Contractual Procedures and Procurement for Construction Report

This report delves into the multifaceted world of contractual procedures and procurement within the construction and built environment sector. It begins by outlining critical client needs in construction projects, encompassing functionality, safety, quality, speed, cost, risk mitigation, aesthetics, sustainability, regulatory compliance, and other considerations. The report then dissects various procurement arrangements, including traditional, design and build, and public-private partnerships (PPP), along with associated contractual arrangements like unit price, lump sum, and cost-plus contracts. Furthermore, the report explores current trends in procurement, such as management contracting, construction management, and partnering, while also addressing contemporary issues like climate change, sustainability, technology integration (including BIM), ethical considerations, and risk management. The report also analyzes the advantages and disadvantages of international procurement methods. The report then provides a proposal for sequencing design and construction in terms of procurement, and details the roles and responsibilities of various parties involved in a typical procurement contract, including clients, architects, engineers, contractors, and subcontractors. The report also discusses the purpose and activities of organizations involved in procurement. The report further explains the financial implications of project schedules and compares project costs at different stages, while also examining contractual measures to ensure quality compliance. Finally, it covers contractual arrangements with subcontractors and suppliers. The report concludes with an extensive review of the topic, offering valuable insights for students and professionals alike.

Contractual Procedures and Procurement 1
CONTRACTUAL PROCEDURES AND PROCUREMENT FOR CONSTRUCTION AND
THE BUILT ENVIRONMENT
Name
Course
Professor
University
City/state
Date

Contractual Procedures and Procurement 2
Table of Contents
1. Task 1: Client Needs..........................................................................................................................4
1.1. Task 1.1: Client needs for construction projects.....................................................................4
1.1.1. Functionality........................................................................................................................5
1.1.2. Safety...................................................................................................................................5
1.1.3. Quality.................................................................................................................................5
1.1.4. Speed or completion time....................................................................................................5
1.1.5. Cost......................................................................................................................................5
1.1.6. Risks....................................................................................................................................5
1.1.7. Aesthetics.............................................................................................................................6
1.1.8. Sustainability.......................................................................................................................6
1.1.9. Regulation (policies)............................................................................................................6
1.1.10. Others..................................................................................................................................6
1.2. Task 1.2: Procurement Arrangements.....................................................................................6
1.2.1. Traditional procurement method..........................................................................................6
1.2.2. Design and build..................................................................................................................7
1.2.3. Public private partnership (PPP)..........................................................................................8
1.3. Task 1.3: Contractual arrangements for common forms of contract....................................9
1.3.1. Unit price contract...............................................................................................................9
1.3.2. Lump sum contract..............................................................................................................9
1.3.3. Cost plus contract...............................................................................................................10
1.3.4. Incentive contracts.............................................................................................................10
1.3.5. Percentage of construction contracts..................................................................................10
1.3.6. Others................................................................................................................................10
2. Task 2: Business Expansion to Procurement Services..................................................................10
2.1. Task 2.1: Current trends in procurement practice...............................................................10
2.1.1. Management contracting....................................................................................................10
2.1.2. Construction management..................................................................................................11
2.1.3. Partnering and alliancing...................................................................................................11
2.1.4. Private public partnership..................................................................................................11
2.2. Task 2.2: Current issues associated with procurement and contractual procedures.........11
2.2.1. Climate change..................................................................................................................11
2.2.2. Sustainability.....................................................................................................................11

Contractual Procedures and Procurement 3
2.2.3. Technology........................................................................................................................12
2.2.4. Lean construction...............................................................................................................12
2.2.5. Building information modelling.........................................................................................12
2.2.6. Ethics.................................................................................................................................12
2.2.7. Risk management...............................................................................................................12
2.2.8. Transparency......................................................................................................................12
2.2.9. Cooperation and collaboration...........................................................................................12
2.2.10. Big data and AI..................................................................................................................13
2.2.11. Innovation..........................................................................................................................13
2.3. Task 2.3: Advantages and disadvantages of international procurement methods..............13
2.3.1. Joint venture.......................................................................................................................13
2.3.2. Strategic Alliancing...........................................................................................................14
3. Task 3: Proposal for Quick Completion of Steel Project..............................................................15
3.1. Task 3.1: How to sequence design and construction in terms of procurement...................15
3.2. Task 3.2: Roles and responsibilities of the parties involved in a typical procurement
contract.................................................................................................................................................17
3.2.1. Client.................................................................................................................................17
3.2.2. Architect............................................................................................................................17
3.2.3. Engineers...........................................................................................................................17
3.2.4. Specialist consultants.........................................................................................................18
3.2.5. Quantity surveyor (QS)......................................................................................................18
3.2.6. Contractor..........................................................................................................................18
3.2.7. Subcontractors...................................................................................................................18
3.2.8. Suppliers............................................................................................................................18
3.2.9. Legal counsel.....................................................................................................................18
3.3. Task 3.3: Purpose and activities of organizations involved in procurement of construction
and built environment sector..............................................................................................................19
4. Task 4: Explanation of Financial Report.......................................................................................20
4.1. Task 4.1: Implications of being ahead of or behind completion schedule...........................20
4.1.1. Implications of being ahead of completion schedule..........................................................20
4.1.2. Implications of being behind completion schedule............................................................21
4.2. Task 4.2: Comparing project costs at different stages..........................................................21
4.2.1. Pre-contract costs...............................................................................................................21
4.2.2. Tender costs.......................................................................................................................22

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4.2.3. Final account costs.............................................................................................................22
4.3. Task 4.3: Contractual measures to ensure quality compliance............................................22
5. Task 5: Contractual Arrangement with Subcontractors and Suppliers......................................23
5.1. Task 5.1: Contractual arrangements used with subcontractors...........................................23
5.1.1. Nominated contractors.......................................................................................................23
5.1.2. Named contractors.............................................................................................................24
5.1.3. Domestic subcontractors....................................................................................................24
5.2. Task 5.2: Types of contractual arrangements used with suppliers......................................24
References................................................................................................................................................25

Contractual Procedures and Procurement 5
1. Task 1: Client Needs
1.1. Task 1.1: Client needs for construction projects
Clients are very important stakeholders in any construction project because they are the ones
who come up with the idea, specifications and finances of the project. A construction project is
usually considered to have failed if clients’ needs are not met. In this context, needs are basically
desires or requirements of the client in a particular project. The needs of clients are usually the
same regardless of whether they are public or private clients. All other stakeholders (including
contractors, consultants and suppliers) should make efforts to ensure that the needs of clients are
met. Some of these needs include:
1.1.1. Functionality
Functionality is a very crucial need not only to the client but also to the final users of the
structure (Sotech Co., Ltd, 2014). Clients need buildings and structures that can perform the
intended function effectively. This need is usually attained during design stage of the project
where the dimensions, layout and orientation of the structure are decided (Whole Building Desig
Guide Functionl/Operational Committtee, 2016). The need can also be met by ensuring that the
structure is designed and built in accordance with required performance standards.
1.1.2. Safety
This is another essential need of clients for construction projects in both private and public
sectors. Clients want structures built to be safe for use throughout their lifetime. This need is
attained during design (create proper designs), construction (use suitable materials, equipment
and personnel) and operation (use it for the intended purpose) stages. One way of achieving it is
by ensuring that all stages of the project are done in accordance with relevant engineering and
building codes and standards.
1.1.3. Quality
All clients want the project to be delivered to the highest quality level possible. This is
important in getting value for the money used in the project. Quality is needed in all stages of the
project, from start to finish. It can be achieved through use of good quality materials, advanced
construction equipment and tools, qualified personnel, good workmanship and close supervision.
1.1.4. Speed or completion time
Clients always want the project to be completed within the stipulated period or earlier than
planned. Those in construction industry understand that failure to complete a project with
anticipated time has cost implications. This need has to be met in design and construction stages
of the project – complete the designs on time and finish construction activities in accordance
with the program. Other strategies to help complete the project on time include planning for
foreseeable delay conditions (such as bad weather), preventing or minimizing possible delays
and proper planning for material supply and task allocation.
1.1.5. Cost
All clients, regardless of whether from public or private sector, want their projects to be
completed within stipulated budget. They want the contractor to provide accurate estimates at the
start of the project (not underestimation or overestimation) and ensure that all expenditures are
monitored properly and minimized where possible. After design and construction, clients also
want the structure to be easy and cost effective to operate and maintain (consume less water and
energy). This need is important in all stages of the project.

Contractual Procedures and Procurement 6
1.1.6. Risks
Clients also need all possible risks to be minimized at every stage of the project. They want
involved stakeholders to identify, analyze and prevent or minimize all risks. They also want
every stakeholder to take full responsibility of risks allocated to them (Barraza, 2011). These
risks include technical, financial, environmental, logistical or socio-political risks (Menard,
2017). The risks are very costly in construction projects hence must be minimized or avoided
(El-Karim, et al., 2017).
1.1.7. Aesthetics
Clients also want a structure that is memorable and appealing to the public (Gillem, 2016)
because aesthetics has a great impact on final users’ perception (Wang, et al., 2008); (Yaran,
2016). This need is important in design and construction stages. Aesthetics relate to building
aspects such as shape, color, material usage and composition (Jennath & Nidhish, 2016). It has
become very critical in today’s construction projects than before (Hoorn & Whitty, 2016).
1.1.8. Sustainability
Climate change has become a global problem and clients are very keen on the issue of
sustainability (Anon., 2010), which aims at improving resource efficiency of the project (Akadiri
& Olomolaiye, 2012). As a result of this, clients want their projects to be sustainable. They want
the project to serve the intended function effectively for longer, and to be easy and cost effective
to use/operate and maintain. This need is in all stages of the project.
1.1.9. Regulation (policies)
Clients also want the project to be completed in accordance with relevant construction
regulations or policies. This requires stakeholders to ensure that they deliver the project within
applicable legal framework (Hellen, 2017). This need is important especially in design and
construction stages of the project.
1.1.10. Others
There are also other needs of clients for construction projects including, but not limited to:
effective communication, collaboration, working relationships, flexibility, maximization of
benefits (such as tax reliefs) and accountability.
1.2. Task 1.2: Procurement Arrangements
There are different types of procurement methods used in construction industry. Each of
these methods has advantages/strengths and disadvantages/weaknesses. The three main
procurement methods are:
1.2.1. Traditional procurement method
This method is also known as general contracting or design bid build (DBB) method. It is the
oldest and widely used procurement method in construction industry. In this method, the client
appoints a design team comprising of an architect, designer, engineers and quantity surveyor to
prepare the details/scope or tender of the project (including design proposals and final drawings).
After preparing the tender, tenderers or contractors are invited to bid. The client, together with
her team, uses particular criteria to select the most suitable bidder or contractor to execute the
project. The contractor is usually chosen through competitive tendering. Once the tender is
awarded, the contractor becomes responsible for executing it under the supervision of the client’s
representative/consultant and the design team. Figure 1 below shows the organizational structure
of traditional procurement method

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Figure 1: Typical organizational structure of traditional procurement method
Advantages of traditional procurement method include: the client controls the quality of
work; competitive tendering enables the client to get the best price; the client can request
variations of works; consultants (who are the supervisors of the project) protect the interest of the
client. On the other hand, some of the disadvantages of this method include: it takes longer to
complete the project as design and construction stages cannot overlap; there is always no proper
communication and collaboration between the design team and the contractor; and coordination
between the client and other stakeholders is usually not good.
1.2.2. Design and build
This method is where a single entity is selected to undertake both the design and construction
works. The client appoints an experienced contractor to design the project and execute it. The
contractor takes responsibility of design and construction risks (Building, 2010). Despite the
contractor being responsible for design and construction works, the client usually appoints a
consultant or representative to provide advice and supervise or monitor the project. Figure 2
below shows the organizational structure of design and build procurement method

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Figure 2: organizational structure of design and build procurement method
Advantages of design and build method include: it saves time and money; the client only has
to deal with one entity; involving the contractor from inception helps in developing strategies of
completing the project efficiently; easy communication among stakeholders and minimal
supervision since the contractor is more experienced. Some of the disadvantages of the method
are: engaging only one contractor limits design proposals and possibilities; the contractor may
compromise quality of materials and workmanship so as to get more profits; the client is limited
to request for variations of works; and the client has to ensure that the contractor selected had
good track record and reputation.
1.2.3. Public private partnership (PPP)
This is a strategic procurement method where the government signs a memorandum of
understanding with a private entity to provide a public service or asset (Hoppe & Schmitz, 2013);
(Public-Private-Partnership in Infrastructure Resource Center, 2018). In this method, the project
is executed based on the following principles: trust, teamwork, mutual objectives and sharing of
rewards and risks (Ameyaw & Chan, 2013). The private entities bear the largest risks because
the rewards they receive depends on the performance of the structures they build (Rodriguez,
2017). There are three main forms of PPP: private financing initiative (PFI), institutional PPP
and concession contracts. Figure 3 below shows organizational structure of PPP

Contractual Procedures and Procurement 9
Figure 3: Organizational structure of PPP
Some advantages of PPP are: high quality, faster delivery, higher return on investment (ROI)
(Vinogradov, et al., 2014), earlier identification of risks helps in determining the feasibility of the
project’s, the private entity is responsible for the project execution and operational risks; enables
the government to put her resources in other critical socioeconomic projects, reduces
government’s deficits and costs, and greater innovation (Gorey, 2015). Disadvantages of this
procurement method include: it can increase government costs especially when the private entity
has to bear higher risks; low competitiveness, unsteady profits, the government may be
disadvantaged especially if it has no adequate knowledge or experience about the project and
unnecessary delays due to negotiations or political debates (Ismail & Harris, 2014).
Other procurement methods that are becoming common include construction management
and management contracting. The choice of the most suitable procurement method depends on
factors such as cost, financing, speed, quality, risk, ownership of asset, project constraints and
complexity of the project.
1.3. Task 1.3: Contractual arrangements for common forms of contract
Contractual arrangements basically refers to written mutual agreements between parties that
they will individually or jointly execute a project. These arrangements are legally binding. The
choice of suitable contractual arrangement is influenced by factors such as client characteristics
(especially their expertise and experience), complexity of the project and performance level
desired by the client. Most of the contractual arrangements in construction industry are defined
based on how disbursements will be made.
The common forms of contract in construction industry include the following:
1.3.1. Unit price contract
This is a contractual arrangement where all items of the project are counted and their
quantities multiplied by their respective unit prices. The project’ final price is determined by
summing up the product of all the items. This form of contract is suitable in projects where all
items can be accurately determined when preparing the tender.
1.3.2. Lump sum contract
This is a form of contract where the contractor agrees to execute the project works at a fixed
price. It is appropriate in projects where the project’s scope and schedule can be adequately
defined before the start of the project so that the contractor can determine the cost estimate of the
project. This form of contract is also known as fixed price contract.

Contractual Procedures and Procurement 10
1.3.3. Cost plus contract
This is a contractual arrangement where the client agrees to pay the contractor the total cost
of materials and labor used to execute the project, plus extra amount to cover for overhead and
profit of the contractor. This arrangement is suitable for projects where there is high uncertainty
of establishing the scope of the project together with materials, equipment and labor
requirements. There are several types of cost plus contracts including: cost plus fixed fee
contract, cost plus fixed percentage cost contract, cost plus with guaranteed maximum price
contract, etc.
1.3.4. Incentive contracts
This is a form of contract where compensation is based on engineering and/or contracting
performance in relation to agreed targets – budget, quality and schedule. Incentive contracts
encompasses a target cost, profit and profit fine-tuning method. There are two types of incentive
contracts: cost reimbursement incentive contract and fixed price incentive contract (Fisher Stark,
2015).
1.3.5. Percentage of construction contracts
These are contracts where compensation is based on a certain percentage of the project’s
cost.
1.3.6. Others
Other contractual arrangements include: special contracts (such as package contract,
negotiated contract, turnkey contract, running contract and continuing contract), procurement
contracts (these are arrangements where parties agree to provide goods or services for the
project) and resource utilization contracts (these arrangements show parties’ commitment to
utilize resources efficiently so as to complete the project within stipulated time and budget).
2. Task 2: Business Expansion to Procurement Services
2.1. Task 2.1: Current trends in procurement practice
Procurement practice in the construction industry has continued to revolutionize over the
years. One of the trends is a shift from separated and integrated procurement systems to
management-oriented and collaborative procurement systems (Naoum & gbu, 2016);
(Ruparathna & Hewage, 2015). Below are some of the current trends in construction
procurement practice:
2.1.1. Management contracting
This is a procurement method where a client appoints a management contractor who prepares
works packages and assigns those to specialized contractors or subcontractors to execute via
trade contracts (Davis, et al., 2008). The details in the works packages are prepared by the
client’s professional team comprising of an architect, engineers and quantity surveyor. The
management contractor is involved in the project at very early stages and is tasked to organize,
supervise and manage the works contractors and ensure that works are done in accordance with
the needs of the client. The management contractor is paid works packages cost, preliminaries
and a fee. It is the management contractor who pays the works contractors. This procurement
method is becoming more popular because it is suitable for large-scale projects that need early
start, allows the management contractor to make suggestions during preconstruction stage, and
has low financial risk for the management contractor.

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2.1.2. Construction management
This procurement method is considered to be an alternative to management contracting and
that is why it is gaining popularity. In this method, a client appoints a construction manager who
is solely responsible for managing the project but does not enter into any trade contractors
responsible for undertaking the works. The construction manager is also the one who selects the
design team on behalf of the client. The client also signs separate trade contracts with the trade
contractors that will be undertaking the work. Both the design team and trade contractors work
under the supervision of the construction manager. The construction manager gets paid a fee
whereas the design team and trade contractors get paid through cost-reimbursable contract
arrangement. This procurement method is also suitable for large projects that require early start
(Gehr, 2013).
2.1.3. Partnering and alliancing
This is a collaborative procurement route based on good faith and trust. In this method,
stakeholders come together to design and execute a project. They share all the tasks, risks and
rewards of the project. This method aims at building long-term business relationships among
parties involved in executing the project. One of the main reasons why this procurement method
has become popular is that it significantly reduces conflicts and disputes since stakeholders get to
know and understand each other, and build strong working relationships. This procurement route
is becoming better than the others because it is appropriate for international partners and
government projects (Akintan & Morledge, 2013).
2.1.4. Private public partnership
This is a procurement method where parties in the public sector enter into a contract with
parties in the private sector to provide a public service or asset. The entire agreement is based on
mutual objectives, trust, teamwork and sharing of rewards and risks. In most cases, the private
entity provides finance for the whole or most of the project. Once the project is complete, the
private entity owns and operates it until he recovers his money. This procurement route is
becoming more popular than the other because it enables governments to provide public services
or assets without spending too much at the time or when it has budget deficits (Carbonara, et al.,
2012). With this, the government can put the resources it has into other uses. The method is very
common in executing government infrastructure projects.
2.2. Task 2.2: Current issues associated with procurement and contractual
procedures
Procurement is revolving rapidly in response to advancements and changes in various issue.
The following are some of the current issues associated with procurement and contractual
procedures:
2.2.1. Climate change
This is a global problem that requires everybody’s participation to solve it. Companies are
now including climate change issue in procurement. Contractors and subcontractors are now
required to include measures they are taking to reduce the causes and impacts of climate change.
These measures have become essential factors in selection criteria of contractors, subcontractors
and supplier.
2.2.2. Sustainability
Sustainability has become a major part of procurement strategies and solutions of many
companies. These companies want contractors and subcontractors to create environmentally

Contractual Procedures and Procurement 12
friendly, economically viable, socially acceptable and sustainable solutions (Naoum & Egbu,
2015). As a result of this, the procurement solutions being offered should include sustainable
development solutions.
2.2.3. Technology
The role of technology in current construction industry cannot be overemphasized.
Technology is being used to make procurement processes faster, cost effective and more efficient
(Weisheng, et al., 2013). Creative procurement strategies including making data-based decisions,
using artificial intelligence and sophisticated analytical tools to select the most suitable
procurement method for each project are backed by technology. Contractors are using
technological tools to select appropriate procurement methods and clients are using these tools to
select the best contractors and supplier.
2.2.4. Lean construction
The need to reduce wastage and conserve the environment has prompted inclusion of lean
construction in procurement practice (Eriksson, 2010). Currently, procurement practice is
inclined towards practices or solutions that improve resource efficiency. During procurement
process, clients are now looking for contractors and suppliers who provide lean construction
solutions so as to reduce cost, improve efficiency and protect the environment.
2.2.5. Building information modelling
This is another important issue in procurement practice today. Building information
modelling (BIM) increases the efficiency of the structure before, during and after it has been
built (Khosrowashahi & Arayici, 2014). Clients now want contractors to incorporate BIM in
their operations so as to increase project efficiency during design, construction and operation
stages.
2.2.6. Ethics
Execution of construction projects involves participation of stakeholders from different
professions and backgrounds. Clients and companies now want to work with individuals who
make ethically sensible decisions. During procurement, it is becoming very difficult for persons
or companies with ethics issue to win tenders.
2.2.7. Risk management
Risks contribute significantly to project failure. This has prompted companies to integrate
risk management in procurement processes. The companies are now making procurement
decisions that have the lowest levels of risks so as to prevent these risks even before the start of
actual construction works.
2.2.8. Transparency
This has also been on the rise especially in relation to eliminating corruption and creating
equal opportunities for everybody. Procurement processes are nowadays done with openness and
honesty. Parties are allowed to ask for any information or clarification they need and the
selection criteria and processes are also open to scrutiny.
2.2.9. Cooperation and collaboration
There is also a rise in cooperation and collaboration among participants during procurement.
Companies are now consulting each other more so as to make the right procurement decisions