development through partnership infrastructure delivery management toolkit: 2010 edition practice...

development through partnershipcidb

Infrastructure Delivery Management Toolkit:

2010 Edition

Practice Guide 2: Construction Procurement Strategy

1

development through partnershipcidb2

• Introduction• Challenges in current construction procurement

practice• Traditional approach to construction• Alternative delivery options• Alternative pricing strategies• Framework Agreements• Construction Procurement Strategy

Contents of this presentation


To name a few:•Too many projects•Few people to manage and monitor projects•Too many relationships to manage•Scarcity of professionals in the public service•Consultant driven•Low skill levels and poor quality•Building in contractor development and job

creation objectives•Too little time•Long decision making processes – regulations

& policies •Stop – start implementation•Political influences

Challenges in the current construction practice

Fundamental considerations in delivery

cost

quality / performance

delivery / time

Bottom line – infrastructure delivery needs to meet expectations

Quantum - service delivery targets

Current capacity constraints

CIDB (2006) attributed the SA capacity constraints within government to deliver infrastructure to:

•the project approach where for each and every project, consultants are appointed, briefed, directed and overseen by a gradually disappearing cadre of skilled staff

•unbundling strategies aimed at reducing the size of contracts in order to target small or local enterprises which place increased demands on the client’s resources to manage and oversee these small contracts

CIDB proposalCIDB inform practice note No 1: SCALING UP DELIVERY AND ACCELERATING EMPOWERMENT (August 2006)

In a nutshell•Use larger contracts•Use longer contracts•Adopt a programmatic and a systems approach

What this does is to:

1) Reduce the work load of the SCM units

2)Reduce the number of relationships to a manageable level which frees up government’s capacity to brief service provides, manage contracts and to make payments3)Allow skills to be rapidly replicated and certain tasks to be de-skilled4)Improve job creation and SMME development outcomes

Search for alternative delivery modelsProblem statement

Capacity constraints exist due to the continued use of an outdated delivery approach

Solution

Require a delivery model which:

•matches the capabilities and capacities of the client to effectively oversee its implementation

•takes account of the capabilities of the private sector

•accommodates current socio-economic delivery imperatives

Have in place well developed targeted procurement procedures to address this aspect of delivery

CIDB / National Treasury IDMS 2010

Procurement strategy for traditional approach to delivery

- One project one contract (or a group of smaller contracts)

- Discipline specific consultants appointed on a percentage fee basis

- Open tenders are called for when the design is complete

- Contractors are contracted on a bills of quantities basis

Traditional approach to construction

No need to consider procurement strategy – a one size fits all approach suffices

Traditional approach to construction

Stage 1: Preparation

Stage 2: Definition

Stage 3: Design Development

Stage 4: Production information

Outline statement

Scope of work for construction work

contract

Procure consulting services

Procure construction works

Priced contract based on

lump sums or bill of

quantities

Scope of work for consulting

services contract

Fee based on percentage of cost of construction – allows project to be

developed as it unfolds

Servant

Master

Master –servant

relationship

Traditional approach to constructionJohn Smeaton in 1768 during the construction of the Clyde Canel (Scotland) established the master / servant between designers and contractors

Sir Joseph Bazalgette’s standard form of contract for London’s major sewer projects and the embankments on the Thames 1860s was adopted by the Metropolitan Board of Works

Institution of Civil Engineers’s standard form of contract published in 1945 based on the 1860 standard form of contract

South African current traditional forms of contract based on ICE form of contract

Are their different ways of delivery projects to improve outcomes?

Design by EmployerDesign by Employer

Contract under which a contractor undertakes only construction on the basis of full designs issued by the employer.

Suitable where:

• The client wishes to make significant technical inputs into design process and design details.

• The client requires flexibility in the development of the design. • The risks are to be balanced between the parties, or• Reasonable certainty in cost and time is required before a

commitment to build is made. • Suitable client accepted production information is available to

be incorporated into the scope of work for the contract.

Alternative allocation of design responsibilities

Design and construct

Contractor designs a project based on a brief provided by the client and constructs it

Develop and construct

Contract based on a scheme design prepared by the client under which a contractor produces drawings and constructs it

Alternative contracting strategies

Design and construct contract

NoteContractor responsible for later

design stagesConsultant reviews contractor’s

design against project brief

Award works contract

Scope of work based on concept

report

Stage

1 Preparation

2 Definition

3 Design development

4 Production information

5 Manufacture, fabrication and construction information

6 Works

7 Handover

8 Close out

Design and ConstructDesign and Construct

Contract in which a contractor designs a project based on a brief provided by the client and constructs it

Suitable where the employer requires• Integrated design and construction and single point

accountability • That most risks lie with the contractor in return for price

certainty, or • The cost and completion date is almost guaranteed when a

commitment to build is made. Suitable for simple and moderately complex projects,

particularly where the client has limited technical capability.

Alternative contract strategies

Develop and construct contract

NoteContractor responsible for later

design stagesConsultant reviews contractor’s

design against project brief


Scope of work based on design

development report

Stage

1 Preparation

2 Definition




6 Works

7 Handover

8 Close out

Develop and Construct Develop and Construct

Contract based on a scheme design prepared by the client under which a contractor produces drawings and constructs it.

Suitable where the employer requires• Integrated detailed design and construction and

single point accountability • Reasonable certainty in cost and time before a

commitment to build is made.

Suitable for simple and moderately complex projects

Alternative allocation of management responsibilities

Management contractor

Contractor is responsible for planning and managing all post-contract activities and for the performance of the whole of the contract

Management Contract Management Contract

Contract under which contractor provides consultation during the design stage and is responsible for planning and managing all post contract activities and for the performance of the whole of the contract.

Suitable where:• The employer has limited capability or capacity to advance

the work beyond a strategic brief.• The employer retains most of the risks • The contractor needs to work alongside the design team to

develop the programme for construction design and tender.

Suitable for sophisticated projects, particularly where the client has limited technical capability.

Management contractor relationship

EmployerEmployer

Subcontractor(construction

work sub contract)


work sub contract)

Design consultant

(professional service

contract)

Design consultant


contract)


work sub contract)


work sub contract)


work sub contract)


work sub contract)

Design consultant


contract)

Design consultant


contract)Management contractorManagement contractor

Example

Management contractor subcontracts out the bulk of the work

Alternative contracting strategies

Managementcontractor

NoteContractor can be made responsible for all or some of the design and all

construction


Scope of work based on design

strategic

Stage

1 Preparation

2 Definition




6 Works

7 Handover

8 Close out

Alternative

Alternative

Alternative

Construction ManagementConstruction Management

Contract under which a contractor is responsible for planning and managing all post-contract activities and for the performance of the whole contract.

Where it is desirable to • Have direct contracts with specialists trade

contractors or small contractors, and • Manage the interfaces between interrelated

packages within a project.• Suitable for projects where a number of trade

contractors are appointed.

Alternative pricing strategies

Starting pointTender prices can be built up by considering a number of components including:

•General items: items to cover the charges for compliance with contractual obligations

•Construction (work) content: price of constructing all the items that are to be constructed or built

•Overheads: operating (every day) expenses incurred in the upkeep of the business and its offices that are not directly attributable to individual contracts

•Risk allowance: an allowance (contingency) to cover the perceived risk associated with uncertainty

•Profit

Bill of quantities

General item orConstruction content – labour, materials, plant and equipmentorSubcontracted work

Overheads Risk allowanceProfit

Item No. Description Unit of Measure Quantity Rate Total

Build up of tender price

Bill of quantities

• is useful only to develop a tender price for the contract

• cannot be used to control costs on site

Bill of QuantitiesBill of Quantities

• Client takes the risk for changes• Contractor takes the risk of rate changes

• Use where• a clear, unambiguous scope of works exists,

which is complete save for uncertainty on the actual quantity of work to be done e.g. earthworks

• Where little or no change to programme is envisaged

• The level of risk is low and quantifiable

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Alternative pricing strategiesTIME IN WEEKS: W1 W2 W3 W4 W5 W6 W7 W8

W9

No ACTIVITY

1 Establish Site; Set Out…

2 Excavation

3 Foundation Concrete & Brickwork.

4 Superstructure

5 Roof

6 Services (1st; 2nd; Final)

7 External Works

8 Finishing and cleaning

9 Hand over to client

Break the scope of work down into activities related to a programme and price each activity as a lump sum

Pricing strategies: Activity schedule

General item orConstruction content – labour, materials, plant and equipmentorSubcontracted work

Overheads Risk allowanceProfit

ItemNo.

Programme Reference

Activity description Price excluding VAT

An Activity Schedule is a list of activities which represents the activities expected to be carried out

The Contractor enters lump sum prices against each of these activities (Total = contract sum)

Paid for completed activity

Activity schedule

Build up of tender

price

Lump sum

Lump sum

Contractor is paid a lump sum to perform the works

(Interim payments which reflect the progress made towards the completion of the works may be made)

Contractor is :•at risk for costs associated with completing the contract•not compensated for any errors or omissions of his own

Price list

Contractor is only paid amounts in Price List for priced work

Price list / schedule

Contractor is paid the price for each lump sum item in the Price List that has been completed and, where a quantity is stated in the Price List / Schedule, an amount calculated by multiplying the quantity which the contractor has completed by the rate

Lump Sum, price list, activity scheduleLump Sum, price list, activity schedule

Price-based strategy

•Contractor takes the risk for changes in quantities•Client takes risk of change of scope

•Use where • A clear, unambiguous scope of work exists, which is

complete in all respects and as such can be priced with certainty.

• Changes to requirements are not anticipated

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The primary purpose of a bill of quantities is to arrive at a tender price within relatively short time frames so that a tender can be evaluated and a contract awarded

The employer is liable for increases in the tender price arising from increases in quantities and mistakes in compiling the bill of quantities

In lump sum, activity schedules and pricing list contractor is at risk as price is all inclusive

Bill of quantities vs other price-based pricing strategies

What about other pricing strategies?Price based:

•bill of quantities•activity schedule•lump sum •price list

Cost based:

•cost reimbursable•target cost

Cost ReimbursableCost Reimbursable

• Contract in which the contractor is paid for his actual expenditure plus a percentage or fee.

• Use where an emergency exists • the scope of work cannot be priced ahead of the

works• the employer cannot transfer the project risk to the

contractor or the risk pricing is prohibitive• the contract is likely to be disrupted by

uncontrollable events

32

Wages and salaries

Materials at open market

rates

Site overhead

percentage

Equipment at agreed rates, market related

rates or percentage up or down on a hire list

Subcontract costs

Fee

Fee

+

+

Cost reimbursable contract

Fee includes profit and overheads

Fee includes profit and overheads

Target cost contract

gain (share of savings)

Target Price (initial)

Target Price (final) adjusted for compensation events

Final “cost”

Scenario 1: Contractor gain

pain (share of

cost overrun)

Scenario 2: Contractor pain

payment to contractor (cost + fee)

Sharing of cost savings /

overruns

Target Cost PricingTarget Cost Pricing

• Cost reimbursable contract in which a target cost is estimated and on completion of the works the difference between the target cost and the actual cost is apportioned between the employer and contractor on an agreed basis.

• Use where:• The employer wishes to reward strong contractor

performance, share financial risk or promote collaboration

• An early contractor involvement is required to make inputs into the design process

• Framework agreements are entered into

35

Target price contractsProcurement of contractors

Option 1 (design is not sufficiently developed)

•Tenderers tender cost parameters

•Target price negotiated when sufficient information available to price the works

Option 2 (design is sufficiently developed to price)

•Tenderers tender cost parameters

•Assumptions are made about any uncertainties so that the tenderers can price the works (adjust target if assumptions turn out to be incorrect e.g. quantum of reinforcement)

•Tenderer tenders a target price

Management contractor relationship

EmployerEmployer


work sub contract)


work sub contract)

Design consultant


contract)

Design consultant


contract)


work sub contract)


work sub contract)


work sub contract)


work sub contract)

Design consultant


contract)

Design consultant


contract)Management contractorManagement contractor

Example

Management contractor subcontracts out the bulk of the work and is paid on a cost reimbursable basis i.e

subcontract amount plus a fee +prices for work done by the contractor himself

This allows cost to be controlled

Pricing strategies

Employer’s risk Contractor’s incentive / risk

Min Max

Max Min

Activity schedule (lump sum)

Bill of Quantities

Target cost

Cost reimbursable

Em

plo

yer’

s fl

exib

ility

to

eff

ect

sco

pe

ch

ang

es

Min

Max

Pricing strategy

Activity schedule / lump sum

Bill of quantities

Target cost

Cost reimbursable

Employer’s riskContractor’s risk

Employer’s flexibility to effect change

Price List

Benefits of Target Cost PricingBenefits of Target Cost Pricing

• Allows early contractor involvement

• Facilitates collaborative / partnering / developmental relationships

• Suitable for use in framework agreements because:

− allows the employer to procure work on an as-instructed basis over a set term without necessarily committing to any quantum of work

− offers flexibility in attaining secondary procurement objectives as requirements can be adjusted from one package order to another

39

To provide higher value and less waste the fragmentation in design needs to be addressed, preferably before 25% of the design is complete

Lean construction

Target cost contracts can enable this to happen even where a design by employer approach is adopted

This allows a specialist in construction to be appointed at the same time as the design team

Such a contractor may or may not be responsible for managing the design team

Consideration NEC3 JBCC GCC FIDIC

Contracting strategy

Design by employer

Yes

Yes Yes Red

Management contractNo

No Silver

Develop and construct Yes Yellow &SilverDesign and build

Pricing strategy Lump sum & breakdown

Activity schedule

Yes

No No No

Lump sum Yes Yes Yellow & Silver

Bill of quantities Yes Yes Red

Cost reimbursable No No No

Target cost No No No

ISO 10845-1, Construction procurement – Part 1: Processes, methods and procedures

A framework agreement is an agreement between an employer and one or more contractors, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged

Allows the employer to procure construction services to provide work packages on an as-instructed basis (call offs) over a set term without necessarily committing to any quantum of work

What is a framework agreement?

Client appoints a professional team to design the works

Open tenders are called once the production information has been finalised by the professional team

(production information = final detailing, performance definition, specification, sizing and positioning of all systems and components)

Contractor prices the production information

Contractors are contracted on a bills of quantity basis for a single project (which may or may not include budgetary items to cover aspects of the works which have not been finalised)

Current paradigm

Packages in a framework contract

Develop concept for

works

Scope works

Document works

Construct works

Hand over works

Package orders

P #1

P #2

P#3

Design works

P#4

Packages delivered

over a term by a single contractor

Concept

Procuring a service over a period of timeetc

University of the Witwatersrand

Chamber of Mines – fourth quadrant (R70

m)

Package #1 Package #2

Undergraduate Science Centre– phase 1 (R178 m)

Wits Art Museum (R68m)

Package #4Package #3

Refurbishment of Chamber of Mines –

(R45m)

Start October2010

Start November

2009

Start January 2009

April 2010

Same contractor but different professional teams

Principles of Framework AgreementsFramework agreements

• are entered into following a competitive selection process

• need to establish the following as a minimum:

- the basic terms of the contract- the term of the contract (3 -4 years)- the scope of the work which may form the basis

of a package order- the basis by which contractors are to be remunerated for instructed work- the manner in which competition between framework contractors may take place

• A package is works within the scope of work of a framework agreement which is instructed within a stated period of time (start and end date)

• A package order is an instruction to carry out a task and may only be issued within the term of the agreement

• A framework contract is only entered into with those who have the capability and capacity to carry out the likely work

Essential elements of a framework

Start date End dateFramework contract

Package orders

Start EndStart End

Start

Start End

End

Outcomes of Alternative Delivery Approaches

FROM

• Master-servant relationship of adversity

• Fragmentation of design & construction

• Allowing risks to take their course

• Short-term “hit and run” relationships

• Constructability & cost model determined by design team and consultant only

• “pay as you go” delivery culture

TO• Collaboration towards shared

goals• Integration of design and

construction• Proactive, collaborative risk

management and mitigation• Long-term relationships

focused on maximising efficiency & shared value

• Constructability and cost model developed with contractor’s insight

• Discipline of continuous budget control

48

Key question

Question:

How does one appoint a contractor in the absence of a scope of work?

Answer:

Look at:

•cost based pricing strategies as apposed to price based strategies•rates based contracts (where P and G costs are fairly constant and work is very straightforward)

A framework agreement is a contract where the terms of payment are agreed in the absence of a detailed scope of workPricing strategies

Lump sum

Bills of quantities

Activity schedule

Price list

Cost reimbursable

Target cost

Not suitable –require scope of work to price the work

Suitable – as cost parameters can be pre-agreed and target can

be initially tendered and thereafter negotiated

Yes – if linked to a management contractor

Pricing strategies for framework contracts

Possibly in simple works but need to deal with costs

associated with different sites

Consideration NEC3 JBCC GCC FIDIC

Activity schedule / lump sum

Yes

Yes Yes Yellow & Silver

Bill of quantities Yes Yes Red

Cost reimbursable No No No

Target cost No No No

Lump sum & breakdown

Standard provisions for pricing strategies

Look at NEC3

eThekwini AC secondary water mains• identified a project for the replacement of

2500 km of AC water pipes over a period of 3 years

• appointed one programme manager + 4 design consultants + 4 contractors

Time frames

Feb 2007 - concept introduced and work shopped with officials, consultants and contractors

Mar 2007 - calls for expressions of interest

May 2007 - shortlisted respondents invited to tender

May 2007 - tenders closed

June 2007 - tenders evaluated and awarded

1 July 2007 - work starts (new financial year)

eThekwini AC secondary water mainsExpenditure R400 million spent in first 14 months Productivity: 80 km of water mains replaced each month. Socio economic:• ± 3800 temporary unemployed workers employed to

excavate trenches and are rotated every 4 months to allow others to financially benefit

• Temporary workers paid 21% of total project expenditure.• 16 subcontractors (or “co-contractors”) developed to

increase their share of the construction work from 10% to 20% over time (should double their

turnover over time)• A full time mentor engaged to assist the “co-contractors” in the establishing of business systemsStaff demands on client: one staff member

eThekwini AC secondary water mainsAwards

• won the coveted KAMOSO award for Best Construction Project in the Infrastructure category (Department of Public Works which recognizes and rewards excellence in the implementation of Expanded Public Works (EPWP) programmes•Philiswe Mthethwa of Abangani Projects, an emerging sub contractor came third in the CIDB National Women in Construction Excellence Awards

All subcontractors have doubled their CIDB grading during the term of the contract!

Construction procurement strategy

Construction procurement strategy is the combination of:

•delivery management strategy•contracting arrangements•procurement arrangements

A procurement strategy can be developed for:

• a single project• a programme of projects • a portfolio of projects

It identifies the best way of achieving objectives and value for money, whilst taking into account risks and constraints

Portfolio = the total extent of infrastructure controlled or used by an institution

Package = works which have been grouped together for delivery under a single contract or a package order issued in terms of a framework agreement

Portfolio of projects over

next few years

Programmes

A strategic approach

packages


The central objective of developing a construction procurement strategy is:

• to determine possible procurement and contracting options

• that will maximise value-for-money, • deal with capacity constraints • and ensure long term sustainability• Different options are most suitable under different

conditions• The choice of options is dependent on local conditions.

The Benefit of Developing a Procurement StrategyThe Benefit of Developing a Procurement Strategy

1 – Delivery Management Strategy1 – Delivery Management Strategy

3 - Procurement 3 - Procurement ArrangementsArrangements

2 - Contracting 2 - Contracting ArrangementsArrangements

PPP – follow NT PPP procedures

PPP – follow NT PPP procedures

Own ResourcesOwn Resources

OutsourcingOutsourcing

LeasingLeasing

Another organ of state FA Another organ of state FA

Implementing Agent (IA - SLA)Implementing Agent (IA - SLA)

ConstructionConstructionProcurementProcurement

StrategyStrategy

Gather & Analyse

information

Gather & Analyse

information

Formulate procurement

objectives

Formulate procurement

objectives

Make strategic delivery management decisionsMake strategic delivery management decisions

Decide on delivery mode

Decide on delivery mode Package WorksPackage Works

1 2 3 4 5

Decide on quality strategy


Decide on targeted

procurement strategy

Decide on targeted

procurement strategy

Decide on tender

evaluation procedure

Decide on tender

evaluation procedure

1

3

4

Decide on procurement arrangements

Decide on procurement arrangements

2Pricing Strategy

Activity based / lump sum

Bill of QuantitiesCost reimbursable

Target Cost

Pricing StrategyActivity based / lump

sumBill of Quantities

Cost reimbursableTarget Cost

Contracting StrategyDesign by employerDevelop & ConstructDesign & Construct

Construction Management

Management Contractor

Contracting StrategyDesign by employerDevelop & ConstructDesign & Construct

Construction Management

Management Contractor

Version 1.1March 2011

Organisational Analysis

Organisational Analysis

Spend AnalysisSpend Analysis

Market AnalysisMarket Analysis

SecondarySecondary

PrimaryPrimary

Individual ProjectsIndividual Projects

Programme of Projects

Programme of Projects

PackagesPackages

FA opportunitiesFA opportunities

Allocate risks for packages

Allocate risks for packages

Establish requirements for

outsourced professionals

Establish requirements for

outsourced professionals

Package professional

service contracts

Package professional

service contracts

Allocate risks for professional

service contracts

Allocate risks for professional

service contracts

1

2

3

4

Service Requirements

Service Requirements

Pricing StrategyPricing Strategy

Form of ContractForm of Contract

Contracting Strategy

Contracting Strategy

Type of ContractType of Contract

Pricing StrategyPricing Strategy

Form of ContractForm of Contract

Form of ContractNEC3FIDICJBCC

GCC 2010

Form of ContractNEC3FIDICJBCC

GCC 2010

Quality Strategy OptionsSpecifications

Life cycle costingPre-qualification

Evaluations CriteriaUndertakings at tender

stagePreference

Eligibility Criteria

Quality Strategy OptionsSpecifications

Life cycle costingPre-qualification

Evaluations CriteriaUndertakings at tender

stagePreference

Eligibility Criteria

Procurement Procedure Options

Competitive selectionNegotiation

Competitive negotiation

Procurement Procedure Options

Competitive selectionNegotiation

Competitive negotiation

Targeted Procurement Procedure Options

PreferencingIncentives for KPI’s

Mandatory Subcontracting

Contractual Obligations

Targeted Procurement Procedure Options

PreferencingIncentives for KPI’s

Mandatory Subcontracting

Contractual Obligations

Decide on delivery management strategy

Meet need for works through:

a PPP

an Implementing agent (IA)another organ of state’s framework agreement (FA) leasing of property outsourcing own resources

Gather and analyse information

Formulate procurement objectives

Make strategic delivery management decisions

Package works

Decide on delivery mode (project or

programme)

Contracting arrangements Allocate risks for packages

Establish requirements for outsourced

professional services

Allocate risks for professional service contracts

Package professional service contracts

Options for services: construction construction & maintenance maintenance construction, maintenance & operation

Contracting strategy Design by employer Develop & construct Design & construct Construction management Management contractor

Pricing strategy: Priced contract with a

priced list Cost reimbursable Target cost Activity based / Lump sum Bill of quantities

CIDB accepted Form of Contract

Discipline specific or multidisciplinary service

Package specific, programme related or framework agreement

Priced contract, percentage of cost of construction, cost reimbursable or target cost


Contracting arrangementsActivity 1: Allocate risks for packages -

Options for service requirementsOption Pricing strategy Form of contract Construction only

Activity based / lump sum

Bill of quantities

Cost reimbursable

Target Cost

NEC3 Engineering and Construction Contract

NEC3 Engineering and Construction Short Contract.

FIDIC Conditions of Contract for Construction and Building and Engineering Works Designed by the Employer

FIDIC Conditions of Contract for Plant and Design

FIDIC Conditions of contract for EPC Turnkey Projects

FIDIC Short Form of Contract General Conditions (Short Form)

JBCC Principal Building Agreement

JBCC Minor Works Agreement

GCC 2010 Maintenance only

Priced contract with a priced list

Cost reimbursable

Target cost

CIDB General conditions of contract

NEC3 Term Service Contract

NEC3 Short Term Service Contract

Maintenance and construction

As for maintenance and construction services

NEC3 Engineering and Construction Contract with or without NEC3 Term Service Contracts

Construction maintenance and operation

As for maintenance and construction services

FIDIC Conditions of Contract for Design, Build and Operate Projects

NEC3 Engineering and Construction Contract plus NEC3 Term Service Contracts

Deciding on the procurement arrangements


Decide on procurement procedure

Decide on targeted procurement strategy

Decide on tender evaluation procedure

Step 1: Decide on Quality StrategyStep 1: Decide on Quality Strategy

Refer to Practice Guide 2, Section 7.2, page 41, Table 14 for options and decision criteria for building quality into the procurement arrangements.

Quality may be achieved through:• Specifications• Life cycle costing• Prequalification• Eligibility criteria• Undertakings at tender stage• Preference• Evaluation criteria

63

Step 2: Decide on Procurement ProcedureStep 2: Decide on Procurement Procedure

Practice Guide 2, Section 7.3, page 42, Table 15

You will select one of the three basic procurement procedures, using the criteria set out in Table 15:

•A negotiation procedure where a tender offer is solicited from a single tenderer

•A competitive selection procedure

•A competitive negotiation procedure

•Eligibility criteria (Call for expressions of interest)

64

Options withinOptions within Competitive SelectionCompetitive Selection

•If you have chosen a competitive selection procedure, you must make further choices:• Nominated• Open• Qualified• Quotation• Proposal procedure using the two-envelope system• Proposal procedure using the two-stage tendering

system

65

Options within aOptions within a Competitive Negotiation Competitive Negotiation

If you have chosen a competitive negotiation selection procedure, you must make further choices.

Restrictive competitive negotiations Open competitive negotiations

66

Step 3: Decide on Step 3: Decide on Targeted Procurement StrategyTargeted Procurement Strategy

There are four options for targeted procurement procedures:

• Preferencing• Incentives for KPIs• Mandatory subcontracting• Contractual obligations.

You will select one or more of the targeted procurement procedures for your packages.

67

Step 4: Decide onStep 4: Decide on Tender Evaluation ProcedureTender Evaluation Procedure

• Method 1: Financial offer

• Method 2: Financial offer and

preferences

• Method 3: Financial offer and quality

• Method 4: Financial offer, quality and

preferences.

68

Document choices

Procurement strategy for works

Document choices Procurement strategy for professional services

Document choices

Contents1 Background 2 Delivery management strategy 2.1 Nature and spatial arrangement of projects and clusters 2.2 Client organisation characteristics 2.3 Market characteristics2.4 Primary procurement objectives3 Contracting arrangements3.1 Risk allocations for packages4 Procurement arrangements4.1 Quality strategy4.2 Procurement procedure5 Satisfying primary and secondary procurement objectives5.1 Construction procurement strategy

2.5 Secondary procurement objectives

2.6 Delivery management plan2.7 Delivery mode2.8 Packaging strategy

3.2 Professional service contracts

4.3 Targeted procurement strategy4.4 Tender evaluation procedure

5.2 Issues to be dealt with in the contracts which are not addressed elsewhere

Challenges

Envisaged challenges to rolling out the methodology

• Client difficulty in deciding on objectives

• Clients unwilling to balance opposing objectives

• Absence of open-minded programme managers

• Resistance to change, particularly from professional service providers

Dr Sean Phillips Construction symposium: The project management profession: adding valueUniversity of the Witwatersrand (August 2009)


Documenting a procurement strategy

The procurement strategy arrived at by applying the aforementioned procedures needs to be documented in such a manner that the logic behind the choices that are made at each step can be communicated to and reviewed by others. Accordingly, the specific inputs and outputs of the actions at each step in the stages of the development of a strategy need to be documented.

A procurement strategy at a portfolio level should be documented in a tabular form which links each category or portion of a category of spend to a number of high level descriptions. Procurement strategies at a programme level can be similarly presented, with perhaps, more detailed descriptors. The strategic brief that is developed for a package during the package information stage of the package planning phase must, however, set out all the choices made in relation to the package in sufficient detail to enable procurement documents to be drafted to enable the necessary procurement processes to commence.

Conclusion and questions

74

cidb

Thank you

development through partnership infrastructure delivery management toolkit: 2010 edition practice...

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