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RICS Questions > Procurement > Flashcards

Procurement Flashcards

1
Q

What is procurement?

A

The overall process of acquiring construction work or services

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2
Q

What should be considered when selecting a procurement route?

A
  • The specifics of the project

- The client objectives regarding cost, time, control, quality and risk

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3
Q

What are the main procurement methods?

A

a) Traditional / general contracting
b) Design and build
c) Management contracting
d) Construction management

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4
Q

What is traditional procurement?

A
  • The design is completed by the client’s design team before competitive tenders are invited and a main contractor is employed to build what the designers have specified
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5
Q

How does traditional procurement work?

A
  • The contractor takes responsibility and financial risk for the construction of the works to the design produced by the client’s design team for the contract sum within the contract period
  • The client takes the responsibility and risk for the design and design team performance
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6
Q

When might traditional procurement be appropriate?

A

a) If the employer has had the design prepared
b If the design is substantially completed at time of contractor selection
c) The client wishes to retain control over the design and specification
d) Cost certainty at start on site is important
e) The shortest overall programme is not the client’s main priority

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7
Q

What contracts might be used for traditional procurement?

A

JCT – minor, intermediate, standard with quantities

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8
Q

What are the advantages of traditional procurement?

A

a) Competitive fairness and transparent process – increase value for money
b) Design led – can ensure quality
c) Price certainty before commencement
d) Well known procedures
e) Changes are reasonably easy to arrange and value

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9
Q

What are the disadvantages of traditional procurement?

A

a) Overall project duration may be longer than others – sequential process
b) No input into design and planning by the contractor
c) Strategy based on price competition – could lead to adversarial relations
d) Dual point of responsibility – design team for design and contractor for construction
e) If design not complete at time of tender, cost and time certainty are reduced

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10
Q

What is design and build?

A
  • Where the contractor is responsible for the design, planning, organisation, control and construction of the works to the employer’s requirements
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11
Q

How does D&B work?

A
  • The employer gives the tenderers the ‘Employer’s Requirements’ and the contractors respond with the ‘Contractor’s Proposals’, which include the price for the works
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12
Q

When might Design & Build be appropriate?

A

a) Where there is a need to make an early start on site – can overlap design and construction
b) Where the client wishes to minimise their risk – not got responsibility for design
c) For technically complex projects – benefit of contractor’s expertise
d) Where the employer does not want to retain control over the design development

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13
Q

What contracts might be used for Design & Build?

A

JCT Design & Build 2016

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14
Q

What are the advantages of design and build?

A

a) Single point of responsibility for design and construction
b) Earlier commencement on site
c) Early price certainty
d) Benefit of contractor’s experience harnessed during design

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15
Q

What are the disadvantages of Design & Build?

A

a) Client may find it hard to prepare a sufficiently comprehensive brief
b) Client has to commit to a concept design early
c) Variations from the original brief are difficult to arrange and often expensive
d) Harder to compare tenders – harder to determine if getting value for money
e) Ease of fabrication may be prioritised above aesthetic quality
f) May be less real competition due to fewer design and build firms

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16
Q

How much design input will the contractor have in Design & Build?

A

Depends on the level of design the employer has already completed at time of tender.

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17
Q

Who carries out the design for the contractor in D&B?

A
  • It may be outsourced to a separate design company (contractor retains responsibility)
  • They may have in-house design capabilities
  • OR the client’s team may be novated
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18
Q

What is novation?

A
  • A new contract that transfers the rights and obligations of one contractual party to a new third party i.e. design rights and obligations of architect transferred to contractor
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19
Q

If the design team is novated, what should the client put in place?

A
  • A collateral warranty to the design team to give them remedies for breach of contract
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20
Q

What is management contracting?

A

A management contractor is employed to contribute their expertise to the design and to manage construction and is paid a fee for doing so

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21
Q

How does management contracting work?

A
  • The management contractor has direct contractual links with all of the works contractors
  • They have the responsibility for the construction works without actually carrying them out
  • Not all of the design need be completed before the first works contractors start work
  • The MC selects the works contractors through competitive open book tenders
  • The client reimburses the cost of these packages to the MC plus their fee
  • The MC’s role is low risk – get prime cost plus a fee
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22
Q

When might management contracting be appropriate?

A
  • Where the client does not want cost certainty before commencement
  • Where an early start on site in a priority
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23
Q

What contract might be used for management contracting?

A

JCT – Management Contract 2016

24
Q

What are the advantages of management contracting?

A

a) Overall project duration is shorter due to overlapping design and construction
b) There is contractor contribution to the design and planning process
c) Changes can be accommodated in packages not yet let if they have no further impact
d) The works are let competitively at current market prices on a firm price basis

25
Q

What are the disadvantages of management contracting?

A

a) The price for the works is not received until the last package has been let
b) Changes to the design of later packages may affect packages already let - expensive
c) There is little incentive for the MC to reduce costs
d) May become a ‘post box’ system
e) In practice, the MC has little legal responsibility for the defaults of the works contractors

26
Q

What is construction management?

A

The employer places a direct contract with each of the trade contractors and utilises the expertise of a construction managers who acts as a consultant to coordinate the contracts

27
Q

How does construction management work?

A
  • The trade contactors carry out the work
  • The construction managers supervises the construction process and coordinates the design team
  • The CM has no contractual links with the trade contractors or members of the design team
  • Their role includes preparation of the programme, determining requirements for site facilities, breaking down the project into suitable works packages, obtaining and evaluating tenders, co-ordinating and supervising the works
28
Q

When might construction management be appropriate?

A
  • On large, complex projects were the advantages of CM can be put to use e.g. upfront buildability knowledge, programme advise, specialist input from trade contractors
  • Where early start on site is key
  • Flexibility in design, procurement, construction strategy
  • Where price certainty before commencement is not key
  • Where the client is experienced in construction
29
Q

What contracts might be used for construction management?

A

JCT - Construction Management Agreement
AND
Construction Management Trade Contract (CM/TC)

30
Q

What are the advantages of construction management?

A

a) Overall project duration reduced by overlapping design and construction
b) Construction manager can contribute to the design and project planning processes
c) Roles, risks and relationships for all parties are clear
d) Changes in design can be accommodated without paying a premium
e) Prices may be lower due to direct contracts with trade contractors
f) Client has means of redress to trade contractors through direct contractual links

31
Q

What are the disadvantages of construction management?

A

a) Price certainty not achieved until last trade package is let
b) Changes to later packages may adversely affect packages already let - expensive
c) Need an informed, pro active client
d) Client has a lot of consultants and contractors to deal with – not just one – more fees

32
Q

What is the difference between management contracting and construction management?

A
  • Under construction management the client is in direct contractual relationships with each of the trade contractors and the construction manager isn’t
  • Under management contracting, the MC is in direct contractual relationships with the trade contractors and the client is in contract with the MC only
33
Q

How do you identify the client requirements before recommending a procurement route?

A

Through detailed discussions with the client and design team to identify their priorities in terms of cost, time, quality, risk, control requirements and experience

34
Q

If the client wishes to start on site ASAP what procurement route would you recommend?

A
  • Depends on their other requirements – such as cost and quality
  • If time was their overriding priority then CM or MC as they offer the fastest start on site
  • This is because start on site is not dependent upon a long tender period
  • BUT has consequential disadvantages in terms of cost certainty
35
Q

What if a client wanted an early start but also cost certainty, what procurement route would you advise?

A
  • Design and build might be the most appropriate
  • Allows design and construction to be overlapped rather than being sequential
  • Tenders are based on the provision of all services so the client gets a lump sum price
36
Q

What is GMP?

A

Guaranteed Maximum Price

37
Q

What does GMP mean to you?

A
  • A lump sum contract under which there is no adjustment of tender price unless the SCOPE required by the client changes
  • The contractor includes the additional risks involved in the design development process in his tender price
38
Q

What are the advantages of GMP?

A
  • Greater price certainty – contractor takes risk of design development and unforeseen occurrences
  • Greater control of overspending – contractor’s interests to alert the team to expensive items of design development
  • Quicker settlement of final account
39
Q

What are the disadvantages of Guaranteed Maximum Price?

A
  • The client may pay too much – contractor’s risk allowance may be higher than in reality
  • Scope changes are likely to be very expensive
  • Can be adversarial – trying to decide whether changes are design development or scope changes
40
Q

What is PFI

A

Private Finance Initiative

41
Q

What are the three types of PFI projects?

A
  • Financially free standing Project undertaken and costs recovered by charging users e.g. toll roads and bridges;
  • Joint Venture Public and private sectors contribute but the private sector has overall control. Contributions and allocation of risk are clearly defined; and
  • Services Sold A significant part of the project is capital expenditure by the private sector and then sold back to the public sector.
42
Q

What is the potential role of a cost consultant in a PFI Scheme?

A
  • Act for the contractor, providing advice normally given to a Client; and
  • Become part of a Special Purpose Vehicle (public sector group) that acts as the end user representative.
43
Q

What sort of projects might PFI be used on?

A
  • Its use is recommended where it offers clear value for money
  • It is generally considered to more appropriate for larger projects – greater than £20m and where there is significant ongoing maintenance requirements
44
Q

What might be some of the problems associated with PFI?

A
  1. High bidding costs and takes longer to procure than traditional projects
  2. Value for money
  3. Design
  4. Relationship between PFI client and contractor – gov often tries to maintain close control
  5. Concession agreements
45
Q

What is Build Lease Transfer (BLT)?

A
  • A facility is designed, financed and constructed by the private sector and then leased back to the gov for a predetermined period of time at a pre-agreed rental
  • The facility is owned by the private sector partner during the lease period, at the end the government can renew the lease, buy out the private sector partner or walk away from the deal
  • Operation and maintenance of the facility during the lease period is usually the government’s responsibility
  • This provides gov with a way of financing large-scale infrastructure out on ongoing revenue rather than capital expenditure
  • The primary disadvantage is that legal ownership remains with the private sector
46
Q

What is Build Operate Transfer (BOT)?

A
  • The facility is designed, financed, operated and maintained by a concession company, for the period of the concession
  • Ownership of the facility is vested in the host government from the time of construction completion
  • At the end of the period, the concessionaire’s involvement in the project ends and all operating rights and maintenance responsibilities revert to the host gov
  • The concessionaire retains all toll income etc during the agreed period
47
Q

What is Build Own Operate Transfer (BOOT)?

A

A variation on BOT where ownership stays with the concessionaries until the end of the concession period, when it is transferred free of charge to the host government

48
Q

What is Partnering?

A
  • A different way of structuring business relationships.
  • Involves two or more organisations working together to achieve specific mutual objectives and deliver continuous measurable improvements
49
Q

What is project partnering?

A
  • All members of the professional team become involved in the partnering process at the design stage (including contractors).
  • Ownership of risk is spread between the parties and a collaborative approach is encouraged to delivering the solution and overcoming problems.
50
Q

What is Strategic Partnering?

A
  • A long-term relationship for a number of projects or works that will last over a long period. Framework agreements allow this and are then implemented on a project-by-project basis.
  • Framework Agreement – an agreement between contractors/ suppliers and the employer. It provides and agreement to fix the T’s & C’s for future purchases. Subject to inflation agreements.
51
Q

What are the key characteristics of partnering?

A
  • More trust is involved between parties
  • Extra incentives exist (regular work); impacts on prices, conflict/ disputes etc
  • Administrative burden is increased and therefore restricts it to larger projects
52
Q

What are the benefits of partnering?

A
  • The overall construction and design programme is shortened because there is a prior understanding of the Client and their requirements from previous projects (relationships are also built up between the project team);
  • Conflict is reduced;
  • Improved communication and mutual objectives;
  • Pooling of resources and ideas should result in innovative solutions.
  • Improved customer satisfaction
  • Better value for client
  • Recognition of protection of profit margin for contractors and suppliers
  • Environment that encourages innovation and technical development
  • Improved buildability – early involvement of contractors
  • Better predictability of time and cost
  • Stability and better confidence
53
Q

What contracts can be used for partnering?

A

JCT Framework Agreement

54
Q

What are Key Performance Indicators?

A
  • Enable all those involved in the construction supply chain to establish how they are performing on a project
  • Allow organisations to benchmark their performance in those areas that are critical to the success of projects
  • There are nationally recognised KPIs that you can measure and compare yourself against
55
Q

What is an Integrated Supply Chain?

A

Has the objective of understanding and working wholly in the interests of the project client, rather than their immediate client

RICS Questions (25 decks)

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