self-Reflective of Management of Project course
Jessie 1
week11.pdf
Procurement Management & Risk
(Lecture 6 – S+Week11)
Wed 2nd Dec 2020
Management of Projects (MOP) MACE60061
Dr. Mohamed Abadi
Video (3): Procurement Management & Engineering Contracts
Department of Mechanical, Aerospace and Civil Engineering (MACE)
University of Manchester, Pariser Building, Room E24
Procurement & Risk – Dr. Mohamed ABADISlide 2 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
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Learning Objectives
At the end of this video, you’ll be able to:
1. Differentiate between five main procurement routes in engineering projects, including:
a. Traditional Contract
b. Design and Build Contract
c. Construction Management Contract
d. Management Contracting
e. Turnkey Contract
2. Discuss pros and cons of each route to develop skills relevant to procurement route selection
Learning Objectives
Procurement & Risk – Dr. Mohamed ABADISlide 3 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
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M a n c h e st
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Procurement Routes
Main Procurement Methods Traditional Contract: Main Features
• Also referred to as ‘design bid build’, and remains most commonly used method.
• Client first appoints consultants to design project in detail and prepare tender documentation i.e. drawings, work schedules and bills of quantities BoQs.
• Contractors are then invited to submit tenders for the construction of the project, usually on a competitive basis (direct appointment still an option).
• Client retains consultant during the construction phase to respond to design queries, and inspect the works.
• Most commonly lump-sum contracts, however, measurement contracts and cost reimbursement contracts can also be used.
• Client in full control, but responsible for the design.
• A low risk method of contracting for the client (certainty of price - contractor takes the financial risk for construction).
Procurement & Risk – Dr. Mohamed ABADISlide 4 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
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it y
o f
M a n c h e st
e r
Procurement Routes
Main Procurement Methods Traditional Contract: Structure & Contractual Tree
Client Employer / Owner
Main Contractor
Consultant (Designer)
Sub- Contractor
Sub- Contractor
Sub- Contractor
Sub- Consultant
Sub- Consultant
Design
Tender
Construction
Long Sequential Process
Longer Duration Contractual Relationship
Supervisory Relationship
or Flow of Information
Procurement & Risk – Dr. Mohamed ABADISlide 5 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
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M a n c h e st
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Procurement Routes
The separation of the contractor from the design can mean:
• takes longer to deliver the project, i.e. takes longer for the project to start paying off its costs.
• tendering procedures delay the start of the construction stage.
• missed opportunities for specialist contractors to input during the ‘Technical Design’ stage.
• if design phase is rushed, i.e. design is incomplete at tender, or significant variations are required after the contractor has been appointed, the cost/risk to the client can be significant.
Main Procurement Methods Traditional Contract: Implications
Procurement & Risk – Dr. Mohamed ABADISlide 6 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
n iv
e rs
it y
o f
M a n c h e st
e r
Procurement Routes
Main Procurement Methods Design and Build Contract: Main Features
• The client employs a consultant, or use own in-house designers, to prepare the
concept design including type of construction, materials and workmanship… Prescriptive Specifications.
• Main D&B Contractor is appointed to design and construct the works.
• D&B Contractor is responsible for the design, planning, organisation, control and construction of the works to the Client’s Requirements.
• Appropriate for simple projects, where design complexity/quality is not the main concern.
• What are the advantages of design and build? - single point of responsibility for delivering the entire project
i.e. design and construction (less risk) - earlier commencement of construction works onsite - benefit of contractor’s experience harnessed during design
(improves design buildability)
Procurement & Risk – Dr. Mohamed ABADISlide 7 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
n iv
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M a n c h e st
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Procurement Routes
Main Procurement Methods Design and Build Contract: Structure & Contractual Tree
Client Employer / Owner
D & B Contractor
Designer Department
SuppliersSub- Consultants
Sub- Contractors
Construction Department
Consultant (or In-house Designers)
Concept Design
Perspective Specs.
Design
Tender
Construction
Shorter Project Duration
Design & Construction Overlapping
Procurement & Risk – Dr. Mohamed ABADISlide 8 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
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M a n c h e st
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Procurement Routes
Early involvement of contractor, and design and construction overlapping can mean:
• client may find it hard to prepare a sufficiently comprehensive brief & concept design
• client has to commit to a concept design early
• variations from the original brief can be difficult to arrange and expensive
• harder to compare tenders and determine if they offer value for money
• focus on construction, which limits design innovation (changes concept), and
• there are benefits of getting D&B contractor involved earlier.
Main Procurement Methods Design and Build Contract: Implications
Procurement & Risk – Dr. Mohamed ABADISlide 9 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
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M a n c h e st
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Procurement Routes
Main Procurement Methods Construction Management Contract (JCT-CM): Main Features
• Works are constructed by Trade Contractors contracted directly to the Employer (Client), with separate contractual responsibilities, but managed by a Construction Manager Firm (CM), who does no construction works (i.e. no main contractor).
• As in traditional contract, the design is provided by the Employer/Client, often developed by Design Team working on behalf of the employer.
• The Construction Manager (CM) is appointed by the employer to oversee the completion of the works for a fee (% of works done) in the capacity of employer’s agent.
• The CM is appointed early in the design process to improve cost and buildability of proposals, as well as to advise on packaging, and the selection of trade contractors.
• This enables some trade packages to be tendered earlier than others, and sometimes, even before the design is completed (why?).
• This form of contracting is generally only used by experienced employers.
• Disadvantages include the lack of a single point of responsibility for both design and construction phases, which opens the possibility for disputes to arise.
• Compare: Traditional Contract # Construction Management Contract
Procurement & Risk – Dr. Mohamed ABADISlide 10 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
n iv
e rs
it y
o f
M a n c h e st
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Procurement Routes
Main Procurement Methods Construction Management Contract (JCT-CM): Structure & Contractual Tree
Client Employer / Owner
Trade Contractor
Trade Contractor
Trade Contractor
Construction Management Firm
Design Team
Design
Work Package 1
Project Duration
Construction Manager
Construction
Work Package N
Work Package 2
Tendering
Trade Contractors
Procurement & Risk – Dr. Mohamed ABADISlide 11 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
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it y
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M a n c h e st
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Procurement Routes
Main Procurement Methods Management Contracting: Main Features
• Works are constructed by a number of different Works Contractors contracted to a Management Contractor (MC), who does no construction works.
• The MC is appointed early in the design process to improve cost and buildability of proposals, as well as to advise on packaging the works.
• The MC appoints & manages Works Contractors (separate works contracts) for a fee.
• Design is the responsibility of the employer, often carried out by Design Team working for the employer.
• This form of contracting is designed for use on large complex projects, typically where an early start on the site is required.
• It offers great flexibility as work can begin on site without full design information being available, where design involve specialist components (more risk).
• Disadvantages include the lack of a single point of responsibility for both design and construction phases, which opens the possibility for disputes to arise.
• Compare: Construction Management Contract # Management Contracting
Procurement & Risk – Dr. Mohamed ABADISlide 12 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
n iv
e rs
it y
o f
M a n c h e st
e r
Procurement Routes
Main Procurement Methods Management Contracting: Structure & Contractual Tree
Client Employer / Owner
Management Contractor
Designer Team
Works Contractor
Works Contractor
Works Contractor
Sub- Consultant
Sub- Consultant
Design
Work Package 1
Shorter Project Duration
Management Contractor
Construction
Work Package N
Work Package 2
Tendering
Trade Contractors
X
Procurement & Risk – Dr. Mohamed ABADISlide 13 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
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Procurement &
Risk
• Also referred to as ‘Engineering, procurement, and construction (EPC) contracts’.
• similar to design and build, single contract for the design and construction.
• On a turnkey project, the client may seek tenders based on a performance specifications and then have no input into the design.
• Whereas, on a D&B project, the client seeks tenders based on a prescriptive specifications i.e. outline design that describes the materials and workmanship.
• For example in a hospital project performance-based specifications: number of patients serviced, design to integrate healthcare-research-education, attractive and human environments for patients and staff, environmental sustainability at all levels, and energy performance and use of renewable energy sources.
• Generally, the client seeks a fixed price, lump sum agreement where the responsibility for cost control is taken by the contractor.
• Use of performance specifications allows more innovation in design.
• Used to procure infrastructure and public projects.
Main Procurement Methods Turnkey Contracting: Main Features
Procurement & Risk – Dr. Mohamed ABADISlide 14 / 14
Risk Management
Learning Objectives
Case Study
Procurement &
Risk
Procurement Routes
Understand Risk
T h e U
n iv
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it y
o f
M a n c h e st
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Procurement &
Risk
Main Procurement Methods Turnkey Contracting: Structure & Contractual Tree
Client Employer / Owner
Turnkey Prime Contractor
Designer
SuppliersSub- Consultants
Sub- Contractors
Consultant (or In-house Designers)
Performance Specs.
Design
Tender
Construction
Shorter Project Duration
Design & Construction Overlapping
