1. Vergabeformen Building Procurement – Contract strategy Procurement Systems – an initial overview Proper choice of delivery system can help to reduce conflicts on construction projects Judit Gyulay 05. 06. 2007

2. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Right Building Right Building Right Time Right Time Right Place Right Place Successful Investment

3. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Participants of a construction project have different interests Participants of a construction project have different interests Claims and litigations Claims and litigations How to reduce conflicts/risk of construction projects How to reduce conflicts/risk of construction projects One area, generate conflicts: Procurement system (project delivery system) One area, generate conflicts: Procurement system (project delivery system) Possibilities Possibilities Consequences Consequences Contents Of choice the procurement system

4. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Civil Engineer/Architect is involved the process in different phases in different phases in different roles in different roles Idea Idea Area Area Money Money Investment Process Initiation Hand-over and use

5. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Common goal of participants to perform a building Meeting the clients requirements, ensuring completion On time On time Within cost Within cost To required quality standards To required quality standards

6. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 (The incompatibility of cost, quality and time) (Kharbanda et al. 1980.) Cost Cheapest Economical Reasonable Quality Best Adequate Time Fastest In addition: participants individual interest In addition: participants individual interest

7. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Directly involvedclient, designer, contractor Directly involvedclient, designer, contractor Indirectly involvedadvisor, project manager, supervisor Indirectly involvedadvisor, project manager, supervisor Externalbank, authority Externalbank, authority Participants of a construction project

8. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Participants – common goal Conflicts, claims and litigation seems to be inevitable part of construction projects Areas generate conflicts One-sided contract (Client drafted contract) One-sided contract (Client drafted contract) Procurement system (project delivery system) Procurement system (project delivery system) Site conditions Site conditions Site services, etc. Site services, etc. But

9. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Analysis Not clear understanding peculiarities of that specific procurement and contracting system Not clear understanding peculiarities of that specific procurement and contracting system Responsible parties Responsible parties Does not recognise or Does not want to accept Lack of identification of own interest leads to one-sided contract responsibility

10. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 The Client Shares: activities Shares: activities responsibilities with the partners risks Will choose procurement system and contract form Will choose procurement system and contract form

11. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Procurement: Total management process used when obtaining a building Total management process used when obtaining a building System of contracting among client, designer, and contractor System of contracting among client, designer, and contractor Idea Hand-over and use

12. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Planning Planning Organising Organising Leading Leading Commanding Commanding Controlling Controlling P r o j e c tP r o j e c tP r o j e c tP r o j e c t Has to be managed Who will manage? In which system ? To produce /create/perform a building a bridge a road

13. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Typical management structure with project manager Typical management structure with project manager Client Project manager Quantity surveyor EngineerArchitectContractor(s) Project co-ordinator (Roger Waterhouse) Typical management structure with project coordinator Typical management structure with project coordinator Client Quantity surveyor EngineerArchitectContractor(s)

14. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Clients main decisions: In-house project manager In-house project manager In-house and external project management team In-house and external project management team External project management External project management (Help: principal adviser) Organisation for the Management of the Project Organisation for Design and Construction Traditional Design and build Turnkey Package deal Management Construction Management Management Contracting Others

15. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Need of change in procurement methods Traditional Project Management More complex projects Lack of time Client Designer Contractor Client Project Management Preparation Design Tender/bidding Construction Designer Contractor PreparationDesign Tender/bidding Construction

16. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Procurement/project delivery system Improper choice or misunderstanding generate conflicts Traditional procurement system Traditional procurement system Design and build, turnkey or others Design and build, turnkey or others Management type Management type

17. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Traditional procurement system characteristics Long construction period Long construction period Consecutive organisation Consecutive organisation Clear contracting relations Clear contracting relations

18. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Innovative Project delivery systems Construction management Construction management Management contracting Management contracting Project or management service contract and other variations Project or management service contract and other variations General characteristics An organisation is employed to manage the project the construction An organisation is employed to manage the project the construction To coordinate the design with construction To coordinate the design with construction Overlapping between design and construction Overlapping between design and construction Series of tenders: work packages Series of tenders: work packages

19. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Client needs representation/protection by neutral expert Traditional deliveryDesign and build systemTurnkey, Package deal Client Designer Contractor Client Designer Contractor Inspector Supervisor Q.S. Inspector Supervisor Subcontractors

20. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Design and build turnkey/package deal Characteristics Single point responsibility Single point responsibility Can be overlapped Can be overlapped Client can be sure of maximum cost before final commitment Client can be sure of maximum cost before final commitment Integrated design and construction Integrated design and construction –Improves buildability –Fits to constructors expertise, working condition, organisation PreparationDesign TenderContract Construction Cost costs should be lower shorter time on site Thus (Savings are not passed to the client in lower prices)

21. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Construction Management CM Management Contracting MC Client Designer Contractors Client Designer Inspector Supervisor Construction Manager Management Contractor Inspector Supervisor Contractors

22. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Management contracts (CM, MC…) Characteristics Management team is involved at early stage Management team is involved at early stage Design can be influenced (buildability) Design can be influenced (buildability) Claims can be solved, delays reduced Claims can be solved, delays reduced Save time – series of tenders, work packages Save time – series of tenders, work packages Flexibility in design to suit the client to suit the budget Flexibility in design to suit the client to suit the budget More risk in design – higher requirement in design More risk in design – higher requirement in design No assured final cost at the start of construction No assured final cost at the start of construction

23. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Comparison of procurement systems, source of risks and conflicts Responsibility for decision Responsibility for decision Constriction is started without knowing the construction costs PreparationDesign Tender Construction Cost Start Modern managerial typed system Construction is being started knowing the construction costs PreparationDesign Tender Construction Cost Start Traditional system

24. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Consequences Use of non-traditional delivery system can create greater risk of misunderstanding Scope of work / compensation are changing continuously Use of non-traditional delivery system can create greater risk of misunderstanding Scope of work / compensation are changing continuously Innovative project delivery systems can blur the traditional roles and responsibilities of participants Innovative project delivery systems can blur the traditional roles and responsibilities of participants

25. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 One step towards a successful project To choose appropriate procurement system and appoint the manager as early possible for maximum benefit To choose appropriate procurement system and appoint the manager as early possible for maximum benefit Characteristics of the delivery system have to be understood by the participants Characteristics of the delivery system have to be understood by the participants Contract has to contain reasonable allocation of activities, responsibilities and risk Contract has to contain reasonable allocation of activities, responsibilities and risk All the participants have to recognise responsibilities, act in partnership

26. Building Procurement – Contract strategy Budapest University of Technology and EconomicsJudit Gyulay Budapest University of Technology and EconomicsJudit Gyulay Department of Construction Technology and Management05.06.2007 Department of Construction Technology and Management05.06.2007 Procurement Can help to reduce conflicts on construction projects Proper choice and fully understanding of delivery system