Contractual arrangements for a 30-storey tower on a 5-storey podium

Assignment 2:
In the financial environment for the construction industry, selection of contractual
arrangement is very important to the project.
In this report, the writer shall analysis the features for the different contractual
arrangement in order to select the appropriate form of contract for the project with
details as below:
- 30-storey high tower on a 5-storey podium;
- Carparking provisions;
- Medium to high standard;
- Construction period of 500 calendar days;
- Conditions of Building Contract for use in HKSAR, private edition, with
quantities, 2005 edition;
- The site possession in 12 months’ time and therefore sufficient time for design
and tender preparation;
Commonly, there is several procurement methods could be chosen in Hong Kong.
They are traditional procurement, Re-measurement procurement, Design and Build
procurement, Construction Management procurement, Partnering as well as New
Engineering Contract (NEC) procurement etc.
Type of Procurement
Traditional procurement is known as Lump Sum procurement. Davis, et al. (2008)
stated that in the traditional approach, the employer accepts that design work is
generally separate from construction. The main feature for this procurement is that the
design process is separated from the construction. In lump sum contract, contract sum
is agreed in advance based on plans and specifications. Employers can hire quantity
surveyors to prepare the bill of quantities from the drawing. The contract sum of the
project is derived from the total priced items in the bill of quantities. This can give
competing contractors a quantitative analysis of the contract works. And contractors
are appointed by competitive tendering. Lump sum with quantities contract also allow
employers to control the cost of the design through its consultants and retain the
design risk. Any possible increase or decrease variation orders shall be issued by
architect. And final account shall be obtained by adjusted by professional quantity
surveyor.
Re-measurement procurement based on a schedule of prices is that the contract sum is

ascertained by measurement and valuation related to bills of approximate of quantities
or to a schedule of prices included in a contract. A schedule of rate consists a list of
measured items with units shall be provided, but without quantities to contractor
price. Contract sum shall be finalized in according to the works carried out by
contractors and measured and priced at the rate in schedule of prices. Contract sum
shall be finalized until after completion. This type of contract is commonly used
where the employer can’t determine the requirements in advance or at the time the
contract is formed.
Design and Build is a type of contract that a single contractor shall be responsible to
complete of design and construction of the building. Contractor is often appointed by
two stage tendering. In the pre-contract stage, client’s requirements shall be pointed
out. Contractor is required to submit his design proposals and cost proposals to
approve by clients. After approval of design and cost proposals, contractors then start
the detailed design is completed.
Construction Management procurement is that employer hired a construction manager
as a agent to manage, programme and co-ordinate design and construction activities.
Construction works are carried out by Trade contractors through direct contracts with
employer. Construction manager is responsible to manage the works carried by each
trade constructors.
Partnering is not a specific procurement method but a procurement philosophy
emphasizing collaborative working, common objectives, and problem solving.
Larmour (2011) explains that the public private partnership procurement method
involves two or more organisations working together to improve performance by
agreeing to mutual objectives. It is an opening booking accounting that is isolate of
profit and cost. It is often used in public sector procurement in the form of Public
Private Partnership (“PPP”). PPP is that joint working between public and private
sectors to share the risks.
New Engineering Contract (NEC) is a family of standard contracts that embraces the
concept of partnering and encourages contracting partners to work together in a spirit
of mutual trust and cooperation. There are 6 modular form of contract about pricing,
risk, allocation and payment mechanism. Employer can choose the most suitable
modular form according to their project requirements. NEC is projects tool that
drivers clearly and timely decision making by parties. Each party should response
their decision within specified time, and requiring each party to work together

towards a common goal.
Factors to influence Procurement method:
A project may be regarded as successful if the building is completed as scheduled,
within budget and quality standards as well as achieving a high level of client
satisfaction. (Shamil Naouma and Charles Egbua, 2015) different clients have
different needs and requirements, and construction projects vary considerably in every
respect, no single procurement system can be suitable for every project (Luu, Thomas
and Chen, 2003) Before choosing the most suitable procurement method, the
advantages and disadvantages for different methods should be identified. And
procurement strategy is that choosing of the best way to achieve the above objectives
of the project. The aim of it is to achieve the balance of risks, control and funding for
a project.
Table 1 clarifies advantages and disadvantages and suggests when each procurement
method should be used. (Marina L., 2017)
Procurement
method
Advantages Disadvantages
Traditional
(Lump Sum)
-Competitive fairness
- Public accountability
- Early price certainty
- Well known procedure
- Changes can be implemented easily.
-Facilitate high level of quality
- Late start on site and longer project
duration
- Adversarial relationship
- Design risk lies with client
Re-measurement -Saving time to prepare tender documents
- Allow overlapping of the design and
construction process
- Employer has a reasonable commitment
form contractor the cost and time to
complete contract
- client requirements can’t define in
advance and can’t get eventual
outcome and objective
- components of work without
quantities lead to difficulty to quoting
realistic prices and result in higher
price
- less certainly of the cost at the outset
than with a firm bills of contract
- difficult to establishing final cost

Design and
Build
- Reduced project time due to overlap of
design and construction activities.
- Improved buildability due to Contractor’s
input into design.
- Contractor’s design liability may be
extended to include fitness for purpose
- Price certainty before construction
starts and price higher that other
procurement method
- Less competition in tendering stage
- Difficult to control design standards
(single tender)
- variations difficult to assess and
could be expensive
Construction
Management
- Reduce project duration
- Allow early start construction work
because works divided by trade
construction
- Improve buildability of design
- Clear roles, risks and relationship for all
participants
- Flexibility for design changes, greater
adoptability and flexibility for the employer
to defer decisions on later trades
- No contractual completion date
- higher overall construction cost
- lower cost control with design less
advanced at commencement
- Cost uncertainty until award of last
trade package.
- Client needs a technically and
commercially competent project
management team to assess the
recommendations of CM.
- Need close control of time and
information, greater risk to employer
for communication mistakes
Partnering /
NEC
- Can implemented in wide variety of
formats
- Parties share risks
- Stimulus to good project management
- Early warning
- Clear requirements for programme
and detailed procedure,
comprehensive plan required.
- Each party shall highly involve,
difficult to manage each party
Table 1. Advantages and Disadvantages for Each Type of Procurement Method
Employer decide to adopt the type of procurement is mainly to concern times, cost,
profit, risks and quality.
Traditionally, clients are shy of taking any responsibility, and employer often to
choose a procurement method to minimize the risks. Choosing a procurement method