Procurement Methods in Project Management

The development of procurement strategy follows the stages in the life of a project. Initially, a preliminary strategy is determined. It is based on a broad definition of objectives and is an essential step in establishing the way forward for the project. It encourages the client to consider strategy early. The preliminary procurement strategy is usually developed with help from the client’s adviser and possibly other consultants. Procurement strategy development has three components:

  1. Analysis – assessing and setting the priorities of the project objectives and requirements;
  2. Choice – considering possible options, evaluating them and selecting the most appropriate; and
  3. Implementation – putting the chosen strategy into effect.

During strategy preparation, it may be necessary to seek specialist advice from other consultants, for example, in relation to expected costs for the project. The adviser should advise the client on this. Specialist advice should besought when developing the strategy for novel or especially difficult projects. Until construction contracts are let, the client, with help from his adviser, must systematically ensure that the strategy is on course to meet the project’s established objectives. This is important because objectives sometimes change.

Procurement Methods

There are various methods of procurement which can be broadly classified under the following headings. Each method has different aspects of risk transfer and no one method can be classed as best overall.

  1. Traditional Procurement: In this method the Contractor builds to a defined scope of works for a fixed price lump sum. The client retains the responsibility for the design and the project team. The contractor will be appointed normally following a tender process or negotiation and will sign up to a contract for the works. There are a number of standard forms of building contract available for this purpose.
  2. Design and Build Procurement: The Client appoints a building contractor, as before standard forms of contract are available for this purpose to provide a completed building to an agreed cost and programme. The Contractor is responsible for design and construction. The Contractor can be chosen through a tender process or through negotiation. The Client can appoint a consultant to oversee the works. Maximum risk is transferred following this method of procurement, although a commercial response to design in order to address contract conditions can result. An alternative is to appoint a contractor when designs have been developed in order to retain control of the important elements of design and specification. The Design Team can then transfer their contractual obligations to the contractor and complete the designs on behalf of the Contractor. This process is called Novation.
  3. Two Stage Tender Procurement: In this process, the Contractor is appointed on the basis of a first stage tender which determines the level of overhead and profit for each Contractor. The Contractor then works with the Project Team during the second stage to develop the designs and establish detailed costings for separate project work elements. This process will provide for a fixed price on a detailed design basis. The provider can then enter into a contract on this fixed price basis and also pursue the opportunity to novate the Design Team as with the Design and Build Procurement route as previously noted. This process requires a long second stage period in which to design and tender the different work elements and therefore a start on site would occur later than normal.
  4. Public Private Partnerships: Public Private Partnerships (PPP), particularly Private Finance Initiatives (PFI) projects are created for the provision of services and not specifically for the exclusive provision of capital assets such as buildings. It is therefore preferable to investigate PPPs as soon as possible after a user need has been identified rather than leaving it until a conventional construction project has been selected as the solution. It should be noted that the tendering process in this procurement route is expensive and requires negotiation rather than competitive tendering. In comparison with other procurement routes the time from commencement of the project to attaining a start on site is substantially longer.
  5. Management Contracting: This is a fast track strategy which overlaps the design and construction stages and allows early elements of the construction process to be commenced before design has been completed. The Management Contractor is engaged to manage the overall contract in return for a fee. The Management Contractor can therefore be appointed early in the design and can advise on buildability and programming. In addition to the contract with the Management Contractor, the contracts for the individual work packages are between the Management Contractor and the individual sub-contractors. A cost plan is utilized to control the development costs although actual costs cannot be obtained until the final work package has been awarded.
  6. Construction Management: This is also a fast track strategy where individual elements of the project are let before the design of later work packages or elements have been completed. The provider will appoint a Construction Manager to manage the overall contract in return for a management fee as with Management Contracting. Also, as before, the project can benefit from early involvement of the Contractor. In this process the contracts for the sub-contractors are placed directly between the Client and the sub-contractor and the Client will need to have a high level of involvement during the design development and the construction phases of the work. As with Management Contracting, the final costs will only be known once the final work elements have been awarded.
  7. Framework Agreements: Framework Agreements can be established with single suppliers or with a limited number of suppliers. Frameworks can allow suppliers to be brought together with the relevant expertise and experience which can result in savings to both parties where a number of projects are involved. These agreements can cover different forms of procurement including Design and Build, Traditional, etc.

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