecture,Building & Design

SCHOOL OF ARCHITECTURE, BUILD AND DESIGN

BACHELOR OF QUANTITY SURVEYING (HONOURS)

PROFESSIONAL PRACTICE 1 (QSB 60604)

Assignment 1 -Report

NAME STUDENT ID

Yong Qing Yi 0325303

Nadhirah Mohd Zain 0321366

Wong Qin Kai 0320024

Wah Yun Chen 0319115

Yam Hui Shan 0316058

Ng Huoy Miin 0319097

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TABLE OF CONTENT

DESCRIPTION PAGE

1.0 Introduction 2

2.0 Procurement

2.1 Management Contractor

2.2 Advantages of MC Procurement method

2.3 Recommendation

2.4 Why not choosing other procurement

method?

3-6

3.0 Tendering Method

3.1 Recommendation

7-8

4.0 Contract Arrangement

4.1 Factor affecting decision making

4.2 Cost reimbursement contract

4.2.1 Reason for the decision made

4.3 Type of contract

4.3.1 Modified Form of Contract based on

PAM Contract 2006

9-12

5.0 References

13-14

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1.0 Introduction

A public listed company who is not familiar with the construction industry has approached our

Consultant Quantity Surveyor firm to propose the best procurement method, tendering and contract

arrangement. This project will be a development of RM600 million and it consists of hotel and shopping

complex. It is located in the center of Golden Triangle, Kuala Lumpur.

The client requires to have full control of the design and be able to introduce changes during the process

of the whole project. The client is also concerned about the time length of project therefore, construction

work has to start before the completion of the design and he would like to complete the project in 20

months time before the start of COMMONWEALTH GAME in 24 months from now. Moreover, the

client’s budget is flexible and he requires to only deal with the key member of the project daily but not

too many parties. The process to select a successful contractor has to be reasonably transparent and be

able to eliminate contractors who are not performing well.

By considering the factors, our Consultant Quantity Surveyor have to come out with the best

procurement method, tendering and contract arrangement to accommodate the client’s needs. The

tendering proposed have to be ensured that the contractors that is awarded can perform potentially.

Furthermore, contract arrangement selected has to protect the client from any non-potential performance

and damages which will affect the project.

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2.0 Procurement

Procurement is taken from the word “ procure” which literally means “ to obtain by care or effort”, “to

bring about” and to acquire”. Basically, procurement is the process of obtaining goods and services from

provider who are outside of the organization (Wiley et al., 2011).

2.1 Management contract

Management contract basically is a written agreement between an employer and a contractor which the

contractor is selected by the competition in the tendering process where the contractor will quote lump

sum fixed fees or fees of management. Management contractor will plan, organize, coordinate, supervise

and manage the construction activities of the project. In the management contract, employer and

contractor will have the direct contractual relationship when the contractor enters the contract. Employer

engages a team of consultant and between an employer and consultant team has a direct contractual

relationship but the consultant team will coordinate with the management contractor.

Management contractor normally will appointed by the employer in the early stage to involve in the

construction process and design stage which the contractor can advise the design team on the buildability

of the design, tender action, construction programmes and delivery of goods and materials based on their

expertise on construction methods and experienced. This mean, in this management contracting

procurement method can shorten the overall development time because of the advice given by the

contractor for the design drawing in the design stage and ensure they properly understand the design

drawing details. Through this, miscommunication between the team of consultant and contractor will

decrease. Besides, management contractor manage the work through works contractors which they are

contractually accountable to the management contractor. Hence, in the management contracting

procurement, the contractor normally is providing advisory services and management.

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Management contractor is generally engages to construction of a project and manage the planning and

engage sub-contractors working under him to execute the construction work. Client's consultant is

responsible for the overall design while the management contractor is responsible for defining of work

packages which means the works are separated into various packages of work and those work packages

will distribute to the work packages subcontractors by the management contractor. Then the packages of

work which will be tendered out and work package subcontractors which successfully win the tender will

enter direct contract with management contractor.

Diagram: Management Contracting

-

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2.3 Recommendation

As a consultant quantity surveyor, I would like to recommend the Management Contracting

procurement method for this project. The reason is this procurement is suitable for the construction of

large complex projects which totally meet to the client’s wishes of build up Rm600 million hotel and

shopping complex in the center of the Golden Triangle, Kuala Lumpur.

Every construction project might occur vary due to various matters. In Management contracting, there

can be a high degree of flexibility on design matters which means that the design can be adjusted and

finalized as the construction proceeds but without having the loss of cost control. It allows the client to

change the design during construction and the client can definitely have full control of the design. They

are able to introduce the changes from the beginning until the completion of the project.

Besides that, the detailed design work can proceed together with the site operations for some work

packages. This can reduce the time needed before the project starts on-site. Management contracting have

the potential for time savings as the overlapped of design and construction activities. Parallel working is

inherent which can shorten the time and as accomplish “fast track”. It can achieve the client’s wishes to

finished this project at shortest time possible perhaps within 20 months instead of 24 months, an early

completion of the construction work. Therefore, the project is sure to be done before the start of

COMMONWEALTH GAMES.

By the requirement of the client, management contracting is the most fit to his company as this

procurement will only need to deal with only one firm. He only needs to meet the key members of the

project which might be the consultants and management contractor instead of too many parties. The

contractor uses his knowledge and management expertise to help the client to coordinate with the design

team and supervise the work package subcontractors to ensure the quality of the performance and the

project does not delay.

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The construction work of this procurement will start without the fully completed of detail drawings to

reduce time. It is much difficult to have the estimated final cost to show to the client and it will remain

uncertain until the end of the contract. But as we know the client has a flexible budget, therefore the

company may not worry about the financial limitation.

2.4 Why not choosing other procurement?

➢ Traditional Procurement Method

- Overall project duration may be longer prior to completion of design

- Contractor cannot input into to design and planning of the project

- Taking the risk associated with a fixed price

➢ Design and Build Procurement Method

- Clients meet difficulties preparing sufficiently comprehensive brief

- Hard to comparing bids since each design is different

- Because of the absence of a bill of quantities, it get into the difficulty to value the variation and

this will restricts the clients to make changes to the design

- The changes of project scope can be expensive

- The employer get less control of the aspect of the project because D&B contractor control every

parties of project

➢ Construction Management Procurement Method

- Client has more direct trades contractors need to deal with

- Developer has a contractual relationship with the works package contractors

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https://www.designingbuildings.co.uk/wiki/Risk


3.0 Tendering Method (Selective tendering method)

Recommendation

There are three types of tendering method available for contractors to submit their tender document by a

stipulated date. However, these tender methods can be broken down into open tendering, negotiated

tendering and selective tendering.

Through our professional staff in the company’s in-depth understanding and detailed analysis, my

company will strongly recommend the selective tendering process for further development. Other than

that, the selective tendering process can be either single stage or two stage. For two stage tendering, it is

utilized to permit the early appointment of a supplier and completion of all the data required to empower

them to offer a fixed cost. In the primary stage, a restricted appointment is concurred to enable them to

start works and a fixed cost is consulted for the contract in the second stage.

The reason why we chose this tendering method is that it has some benefits and also meets the client

needs since the client is an established public-listed company and wishes to complete before the start of

Commonwealth Games. For example, time & cost saving, better quality of tender and chances of default

minimized.

Firstly, it is about the time. As we know that the client is very unfamiliar with the construction industry

so they may absence of the capability and abilities to decide and recognize the appropriate tenderer.

Hence, it sets aside a ton of time for them to read through the profile of as well a large number of

tenderers and also the tender documentation. For this situation, selective tendering method is appropriate

for them because the contractors are chosen based on their ability, uprightness and attributes before they

are welcome to tender stage. Nevertheless, it takes after that exclusive firms of adequate standing and

involvement in that specific type of work will only be drawn nearer. In this manner, client doesn’t have to

invest too much time in assessing the tenders.

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Secondly is about the cost. In this tendering method, it can minimize the cost of tendering such as

lessened the fees of tender documentation and financial utilization of resources. For an analogy, the cost

of printing the tender document will be lower since the number of participants are foreseen. Then, it is

about the quality of the tender. Since just a couple of contractors are chosen, each contractor knows he

has a sensible possibility of picking up the agreement and in this way has an impetus to study the tender

document altogether.

Lastly is about the chances of default. It will be minimized as only the properly qualified tenderers such

as a person with very good reputation and experiences on past projects will only be involved in this

tendering process.

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4.0 Contract Arrangement

It is a legal contractual agreement between the client and the contractor. This legal binding agreement

indicate the contractor will receive specific amount of compensation based on the job executed or method

on how the compensation will be distributed. They are four type of contract arrangement that are usually

practise in construction industry which are Traditional Method (lump sum contract, measurement

contract, cost reimbursement contract), Design and Built (single entity and competitive), Management

Contract and Construction management.

4.1 Factor affecting decision making

There are many factor to consider in selecting the most suitable contract arrangement for the client to

apply. The following are some of the factors that we had consider when selecting the contract

arrangement:

● Nature of project

● Scope of works

● Measure control by client

● Accountability

● Certainty of final costs

● Start and completion time

● Change during construction

● Assessment of risk

Based on the factors and the client’s requirement, we recommend that our client to use cost

reimbursement contract of traditional method as his contract arrangement.

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4.2 Cost reimbursement contract

Cost reimbursement contract is also known as cost plus contracts. The contractor is reimbursed by the

actual costs, which they incur in carrying out the works plus an additional fee. In the event that the nature

or scope of the work cannot be properly defined at the outset and the risk are high, cost reimbursement

contract may be used for emergency work, emergency change, maintenance work, building failure or

immediate rebuild so that the client can continue to operate the business. Tendering can be based on

outline requirements, any drawings and cost estimates. For the client, this is a high-risk form of contract,

because the final cost is not known when the contract is made.

The costs that the contractor is allowed to reimburse must be specified in the contract. This is a

complicated procedure that needs to be carefully considered since some direct costs may be relatively

straightforward but other "shared" costs may not. The direct costs are attributable to a single project may

include labor, materials, hiring of plants and subcontractors. These costs may be calculated on a pro-rata.

Detail costing must be made and should be classified as direct or indirect costs. There are multiple

variations for Cost plus contracts and the most common are:

● Cost Plus Fixed Percentage

● Cost Plus Fixed Fee

● Cost Plus with Guaranteed Maximum Price Contract

● Cost Plus with Guaranteed Maximum Price and Bonus Contract

For this variation, we recommend to implement the cost plus fixed fee.

.

4.2.1 Recommendation

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There is a lot of unknown in this project, therefore cost reimbursement contract will be more suitable for

this project. Cost reimbursement contract can bring advantages to the client as the contractor does not

need to add big “fudge factor” in his bid to cover the unknown on uncertainty work (Bliss, n.d.).

Cost reimbursement contract requires a good documentation of the cost that occurred on the project to

assure that the contractor will be compensated for all the work executed and that the company will not

pay for something that is not complete (Wiley et al., 2011). The document will include working hours and

billing rates for direct labour supplied by the contractor together with the invoices for materials and

subcontractors easier for the client to check and to make sure that there is not overcharges.

Furthermore, if the client is concerned that the job cost will be over budget, the contractor can provide a

guaranteed maximum price. If the job done is lower than the maximum price, the contractor will share the

extra cost with the client. The client also has the right to terminate the contract if the client is over budget

by certain percentage at any draw by the contractor (Bliss, n.d.).

The method to compensate the contractor will be cost-plus-a-fixed-fee. Cost-plus-a-fixed-fee benefit the

client more compare to cost-plus-a-percentage. In cost-plus-a-percentage, the client is charged by the

contractor for his direct costs of labour, materials and subs, plus a percentage to cover his overhead and

profit which will hinder the contractor to finish the project faster. This method give a lot of profit to

contractor as the longer he takes to complete the project, the larger the profit will be which could be a

hindrance to the client as he is concerned about the completion time. Cost-plus-a-fixed-fee give an upper

hand to the client as the client will be charged by the contractor for direct costs, plus a fixed fee for

overhead and profit. In this case, the contractor is encouraged to complete the job quickly and cheaply.

In the nutshell, cost reimbursement contract is a more suitable contract arrangement to be used in this

project. This contract benefit the client as he wanted the project to start early with a full control of the

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design and able to make change from the beginning until the completion of the project. When applying

cost-plus-a-fixed-fee method, the job can be complete on time and on budget as the client request it to be

finished before the COMMONWEALTH GAMES which has to done in a short time period. Lastly, it

provide the client with a better product as the contractor is selected based on their qualification.

4.3 Form of Contract

The effectiveness of a project is depend on the administration of a contract. Administration of a contract

means to ensure that the contractor is performed according to the article of agreement and condition of

contract and within the framework of related laws and the practices of the construction industry (Zakaria,

Ismail and Md Yusof, 2013). Pertubuhan Arkitek Malaysia (PAM), Public Work Department (PWD) and

International Federation of Consulting Engineers (FIDIC) are the standard form of contract available in

Malaysia. To practise each of it depends on the type and nature of the project and also financing involved.

4.3.1 Modified Form of Contract based on PAM Contract 2006.

As there is no standard form of contract for management contracting, modified form of contract based

on PAM Contract 2006. Based on Agreement and Condition of PAM Contract 2006, architect has

significant role in managing and supervising the building contract. Since we proposed to use this contract,

the role of the architect mentioned in article 3 will be done by the managing contractor and this will

favour the client as he requested to deal with one party only. All consultant team including the architect

only involved in pre tender stage and the authority transfer to MC during the post tender. This means, the

MC become one of the design team and contribute his construction knowledge and management

expertise.

There are clauses from the PAM contract that could be use to protect our client. First clause would be

Clause 10 where a site staff will be hired to watch over the management contractor to make sure he

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perform his job well. Other than that, Clause 11 will help in managing the the cost of the project to avoid

over budget. Clause 11 explains that the modification and alteration of designs can be made and this will

meet the client’s requirement. Clause 30 explains that if any failure of payment, the other party will not

receive the certificate. Furthermore, Clause 6 helps in managing the quality of the construction building.

This is due to the complexity of our project, good quality, inspection and testing is required to make sure

the building will be more stable and have good finishes. Also client would want it to be the place where

tourists visit during the COMMONWEALTH GAME therefore, good quality is needed. Lastly, to manage

the time, Clause 20 & Clause 23 states the date of commencement, postponement and completion date

and the extension time. This is to make sure the delays will not exceed the Period of Delay given in the

appendix as client’s main concern will be to finish the project within the given 20 months.

References

1. Sarah Lupton, S., Sarah Lupton, S., McPartland, R. and McPartland, R. (2017). Which

procurement method?. [online] NBS. Available at:

https://www.thenbs.com/knowledge/which-procurement-method [Accessed 20 Jun. 2017].

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2. G.M. et al., 2009. Built Environment Procurement Practice: Impediments to Innovation and

Opportunities for Changes. Built Environment Industry Innovation Council. Available at:

https://eprints.qut.edu.au/27114/1/Furneaux_-_BEIIC_Procurement_Report.pdf [Accessed

June 15, 2017].

3. TenderPoint™. (2017). 3 Methods of Tendering available to Contractors. - TenderPoint™.

[online] Available at:

http://tenderpoint.co.za/blog/3-methods-of-tendering-available-to-contractors/ [Accessed 20

Jun. 2017].

4. Jeyakumar, J. (2017). Tendering methods, Procedures in Construction - Basic Civil

Engineering. [online] Basic Civil Engineering. Available at:

http://www.basiccivilengineering.com/2016/05/tendering-methods-procedures-construction.

html [Accessed 20 Jun. 2017].

5. Bliss, S. (n.d.). Cost-Plus Contracts : Pros and Cons | BuildingAdvisor. [online]

Buildingadvisor.com. Available at:

http://buildingadvisor.com/project-management/bidding/cost-plus-bids/ [Accessed 18 Jun.

2017].

6. Rodriguez, J. (2016). 4 Types of Construction Contracts: LS, Unit Price, Cost Plus and T&M.

[online] The Balance. Available at:

https://www.thebalance.com/g00/common-types-of-construction-contracts-844483?i10c.refe

rrer= [Accessed 18 Jun. 2017].

7. Wiley, D., Ashton, K., Ashton, S., Bostwick, J., Clements, G., Drysdale, J., Francis, J.,

Harrison, B., Nan, V., Nisse, T., Randall, D., Rino, J., Robinson, J., Snyder, A., Amado, M.

and Anonymous (2011). Project Management for Instructional Designers (PM4ID). 2nd ed.

[ebook] Provo, pp.Chapter 9.5. Available at:

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https://pm4id.pressbooks.com/chapter/9-5-selecting-the-type-of-contract/ [Accessed 18 Jun.

2017].

8. Zakaria, Z., Ismail, S. and Md Yusof, A. (2013). An Overview of Comparison between

Construction Contracts in Malaysia: The Roles and Responsibilities of Contract

Administrator in Achieving Final Account Closing Success. [online] p.3. Available at:

http://www.inase.org/library/2013/rhodes/bypaper/EET/EET-02.pdf [Accessed 19 Jun.

2017].

9. Rajoo, D. (2014). Announcement Details | KLRCA. [online] Klrca.org. Available at:

https://www.klrca.org/announcements-announcements-details.php?id=82 [Accessed 20 Jun.

2017].

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