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PART1.1
What is procurement?
Client/ Employer
Consultant
Contractor
Supplier
“Chan (2007) defined procurement as the system that represents the organizational structure adopted by clients for the implementation of project processes and eventual operation of the project.”
“Molenaar et al. (2009) defined procurement method as a comprehensive process by which designers, constructors, and various consultants provide services for design and construction to deliver a complete project to the client. “
Many specialists try to give definitions to the procurement process. For example, From the perspective of clients, this process can start at the initial stages of identifying the need for a scheme/project or purchase all the way through to the actual purchase and operation of a project. From the perspective of the supply chain, however, procurement is generally considered the process through which they go to be a chosen or winning supplier to a project. (ACEprocurement, 2015)
Procurement is a very complex and vital investment process, including contracting, purchasing, sourcing or tendering, to weigh up the benefits, risks and budget constraints of a project to determine what the most appropriate procurement method is, and what contractual arrangements will be required.
Put procurement into a project process to understand procurement. From a project life cycle, procurement builds a bridge between design in mind and build in reality. So, in short, procurement is a mechanism that provides a solution to the question "HOW DO I GET MY PROJECT BUILT?" and the effectiveness and efficiency of this process will directly lead to the success or failure of projects.
But Keep in mind, it doesn’t mean you should start to think about procurement untill you need to procurement! As you may have heard your friends complaining, one of the frustrations experienced by the construction industry is the difficulty they have in translating and influencing the decisions made by clients with regards to the procurement process. As is shown in the chart, the earlier you start to think the more likely you can affect this process. (ACEprocurement, 2015)
PART1.2
What is the process of procurement and what are the risks?
The procurement is a very complex process including the Formation of the Procurement Committee, specify requirements, identify suppliers, Launch Competitive Tender programs, Issue Order, and Receive Goods and Services. During these processes, many groups’ interests get involved, and with that comes the risk, including the inefficient procurement committee, the misfit between the client's requirements and the material features, Uncompetitive supplier bid, Bribery and kickbacks, Delays in contract offering, damaged and Nonconforming products.
PART1.3
What factors that can influence the procurement choice?
The game is still open and you can use your phone to scan the QR code and type in your answer to tell us what factors you think would influence the procurement choices.
The following factors should be considered when evaluating the most appropriate procurement strategy
01 External factors
Consideration should be given to the potential impact of economic, commercial, technological, political, social and legal factors which influence the client and their business, and the project team during project’s lifecycle. For example, potential changes in interest rates, changes in legislation and so on.
02 Client Resources
A client’s knowledge, the experience of the organization with procuring building projects and the environment within which it operates will influence the procurement strategy adopted. Client objectives are influenced by the nature and culture of the organization. The degree of client involvement in the project is a major consideration.
03 Project characteristics
The size, complexity, location and uniqueness of the project should be considered as this will influence time, cost and risk.
04 Ability to make changes
Ideally the needs of the client should be identified in the early stages of the project. This is not always possible. Changes in technology may result in changes being introduced to a project. Changes in scopeinvariably result in increase costs and time, especially they occur during construction. It is important at the outset of the project to consider the extent to which design can be completed and the possibility of changes occurring.
05 Cost issues
An assessment for the need for price certainty by the client should be undertaken considering that there is a time delay from the initial estimate to when tenders are received. The extent to which design is complete will influence the cost at the time of tender. If price certainty is required, then design must be complete before construction commences and design changes avoided.
06 Timing
Most projects are required within a specific time frame. It is important that an adequate design time is allowed, particularly if design is required to be complete before construction. Assurances from the design team about the resources that are available for the project should be sought. Planning approvals can influence the progress of the project. If early completion is a critical factor then design and construction activities can be
All of these factors can be divided into two parts_ internal and external environmental factors.
As Most projects are required within a specific time frame and budget with the promise of high quality, so, time, cost, and quality, without any doubt, are very important issues required by clients.
A client’s knowledge, the experience of the organization with procuring building projects and the environment within which it operates will influence the procurement strategy adopted. Also, Ideally the needs of the client should be identified in the early stages of the project. But This is not always possible. Therefore, the degree of client involvement, or we call it client characteristics in the project is also a major consideration.
What is more, the characteristics of the project itself, including the size, complexity, location, and uniqueness of the project should also be considered as this will influence time, cost, and risk.
Economic, commercial, technological, political, social, and legal factors can be concluded as external environmental factors that may affect the client and their business, and the project team during the project’s lifecycle. For example, potential changes in interest rates, changes in legislation, and so on.
And as a research outcome shows, in external environment factors, Procurement policy plays the most important role, followed by Material availability and Environment impact.
PART1.4
What are the potential scenarios of procurement?
- Understand three gaps!
As procurement like any other well-managed strategy is reliant on the skills available, the variation between project skills requirement, client skills, and industry skills, forming the skills gaps, thus leading to three main potential scenarios we may run into.
The first scenario is resulting from the client skill gap, where the client's skills are below that of the project requirement and therefore the investment is delivered inefficiently. It is important to stress that this does not mean the project is inadequately managed. A project can be delivered well, but due to a lack of skills within the client, a better outcome was not achieved.
PART2
What is procurement?
The last few decades have witnessed numerous different types of construction procurement for delivering projects. The most common types are Traditional Method, Design and Build Management Contracting, and Construction Management. We will use three animations to help you distinguish their differences in terms of allocation of responsibilities, activities sequencing, process and procedure, and organizational approach in project delivery.
PART2.1
Traditional / Conventional
The traditional or conventional procurement method has been a standard practice in the construction industry for many years. There are two main features of the traditional method:
The design process is separate from the construction
Full documentation (i.e. drawings, work schedules, bills of quantities) must be supplied by the client before the contractor can be invited to tender for carrying out the work.
Key Points to Consider
•A traditional lump sum contract requires the production of a complete set of documents before tenders are invited. Adequate time must be allowed for this.
•The traditional procurement method assumes that design will be appointed by consultants, and it does not generally imply that the contractor has any design obligations.
•As the employer appoints consultants to provide advice on all matters of design and cost, they thereby retain total control over the design and quality required.
•The contractor depends heavily upon the necessary information and instructions from the architect being issued on time. There is a risk of claims if they are delayed.
•The employer decides which specialist firms the contractor is to use, although the contractor may require certain safeguards relating to performance.
•All matters of valuation and payment are the responsibility of the employer’s consultants.
Advantages and Disadvantages
Advantages
Disadvantages
• Accountability due to a competitive selection;
• Competitive equity as all tendering contractors bid on the same basis;
• Design lead and the client is able to have a direct influence;
• Price certainty at the award of the contract;
• Variations (changes) to the contract are relatively easy to arrange and manage; and
• A tested method of procurement which the market is very familiar with.
• Can be a timely process to produce the full contract documentation.
• Overall project duration may be longer than other procurement methods as the strategy is sequential and construction cannot be commenced prior to the completion of the design; and
• No input into the design
3 Types of traditional contracts
Lump Sum Contracts
Re measurement Contracts
Cost reimbursement Contracts
•The contract sum is determined before construction work is started.
•Contracts ‘with quantities’ are priced on the basis of drawings and firm bills of quantities.
•It is not finalized until completion of the project, where it is assessed on re-measurement to a previously agreed basis.
•It can arise where the works to be carried out by the contractor cannot for good reason be accurately measured before tender.
Sometimes referred to as ‘cost-plus’ or ‘prime cost’ contracts, these work on the basis that the sum is calculated from the actual costs of labor, plant, and materials to which an amount is added to cover overheads and profit.
Consultants retain control over design and quality.
The contractor generally has no design duties.
Appropriate Occasion
Design control is required
Separate design and construct group
A client wishes to appoint designers and contractors separately
A program allows sufficient time
This process from initial employment of the Architect to the completed tender documentation can take between one and five years.
Price certainty can be known in advance
Consultants are responsible for valuations and agreeing payments.
Risks
Time
Cost
Quality
Medium time risk due to fixed contract date. (but the contractor has right to claim extensions)
Low cost risk. But it is sometimes the case that a contractor may price the work to win the job rather than providing a price that properly reflects the work to be carried out.
Low quality/design risk as the majority of the work is designed by insured consultants working directly for the client.
PART2.2
Design - Build
Design and Build procurement works on the basis that the main contractor is responsible for undertaking both the design and construction work on a project, for an agreed lump-sum price.
Design and build projects can vary depending on the extent of the contractor’s design responsibility and how much initial design is included in the employer’s requirements. Nevertheless, the level of design responsibility and input from the contractor is much greater on design and build projects than a traditional contract with a contractor’s designed portion.
Adequate time must be allowed to prepare the employer’s requirements (the employer usually appoints consultants to facilitate this), as well as time for the contractor to prepare their proposal and tender price. It is vital that the proposal matches all of the employer’s requirements before any contract is entered into.
The employer has control over any design elements of the project that are included in their requirements, but once the contract is let responsibility over design passes to the contractor, so the employer has no direct control over the contractor’s detailed design.
The contractor can carry out the design in a number of ways. Often they will appoint their own consultants or use their own in-house team. It is also common practice for the contractor to take on the employer's consultants and continue to use them to complete the detailed design under what is known as a novation agreement.
Key Points to Consider
• In design and build contracts, in theory, there is usually a single point of responsibility. The employer, therefore, has the advantage of only one firm to deal with – and one firm to blame if things go wrong.
• In practice, the employer’s requirements are detailed to the extent that the contractor’s design contribution, and liability, is diminished.
• The employer lacks control over the detailed design; however, this might be acceptable where broad lines of the scheme are satisfactory and the detail relatively less important.
• Construction work can be started early as a great deal of detailed design can proceed in parallel. However, it is mainly the contractor who benefits from this operational flexibility.
• Responsibility for completing on time rests wholly with the contractor. There should be no risk of claims because of the allegations that information from the employer is late.
• There is greater certainty of cost, even to the extent that, if required, responsibility for investigating site and subsoil conditions can be made entirely by the contractors.
• Any changes in the employer’s requirements can affect the contract sum, however, and are likely to prove costly.
• Design and Build is a relatively low-risk procurement option for the employer, in terms of cost and time.
Advantages and Disadvantages
Advantages
Disadvantages
• Client has to deal with one firm and reduces the need to commit resources and time to contract designers and contractors separately
• Price certainty is obtained before construction commences as the client’s requirements are specified and changes are not introduced
• Use of a guaranteed maximum price with a savings option split can stimulate innovation and reduce time and cost
• Overlap of design and construction activities can reduce project time; and
• Improved constructability due to the contractor’s input into the design.
• Difficulties can be experienced by clients in preparing an adequate and sufficiently comprehensive brief
• Client changes to project scope can be expensive;
• Difficulty in comparing bids since each design will be different, project program will vary between bidders, and prices for the project will be different for each design
• Client is required to commit to a concept design at an early stage and often before the
• Detailed designs are complete
• Design liability is limited to the standard contracts that are available.
2 Types of Contract
Package Deal or Turnkey contracts
Design & Build contracts
•The employer accepts a proposal based on a standard design from the contractor
•A single point of responsibility as the contractor is responsible for the design and construction of the entire project.
•Project documents are compiled with the contractor's design obligations relating to the whole of the works in mind.
Appropriate Occasion
The client does not want to retain full control over the design
Need an early start on site
Can overlap design and construction
Technically complex projects
Can benefit different expertise from the contractors
Wish to minimize their risk
No responsibility for design a single organization is required to take responsibility and risk for design and construction.
Risks
Time
Low time risk. Because design-builders are responsible for the design, they can be more accurate with their completion date and cost estimates.
Cost
Low-cost risk. Having one firm handling both design and construction should lead to accurate quotes, fewer change orders, and lower overall costs.
Quality
The design is more likely to be 'buildable' than may be the case under other procurement methods. The check on quality at that level is not available to the client.
PART2.3
Management Contracting / Construction Management Procurement
Management procurement is a method where construction work is completed using a series of separate works or trade contracts which the main contractor is responsible for managing. The contractor does not actually do the physical work, but is paid a sum for managing the project through the various works packages.
The employer starts by appointing consultants and a contract administrator to prepare drawings, a project specification and cost plan. The employer has control over design throughout the project through their professional team. The contractor is appointed by negotiation or tender, and interview. The works packages are usually let by competitive tender.
It is beneficial for the proposed contractor to be involved as early as possible as they will provide expertise in terms of buildability and programming of the works packages.
Key Points to Consider
•Contractor acts as a manager for the project whereas specialized contractors undertake real build aspect on their specialized field, while finance and operation are carried out by the client.
•A management contractor is appointed by the client to manage the overall construction contract in return for a management fee.
•The design team is not part of the management contractor's team and is appointed separately by the client.
•The contracts for the various works packages are between the management contractor and the individual trade contractors. Costs are controlled by the development of a cost plan in which estimates of the costs of works packages are initially used for budgeting purposes
•The projected final cost will only be known once the final works package has been awarded and hence management of the cost plan focusing on risks and contingencies is extremely important.
Advantages and Disadvantages
Advantages
Disadvantages
• Early completion is possible;
• Management and trade contractors can contribute to design development and improve the management and buildability ;
• Changes can be accommodated more easily with little or no impact on the overall project timetable;
• Achieves good alignment of objectives between client and management contractor;
• The final price and timescale are not fixed at the commencement of the works;
• If the management contractor fails to organize and coordinate the various works packages it could result in claims from package contractors;
• The client must have the resources and access to the necessary expertise to deal with separate design consultants and the management contractor and the scrutiny of each of the work package tenders.
2 Types of Contract
Management Contracting
Construction Management
•Client appoints a professional team and a management contractor who is responsible for managing the works.
•Construction is spilt into packages and carried out by works contractors. .
•Client appoints a construction manager to oversee the work.
•Client appoints trade contractors and is directly responsible for them.
•The construction manager manages the works, but the employer has a major role in directing the project.
Appropriate Occasion
Large and highly complex project
Wants maximum price competition
Ensure the lowest price is achieved for each package of work, reducing the overall build cost in the process.
Wants the design completed by an architect
Given the early involvement of the Contractor and their ability to influence the design from a construction perspective.
Early completion
Ensure that the design lends itself to a simpler, more practical site solution. This allows the works to progress quickly and economically on site.
With large and complex projects, it’s important to employ a suitably experienced and skilled contractor.
Risks
Time
Low time risk. The process is particularly beneficial for fast-track complex projects where minimal design information is available at the start of the project.
Cost
The preliminaries and management fee can be fixed. However, cost increases can be substantial, and there can be a tendency for the initial cost plan to be adjusted upwards.
Quality
There is great scope for client changes, and the process allows for early 'buildability' input from the management contractor acting as a consultant.
PART2.4
Risks Comparison and Conclusion
Comparing the risks of these three types of procurements from three aspects --- time, cost and quality, we can generate this chart. This can be a fundamental and visible reference for clients to determine which procurement to choose.
In the scope of which group should take on the responsibility of risks, We have learnt that in management procurements, clients take the most risks. While in traditional procurements, contractors take the most risks.
In conclusion, this table is to sort out the above procurements, contracts, and their characteristics in pre-practice, time, cost, process, and client’s responsibility.
The criteria for choosing your procurement method will depend on your experience, the experience of the contractor, and the type of project you are undertaking.
Therefore, if you have a fixed idea of the nature of the project from the start and this is likely to go unchanged – then traditional contracting should offer the best approach. If you need a fixed cost, then design and build may feel more comfortable but if you want quality over value – then you probably want to retain more control over the nature of the materials and techniques employed. However, if you are undertaking something a little more experimental, then you are more likely to employ a construction manager, especially if costs are critical to you.
It is about weighing up all the different factors in the decision-making and coming to the best fit for your situation.
PART3
Quiz Competition Game！
We want to use this game to help you understand the procurement features in Hong Kong and prepare yourself for your future career.
Each time the two volunteers can choose a card. The numbers on the card represent the points and difficulty for the question. if you answer it right, you will get the points, however, if you give the wrong answer, your total score will be deducted. Each of the participants needs to answer three questions, but you have one chance of giving up, which means you won’t get any points. You also have one chance of turning to me for help to reduce one incorrect option, but you will just get half score.
The game itself is also about managing and balancing the risks, turning to the right person at the right time to offset risks to maximize the success of outcome.
For the above questions, the Development Bureau also kindly gives us their answer and provide many useful references and official document:
Having reviewed your questions, they mainly pertain to “Procurement” and “Contract Management” of landscape projects, which essentially are similar to those of other types of projects such as building works and civil engineering works. To facilitate your understanding of the above topics, we have shortlisted the following documents, which are not exhaustive, available from the public domain for your reference.
Procurement (Q1, Q2 & Q4)
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"Project Administration Handbook for Civil Engineering Works" issued by Civil Engineering and Development Department;
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“Tender Procedures for Government Procurement” of the “Stores and Procurement Regulations” issued by Financial Services and the Treasury Bureau; and
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Various standard contract documents on the website of the Development Bureau (DevB) (under the heading “Publication”)
Contract Management (Q3 & Q5)
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“General Condition of Contract” for various types of works issued by Development Bureau (DevB);
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“Architectural and Associated Consultants Selection Board Handbook” issued by Architectural Services Department;
Please note that local and overseas contractors and suppliers should all be treated on an equal footing. You may refer to the Technical Circular (Works) No. 2/2014 issued by DevB for further information.
It is believed that you are aware of the resourceful list of information in the “Suggested Reference List for the HKILA Professional Practice Examination” issued by HKILA that you could explore more on the basic knowledge of procurement and contract management.
Presentation
PART1.1
What is procurement?
Client/ Employer
Consultant
Contractor
Supplier
“Chan (2007) defined procurement as the system that represents the organizational structure adopted by clients for the implementation of project processes and eventual operation of the project.”
“Molenaar et al. (2009) defined procurement method as a comprehensive process by which designers, constructors, and various consultants provide services for design and construction to deliver a complete project to the client. “
Many specialists try to give definitions to the procurement process. For example, From the perspective of clients, this process can start at the initial stages of identifying the need for a scheme/project or purchase all the way through to the actual purchase and operation of a project. From the perspective of the supply chain, however, procurement is generally considered the process through which they go to be a chosen or winning supplier to a project. (ACEprocurement, 2015)
Procurement is a very complex and vital investment process, including contracting, purchasing, sourcing or tendering, to weigh up the benefits, risks and budget constraints of a project to determine what the most appropriate procurement method is, and what contractual arrangements will be required.
Put procurement into a project process to understand procurement. From a project life cycle, procurement builds a bridge between design in mind and build in reality. So, in short, procurement is a mechanism that provides a solution to the question "HOW DO I GET MY PROJECT BUILT?" and the effectiveness and efficiency of this process will directly lead to the success or failure of projects.
But Keep in mind, it doesn’t mean you should start to think about procurement untill you need to procurement! As you may have heard your friends complaining, one of the frustrations experienced by the construction industry is the difficulty they have in translating and influencing the decisions made by clients with regards to the procurement process. As is shown in the chart, the earlier you start to think the more likely you can affect this process. (ACEprocurement, 2015)
PART1.2
What is the process of procurement and what are the risks?
The procurement is a very complex process including the Formation of the Procurement Committee, specify requirements, identify suppliers, Launch Competitive Tender programs, Issue Order, and Receive Goods and Services. During these processes, many groups’ interests get involved, and with that comes the risk, including the inefficient procurement committee, the misfit between the client's requirements and the material features, Uncompetitive supplier bid, Bribery and kickbacks, Delays in contract offering, damaged and Nonconforming products.
PART1.3
What factors that can influence the procurement choice?
The game is still open and you can use your phone to scan the QR code and type in your answer to tell us what factors you think would influence the procurement choices.
The following factors should be considered when evaluating the most appropriate procurement strategy
01 External factors
Consideration should be given to the potential impact of economic, commercial, technological, political, social and legal factors which influence the client and their business, and the project team during project’s lifecycle. For example, potential changes in interest rates, changes in legislation and so on.
02 Client Resources
A client’s knowledge, the experience of the organization with procuring building projects and the environment within which it operates will influence the procurement strategy adopted. Client objectives are influenced by the nature and culture of the organization. The degree of client involvement in the project is a major consideration.
03 Project characteristics
The size, complexity, location and uniqueness of the project should be considered as this will influence time, cost and risk.
04 Ability to make changes
Ideally the needs of the client should be identified in the early stages of the project. This is not always possible. Changes in technology may result in changes being introduced to a project. Changes in scopeinvariably result in increase costs and time, especially they occur during construction. It is important at the outset of the project to consider the extent to which design can be completed and the possibility of changes occurring.
05 Cost issues
An assessment for the need for price certainty by the client should be undertaken considering that there is a time delay from the initial estimate to when tenders are received. The extent to which design is complete will influence the cost at the time of tender. If price certainty is required, then design must be complete before construction commences and design changes avoided.
06 Timing
Most projects are required within a specific time frame. It is important that an adequate design time is allowed, particularly if design is required to be complete before construction. Assurances from the design team about the resources that are available for the project should be sought. Planning approvals can influence the progress of the project. If early completion is a critical factor then design and construction activities can be
All of these factors can be divided into two parts_ internal and external environmental factors.
As Most projects are required within a specific time frame and budget with the promise of high quality, so, time, cost, and quality, without any doubt, are very important issues required by clients.
A client’s knowledge, the experience of the organization with procuring building projects and the environment within which it operates will influence the procurement strategy adopted. Also, Ideally the needs of the client should be identified in the early stages of the project. But This is not always possible. Therefore, the degree of client involvement, or we call it client characteristics in the project is also a major consideration.
What is more, the characteristics of the project itself, including the size, complexity, location, and uniqueness of the project should also be considered as this will influence time, cost, and risk.
Economic, commercial, technological, political, social, and legal factors can be concluded as external environmental factors that may affect the client and their business, and the project team during the project’s lifecycle. For example, potential changes in interest rates, changes in legislation, and so on.
And as a research outcome shows, in external environment factors, Procurement policy plays the most important role, followed by Material availability and Environment impact.
PART1.4
What are the potential scenarios of procurement?
- Understand three gaps!
As procurement like any other well-managed strategy is reliant on the skills available, the variation between project skills requirement, client skills, and industry skills, forming the skills gaps, thus leading to three main potential scenarios we may run into.
The first scenario is resulting from the client skill gap, where the client's skills are below that of the project requirement and therefore the investment is delivered inefficiently. It is important to stress that this does not mean the project is inadequately managed. A project can be delivered well, but due to a lack of skills within the client, a better outcome was not achieved.
Another possibility is having an industry skills gap. Under this scenario whilst the client has the ability to invest and procure efficiently given the funds that are available, the industry is unable to meet the requirement.
Some would argue that this scenario is unlikely as a competitive industry will generally match the requirements of a client or would not be awarded the contract. However, this situation may happen for a number of reasons，including a skills shortage within the industry, a lack of bidders within the procurement process, an inability to get the required products for project delivery, and a difference between the vision and priorities of the client and the supply chain
Risks, however, not always means bad things and sometimes it can bring us with surprise. The final scenarios are ones where genuine innovation occurs. That is to say that for a given budget where the expectation is set, industry and the client together are able to deliver a project which exceeds expectations given the skills of the team.
The interesting thing to note is that in all of the above scenarios, whilst the ability to deliver a project can be constrained by industry, the actual ability to deliver a project is dependent on the client's skills. That is to say that the client's skills are a definitive constraint and it is not able to deliver above its capacity or skill level.(ACEprocurement, 2015)
organizing a project: Service
ORGANIZING A PROJECT
PROCUREMENT
Getting Your Designs Built The Way You Want Them To Be
By Starting To Choose The Right Procurement Method
Group 6 Green
LI Yuchan, Chan
Cheung Kai Yin, KY
Wu Yuen Yung, Ruby
Lo Nga Yi, Anya
LIU Ruixiang, Ray
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