Procurement methods in Construction

procurement methods in construction

Whenever, A client wants to construct, renovate or develop a property, the owner of the project is appointing a professional representative to consult the work. This team may contain an architect, quantity surveyor & Engineer.

This team is called the project management team. First of all, this team has to understand the client’s requirements fully. His full intention, requirement, expected quality and appropriate time frame to complete the project.

After that, they have to prepare initial designs and documents to start the project. Later these works, the project management team has to finalise the procurement methods to execute the project. Furthermore, this procurement method should be based on the client’s requirements.

Such as project cost, construction time & Scale of the project. In order to achieve these requirements, there are few procurement methods which is used in the construction industry.

Factors deciding suitable procurement system in construction

  • Speed or time

Example- The ABC Fashion retail company has taken a building for its new outlet shop. They have signed an agreement with the building owner, and they want to do particular modification to the building before commencing the operations. But time is a critical thing here cause they already started the paying rental for building. Still, the building does not make any revenue at the period of modification. in these kinds of situations, the client should follow a fast track procurement method to complete works immediately. 

  • Budget

Budget or cost is a primary concern for all the clients. As an example- A person wants to build a house. He or she has carefully made some savings and wants to build the house within the money have, and don’t want to exceed the budget. In this kind of situations, the procurement method selected should ensure there will no any budget exceeding.

  • Expected quality

In some projects, the client wants to fulfil the maximum expected quality. As an example- A client seeks to build a hotel. And they want to build it with high-end finishes. The client has checked and selected all finishes they don’t want to deviate any of it at the construction stage. In these kinds of situations, the procurement root chosen should ensure the client’s aspect of quality.

  • Specific project constraints

Project requirements and restraints can make significant role when deciding the procurement root. When the government become a client restriction can come in. So procurement root should be very transparent for government projects. 

  • Risk

Risks involved in the projects can affect certain procurement roots. As an example- Inexperienced person wants to build a house. So he or she can face significant difficulties at the construction stage. Contractors may take advantage of the situation. So he or she can choose a procurement method reducing these type of risks. 

  • Asset ownership

As we discussed in the budget factor asset ownership can affect some procurement roots. When a client does not have the ownership of the property and still wants to develop the property, a proper procurement root should select according to the situation. 

  • Financing

As an example- A project is funded by a bank. Bank will asses the project progress and cashflow from time to time (cause they want to assure that funding allocated by the bank is appropriately used for the construction of the project). So they might be forced client to use transparent procurement root. 

There are two types of procurement methods in the construction industry.

  • Traditional
  • Alternative

Traditional methods

The First approach of the traditional procurement methods is employer himself is appointing a project management team for work. So the Contractor’s only task in the traditional procurement will be the execution of the project (and handling the subcontractors & suppliers). Most of the projects which are going to follow the traditional procurement method will use the competitive tendering process for selecting a suitable contractor for carrying out the works. We can identify three types of procurement in the industry under traditional methods,

In lump sum Contracts or fixed-price contracts, the contractor is evaluating the value of work as per the documents available. Mainly these documents can be specifications and the drawings. In pre-tender stage Contractor evaluates the cost to execute the project (based on the above documents such as drawings, specifications, schedules, tender instruction and the clarification received for the raised queries). Read more

Re-measurable/remeasurement contract is the most popular type of contracts used in the earlier construction industry. But still, large construction organizations are using this procurement method to appoint subcontractors for works such as painting, plastering etc. In this method, payments will be made based on the actual work done (by the client). Compare to other procurement methods, Client’s risk is high in this method (and the contractor’s risk is minimal). Read more

The final value of the project will be agreed based on these documents. And the client will pay the contractor’s actual cost plus an incentive or profit as agreed. This procurement root mainly uses for the projects, which clients want to finish with the expected quality. Because the cost is already accepted, and the contractor does not wish to propose cheap alternative materials to maximise his profit. Read more

Read :   Offer acceptance-How to An Offer Is Brought to an End

Alternative methods

Alternative methods are there to reduce the time involving to prepare complete specifications and tender documents. These methods allow commencing to work quickly. Alternative methods are allowing the contractor to involve in the design of the project, which is more beneficial to the employer. (Contractor can propose value engineering options & new construction methods). Below mentioned are the various types of alternative procurement methods that use in the construction industry.

In design and build procurement, root client is asking the contractor to do design by the contractor themself. And after that, the client will revive the design and ask the contractor to do necessary adjustment as per their aspects. finally, the cost will be agreed for the construction and execution of the project will be done accordingly. The main advantage of design and build procurement root is the client should not want to appoint a design consultant for the project.

This procurement root is mainly used for a complex project. there will be few management contractors appointed according to the scale of the project and the project will be divided into several packages. And all the subcontractors will be managed and supervised by management contractors. So the client will only communicate with the management contractors and client’s risk will be transferred to management contractors.

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