1. John Boon ZUT November 2010

2. Procurement Systems The organisation of the interaction between the purchaser of a new building and the suppliers of goods and services that enable the new building to be created.

3. user owner developer Design team contractor subcontractor supplier Procurement system financiers

4. 2 basic procurement systems: Separated systems: the design of the building and its construction are procured separately Integrated Systems: the design and construction are procured from a single company.

5. Separated system user owner developer design team contractor subcontractor supplier Procurement system financiers

6. Integrated system user owner developer design team contractor subcontractor supplier Procurement system financiers

7. In the west, the most common form of procurement system is the separated system. Design firms are separated from construction firms It is easier to run a competitive tender process for construction than for design and construction Until about 1980 in most western countries the professional body (institute) for architects, engineers and quantity surveyors fixed the fees for their services

8. The most common way of selecting a contractor is for the design team to complete the design and then a bidding process is conducted and the contract awarded to the contractor offering the lowest price. Design firms are also often selected by bidding

9. Conventional Design - bid - Build FeasibilityDesign Bid Construction Appointment of design team Appointment of contractor Concept design Developed design Construction drawings

10. Within the separated system there is: Means of selectionPrice formula  Competitive process (bid)  Negotiation  Lump sum fixed price  Lump sum with provision for adjustment for: Variations Cost escalation  Measure & value  Formula for negotiating lump sum  Guaranteed maximum price  Cost + overheads + profit With or without gainshare / painshare

11. Separated system FeasibilityDesign Construction Appointment of design team Appointment of contractor Selection of contractor competitive tender (bid) negotiation

12. Lump sum fixed price The contractor undertakes to build the building as designed with no adjustment allowed to the price unless the client requests a change to the design. Not normally used as the contractor has to price for risks they are unable to control

13. Lump sum with provision for adjustment of the price for: 1. Errors in the contract documents If errors are found in the drawings, specification or schedule of quantities the price is adjusted for this. 2. Changes to the clients design requirements 3. Costs incurred by the contractor due to being delayed by the client / design team 4. Changes in the price of labour and materials By reference to a price index By comparing actual costs to those allowed in the bid price Contracts involving 1 – 3 are common 4. is only used in contracts with a long time span or in an environment of high inflation

14. Measure and value (schedule of prices) Prices for units of quantity of the work are agreed before the contract is signed (by bidding or negotiation) examples: $200 per m 3 of concrete $23 per m of 100 * 50mm timber framing $135 each per door. As the work proceeds it is measured and the contractor is paid according to the amount of work done. Common in civil engineering projects (roads, dams etc) unusual in building projects

15. Formula for agreeing lump sum Typical process Contractors price build up 1. A bid process is run in which the competing contractors submit their: Preliminary and general costs ($) Overhead % Profit % 2. The contractor with the lowest bid is selected 3. As the design is completed the contractor conducts bidding exercises for each sub-contract package – the lowest bidder is selected. 4. When the design is complete and all sub-contract packages bid a lump sum (with provision for adjustment) is agreed  Preliminary and general items Project managers and supervisors Site accommodation Cranes and other large plant Insurance etc  Cost of work done by sub- contractors  Contractors overhead costs (%) Head office etc  Contractors profit (%) Used to enable the contractor to be appointed before the design is complete

16. Formula for agreeing lump sum + guaranteed maximum price Same as last but the contractor guarantees the maximum price the client will pay (GMP) Often there is provision for the client and contractor to share the savings in cost below the GMP

17. Formula for agreeing lump sum + guaranteed maximum price FeasibilityDesign Construction Appointment of design team Contractor selected and GMP agreed

18. Cost + overheads + profit Similar to the last: Overheads and profit % are agreed in advance by bidding or negotiation. All costs are reimbursed to the contractor + % as work proceeds Sometimes a “target outturn cost” (TOC) is agreed and the contractor and client: share the saving below the TOC (gainshare) share the additional costs over the TOC (painshare)

19. Next lecture Integrated Systems