An Introduction to Building Procurement Systems

An Introduction to Building Procurement Systems

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AN INTRODUCTION TO BUILDING PROCUREMENT SYSTEMS J.W.E.Masterman

E & FN SPON An Imprint of Chapman & Hall

London • New York • Tokyo • Melbourne • Madras

Published by E & FN Spon, an imprint of Chapman & Hall, 2–6 Boundary Row, London SE1 8HN This edition published in the Taylor & Francis e-Library, 2003. Chapman & Hall, 2–6 Boundary Row, London SE1 8HN, UK Van Nostrand Reinhold Inc., 115 5th Avenue, New York NY10003, USA Chapman & Hall Japan, Thomson Publishing Japan, Hirakawacho Nemoto Building, 6F, 1–7–11 Hirakawa-cho, Chiyoda-ku, Tokyo 102, Japan Chapman & Hall Australia, Thomas Nelson Australia, 102 Dodds Street, South Melbourne, Victoria 3205, Australia Chapman & Hall India, R.Seshadri, 32 Second Main Road, CIT East, Madras 600 035, India First Edition 1992 © 1992 J.W.E.Masterman ISBN 0-203-47415-5 Master e-book ISBN

ISBN 0-203-78239-9 (Adobe eReader Format) ISBN 0 419 17720 5 (HB) 0 442 31586 4 (USA) Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the UK Copyright Designs and Patents Act, 1988, this publication may not be reproduced, stored, or transmitted, in any form or by any means, without the prior permission in writing of the publishers, or in the case of reprographic reproduction only in accordance with the terms of the licences issued by the Copyright Licensing Agency in the UK, or in accordance with the terms of licences issued by the appropriate Reproduction Rights Organization outside the UK. Enquiries concerning reproduction outside the terms stated here should be sent to the publishers at the London address printed on this page. The publisher makes no representation, express or implied, with regard to the accuracy of the information contained in this book and cannot accept any legal responsibility or liability for any errors or omissions that may be made. A catalogue record for this book is available from the British Library. Library of Congress Cataloguing-in-Publication data available.

This work is dedicated to my wife Miki, who throughout this venture, and many others, has selflessly supported my endeavours.

CONTENTS

Acknowledgements Preface Introduction

ix xi xiii

1 The concept of procurement systems 1.1 Terminology 1.2 Categorization of procurement systems References

1 2 5

2 The evolution of contemporary procurement systems 2.1 Introduction 2.2 1945–1972 2.3 1973–1979 2.4 1980 to the present time 2.5 The level of use of procurement systems Summary References

7 8 9 12 13 18 20

3 Separated and co-operative procurement systems 3.1 Introduction 3.2 The conventional method 3.3 Variants of the conventional method Summary References

23 23 40 49 52

4 Integrated procurement systems 4.1 Introduction 4.2 Design and build 4.3 Variants of design and build Summary References

55 56 69 73 75

5 Management-orientated procurement systems 5.1 Introduction 5.2 Management contracting

77 78

vii

viii

CONTENTS

5.3 Construction management 5.4 Design and manage Summary References

96 107 116 119

6 The British Property Federation system 6.1 Introduction 6.2 Genesis 6.3 Share of the market 6.4 The Process 6.5 The Product Summary References

121 122 124 124 133 135 136

7 Clients and their needs 7.1 Categorization of clients 7.2 Client’s needs Summary References

137 139 149 150

8 The selection of procurement systems 8.1 How clients actually select the procurement systems they use Summary 8.2 The methods clients should use to choose their procurement systems 8.3 Guides and aids to the selection of procurement systems Summary References 9 The future 9.1 General 9.2 Individual procurement systems Summary References

151 158 160 165 180 181

183 185 187 188

ACKNOWLEDGEMENTS

Grateful acknowledgement is made to following publishers and authors for their permission to quote or reproduce extracts from the works listed below: Walker, A. (1984) Project Management in Construction, Blackwell Scientific Publications. British Property Federation (1983) Manual of the BPF System, prepared by a Working Party chaired by Mr Stanley Honeyman. Waters, B. (1983) The BPF System, in: Building, Building (Publications) Ltd. Centre for Construction Market Information (1985) Survey of Management Contracting. Skitmore, R.M., and Marsden, D.E. (1988) Which procurement system? Towards a universal procurement selection technique, in: Construction Management and Economics, Chapman & Hall Ltd. Franks, J., and Harlow, P. (1990) Building Procurement Systems, Chartered Institute of Building. Building Economic Development Committee, NEDO (1983) Faster Building for Industry, Controller of Her Majesty’s Stationery Office. Building Economic Development Committee, NEDO (1985) Thinking About Building—A Successful Customers Guide to Using the Construction Industry. Jones, G.P. (1984) A New Approach to the JCT Design and Build Contract, Longman Group UK Ltd. Hillebrandt, P.M. (1985) Economic Theory of the Construction Industry, The Macmillan Press [© Patricia M.Hillebrandt]. Fraser, I. (1980) AMM Case Study, Architects Journal, MBC Architectural Press Ltd. Centre for Strategic Studies, University of Reading (1988) Building Britain 2001, National Contractors Group (a sector of the Building Employees Federation). ix

x

ACKNOWLEDGEMENTS

University of Salford (1988) ELSIE Expert System—Users Manual (Commercial Application, Version 1.0), Royal Institute of Chartered Surveyors. (The ELSIE software package is now being sold, maintained and further developed by IMAGINOR Systems—current version is 4.0) Brandon, P.S., Basden, A., Hamilton, W.I. and Stockley, J.E. (1988) Expert Systems—The Strategic Planning of Construction Projects .

PREFACE

Research has revealed that the way in which many clients, and their advisors, select the method used to control the design and construction of their building projects, i.e. the procurement system, can be haphazard, ill-timed and lacking in logic and discipline. As it has also been recognized that one of the principal reasons for the construction industry’s poor performance is the inappropriateness of the procurement systems that have been chosen in this way, it is essential for the future success of individual projects and the industry as a whole that, at a time when such systems are proliferating and where building projects are becoming more complex, the correct choice is made. While there is much available literature relating to individual methods of procurement, little has been done to provide an introduction to the subject and a single source of reference which describes, examines and compares all of the main procurement systems being used in most of the United Kingdom. This book attempts to satisfy this need by providing information on the history, procedures, use and characteristics associated with each of the major procurement systems and their variants, and offering guidance to the reader on the principles of selection of the most appropriate method of procurement. For the sake of clarity the term ‘building’ here relates to industrial, commercial, retail, leisure, educational and other similar facilities but not civil engineering projects or petrochemical and process engineering installations. J.W.E.Masterman

xi

INTRODUCTION

An examination of the historical background to the use of procurement systems shows that in the post-war period up to the early 1970s, despite all relevant official reports and studies recommending otherwise, the majority of building work was carried out by conventional methods of procurement with only a relatively small number of projects being implemented by means of, what were then, non-conventional methods such as negotiation, serial tendering and the use of package deals. Because of this, many clients saw the implementation of a building project as an expensive and risky adventure with work taking a long time to get started and delays, disputes and extra costs prolonging the agony. This discontent came to a head during the period of recession which ran from 1973 to the beginning of the 1980s when for the first time client dissatisfaction with the construction industry’s inability to meet their needs was publicly expressed and this phenomenon, together with the financial and practical consequences of the dramatic increases in oil prices, resulted in the much greater use of management contracting and the design and build procurement system. In the period from 1980 to the present day, which has mainly been a time of post-recession recovery, there has been a changed pattern of demand for the industry’s resources, a lack of skilled labour and public finance and new client attitudes to the organization of the management of the design and construction of projects and the financing of development schemes. However, despite the increased use of unconventional procurement systems, and with the exception of some mega projects in the south-east of the country, the building industry’s general performance, in terms of the usual criteria of time, cost, functionality and quality, has continued to be mediocre and, although it is accepted that the correct choice and use of the most appropriate procurement system is not the only reason for inefficient project management, there is little doubt that it has been a contributory factor in the industry’s apparent inability to achieve a higher level of project success and overall performance. In order to enable the choice and subsequent use of the correct procurement system to be made, it must first be understood that there is no standard solution, or ‘best buy’, amongst procurement systems. Client organizations are complex xiii

xiv

INTRODUCTION

and different categories of clients require discrete solutions to their procurement needs, added to which construction projects vary so considerably, in every respect, from one to another that no single method of procurement can be suitable for every project for all time. Secondly, it is essential that each project is analysed and its primary and secondary objectives identified and incorporated into the technical brief for the work. The client’s needs, expressed in the briefing document, must then be compared with the characteristics of all available procurement systems and a logical and disciplined choice made of the most appropriate method. The range of available procurement systems has proliferated in recent years as a result of the increased complexity of building designs, escalating costs, the magnitude of projects and increasing demands of building owners, but despite this the majority of clients continue to select the procurement systems they use from a very small number of the wide range of available methods. The intention of this guide is to provide the reader with sufficient information about building procurement systems to ensure an awareness of all the methods that are currently available and their main advantages and disadvantages. No attempt has been made to describe in detail the way in which each system is processed through the various stages of a project as this is not seen as the function of this guide but rather that of the substantial amount of available literature that deals with the various individual procurement systems on a specific basis. Specifically, Chapters 1 and 2 describe the concept and categorization of procurement systems and the evolution of those methods currently in use. The next four chapters deal with each of the various categories and the individual systems themselves. Chapter 7 looks at the needs of clients in the context of project success while Chapter 8 investigates the way in which clients decide which method to use, then identifies the principles that should govern the correct choice and the various aids that are available to assist clients during this process. Finally, in Chapter 9 an attempt is made to forecast the future in the context of procurement systems and their use. It has been suggested that where there is a clearly defined and communicated set of objectives, and an understanding and acceptance of their responsibilities by each member of an expert and competent project team, construction projects are much less likely to encounter significant difficulties whatever the procurement methodology. Whilst this may be true, it is strongly advocated that this combination of criteria is rarely achieved in practice and success can best be guaranteed by the correct choice of the most appropriate procurement system within the discipline and framework of which the project team are more likely to achieve the necessary level of efficiency to enable them to bring the project to a successful conclusion.

1 THE CONCEPT OF PROCUREMENT SYSTEMS

1.1 TERMINOLOGY The fragmented nature of the building industry particularly the separation of design and construction, the uniqueness of construction projects and the resulting ephemeral nature of the project organization places great dependence on the project team in setting up the building process and bringing the project to a successful conclusion [1]. One fundamental aspect of the building process that requires early and particular attention if success is to be achieved, is the selection of the most appropriate organization for the design and construction of the project. For the purposes of identification and communication it is necessary to adopt a term to describe this organization. An examination of past research and literature reveals that phrases such as ‘building procurement method’, ‘procurement form’ and ‘procurement path’ have been used by various authorities when referring to this concept. Franks [2] describes ‘the amalgam of activities undertaken by a client to obtain a building’ as a ‘building procurement system’ and an examination of the definitions of the last two words of the phrase confirms that when conjoined they relate to the method or organizational structure used to acquire a product, in this case a building project. The term ‘building procurement’ system has therefore been adopted and used throughout the succeeding chapters and it is suggested could, with benefit, be generally accepted within the industry to describe: The organizational structure adopted by the client for the management of the design and construction of a building project. The choice of building procurement systems available to clients is now so wide that the need to carry out the selection process in a disciplined and objective manner should be self-evident, but the fact that such a course of action is not 1

2

THE CONCEPT OF PROCUREMENT SYSTEMS

adopted by many of the construction industry’s customers suggests that the philosophy and advantages of a systems approach to both the detailed and general management of construction projects is still not widely accepted.

1.2 CATEGORIZATION OF PROCUREMENT SYSTEMS As an aid to adopting a more logical approach to the selection of the most appropriate method from the proliferation of systems currently available it is suggested that the different methods need to be categorized and there are a number of ways in which this can be achieved, for example: 1. 2. 3. 4.

by the amount of risk taken by all of the participating parties; by the extent to which design and construction are integrated; on the basis of the way in which the contractor is reimbursed; in the way suggested by The National Economic Development Office (NEDO), in their publication Thinking about Building [3]; 5. by the approach suggested by Bennett [4] after Mintzberg; 6. in accordance with Perry’s categorization [5]. The adoption of the first and third methods would only result in categorizations which would be based upon single characteristics of procurement systems and thus provide an insufficiently wide basis for selection. The second method touches upon a critical element within the design and construction process, i.e. the relationship between the two processes but is again too narrow in its approach. The NEDO guide adopts a practical approach and identifies four different basic procurement systems, or paths, i.e. traditional, design and build, management, and design and manage, each of which have a number of variants, but makes no attempt to establish a grouping of systems based upon common characteristics. Bennett [4] maintains that, from a construction-project management viewpoint, there are three distinct idealized patterns of project organizations each with consistent links with different types of projects: 1. programmed project organizations which relate to standard construction; 2. professional project organizations which relate to traditional construction; and 3. problem-solving project organizations which relate to innovative construction. This approach is considered to be too academic for the purpose of categorization, added to which it does not relate to any of the accepted fundamental characteristics of procurement systems. Perry’s [5] approach categorizes all procurement methods as:

CATEGORIZATION OF PROCUREMENT SYSTEMS

1. 2. 3. 4.

3

divided management of design and construction; co-operative management of design and construction; special emphasis on management; integrated management of design and construction;

and is considered to be, for the purpose of assisting in the simplification of the selection of procurement systems, the most appropriate categorization relating as it does to the critical interaction between the design and construction processes. Therefore for the purposes of use in this guide the following categories have been adopted: 1. separated and co-operative procurement systems, where the responsibility for the design and construction aspects of the project are the responsibility of separate organizations, e.g. design consultants and contractors, but where variants of the basic system may also be used which enable the contractor to be appointed at an early stage so that he may co-operate with the client in pricing, providing advice on construction methods and buildability and accelerating the commencement and completion of the project; 2. integrated procurement systems, where design and construction become the responsibility of one organization, usually a contractor and the client has only one organization to deal with; 3. management-orientated procurement systems, where the emphasis is placed upon overall management of the design and construction of the project with the latter element usually being carried out by works or package contractors and the management contractor having the status and responsibilities of a consultant. Figure 1.1, adapted from Perry’s [5] original diagram, illustrates this categorization and shows the main choices of procurement systems that are currently available. The non-categorization of the British Property Federation system results from the fact that it is, in reality, a very detailed administrative/ managerial framework into which other procurement methods can be fitted to suit the requirements of a particular project and thus does not exhibit the specific characteristics which would enable it to be placed with any certainty into any particular grouping. These groupings and the individual systems are themselves discussed in succeeding chapters but it should be understood that, while on the majority of projects the use of one procurement system will normally ensure that the client’s needs are satisfied, on larger and more complex projects it may be necessary for several of the methods to be used in combination, or singly on different geographical sections of the same scheme, and it is not unknown for a bespoke procurement system to be designed for a specific project.

Figure 1.1 The categorization of building procurement systems Source: Perry [5]

REFERENCES

5

REFERENCES 1. Sidwell, A.C. (1982) Paper to seminar on Management Contracting, sponsored by the Institute of Quantity Surveyors, London, 1 December. 2. Franks, J. (1984) Building Procurement Systems—a Guide to Building Project Management, CIOB, Ascot. 3. Building Economic Development Committee (1985) Thinking about Building—a Successful Business Customer’s Guide to Using the Construction Industry, NEDO, London. 4. Bennett, J. (1985) Construction Project Management, Butterworths, London. 5. Perry, J.G. (1985) The development of contract strategies for construction projects, unpublished PhD thesis, University of Manchester.

2 THE EVOLUTION OF CONTEMPORARY PROCUREMENT SYSTEMS

2.1 INTRODUCTION Having established the concept of procurement systems the evolution and level of use of contemporary procurement methods over the past half century is now examined in some detail using the numerous official and semi-official reports that were produced during this period. The vast majority of construction projects prior to the Second World War (1939–1945), were implemented by conventional methods of procurement that had remained unchanged for over 150 years. Since that time, however, the number of different available procurement systems has substantially increased, often as a result of importation from the USA, and perhaps more significantly, the willingness of an increasing number of client organizations to sponsor and use these new methods. Three phases in the development of contemporary procurement systems can be identified. The first was a period of sustained economic growth when the use of conventional methods of procurement still prevailed; the second was a period of recession characterized by an increased use of non-conventional procurement systems; and the third and final period, which has recently ended, was a time of post-recession recovery during which the most experienced clients of the industry designed and implemented their own procurement systems and more generally, although conventional systems still predominated, design-andbuild and management-orientated procurement methods increased their share of the available workload. Chronologically, these periods broadly relate to the years 1945 to 1972, 1973 to 1980 and 1981 to the present time—nearly half a century during 7

8

THE EVOLUTION OF CONTEMPORARY PROCUREMENT SYSTEMS

which the changed attitudes and needs of client organizations have resulted in a substantial increase in the number and type of procurement systems available.

2.2 1945–1972 Following the end of hostilities the demands placed upon the building industry rapidly increased in both complexity and workload. Despite this, the pattern of organization of projects remained largely unaltered, particularly in the public sector, with the majority of work still being let on the basis of open competitive tendering even though the Simon Report [1] of 1944 had strongly recommended the use of selective bidding. The Phillips Report [2] published in 1950 reiterated this recommendation and in addition highlighted the need for greater co-operation between all of the parties involved in the construction process although by now some innovations in procurement systems, such as negotiated tenders and design and build, had begun to be used to a very limited extent by the private sector and central government. Criticism of the lack of liaison and relationships between consultants, contractors and their mutual clients was contained within the 1962 Emmerson Report [3] which commented: In no other important industry is the responsibility for design so far removed from the responsibility for production. Emmerson also came to the conclusion that there was still a general failure to adopt enlightened methods of tendering in spite of the recommendations of earlier reports, but also noted the growth of the package deal and ‘other forms’ of placing and managing contracts although no examples of such forms, other than serial tendering, and a passing reference to the ‘Clasp’ system of industrialized building, were provided. In 1964 the Banwell Report [4] was published, followed in 1967 by a review, Action on the Banwell Report [5]. The former document expressed concern at the failure of the industry and its professions to think and act together or to reform its approach to the organization of construction projects. The document also reiterated the recommendations of the Simon Report [1] and other previous committees and working parties in that the use of selective tendering should be more universally applied together with the use of nonconventional methods such as negotiated and serial tendering where appropriate. The 1967 review [5] found that some progress had been made since Banwell on the pre-planning of projects, although the professionals had done little to de-restrict their practices. An increase in the use of selective tendering was noted

1973-1979

9

and the industry was again urged to increase the use of serial and negotiated tendering. A number of guides intended to assist clients in the planning and organization of construction projects were published in the decade prior to 1965 although these had not, according to Action on Banwell [5], been widely publicized or circulated. In that year Higgins and Jessop [6], in a pilot study to examine communications in the industry sponsored by the National Joint Consultative Committee (NJCC), were probably the first to suggest that overall co-ordination of design and construction should be exercised by a single person, or organization. The evidence therefore suggests that the early to mid-1960s were a time of considerable activity within the industry with regard to its performance and organization, and that this was probably induced by a combination of economic expansion, rapidly developing technology, changing social attitudes, the demand for more complex and sophisticated buildings and, not least, the client’s increased need for faster completion at minimum cost. The last requirement stemmed from the revived activities of property developers, following the boom in urban redevelopment, and industrial organizations. Both of these client groups were unhampered by standing orders or restrictive procedures and were thus more open to suggestions for the use of unorthodox arrangements for the provision of their building projects. Negotiated contracts and package deals were frequently entered into by the private sector and there was much discussion, but much less real progress, about the early involvement of contractors in order to benefit from their practical expertise. Within this period, a time of sustained and almost uninterrupted economic growth from the end of the war to the early 1970s, conventional methods of procurement prevailed with only a relatively small number of projects being carried out by non-conventional procedures despite a proliferation of reports recommending their use and the adoption of a more co-operative approach by all members of the building process.

2.3 1973–1979 The second phase was a period of recession, if not depression and instability, and commenced in 1973 as a result of the first price increase imposed by the oil-producing countries coupled with a high rate of inflation arising from the previous boom and, eventually, from the effect on the oil price rise itself; this stage is seen to have lasted until 1980. During this time government-sponsored studies of the industry were less general and fundamental than they had been in the 1950s and 1960s and related to specific sectors of construction activity.

10

THE EVOLUTION OF CONTEMPORARY PROCUREMENT SYSTEMS

Of the number of studies emanating from NEDO the report [7] produced in 1975 by the Joint Working Party chaired by Sir Kenneth Wood was the only one specifically to examine purchasing policies and procurement practices although even then the examination was restricted to the public sector. The report found that the procurement systems used by public authorities were inappropriate to the circumstances and types of project surveyed, although the use of non-conventional methods of organizing construction work amounted to nearly 40% of the projects examined. Various official and unofficial reports that were produced during this period drew unflattering comparisons between the performance of the British and foreign construction industries and the two case studies carried out by Slough Estates PLC in 1976 [8] and 1979 [9] were particularly damning. The 1976 study found that the overall time taken to implement an industrial project in the UK was considerably longer than in other countries and the eventual cost of developments in this country was considerably higher than all but one of the seven countries surveyed. The reasons for this poor performance were considered to stem from the unnecessarily lengthy and complex design and pricing process and the time taken for the application and granting of the necessary statutory permits which, when related to the high level of interest rates, inflation and prolonged programmes, led to the high levels of cost. The 1979 report [9] endorsed the findings of the earlier study but conceded that there had been a general improvement in the intervening 3 years which was attributable to the effects of the recession and the resulting low level of building activity. The recommendations made by the two studies stressed the need for reform of the planning and building regulation processes and, in the context of procurement systems, urged the simplification of design and construction procedures, the improvement of construction management, the establishment by clients of their real needs and more effective briefing of their design teams. These two reports [8, 9] were probably the first formalized examples of a trend, which emerged during the late 1970s and has continued since, of some client organizations forcibly voicing their dissatisfaction with the performance of the construction industry. In 1978 the Building and Civil Engineering Development Committees combined to produce Construction for Industrial Recovery [10] a study which sought, among other objectives, to obtain the views of industrialists on the adequacy of the products and services offered by the building industry. The report, based upon a survey of 500 firms and 32 case studies, concluded that industrial firms carried out their construction projects using various procurement methods with many choosing the conventional route. It was also

1973-1979

11

established that the average industrial user is not aware of the complexities of the construction process, or more particularly the alternative methods of acquiring buildings, and that traditional contract procedures frequently do not meet the needs of the manufacturing industry. The Royal Institution of Chartered Surveyors, published a report [11] in 1979 which was based upon a study of the contribution made by different design and contract procedures to cost and time performance, especially in the UK and US construction industries. The document contains a number of conclusions which are relevant to the procurement process: 1. A very wide range of procurement systems is used in the private sector in the US as against a very narrow range in the UK, where central and local government is the dominant influence and public accountability, rather than economy, is essential. 2. Major cost and time penalties are likely to be incurred if detailed design is divorced from construction. 3. The use of construction management in the US has grown as a result of this system being capable of giving the design team control over the construction cost and time. 4. The range of variety of procurement systems has proliferated on both sides of the Atlantic because of escalating costs, increasingly complex designs, the increased size of projects and the more onerous demands of owners. 5. Clients in both countries were found to be dissatisfied with conventional procedures. In the US this dissatisfaction results from an increase in claims, and subsequent litigation, as well as lack of cost control during the design stage, while in the UK escalating costs, the slow rate of construction and technical defects have disappointed clients. 6. Clients in the UK are more conservative than their US counterparts, who are prepared to experiment with the whole range of procurement methods, particularly construction management. The themes of most of the reports published in the 1970s reflected the diminishing numbers of sponsors prepared to commit themselves to building projects in an uncertain economic climate and the increasing concern, of those clients who continued to carry out construction works, at rapidly increasing material and labour costs, high inflation and railing demand for their products, all of which were made worse by the delays, overruns and other difficulties associated with the UK construction industry. Within this second phase the use of the conventional procurement system still accounted for much of the construction work although the use of management contracting, and to a somewhat lesser extent the design and build method, continued to increase.

12

THE EVOLUTION OF CONTEMPORARY PROCUREMENT SYSTEMS

2.4 1980 TO THE PRESENT TIME The third of the chronological phases started in 1980 and has now finished. This stage has been described as a post-recession period of adjustment and recovery during which changes have taken place as a result of long-term shifts in the structure of the industry, such as the emergence of labour-only subcontracting and the client’s changing perceptions. This latter characteristic is best reflected in the publication, at the end of 1983, of the British Property Federation’s (BPF) System for Building Design and Construction [12]. This body, which represents the majority of UK property development organizations and a number of the larger retailers and commercial companies, had concluded that many existing procurement systems caused delays, were inefficient, could increase costs and cause and sustain confrontational attitudes between consultants and contractors which are contrary to the best interest of the client. A Working Party, assisted by a small group of consultants, was set up to draft ‘an improved management system for the building process appropriate for members of the BPF’ and, for the first time on any major scale, eventually produced its own system of organizing the management, design and construction of a building project which reflected US practice and the experience gained in using all of the various existing procurement methods that have become established over many years. It is interesting to note, however, that there is no evidence to suggest that this new approach has captured the imagination of many clients or a significant percentage of the available workload. Two important NEDO reports [13, 14], were published in 1983 and 1988, both dealing with the widely held belief that the process of procuring new industrial or commercial buildings was unnecessarily long and difficult, a view which had been established in the reports of the 1970s, which compared UK performance unfavourably with that of the building industry in overseas countries. The 1983 study [13] found, in relation to procurement methods used on industrial projects, that while conventional methods can give good results, non-conventional techniques tend to be quicker, although the use of bills of approximate quantities and negotiated tendering also leads to faster progress. It also established that over half of the projects surveyed were carried out by conventional methods, about a third by the design and build procurement system and the remainder by some form of management or other approach. The 1988 report [14], which dealt specifically with commercial projects, identified a wide variability in time performance, even on comparable projects, with project outcomes being determined not only by the form of organization but also by the early development of a comprehensive project strategy and

THE LEVEL OF USE OF PROCUREMENT SYSTEMS

13

timetable. Two-thirds of the projects surveyed were carried out by the use of conventional methods with the remainder being more or less evenly divided between design and build and management techniques. Both studies found that about one-third of both industrial and commercial projects finished on time but the rest overran their planned times by a month or more thereby confirming the concern expressed by many clients during this period at the industry’s inability to satisfy their needs. While the British Property Federation produced its own system as a result of its frustration at the construction industry’s poor performance on its members’ projects, another group of clients, mainly those sponsoring megaprojects in London and the south-east of England, began in the mid-1980s individually to put together their own forms of project organization in a way that best suited their own interests. The emergence of this type of expert privatesector client, who has the necessary in-house resources to enable him to manage large projects and an on-going construction programme, is one of the phenomena of the period with clients of the industry despairing of it ever putting its own house in order and identifying the need to develop bespoke project organizations which, in the case of the major schemes, mainly consisted of some form of construction management. In this third and final phase, although the conventional method remained the most widely used system, there was a substantial increase in the use of design and build and a continued use of various forms of management approaches, albeit with an apparent reduction in the use of management contracting, during the latter years of the period, as a result of clients’ dissatisfaction with this method of procurement.

2.5 THE LEVEL OF USE OF PROCUREMENT SYSTEMS None of the many reports on the construction industry that have been produced since the mid-1960s by government-sponsored committees and others, have accurately or adequately defined the level of use by clients of the various available procurement systems. Some of these studies have, however, given indicative figures. The Working Party when preparing the 1967 study Action on the Banwell Report [5] established that, in the housing and educational sections of the public sector, the methods of procuring building projects was as shown in Table 2.1. The information contained within this study regarding the level of use in the other sections of construction activity was far less definitive—hospital boards used selective tendering, universities used selective tendering and negotiation and most contracts for central government and the nationalized industries were being procured by selective tendering and various forms of negotiation.

14

THE EVOLUTION OF CONTEMPORARY PROCUREMENT SYSTEMS

Table 2.1 Method of appointing the contractor

Source: Action on the Banwell Report [5]

The 1974 NEDO guide Before you Build—What a Client Needs to Know about the Construction Industry [15], contained information on the use of procurement methods in the private sector, which confirmed that over 70% of projects were still procured on a conventional basis, 18% were implemented using the design and build system and the remainder carried out by ‘management’ and other methods. The Wood Report [7], which examined the purchasing policies and practices of the public client, established that 60% of contracts were let on a conventional basis, nearly 25% used the design and build method and the remainder were implemented using other non-conventional procurement systems. Hillebrandt [16] maintained that there was no comprehensive data available on the level of use of the various construction industry procurement methods and produced an assessment of the systems usage, in both the public and private sectors, which is partly reproduced in Table 2.2. Subsequent reports indicate that the amount of work carried out in the private sector by selective tendering was underestimated by Hillebrandt [16] and the use of management-orientated methods substantially overestimated. A survey of 21 public and private sector organizations carried out in 1985 by Hewitt [17] established that the use of conventional procurement systems, mainly in the form of selective competition and negotiation, was predominant with design and build being the next most popular method—the detailed results of this survey are shown in Table 2.3. The Faster Building for Industry report [13] established, from a survey of 5000 industrial projects undertaken in 1980–81, that just over half of these were carried out using conventional procurement methods, a third were implemented

THE LEVEL OF USE OF PROCUREMENT SYSTEMS

15

Table 2.2 Assessment of level of use of procurement system in early 1980s [16]

* excluding housing Source: Hillebrandt [16]

Table 2.3 Most commonly used procurement systems

Source: Hewitt [17]

using the design and build methods and the remainder by some form of management system. NEDO’s subsequent report on the commercial sector [14] was based upon a representative sample of 60 projects, built between 1984 and 1986, supplemented by additional data gleaned from 260 schemes and the statistical analysis of non-detailed information on some 8000 commercial projects. The report concluded that over two-thirds of the contracts were let on a conventional basis, about one-sixth used the design and build approach and the remainder were carried out using some type of management procurement method. Surveys [18] have been carried out in 1984, 1985, 1987 and 1989, by the Junior Organization of the Quantity Surveyors Division of the RICs, of some

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Table 2.4 Summary of surveys and estimates of level of use of procurement systems 1960–87 [19]

Source: Rowlinson [19] (a) Rowlinson’s estimate [19] (b) Action on Banwell Report [5] (c) The Wood Report [7] (d) The Wilson Report [15] (e) Faster Building for Industry [13] (f) Hillebrant’s estimate [16] (g) Hewitt’s survey [17] (h) Faster Building for Commerce [14] (i) RICS JO Survey of Contracts in Use in 1984 [18] (j) RICS JO Survey of Contracts in Use in 1985 [18] (k) RICS JO Survey of Contracts in Use in 1987 [18] (l) RICS JO Survey of Contracts in Use in 1989 [18]

700 quantity surveyors in private practice in local and central government and the housing association sector in order to determine the levels of use of forms of contract and building procurement systems during the years in question. The results of these surveys show a decrease over the 4 years in the use of conventional methods from 83% to 67%, while design and build has increased over the same period from 5% to 11% or 12% (although the authors of the survey are of the opinion that the use of the latter arrangement is understated as a result of the single discipline of the respondents). The use of management and other methods decreased between 1984 and 1987 and then rose dramatically to 22% in 1989, although these results may again be suspect. Table 2.4 based upon Rowlinson’s work [19] summarizes all of the previously described surveys, reports and literature with a view to bringing

THE LEVEL OF USE OF PROCUREMENT SYSTEMS

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Table 2.5 Incidence of use, by percentage of annual value of work commissioned, of the main procurement systems

together all of the diverse information and providing an indication of the way in which the use of the various systems has changed over the years. Unfortunately, the lack of comparable figures for the level of use of the various procurement methods over a set period of time from a sufficiently wide range of respondents means that it is not possible accurately to quantify the actual past use of each individual system, or identify the long-term trends, even on the basis of the preceding data. In an effort to establish a more accurate picture, the author undertook a survey in 1988 [20], of clients, architects and quantity surveyors; respondents were asked to identify, by percentage of project value, the procurement methods they had used in the latest year for which such information was available and for the 12-month period 5 years prior to this. Table 2.5 shows the results of the survey which related to industrial and commercial projects carried out during 1986 and/or 1987 and the previous 5 years. Whilst it can be seen that the results obtained from the three groups of respondents varied, in some cases quite radically, the trends shown for the use of each of the procurement systems were, in the main, consistent. The use of conventional systems by all of the respondents had decreased by between 7% and 14% over the 5-year period in question, thus confirming the trend identified by the previous surveys. The design and build method had gained in popularity over the surveyed period, once again confirming the historical evidence, with its increase in use ranging from 35% in the case of quantity surveyors and 60% as reported by architects, with clients increasing their use of the system by nearly 35%.

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The use of management contracting varied considerably between the three groups of respondents with clients reporting a decrease in use from a comparatively low level of under 4% to just over 2%. The results of the survey of architects on the other hand showed an increase from nearly 3.5% to 4.5%. Quantity surveyors also reported an increase in the use of this method, but from a level of nearly 8% to over 13%. This wide variation in the level of use of management contracting was unexpected in itself but was more surprising when the use of this particular procurement system has been, according to the technical press, levelling off, or even reducing, as a result of clients’ disenchantment with the method. Design and manage had been used by clients for over 9% of the value of the work they had carried out during the latest year for which they had records and the level of use had not altered substantially from that of 5 years earlier; architects and quantity surveyors reported an increase in use from a comparative low base. The relatively high incidence of use among clients of this procurement system stems mainly from the fact that most of the respondents utilized their in-house project management expertise to co-ordinate their own internal designers, or external consultants, and package/works contractors so as to carry out a high proportion of their construction projects on a direct basis. The level of use of the remaining methods was so low as to preclude any meaningful conclusions being drawn from the results although the responses obtained with regard to the use of the British Property Federation system appears to confirm the opinions being expressed at the time of the survey that the uptake of this much vaunted and publicized method had so far been both slow and partial.

SUMMARY 1. Despite the fact that this examination of the historical background to procurement plainly shows that in the post-war period all relevant official reports and studies have emphasized the need for clients and the industry to embrace the use of non-conventional procurement methods in order to maximize the likelihood of ensuring the clients’ needs are met, it was not until some 25 years after the end of the war that the reactionary forces lost momentum and, what were then, unorthodox methods of procurement began to be used more frequently. The 1950s and 60s were a time of general reorganization of the industry in order to deal with the large increase in workload and shortage of resources prevalent during this period and although selective tendering, negotiated and serial contracts were used to overcome the difficulties resulting from these phenomena, the use of conventional procurement

SUMMARY

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Table 2.6 Summary of surveys of the levels of use of procurement systems

(a) Faster Building for Industry [13] (b) Masterman’s survey of clients [20] (c) Faster Building for Commerce [14] (d) RICS JO Survey 1984 [18] (e) RICS JO Survey 1985 [18] (f) RICS JO Survey 1987 [18] (g) Masterman’s survey of clients [20] (h) RICS JO Survey 1989 [18]

systems still predominated mainly as a result of central and local government controlling the major part of the industry’s annual workload and maintaining a policy of public accountability. The 1970s and 80s were, on the other hand, characterized by a lack of public finance, a changed pattern of demand as the private sector became dominant and new client attitudes to the organization of the design and construction of projects and the financing of development schemes. In terms of the use of procurement systems these changes resulted in the launching of the BPF system, the designing of bespoke procurement systems, often by client organizations themselves, and the increased use of design and build and management-orientated systems. 2. It is not possible, on the basis of literature and past research, to accurately quantify the past or present level of use of all, or any, of the available procurement systems; this inability stems from the lack of truly comparative figures for the individual methods over a set period of time from a sufficiently wide range of reliable sources. However, Table 2.6 attempts to provide an indication of the pattern of use of such systems based upon information contained within those surveys which most nearly meet the criteria for such comparisons. 3. Figure 2.1 shows the difference in the level of use of the three categories of procurement systems over a period of nearly 30 years between 1960 and 1988, as estimated by Rowlinson [19] and Masterman [20] and illustrates in graphic form, the changes that have been described in this chapter and

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Figure 2.1 Changes in the level of use of procurement systems, 1960–1988

in particular the determination of a large number of clients to implement their projects by the use of procurement methods which satisfy their own needs and not those of the construction industry. The next four chapters define and describe the various individual procurement systems and their variants, and provide information on the history and characteristics of the methods as well as the process of implementation and the advantages and disadvantages of the different systems.

REFERENCES 1. Simon Report (Central Council for Building and Works) (1944) The Placing and Management of Building Contracts, Chairman Sir E. Simon, HMSO, London. 2. Phillips Report (Ministry of Works) (1950) Report on the Working Party on the Building Industry, Chairman Mr J. Phillips, HMSO, London. 3. Emmerson Report (Ministry of Works) (1962) Survey of Problems before the Construction Industries, Report prepared by Sir H. Emmerson, HMSO, London. 4. Banwell Report (Ministry of Public Buildings and Works) (1964) The Placing and Management of Contracts for Building and Civil Engineering Work, Chairman Sir H. Banwell, HMSO, London.

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5. Economic Development Committee for Building (1967) Action on Banwell Report, National Economic Development Office, London. 6. Higgins, G. and Jessop, N. (1965) Communications in the Building Industry, Tavistock Publications, London. 7. Wood Report (Building Economic Development Committee) (1975) The Public Client and the Construction Industries, Chairman Sir K.Wood, NEDO, London. 8. Slough Estates Limited (1976) Industrial Investment. A case study in factory building, Slough Estates Ltd, London. 9. Slough Estates Limited (1979) Industrial Investment. A case study in factory building, Slough Estates Ltd, London. 10. Building and Civil Engineering Economic Development Committee (1978) Construction for Industrial Recovery, Chairman Mr F.C.Graves, NEDO, London. 11. University of Reading, Department of Construction Management (1979) UK and US Construction Industries: a Comparison of Design and Contract Procedures, RICS, London, September. 12. British Property Federation (1983) Manual of the BPF System for Building Design and Construction, BPF, London 13. Building Economic Development Committee (1983) Faster Building for Industry, NEDO, London, May. 14. Building Economic Development Committee (1988) Faster Building for Commerce, NEDO, London, November. 15. Building Economic Development Committee (1974) Before you Build—What a Client Needs to Know about the Construction Industry, NEDO London. 16. Hillebrandt, P.M. (1985) Economic Theory and the Construction Industry, 2nd edn, Macmillan, Basingstoke. 17. Hewitt, R.A. (1985) The procurement of buildings. Proposals to improve the performance of the industry, project reports submitted to the College of Estate Management for RICS diploma in Project Management. 18. Junior Organization, Quantity Surveyors Divisonal Committee (1985, 1986, 1988, 1990) Survey of Contracts in Use, 1984, 1985, 1987, 1989, RICS, London. 19. Rowlinson, S. (1986) An analysis of the performance of design—build contracting in comparison with the traditional approach, unpublished PhD Thesis, Brunel University. 20. Masterman, J.W.E. (1989) The procurement systems used for the implementation of Industrial and Commercial building projects, unpublished MSc thesis, University of Manchester.

3 SEPARATED AND CO-OPERATIVE PROCUREMENT SYSTEMS

3.1 INTRODUCTION The unique characteristic of this category of procurement systems is the separation of the responsibility for the design of the project from that of its construction. Even where variants of the basic system allow co-operation between the contractor and the client or his consultants, these two fundamental elements remain as two separate entities. The category contains one main procurement system—the conventional method—and a number of variants of that method. In this guide these variants have been restricted to those which are generally accepted as being most widely used in the industry, i.e. negotiation, two-stage selective tendering, continuity contracts, serial contracts and cost-reimbursable contracts. In most cases these variants have been devised, or have evolved over the years, as a means of mitigating the shortcomings of the basic system. These deficiencies and the other characteristics of both the parent system and its offspring are now examined and discussed.

3.2 THE CONVENTIONAL METHOD 3.2.1 Definition of the system This method of procuring building projects is usually referred to within the industry and literature as the ‘traditional method’. The author maintains that, in fact, the traditional method of designing and constructing buildings was that which was most commonly used before the end of the 1700s or beginning of the 1800s when clients had 23

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for many centuries traditionally employed craftsmen, on an individual basis, under the supervision of a master mason, or surveyor or, very rarely, an architect. Since that time and up to relatively recently the ‘accepted social behaviour’, the Concise Oxford Dictionary’s definition of ‘convention’, has been for most clients to implement their building projects by using a main contractor with the design and supervision being carried out by an architect assisted by other specialist consultants. The term ‘conventional method’ has therefore been used to describe this system throughout this guide. Apart from the separation of design and construction the conventional procurement system exhibits a number of other basic characteristics. 1. Project delivery is a sequential process. 2. The design of the project is largely completed before work commences on site. 3. The responsibility for managing the project is divided between the client’s consultants and the contractor and there is therefore little scope for involvement of either of the parties in the other’s activities. 4. Reimbursement of the client’s consultants is normally on a fee and expenses basis whilst the contractor is paid for the work completed on an admeasure or lump-sum basis. The ideal definition of this method will include all of these features and the following attempt at encapsulation has been adopted for the purpose of use within this guide. The client appoints independent consultants, on a fee basis, who fully design the project and prepare tender documents upon which competitive bids, often on a lump-sum basis, are obtained from main contractors. The successful tenderer enters into a direct contract with the client and carries out the work under the supervision of the original design consultants. Figure 3.1 illustrates the conventional procurement system in simplified diagrammatic form.

3.2.2 Genesis The conventional procurement system has been used by the majority of clients of the industry for at least the past 150 years in order to implement their building projects. It is maintained by Powell [1] that a watershed in the use of the system occurred during the Napoleonic wars (1792–1815), when, as a result of the frequent disputes that arose between the client and the separate tradesmen, involved in the ‘measure and value’ system current at that time, the Government’s Office of Works introduced competitive tendering for entire projects as a superior alternative.

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Figure 3.1 Contractual and function relationships—the conventional system of procurement

By the 1850s ‘contracting in gross’, as the system was then known, widely prevailed enabling clients to secure the economic benefits of competition, knowledge of the final cost before work began, better control of subsequent expenditure and the ability to enter into a single, contractual relationship with a builder instead of less co-ordinated tradesmen. At the same time as the organizations for constructing projects and the associated contractual relationships were changing, surveyors were being used by groups of builders, and eventually by clients, to take off from the architect’s drawings the quantities of materials required for estimating purposes and relieving the tenderers of responsibility for their accuracy and sufficiency. From the second half of the 19th century until the commencement of the Second World War the use of the conventional system by both public and private

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clients gradually increased, together with the use of standard forms of contract, to the point where, in England and Wales at least, this method was being used for the vast majority of projects, albeit on the basis of very open competitive tendering. Following the end of hostilities in 1945 the conventional procurement system remained predominant, supported by the findings of the Simon committee [2] who had reported that an examination of the system of placing contracts had not disclosed any serious weakness in the methods that had been built up by ‘architects, quantity surveyors and builders’, although it was recommended that, where appropriate, selected and limited lists of tenderers should be used together with negotiation. The story of that most demanding of clients the commercial property developer, from 1945 to 1967 as told by Marriott [3] makes no mention of the use of any procurement system other than the conventional method apparently confirming that, up until at least the middle 1960s, this approach satisfied the majority of the metropolitan property companies. The seeds of change, however, had already been sown in the Emmerson and Banwell Reports of 1962 and 1964 [4, 5]. Emmerson concluded that ways needed to be found of improving co-ordination and co-operation between the building owner, consultants, contractors and subcontractors, and suggested that the system for placing contracts and managing projects should be comprehensively reviewed. Banwell [5] reiterated this view and berated the majority of the various members of the industry for their reactionary approach to new ideas and processes pointing out the urgent need for the separate factions to come together and think and act as a whole, particularly in the ‘letting, form and management of contracts’. Perhaps as a result of the pressure exerted by such reports, as well as normal commercial influences, the mid- to late 1960s were a watershed in terms of the increased use of non-conventional procurement systems and thus the decline in the employment of conventional methods. This period saw the beginning of the growth of design and build, the birth of the first major management contract, the use of serial tendering for system build/industrialized buildings and a general acceptance amongst the larger and more far-sighted clients and consultants that the involvement of the contractor at an early stage could be of benefit to the project as a whole. In 1973 the oil crisis, and the consequent rise in fuel prices and interest rates, meant that the dominant project objective of most clients became the need for rapid commencement and completion of his development in order to reduce borrowing to a minimum. These requirements resulted again in a continuing decline in the use of conventional procurement systems. This trend has continued up to the present time with clients satisfying their

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needs by increasingly using non-conventional procurement systems to the detriment of the conventional method.

3.2.3 Share of the market While a great deal of time and effort has been expended in achieving technical innovation in construction, and refining existing and producing new forms of contract, very little attention had been paid, until comparatively recently, to the rationalization and reorganization of the procurement process thus allowing the conventional system to maintain a major share of the available building work. However, the increasing participation of large and sophisticated clients in this process, particularly during the past decade, and the historical events that have previously been described has meant that the amount of work being carried out using the conventional procurement method has declined and appears likely to continue to do so. The lack of accurate comparative historical data on the level of use of procurement systems and the wide range of types of projects and categories makes any examination of this aspect of construction activity extremely difficult and any subsequent results somewhat unreliable but some surveys and research can provide at least indicative information. The comparison of design and contract procedures in the UK and the US carried out by the University of Reading in 1979 [6] concluded that the most common form of contractual arrangement used in both countries was the lumpsum approach, using the design/tender/build process, but unfortunately no attempt was made to quantify this statement. The 1984, 1985 and 1987 Surveys of Contracts in Use [7], carried out by the RICS Quantity Surveyors Divisional Committee, covered all types of UK building works, except maintenance, and demonstrated a significant decrease in the use of separated and co-operative procurement systems during the 4year period covered by the surveys, although even then 87% of the projects examined in 1987 were carried out using the conventional method or one of its variants. On the other hand the Building Economic Development Committee’s (BEDC) reports Faster Building for Industry [8] of 1983 and Faster Building for Commerce [9] of 1988 found that only 52% and 65% of the projects in these sectors of the industry were carried out using conventional procurement methods, the difference between the results of these surveys and those carried out by the RICS being accounted for by the narrow client/project base used in the BEDC investigations. At the present time the market’s perception of the conventional system and its variants is that for small- and medium-sized uncomplicated projects. Where

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time is not at a premium, these systems offer the most economic route to success. In the case of major new works, where time is at a premium, the shortcomings of the separated and co-operative methods are likely to result in the use of nonconventional systems. The wide variation in the estimates of the level of use of this system means that any attempt to evaluate the share of the market currently enjoyed by the conventional method, and its offshoots, is fraught with difficulty but it is suggested that the level of use had shrunk from the 85% estimated by Rowlinson for 1960 [10] to something between 55%–60% at the end of the 1980s. In the immediate future, and as long as the present high level of activity continues, it is likely that this method will continue to lose ground albeit at a slower rate than during the past two decades. However, in the longer term it could be argued that if demand reduces in line with current indications and the past cyclical pattern of building industry activity, the decline in the use of conventional systems may reduce and even stabilize.

3.2.4 The process The Royal Institute of British Architect’s (RIBA), outline plan of work [11], sets out the procedures to be followed for projects being procured by conventional means. Although the plan identifies 12 stages there are only four which need concern us in the context of procurement systems, these are: preparation, design, tender and construction. As one of the unique characteristics of the conventional system is that it follows a strictly sequential path, each of these four stages can be viewed as separate entities and carried out, to a certain extent, in isolation of the others with the result that the process can become extremely lengthy, lead to poor communication, undermine relationships between project team members and produce problems of buildability. The four stages are now described and discussed.

Preparation This is the inception stage of the project when the client establishes his needs in principle, but not in detail, appoints a project manager and selects and appoints his design team which normally consists of, as a minimum, an architect, structural/civil engineer, mechanical and electrical engineer and quantity surveyor, together with any other specialist consultants necessary for the successful implementation of the project. Dependent upon the nature of the client, and the undertaking itself, the project manager may be:

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1. an employee of the client organization with no construction knowledge who simply acts as a co-ordinator of information and a single source of contact and communication for the design team leader who will have responsibility for the day-to-day project management; 2. an experienced construction professional, permanently and directly employed by the client, who, in addition to being the single point of contact, will be responsible for the financial, technical and administrative management of the project from inception to completion; 3. an external consultant project manager appointed, probably on a percentage fee/target-cost basis, for a specific project to carry out the same duties as an ‘in-house’ project manager. It can be seen that the conventional procurement system involves the client in a number of differing relationships with several organizations and many inexperienced customers are dismayed at the complexity of the process and the size, and the cost of the design team itself. During the preparation stage and before the appointment of the design team, but not the project manager, the client should establish his basic needs in terms of the functionality and the quality of his project and the cost and time parameters that he wishes to set. Having settled these fundamental requirements, he must determine the strategies he will use to successfully implement the project and, on the basis of these, appoint an appropriate design team. Any time taken during this stage to ensure that the client’s requirements are correctly established will be time well spent and should be reflected in the ability to proceed with the other three phases of the project with the minimum of change and disruption. The decisions taken at this time set the whole tone and pattern for the remainder of the building process. At this stage, and to a slightly lesser extent during the design phase of the project, the client has a great deal of influence—he has much less opportunity to control any aspects of the undertaking during the last two stages and particularly during the construction period.

Design This phase sees the appointment of the design team who develop the project through a series of stages: briefing, feasability, outline design, scheme design and detailed design with the scheme’s configuration and features becoming firmer at each stage. Again the client and his consultants have considerable freedom during this phase to conceive and develop the project without excessive time or economic pressures although research [8] has shown that projects which move quickly in the pre-construction period tend to be constructed quickly as well.

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Figure 3.2 The influence of various parties on the cost of new facilities Source: Perry [12]

When using the conventional procurement system it has been established that very often work has been put in hand without the client having comprehensively established his needs, and the design team having clarified them, with the result that expensive and disrupting changes have been necessary during the construction period. This less-than-rare phenomenon stresses the need to ensure that the proposed design satisfies the functional and qualitative needs of the client before obtaining tenders and commencing work on site—the lack of attention to this requirement will result in an unsuccessful project. During the design process the designers are usually working in isolation, far removed from the contractor who will eventually be responsible for carrying out the construction of the project, and sometimes each other; this isolation from the contractor is deliberate and great care is taken to ensure that no contact occurs thus reinforcing the division identified by Banwell [5] some quarter of a century ago. Thus opportunities for incorporating and ensuring buildability, as recommended by all authorities, are virtually non-existent although it has been suggested, perhaps somewhat naively, that even if a contractor is chosen

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after the design has been formulated, he should be invited, when appointed, to suggest any modifications which might improve buildability, speed of construction or cost. The main reasons for the lack of involvement of contractors when using the conventional method are well known but deserve reiteration. 1. Clients wish to ensure that the responsibility for the design of any project is vested in one group, i.e. the design consultants. 2. The list of tenderers will generally not be available until the design has been mainly completed. 3. The practical and ethical difficulties of dealing with suggestions from a number of contractors during the design stage are difficult to overcome. 4. Once design decisions have been made they usually cannot be changed without cost penalties and delays to the construction programme. In this context Perry [12] has identified the impact by reference to an unidentified Swedish study of work carried out by the client and his consultants up to and including the design stage as influencing 90% of the construction cost with only 15% of the actual project expenditure having been incurred—see Figure 3.2. It can thus be seen that, although the client may be anxious to see work commence on site, progress during this stage should be carefully controlled and not unreasonably forced. Hastily prepared design details can lead to major misunderstandings and disputes during the construction stage, which may result in delays and cost penalties.

Preparing and obtaining tenders Tender documentation on conventionally procured projects normally consists of drawings, specification(s) and a bill of quantities, with the latter document being prepared by the quantity surveyor on the basis of measurements ‘taken off’ from the designers’ drawings in order to provide each tenderer with a common base from which to price his bid. For the conventional system to operate successfully, and to minimize the financial risk to the client, it is imperative that the design is fully developed before the bills of quantities are prepared and tenders invited. If this is not done excessive variations and disruptions of works are likely to occur. Whilst selection of the contractor by limited competitive tendering should offer the assurance of achieving the lowest price for the project, in reality the designer’s drawings are rarely in sufficient detail to enable a bill of quantities to be prepared with any accuracy and the art of evaluating from the drawings the exact amount of work required ranges from the difficult to the impossible. It has been repeatedly demonstrated that, where tender documentation is suspect in this way, bids obtained by the conventional method can only be

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considered as indicative of the final cost to the client and may result in an unscrupulous contractor abusing the system by submitting an unrealistically low bid and then formulating claims for additional reimbursement in order to uplift his original tender to a commercially viable level. The selection of contractors who will receive tender documents and submit bids can be made in a number of ways but it is usual in the case of conventionally managed projects, particularly if the expenditure of public money is involved, for tenderers to be selected by advertisement, or more often from a list of approved contractors, with the latter method rapidly becoming the norm for all categories of clients. In 1975 the Wood Report [13] found that the current practice at that time for building projects was that 16% of the sample of public clients surveyed appointed contractors by open competition and 65% by selective competition; a further 14% chose one contractor with whom they negotiated. It has now been generally accepted by all categories of client that, when using the conventional procurement system, the selection of the most acceptable bid should not be made by the use of open competitive tendering but by selective tendering based upon a list of tried and tested contractors whose performance and financial stability are regularly monitored. A critical element of the tender documentation is the form of contract, a subject about which much has already been written; suffice it to say that in the context of procurement systems and the achievement of project success it is normal and advisable to use the most appropriate of the many standard forms of contract of which the industry has much experience. If for any particular reason it is intended to introduce any special conditions of contract, to use non-standard agreements proposed by one of the parties or, more rarely, to formulate a bespoke form of contract, technical and legal advice should be taken and the advantages and disadvantages of the proposed documentation carefully considered before any commitment is made. Once tenders are received the selection of the bid of most advantage to the client presents very little difficulty when using this system as tenders will be capable of being judged on price alone having been based on documentation which is common to all tenderers and, theoretically at least, accurately and comprehensively reflects the client’s actual requirements.

Construction When using the conventional system of procurement, an adequate period should be allowed for the contractor to plan the project thoroughly and organize the required resources. Undue haste in making a physical start on site may result in managerial and technical errors being made by both the design team and the

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contractor, which could lead to a lengthening rather than a reduction of the construction period. It has already been established that, when using this method a very high proportion of the estimated cost of the project has been committed before work commences on site although actual expenditure is comparatively small. However, it is during the construction phase that the majority of difficulties will surface with the quality of the performance during this period having already been largely determined by the quality of the preparatory work; it is at this stage that the price for an incomplete design, inaccurate bill of quantities, poorly prepared tender documentation and lack of ‘buildability’, etc. is paid. The ability to introduce changes to the design of the project during the construction period that is a characteristic of this system is both a strength and a weakness as such variations have been identified as one of the most important causes of, and excuses for, delay. If it is essential to instigate changes, the project team (including the contractor), should be consulted and the practical and financial consequences of the proposed variation established in detail before instructions to proceed are given. Developers building on a speculative basis have been identified as allowing their projects to be disrupted substantially by their efforts to respond to demands from prospective tenants during the construction period and the in-built ability of the system to accommodate variations can lead to a permissive attitude to design changes and any alterations to the original design should be kept to a minimum or, if possible, entirely eliminated. The management and supervision of the work on site, to ensure that it confirms to the client’s brief as reflected in the design, specification and contract conditions is the responsibility of the design team, although it should be remembered that under normal terms of engagement they are not required to carry out full-time supervision of the works which is usually an additional service provided by a resident architect, engineer and/or clerk of works whose services are provided at an extra cost to the client. The ability of design consultants in general, and architects in particular, to manage projects has been continually questioned over the past two decades and particularly by Barnes [14] who has maintained that in the case of the conventional approach designers are not motivated to give sufficient attention to the control of the critical criteria of cost and time. The combination of part-time supervision and lack of management expertise and motivation during the construction phase of conventionally procured projects can result in delays and additional costs being incurred by the client as a consequence of poor performance by his consultants; the detailed and continuing involvement of the client can offset these deficiencies as it has been amply demonstrated that customers who take a constructive and objective

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interest in all aspects of their projects achieved the best results particularly in terms of speed of completion. Because of the separated nature of the conventional method of procurement, it is necessary for the client to ensure that good communications exist between all members of the project team, that immediate decisions are made when queries arise during the construction phase and that a strong site-management team is in place before work commences on the project. Payment to the contractor for work that has been satisfactorily completed is made by means of interim certificates, generally monthly, of value of work done, issued by the architect on the recommendation of the quantity surveyor. The priced bill of quantities submitted by the contractor at tender stage forms the basis of interim valuations and also ensures that any variations can be valued by reference to pre-agreed rates for appropriate operations. An agreed percentage is retained until final completion and a further reduced amount until the defects liability period is satisfactorily completed. This rigid monthly payment system, together with the practice of holding retention monies, has been criticized as being a very expensive method of payment for the large number of undercapitalized small subcontractors who now carry out the majority of the actual site work and it has been suggested that the adoption of more flexible methods of payment and the streamlining of the retention system would benefit the client as well as the industry. The likelihood of such a major change in payment methods being achieved within the foreseeable future is remote but in the meantime it is incumbent on clients to ensure that certified payments are promptly honoured and that the subsequent reimbursement of all subcontractors by the main contractor is made with the same alacrity. Such action will ensure that the contractor’s efforts are more effectively engaged in actually managing the project rather than pursuing outstanding payments and may well serve to ensure good relations and thus improve project efficiency. The nature of the conventional method of procurement and its associated conditions of contract is such that any delays that occur during the construction phase, which are caused as a result of happenings outside of the main contractor’s control, can only be overcome or mitigated by issuing instructions to accelerate the appropriate current or future critical operations at the client’s expense. The sequential characteristic of the system reduces the ability to deal with any unexpected delays other than during the construction period. Overcoming such delays during this phase of the project is not easily achieved even if the cost of the necessary acceleration can be accommodated within the financial budget for the scheme and it is essential that, apart from the pre-planning of the project that has been previously identified, the project team closely monitor the contractor’s progress so that any areas of possible delay can be detected

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sufficiently early to enable remedial action to be taken and practical completion achieved in accordance with the client’s requirements.

3.2.5 The product Cost It is maintained that when using conventional procedures, where bills of quantities form part of the tender documentation, the cost of tendering is reduced, the quantitative risks encountered in tendering are removed, competition is ensured, post-contract changes can be implemented at a fair and reasonable cost and clients can be confident that they know their financial commitment. All this is true, provided that the design has been fully developed and accurately billed before obtaining tenders. If, however, these criteria have not met with excessive variations, disruption of the works and a consequent increase in the tendered cost will occur. There appears to be a dirth of up-to-date accurate information on the actual final costs of projects carried out using the conventional method although there have been a number of reports and guides published since the mid-1970s which touch upon this fundamental aspect of procurement management. The Building Economic Development Committee of NEDO produced a guide [15] in 1974 in which the performance of projects designed by different types of designers was measured. Only 26% of all of the factory projects examined that had been designed solely by architects, or architects assisted by other designers—in other words, procured by conventional means—were completed within 5% of the estimated cost. The remainder exceeded the budget figure by a greater margin. Office projects fared little better with 33% of the projects that used the conventional system being completed within the 5% figure and the remainder again exceeding the estimated cost by more than that percentage. In 1982 the Department of Trade and Industry and the Department of the Environment jointly produced A Guide to Methods of Obtaining a New Industrial Building in the United Kingdom [16], which demonstrated that the sequential traditional path, i.e. the conventional method of procurement, provides a high degree of price certainty and competition. Flanagan [17], in 1981, illustrated the apportionment of financial risk between the client and the contractor when using various procurement systems (see Figure 3.3), which showed that the basic form of reimbursement associated with the conventional procurement system, i.e. the lump-sum fixed price, allocated the major part of the risk to the contractor thus, theoretically at least, reducing the cost of the project to the client to the minimum. Finally, in 1988, Brandon et al. [18] assumed values for an addition to the unit cost of the project

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Figure 3.3 Allocation of financial risk Source: Flanagan [17]

to account for the effect of the chosen procurement system on the contract sum. On a competitive lump-sum contract, with a full bill of quantities, the addition was valued at 0% which, while being equal to that of the design and build system, was the lowest of the remaining five procurement methods that were examined. In more general terms the project cost can be estimated, monitored

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and controlled by the client’s cost advisor during the whole life of the project— an important advantage in these days of large cost overruns. Such data as is available would therefore appear to support the widely held belief that the use of the conventional procurement system results in a final project cost which is lower than if any of the other methods (with the exception of design and build), had been used, subject to the tender documentation being based upon a fully completed design.

Time Because of its sequential nature the conventional procurement system has been continuously identified as the slowest method of procuring construction projects available to a client. An examination of research into this aspect of the method supports this belief far more readily than with the previous cost characteristics of the method. The 1974 BEDC guide [15] showed that of the sampled factory projects carried out using the conventional method nearly 55% were completed within 5 % of the programmed time for the design element and 51 % for the construction element. Similar figures for office buildings in the same study revealed that nearly 60% of the projects were completed within 5% of the estimated design period and nearly 54% were completed within the same percentage of the estimated construction period. Thus, between 40% and 49% of all the projects surveyed overran their estimated design and construction period by in excess of 5%. The 1975 Wood Report [13] also established that of a sample of 2000 public sector building and civil engineering projects which were examined over 80% were implemented by the use of the conventional procurement method; whilst no specific results were obtained for this major element of the sample, over 60% of the total projects overran by an average of 17.4% with a third exceeding the estimated project period by more than 20%. A report produced by NEDO in 1978 [19] surveyed over 500 industrial companies the majority of whom had carried out construction projects using the conventional procurement system and found that of the 300 or so who had recent capital investment experience 17% were dissatisfied with the project times achieved by the construction industry. Figure 3.4 illustrates the comparison between the times achieved by the various listed procurement methods during the pre-construction stage of the projects surveyed in the 1983 NEDO Report Faster Building for Industry [8]. In addition to the time saved by the use of variants of the conventional system during the pre-construction phase of the project, it was established that further savings could be made during the construction phase itself by

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Figure 3.4 Pre-construction times Source: NEDO 1983 [8]

over-lapping design and construction when using other non-conventional systems and the report therefore concluded that: the use of non-traditional routes tends to produce overall project times shorter than those produced by traditional routes.

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Quality and functional suitability The generally held view amongst clients is that the conventional procurement system provides a high degree of certainty that quality and functional standards will be met. This view is supported by the findings of the 1974 BEDC guide [15] which examined the existence of faults in completed buildings when designed by different designers working within various procurement systems. On factory buildings, designed by architects employed directly by clients, 49% were free of faults, 40% had minor defects and there were 4% of major problems. In the case of office buildings designed under the same circumstances, 54% had no faults, 41% minor defects and 5% major defects. The 1982 guide Methods of Obtaining a New Industrial Building in the UK [16] identified the conventional procurement method as being suitable for projects of normal to more demanding levels of building quality. The study Faster Building for Industry published in 1983 [8] found that clients who built speculatively used conventional procurement arrangements because they were concerned about the market appeal of their buildings and wanted to retain control over appearance, quality of finishes, etc. Finally the BEDC guide Thinking about Building [20] reinforces the suitability of the conventional route for those whose projects are complex or who require high quality or prestigious buildings.

Other characteristics The conventional procurement system has the advantage of having stood the test of time over many years and being understood by most clients and all of the participants from the construction industry itself. The client is able to select the most appropriate design team for his project, taking advantage of their experience of similar developments, and can also delay commitment to a building contract until a later stage in the development of his requirements. The main disadvantages of the system have already been highlighted but Barnes [14] maintains that the conventional procurement method does not motivate the client to make his decisions as firmly, or as early, as he should or induce designers and contractors to pay enough attention to saving and controlling cost, or time, and improving building quality. It is also the case that the designers of the project often have no direct experience of managing construction work and the contractor is unable to contribute to the design of the project until too late. As the individual methods contained within the separated and co-operative categories of procurement systems have many characteristics in common, it is not intended at this stage to reach any conclusions as to the advantages and

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disadvantages of the conventional system but rather to delay such opinions until all of the member systems of this category have been examined. However, it should be said at this point that enormous pressure is usually needed to change any procedures, such as the conventional procurement method, which become institutionalized within the industry but during the past decade such pressure has been exerted, mainly by the large property developers, to the point some would argue where non-conventional procedures have been used inappropriately and the conventional system discarded unnecessarily. What should be sought is a balance between the use of proven nonconventional methods and the known ability of the conventional system to offer the most economic procurement route for small and medium-sized uncomplicated projects where time is not at a premium.

3.3 VARIANTS OF THE CONVENTIONAL METHOD The co-operative methods that are now discussed are all variants of the conventional method and differ only in the way in which the contractor is appointed, or reimbursed; all other aspects such as the appointment by the client of a separate design team and cost consultant remain as for the parent procurement method.

3.3.1 Two-stage selective tendering The Code of Procedure for Two Stage Selective Tendering [21], points out that the term can be used to describe a variety of tendering procedures the most common of which is the system whereby the first-stage tender is binding and becomes the contract sum—this is, in the opinion of the author, more properly a modification of single-stage tendering and the following discussion is therefore limited to the ‘pure’ procedure which, as the title suggests, is made up of two stages. The process is similar to the parent system up to the time when tender documentation is produced. At this stage bills of approximate, or even notional quantities, or a schedule or rates, are developed, together with specifications and drawings, which are very often little more than sketches at this point. A small number of contractors, usually between three and six, are invited to submit tenders based upon this approximate documentation and in some instances they are also asked to compete in other areas such as construction expertise, resources and site organization. The successful tenderer is formally notified of the client’s intention to enter into a contract subject to certain conditions being met, such as satisfactory collaboration and service, and an

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acceptable final tender figure being agreed which will be based upon total remeasurement of the project once working drawings are available. The chosen contractor is then under an obligation to co-operate with the design consultants, giving advice on buildability, material ordering, costs, programming and detailed design, such advice becoming a commitment. Should the project be aborted, prior to a tender figure being agreed and for reasons not attributable to the contractor, reasonable costs incurred by him are usually reimbursed. Once construction starts the project proceeds in a similar manner to that adopted on conventionally managed projects although the interim and final valuations and certificates will be determined as the result of a remeasurement of the work carried out by the contractor in order to overcome the inaccuracy of the original approximate tender documentation. On the question of time it has been established that the effort taken to prepare approximate bills of quantities was about half of that required for the preparation of a full measured bill and this together with the savings made as a result of not having to prepare detailed drawings at tender stage contributed to the shorter pre-construction times that had been experienced when using this procurement system. The Wood Report [13] surveyed 48 projects that had been implemented using this procurement method and found that the average time overrun was smaller than in any of the other methods used by the participants and there was less variability in performance in meeting time targets. These advantages were found to stem from the collaboration between designer and contractor during the design stage and the better planning of the organization of the construction stages as a result of the early involvement of the contractor. These findings were confirmed by the research carried out during the preparation of the Faster Building for Industry report [8] when it was established that the early selection of the contractor enables him to use the time needed to complete the design to prepare for the project and to programme his own and his subcontractors’ site operations and thus make savings in time. Thinking about Building [20], in a questionnaire intended to assist in the selection of the most appropriate procurement route, rates the accelerated traditional method as being capable of dealing with complex works when timing is crucial and it appears to be the case that, provided the brief does not change significantly after the selection of the contractor and design and construction can overlap, modest time savings can be made, or the possibility of overrun minimized, if not entirely eliminated. The same document does, however, draw the client’s attention to the need for ‘price certainty to be a secondary consideration’ when using this procurement method and most authorities agree that a cost premium is usually paid for adopting this approach.

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However, the fact that completion can generally be achieved earlier than when using the conventional system and some of its other variants may well help to offset the additional cost that is likely to be incurred. It should also be recognized that it has been demonstrated that the use of this method generates a very low value of variations, a phenomenon that probably reflects the cooperative nature of the method. Some concern has been voiced about the possibility that once selected the contractor can increase his level of pricing. However, where the selection process has been properly managed and documented, a reliable basis of pricing has been established and no significant changes in the client’s brief or design concept requested, this problem should not occur. It has also been suggested that bills of approximate quantities can be, and indeed have been, used as a palliative by design teams who have fallen behind schedule to overcome, or hide, their own inefficiency. While this may be a possibility it is unlikely to be a problem on a well-managed project where all aspects of progress are strictly monitored by the client’s project manager. There is also a more general suspicion that approximate, or notional, bills of quantities and schedules of rates allow tenderers to weight their tender prices, i.e. in areas where they consider the quantities may eventually be substantially increased, although this sort of price rigging should easily be detected by an experienced quantity surveyor during the detailed evaluation of the tenders. When considering the use of this procurement method it should be appreciated that like most other co-operative methods, two-stage selective tendering calls for a greater input from the client, or his advisors, than the conventional approach and that it is essential that all of the participants in the scheme are conversant with every aspect of the method in order to avoid any misunderstandings occurring during the currency of the project. It is also necessary to ensure that mutually acceptable procedures are established by the client’s representatives and the contractor which will govern the methods by which the price for the project will be calculated and that, as a means of ensuring that value for money is being obtained, valid comparisions are made with similar projects that have been awarded on a competitive basis. Despite these caveats, the majority of authorities agree that the use of this procurement system can be an appropriate solution where it is desirable to secure the early involvement of a contractor to provide some form of expertise— where the client wishes to commence work on site in advance of the detailed design of the project having been finalized, where it is possible to overlap design and construction and where the client wishes to minimize the overall project period. It is the client who is mostly at risk when using this system and he must therefore only deal with contractors who value his business and with whom there is mutual confidence and respect.

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3.3.2 Negotiated contracts Here again the process up to the commencement of detailed design reflects the procedures adopted in the conventional procurement method at which time, when using this variant, it is possible to appoint a contractor early in the design stage either by assessing the experience, management expertise and competitiveness of a small number of appropriate contractors or, perhaps more commonly, on the basis of past performance and competitiveness of a single contractor on a repetitious, similar or geographically adjacent project probably carried out for the same client. In the first method detailed discussions are held with each of the chosen contractors during which their experience and management expertise is assessed and the contractor offering the skills and knowledge best suited to the project is selected in order to participate, with the client’s consultants, during the design stage so as to provide advice on buildability, value engineering and construction methods and eventually agree a price for the project which will subsequently form the basis of a contract which will be entered into prior to construction work commencing on site. When in the second method negotiation is restricted to one contractor, the same process is followed with the price for the project being established on the basis of the bills of quantities, or the rates contained within the bills, for the comparable project. There is little doubt that the use of negotiation will result in some saving of time during the pre-construction period primarily as the result of the reduction of the period required for competitive tendering and to a lesser extent, in the case of some projects, by adopting the contractor’s construction methods. Again the Wood Report [13] found that some modest savings in time were achieved as a result of the early collaboration between the designer and the contractor and better organization of the construction phase due to the advanced involvement of the contractor. Research carried out during the preparation of Faster Building for Industry [8] also established that progress tends to be faster if a contractor is chosen and a price negotiated with that contractor although the reasons for this phenomenon were not identified. On the question of cost most authorities are of the opinion that the most economical financial solution is rarely attained and some believe that a premium is invariably paid when using this procedure. It is always possible that negotiations may break down and the two parties reach deadlock and it is thus necessary to ensure that the client has the option of being able to break off negotiations if the impediment to an equitable solution cannot be removed. In order to offset these financial disadvantages it has been suggested that as the contractor can be made a party to the cost planning of the project because of his involvement during the early stages of the contract, there may well be a

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hidden cost benefit to the client resulting from the input of the contractor’s commercial expertise. It is also possible that in these days, when the vast majority of operations on site are subcontracted, that some if not all, subcontracts can be made the subject of selective tendering thus introducing a competitive element into the process in those areas where the client’s consultants consider this is likely to be advantageous. The conditions under which the use of the negotiated contract is appropriate to a large extent echo those already identified for the two-stage tendering approach, i.e. where the client wishes to achieve a modest saving in the overall project period, where any early start is required on site, where the contractor needs to be selected during the early stages of the project in order that he can provide special expertise, where conventional competitive tendering cannot attract sufficient tenders or produce realistic prices and where the contractor is already on site and the cost of the site establishment, etc. may be saved or reduced. As with the two-stage tendering system the client should only deal with contractors who have previously demonstrated their reliability and managerial and technical competence and who are prepared to foster a relationship in which mutual trust and respect are paramount characteristics.

3.3.3 Continuity contracts When using this variant contractors bidding for a project on the basis of singlestage selective tendering are advised that the successful tenderer, subject to satisfactory performance, will be awarded a similar project to follow on from the completion of the first. The price for this subsequent project will be negotiated, using the tendered rates included in the bill of quantities for the original project as a basis. It is therefore a prerequisite for the use of this system that there are at least two similar projects available within a defined geographical area which can be carried out sequentially and are capable of being able to accommodate flexibility in the timing of the commencement and completion of the second project. According to the Wood Report [13] this method usually offers continuity of work over the life of the original, and two further projects, and often includes opt-out clauses for both the contractor and the client even if all the criteria for success are met. The criteria for measuring the success of the first project must be agreed by both parties to the contract and procedures for negotiating the second contract established prior to the initial project being let. The characteristics of this procurement method are those that have previously

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been described for its two elements, i.e. the conventional system (single-stage selective tendering), and a negotiated contract, although the guarantee of continuity does generally result in a more positive commitment from both consultants and contractors on the first project. The statistical survey carried out as part of the Wood Report [13] grouped continuity and serial contracts together but found that when using both of these variants that: 1. Time overruns were shorter than average. 2. Cost overruns were more predictable than average. 3. The value of variations was low by comparison to other conventional methods and few variations were needed on succeeding projects. 4. Very competitive rates were obtained at tender stage. Some additional risk is taken by the client when using this variation of the parent system as there is a commitment to a second contract with no guarantee that the contractor will act as he did on the first project. The advantages and disadvantages of the conventional system and the negotiated contract that have already been identified are obviously jointly applicable to continuity contracts, although the cost penalty associated with negotiation proper is unlikely to be so onerous, if applicable at all, when using this method.

3.3.4 Serial contracts In this method a number of projects, often referred to as a programme, with similar characteristics, particularly in the case of building design, are awarded to a single contractor following the receipt of competitive tenders based upon a master bill of quantities. Although forming part of the same programme, each project is administered by means of a separate contract with the contract sum for each being calculated by using the rates priced in the master bill and the quantities appropriate to each project. Serial contracts can consist of a number of projects either with individual start and finish dates or arranged with flexible timing to give continuity of work. Parallel working on different projects is quite common and has obvious advantages in terms of savings in cost and time. The method was originally instigated by various central and local government bodies, at a time when construction resources were in short supply, in an effort to eliminate, or at least reduce, the inefficiency of allowing the knowledge and expertise of the project team that had been built up over the duration of a project to be dispersed as soon as the work was completed. During the 1960s and early 1970s this variant was successfully employed

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on projects where building systems such as CLASP, SCOLA, etc., were used and on local authority housing schemes, school programmes and some central government building projects of a repetitious nature. The performance of this method was surveyed during the preparation of the Wood Report [13] and by comparison to the conventional procurement system was found to be outstanding in terms of all three of the usual criteria of time, cost and functionality/quality. The advantages of the method have been identified by Ashworth [22] as: 1. The contractor’s long-term association with the client and his consultants and the experience gained of the types of work included within the programme permits close collaboration between designers and contractors and fosters a spirit of co-operation between all of the parties. 2. Improvements in the performance of all of the participants can result from the operation of the learning curve after completion of the first project; continuous feedback from site to the contractor’s senior management and the designers also leads to a more efficient use of resources and increases the buildability of the project. 3. Project teams can be moved to successive projects avoiding the need, as with most other procurement systems to dismantle and reconstruct these experienced groups. 4. Small client organizations with similar building requirements are able to amalgamate their building programmes and form consortia in order to let contracts on a serial basis. 5. Contractors are provided with continuity and thus security of workland. 6. Contractors’ costs, and therefore tender prices, should be reduced as a result of higher rates of production achieved on site and the bulk-buying opportunities presented by the involvement in such building programmes. Provided there is a firm programme of similar projects, all of which are located within a reasonable distance of each other, and the design process is well disciplined, serial contracts can be used on all types and sizes of appropriate projects. The use of this variant is enhanced if the building programmes can be linked with large-scale production of factory-made components.

3.3.5 Cost-reimbursable contracts The Construction Industry Research and Information Association in their 1985 guide [23] identified four main approaches to this variant, i.e. the cost reimbursable (cost-plus) contract, the target-cost contract, the fee contract and management contracting. As the latter method is not a variant of the conventional method but a

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procurement system in its own right—it is dealt with in detail in Chapter 5 together with fee contracting, which is considered to be the forerunner of the management contracting system itself. The examination of and discussion on cost-reimbursable contracts is therefore limited to the first two of the identified approaches, both of which have in common the main characteristic of this variant which is that the contractor is paid the costs he actually incurs in executing the project and in addition an agreed amount for his overhead and management costs and a predetermined allowance as profit on the total sum. Cost plus contracts Under this arrangement a contractor is appointed, usually on the basis of competition on the fee element of the project only, to carry out the work defined by the client’s consultants, with reimbursement being made by the payment of the actual, (prime), cost of the works and a fee to cover the contractor’s overheads and profit. The contractor’s fee can be calculated in a number of ways; it can be: 1. a fixed fee, in the form of a lump sum based upon the estimated cost, varied only if the nature of the project changes dramatically; 2. a percentage fee calculated on the final cost of the project; 3. a percentage fee, related not to cost but to the estimated value of the project at the outset, updated by any variations that occur during the currency of the work. Target-cost contracts This method differs from the basic cost-reimbursable variant in two main aspects both of which affect payment. Firstly, a contractual agreement is reached, either in competition or negotiation, on a target cost for the work and a fee to cover the contractor’s overheads, management costs and profit. Secondly, a procedure is agreed for sharing any savings or additions if the actual cost is lower, or higher, than the target costs. This mechanism provides a financial incentive to the contractor which is absent from the basic method. Perry, Thompson and Wright [24] have pointed out that targets may be applied individually to all of the principle elements of a project, i.e. cost time and functionality/quality with the degree to which the target is met by the contractor being reflected in the eventual reimbursement received by him. It is also possible to set targets for two or all of the three elements and link them to form a combined target.

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General The absence of a tender sum or even an estimate of the cost of the final account and the fact that the appointed contractor has little incentive to control his expenditure means that this method is only used by clients under certain circumstances and not for normal run-of-the-mill projects. However, when using this method there is little likelihood of contractual claims for additional reimbursement being submitted by the contractor. The financial and practical risks associated with the project are shared more equitably than when using most other procurement methods, the extent and speed of the work can be adjusted to the availability of project funding and the client’s total financial commitment can often be favourably compared with that for conventionally managed projects that have been subjected to extensive claims. Conversely, the cost of rectifying the contractor’s mistakes, or inefficiencies, together with matters which under other circumstances would become claims, are often hidden and eventually charged to the client notwithstanding that the responsibility often lies with others. This characteristic and the fact that there is no contractual commitment by the contractor to the final cost to be paid by the client or direct financial incentive for him to make the most efficient use of his resources means that the method cannot easily satisfy the concepts of public accountability. Clients should also be aware that experience has shown that negotiations with the contractor during the early stages of the project can be protracted— the process of establishing the actual cost of the work can be cumbersome, onerous and difficult to monitor, the lack of incentive for the contractor and his workforce to perform well necessitates much closer client control than is normally required and the fixing of targets should they be used requires very fine judgement. The advantages associated with this method are common to most of those contained within the co-operative subcategory and include the ability to commence construction with the minimum of design having been completed with the consequent flexibility to develop the design, the programme and the extent of the work after construction has started together with the availability of proven forms of contract for the variant. Early contractor involvement is of course inherent in the method enabling construction expertise to be introduced during the design stage and allowing the contractor to be better able to plan his on-site construction activities. It is thus apparent that the use of cost-reimbursable contracts should be strictly controlled and only implemented in emergencies or where the use of all other procurement systems has been examined and discounted and a combination of the following circumstances prevail: 1. where the client must resume or complete a project disrupted by strikes, bankruptcy or other influences and in emergencies;

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2. where major unquantifiable risks are present; 3. where market conditions are so buoyant that normal tendering procedures are not appropriate and inflation is rampant; 4. where the project is of exceptional managerial and technical complexity; 5. where the scope of the works cannot be readily defined at tender stage. SUMMARY All of the systems making up the separated and co-operative category have one fundamental characteristic in common in that the responsibility for the two main elements of ‘design’ and ‘construction’ is vested in two separate organizations—the design team and the contractor. In the variants contained within the co-operative subcategory this characteristic is somewhat modified by the fact that all of the systems enable some form of early collaboration to be achieved between the two independent organizations. In the majority of the variants this takes the form of the contractor contributing to the design of the project and/or giving advice on buildability, costing, material ordering, programming, etc. The conventional method Advantages 1. Provided that the design has been fully developed and uncertainties eliminated before tenders are invited, tendering costs are minimized, proper competition is ensured, the final project cost will be lower than when using the majority of other procurement methods and the selection of the bid that is most advantageous to the client will present little difficulty. 2. The existence of a priced bill of quantities enables interim valuations to be assessed easily and variations to be quickly and accurately valued by means of pre-agreed rates. 3. The use of this method provides a higher degree of certainty that quality and functional standards will be met than when using other systems. Disadvantages 1. Where tenders are obtained on the basis of an incomplete design the bids obtained can only be considered as indicative of the final cost and the client is thus vulnerable to claims for additional financial reimbursement from the contractor. 2. The sequential, fragmented and confrontational nature of this system can result in lengthy design and construction periods, poor communication between clients and the project team and problems of buildability. 3. Whilst the facility to respond to late demands for change, by introducing variations, can result in satisfied customers such action has been identified

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as one of the main causes of delay, and increased cost, and can lead to a permissive attitude to design changes. Two-stage selective tendering Advantage Savings in time can be achieved using this method and where overruns are experienced they are usually shorter than in any other conventional method. Disadvantage Work is commenced before a final tender sum is agreed therefore early price certainty needs to be a secondary consideration and the client can be vulnerable to any change in the level of the contractor’s pricing from that contained within the first-stage tender. Negotiated contracts Advantages 1. Modest savings in time can be achieved using this method. 2. The system is useful where other procurement methods cannot attract sufficient tenders or realistic prices, where a special expertise is required or where project costs can be reduced as a result of the contractor already being established on site. Disadvantage A cost premium is invariably paid by the client when using this method and the project cost is thus nearly always higher than when using other procurement systems. Continuity contracts Advantage Very competitive rates and tenders are obtained when using this method, the value and frequency of variations are lower than when using other systems and time overruns will usually be shorter than experienced on projects managed by some other procurement methods. Disadvantages 1. This system can only be used if there are at least two similar projects available within a defined geographical area which can be carried out sequentially and are capable of being able to accommodate some flexibility in the timing of the commencement and completion of the second project.

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2. The client is committed to a second contract with no guarantee that the contractor will act, or perform, as he did on the first project.

Serial contracts Advantages 1. This approach avoids the need to dismantle experienced project teams after the completion of one project and allows their accumulated knowledge and expertise to be utilized on the other projects contained within the serial programme with the result that the method has proved to be outstandingly successful in terms of the usual performance criteria of cost, time and functionality. 2. Tender prices are able to be reduced as contractors are given continuity of work and the ability to ‘bulk buy’ materials, particularly if the client’s building programme can be linked to the large-scale factory production of components. 3. This benefit can be even greater if different clients take advantage of the opportunity this system offers to amalgamate their individual building programmes. Disadvantage This system can only be used if the client has a substantial and an on-going building programme where the individual projects are sufficiently similar in design to enable a master bill of quantities and common tender documentation to be produced.

Cost-reimbursable contracts Advantage Where there is inadequate definition of the work at the time of tender, high inflation is prevalent, the project is extremely complex, there is a major or unquantifiable risk or when an emergency occurs, the use of this system can be advantageous to the client provided that a number of these characteristics are in combination within the one project. Disadvantages 1. The absence of a tender sum and an estimated final cost generally precludes the use of this system on projects that are subject to rigid accountability requirements. 2. There is no contractual commitment by the contractor to the final cost and no financial incentive for him to use his resources efficiently and although

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incentives can be incorporated to mitigate this difficulty, the fixing of targets requires very fine judgement. Chapter 8 is devoted to the way in which these characteristics are taken into account when selecting the most appropriate procurement system for individual projects but in general terms the use of the conventional method should be favoured where speed is not a critical factor but costs need to be minimized and quality and funtionality assured. The majority of co-operative procurement systems will enable modest savings in time to be achieved at the expense of the final cost, which will generally be higher than when using the conventional procurement system. Many of the systems can and should only be used in special circumstances and need to be carefully and firmly controlled by the client.

REFERENCES 1. Powell, C.G. (1980) An Economic History of the British Building Industry, 1815 1979, Methuen, London. 2 . Simon Report (Central Council for Building and Works) (1944) The Placing and Management of Building Contracts, Chairman of report committee Sir E.Simon, HMSO, London. 3. Marriott, O. (1967) The Property Boom, Hamish Hamilton Ltd, London. 4. Emmerson Report (Ministry of Works) (1962) Survey of Problems before the Construction Industries, Report prepared by Sir H.Emmerson, HMSO, London. 5. Banwell Report (Ministry of Public Buildings and Works) (1964) The Placing and Management of Contracts for Building and Civil Engineering Work, Chairman Sir H. Banwell, HMSO, London. 6. University of Reading (1979) UK and US Construction Industries, a Comparison of Design and Contract Procedures, RICS, London, September. 7. Junior Organization, Quantity Surveyors Divisional Committee (1985, 1986, 1987) Surveys of Contracts in Use 1984, 1985 & 1987, RICS, London, November. 8. Building Economic Development Committee (1983) Faster Building for Industry, NEDO, London, May. 9. Building Economic Development Committee (1988) Faster Building for Commerce, NEDO, London, November. 10. Rowlinson, S. (1986) An analysis of the performance of design-build contracting in comparison with the traditional approach, unpublished PhD Thesis, Brunel University. 11. Royal Institute of British Architects (1982) Architect’s Job Book, RIBA Publications Limited, London. 12. Perry, J.G. (1987) Course notes, MSc in Construction Management, University of Manchester Institute of Science and Technology . 13. Wood Report (Building Economic Development Committee) (1975) The Public Client and the Construction Industries, Chairman Sir Kenneth Wood, NEDO, London. 14. Barnes, M. (1986) Paper to seminar—Project Procurement and Management Development, Roles and Opportunities, Birmingham, 16 July.

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15. Building Economic Development Committee (1974) Before you Build—what a Client Needs to Know about the Construction Industry, NEDO, London. 16. Department of the Environment (1982) The United Kingdom Construction Industry— a guide to methods of obtaining a new industrial building in the UK, Invest in Britain Bureau, London. 17. Flanagan, R. (1981) Change the system, Building, 20 March, pp. 28, 29. 18. Brandon, P.S., Basden, A., Hamilton, I.W. et al. (1988) Expert Systems. The Strategic Planning of Construction Projects, RICS, London, January. 19. Building and Civil Engineering Development Committee (1978) Construction for Industrial Recovery, Chairman Mr F.C.Graves, NEDO, London. 20. Building Economic Development Committee (1985) Thinking about Building— a successful business customer’s guide to using the construction industry, NEDO, London. 21. National Joint Consultative Committee for Building (1983) Code of Procedure for Two Stage Selective Tendering, RIBA Publications Limited, London, January. 22. Ashworth, A. (1986) Contractual Procedures in the Construction Industry, Longman, London. 23. Construction Industry Research and Information Association (1985) A Client’s Guide to Cost Reimbursable Contracts in Building, Special Publication 36, CIRIA, London. 24. Perry, J.G., Thompson, P.A. and Wright, M. (1982) Target and Cost Reimbursable Construction Contracts, Report 85, CIRIA, London.

4 INTEGRATED PROCUREMENT SYSTEMS

4.1 INTRODUCTION This category of procurement systems incorporates all of those methods of managing the design and construction of a project where these two basic elements are integrated and become the responsibility of one organization, usually a contractor. The design and build procurement system is the main member of this category with variants of that method making up the remainder of the group. The principal variants that are dealt with here are the package deal, develop and construct and turnkey methods of procurement. Various authorities have suggested that the design and manage and British Property Federation (BPF) systems should be included within this category. The former method, whilst exhibiting many of the characteristics associated with true design and build, is fundamentally different in one particular respect in that when taking the design and manage route the implementing organization usually acts in a consultant capacity and carries out the design and management of the project on a fee basis, using works/ package contractors to execute the actual construction operations. The BPF system, while making provision for the contractor to undertake certain design and constructional detailing, does not necessarily place the responsibility for the design and construction of the project with one single organization. For these reasons these two systems are dealt with in what are considered to be their proper categories in other more appropriate chapters and only design and build itself, and its three variants are now discussed and examined.

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4.2 DESIGN AND BUILD 4.2.1 Definition The term ‘package deal’ has been used in the building industry for many years as an all-embracing description covering design and build, the ‘all-in’ service, develop and construct, and turnkey contracting. This imprecise terminology has led in the past to considerable confusion amongst practitioners and clients of the industry resulting in misunderstandings as to the nature, characteristics, advantages and disadvantages of the basic design and build system and in some extreme cases to its rejection as a possible candidate for use on some projects purely on the basis of its supposedly poor reputation in satisfying the client’s needs. However, for at least the past two decades, although some confusion still exists amongst inexperienced clients, the term design and build has almost been unanimously interpreted and defined as being: An arrangement where one contracting organisation takes sole responsibility, normally on a lump sum fixed price basis, for the bespoke design and construction of a client’s project. This definition contains three elements which are fundamental characteristics of this system, i.e. the responsibility for design and construction lies with one organization, reimbursement is generally by means of a fixed-price lump sum and the project is designed and built specifically to meet the needs of the client.

4.2.2 Genesis It could be argued that the design and build method is probably the oldest proven procurement system still in use in the United Kingdom as, until the middle of the eighteenth century, first the client, then the architect and finally the master builder were, in turn, solely responsible for both the design and construction aspects of most of the building projects implemented during this period of history. At about this time the complete separation of design and construction that had begun during the Renaissance with the emergence of the architectural profession finally occurred and the approach that we know of today as the conventional procurement system became the main method used to implement projects. As this latter method maintained its dominance over all other systems until the late 1960s, or early 1970s, it is not surprising that design and build only began to emerge from its period of dormancy after the Second World War and

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even then only initially to answer the needs of the ambitious targets set by government for the public housing sector. Without contractor-designed housing systems the high housing output figures of the post-war years would not have been achieved and the credibility and viability of a procurement procedure whereby the contractor acts as both designer and constructor would not have been established. In parallel with the re-emergence of the design-and-build principle as a tool to meet local authority housing targets in the UK, greater use of this system for industrial and commercial projects was being made in the USA and gradually, following the lead from across the Atlantic, private sector clients in this country began to adopt the integrated approach being marketed by contractors. The overheating of some sections of the national economy in the early 1960s resulting in heavy demands upon the construction industry and a shortage of construction resources, coupled with claims by contractors of greater efficiency and lower cost when using this method, led to the increased use of contractordesigned ‘system’ building by the public sector in both the housing and nondomestic sections of the market. Although the use of contractor-designed systems declined in the late 1960s and early 1970s contractors had by then amply demonstrated their ability, particularly in domestic building, to manage large integrated projects and achieve savings in time, although little evidence exists that the direct cost-savings forecast were ever achieved. However, the state of the national, and international economies, again produced an opportunity for contractors to satisfy the growth in interest amongst clients in finding alternative ways of procuring projects that occurred as a result of the 1973–74 oil crisis, when a dramatic increase in borrowing and inflation rates emphasized the need to ensure projects were both speedily commenced and completed in order to minimize the associated financial risk. At the same time, client dissatisfaction with the performance of conventional methods of building procurement meant that any method where there was single-point responsibility, where the integration of design and construction could lead to savings in time and where fixed-price lump-sum tenders could be obtained was extremely attractive and these heavily contractor-marketed characteristics ensured the growth in use of the design and build system and in turn produced one of the most significant trends in construction procurement in recent years.

4.2.3 Share of the market Efforts to identify accurately how much of the annual non-domestic building workload is carried out using the design and build system are thwarted by the

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probable use of incorrect terminology in such surveys as are available and the resulting difficulty in determining whether the results refer to the main system or its variants. Of more importance, however, is the fact that different categories of client use the same procurement system to a greater or lesser extent dependent upon the nature of their business and in some cases the type of project they are imlementing at the time. This phenomenon is best illustrated by the results of the two surveys undertaken by NEDO in 1983 [1] and 1988 [2] when it was established that industrial clients carried out 34% of their building projects using the design and build system while commercial clients only used this system for 24% of their schemes. Most other surveys of the general and specific level of use of the various available procurement systems have not differentiated between categories of clients, or their project typology, and thus the results can only be considered to be indicative of the share of the market captured by this procurement system; notwithstanding this caveat three of these surveys are worthy of examination. A study carried out in 1983 [3] found that (a) 24% of the annual workload of the sample of 38 contractors examined was executed using the design and build system and that (b) all of the contractor participants were confident of increasing their involvement in this method in the immediate future. In 1984, 1985, 1987 and 1989 the Junior Organization, Quantity Surveyors Divisional Committee of the Royal Institution of Chartered Surveyors [4] carried out surveys to establish the levels of use of building forms of contract and procurement systems by quantity surveyors in private practice, local authorities, housing associations and central government offices. Whilst admitting to the probability that the surveys understate the use of the design and build system, as a result of the nature of the respondents, the results showed that 5%, 8%, 12% and 11% of the total value of the projects captured by the exercise used this method of procurement in the respective years surveyed. The Centre for Construction Market Information carried out a survey of the design and build market in 1986 [5] and established that 10% to 12% of the non-housing work, valued at £10154 million, identified in the 1985 Department of Environment statistics was carried out using the design and build method. The same survey forecast that expenditure on this method of procurement would increase by 15% in 1986 and a further 18% in 1987 thereby overtaking management contracting in popularity. At the same time it was predicted that design and build will continue to increase its share of the nonhousing market in the foreseeable future. It can thus be concluded that, whilst the level of use of the system can vary considerably dependent on the category of client and the type of project

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Figure 4.1 Contractual and functional relationships, design and build

commissioned, the share of the market is substantial, has increased over the past decade and is likely to continue to do so for the foreseeable future.

4.2.4 The process With the contracting organization taking sole responsibility for both design and construction, the contractual and functional relationships between the employer, consultants and contractor are simplified when compared to most other procurement methods with communications being reduced in theory to a single channel. Figure 4.1 illustrates the relationships between the various members of the project team. It follows that once the decision has been taken to adopt this method of procurement the process should be a simple one consisting of: the preparation of the employer’s requirements, the obtaining of tenders; the evaluation of the submissions on the basis of design, specification and price; the acceptance of the most appropriate tender; and finally, the implementation and completion of the project. This simplicity, however, is deceptive and a detailed examination of the process reveals the fact that the various constituent parts are, in themselves, relatively complex and contain a number of potential pitfalls for the unwary and inexperienced client.

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Employer’s requirements The purpose of the employer’s requirements is to provide the tenderers with sufficient information, in the form of a brief, to enable their proposals to be formulated without difficulty. The brief therefore needs to be clearly presented and sufficiently comprehensive so as to leave the contractors with no doubt as to the precise wishes of the employer whilst, at the same time, giving them the freedom to make use of their technical and managerial expertise as well as their own particular available resources. Accordingly, all tenderers need be sufficiently aware of the client’s requirements to enable the submission of easily comparable proposals and tenders. However, in practice research has shown that clients are rarely able to provide a clear enough brief and that the lack of sufficient information as to the client’s requirements is an inhibiting factor in arriving at a fair and valid assessment of the contractor’s proposals and bids so as to enable a choice to be made between them. It will thus be appreciated that the amount of influence the client has on the contractor’s proposals, and the associated bid, depends upon the contents of the brief provided to the tenderers and the extent to which the client is prepared to elaborate on and clarify his requirements prior to tenders being submitted. It should also be borne in mind that in accepting the responsibility for interpreting the client’s poorly prepared requirements the contractor is assuming a much higher risk than if that document was more comprehensive and he may, in such circumstances, include a premium, in the form of a financial contingency sum, within his tender which would not be necessary under more ideal circumstances.

Obtaining tenders Once the employer’s requirements have been formulated, or even partially completed, the exercise of obtaining tenders can be commenced. This element of the process consists of three basic operations: selecting the contractors who will be asked to submit proposals; deciding upon the tendering procedure; and choosing the form of contract. Research [6] has established that design and build contractors organize their activities in three different ways which have been identified as: 1. Pure design and build—Here the contractor strives for a complete and selfcontained system where all the necessary design and construction expertise resides within one organization which is sufficiently resourced to complete any task that arises.

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Such firms, it is maintained, rarely undertake anything other than design and build contracts and usually operate within a particular region or, more likely a number of discrete market sectors. In such organizations all aspects of design and construction have the capacity to be highly integrated and there is a wealth of experience and site feedback which can be utilized for the management of future projects. 2. Integrated design and build—in this form a core of designers and project managers exists within the organization but this type of contractor is prepared to buy in design expertise whenever necessary. The design and construction teams may well be separate entities within a group and both design build and conventional tendered work may be undertaken. Although more effort is needed to integrate the internal and external members of the design and build team, in-house project managers are employed to co-ordinate these functions. 3. Fragmented design and build—many contractors, both large and small, and including national builders, operate a fragmented approach to design and build projects whereby external design consultants are appointed and coordinated by in-house project managers whose other main task is to take and refine client briefs. Under this regime many of the integration and co-ordination problems of the traditional approach are likely to manifest themselves along with some role ambiguity among the professions as they come to terms with the builder as leader of the design and construction team. Clients, and their advisers, should be aware of these categories, and their individual characteristics, when selecting contractors who will be asked to submit proposals. Problems can arise if the organization is not matched to the client’s primary and secondary project objectives. For example, research [7] maintains that costs, and therefore tender prices, are likely to increase as the choice of contractor moves from fragmented design build through the integrated method to the pure form. It is suggested that the increase in cost results from the reduction in the amount of design work subcontracted to external consultants when using the integrated and pure methods and the fact that the ‘no job—no fee’ arrangement prevalent in the fragmented, and to a lesser extent, the integrated form, does not apply to the pure arrangement. On the other hand the comparatively small number of pure design and build contractors that operate in the UK have amply demonstrated their ability on numerous occasions successfully to manage large, complex projects which have fully met their client’s needs, and presumably cost less in the long term, despite incurring short-term additional costs at the design and construction stage. Having decided upon the type of contractor who would be most suitable

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for the project, it is essential to ensure that potential tenderers have the appropriate design and build experience, together with the necessary financial capacity and the other required resources; various bodies [8] have produced questionnaires by means of which the potential tenderers can be tested for suitability. Other standard selection procedures such as interviews, obtaining references from previous clients, visits to completed or current projects should be used as further means of, or aids to, selecting the most appropriate organizations. The main alternative methods of obtaining tenders are limited to single- and two-stage tendering and negotiation. The choice of procedure will depend on the extent to which the employer wishes to negotiate subsequent to the submission of the tender and the complexity of the project, although if an element of competition is required the option is obviously restricted to the singleand two-stage methods. The single-stage procedure requires the selected contractors, usually three or four in number, to make only one submission to the client with the preferred proposal forming the basis for the design and build contract with detailed design work, and the obtaining of the necessary approvals, commencing immediately the contract has been let. With the two-stage method up to six contractors are invited to submit preliminary proposals in the form of outline designs and budget costs. The favoured scheme is selected and the design is developed to an advanced stage and the budget cost converted into a firm bid which again, if acceptable, forms the basis of a design and build contract with work being implemented once the contract has been let. The increased use of resources at bid preparation stage by design and build contractors when compared to other forms of tendering can be a serious problem and it has often been recommended that reimbursement of secondstage design costs should be made if the project is abandoned. This recommendation does not apply to the negotiated alternative as this method generally restricts the negotiation to one contractor with the design and contract sum evolving during discussion between the two parties until the client is satisfied that both elements of the proposal meets his requirements and the cost is within his budget. It is necessary when inviting tenders to advise the bidders which form of contract will be used once the most appropriate submission has been accepted; there are many such forms of contract available, for example: 1. JCT Standard Form of Building Contract with Contractor’s Design, 1981; 2. any other standard form of contract heavily amended; 3. Building Employers Confederation Design and Build standard form of contract; 4. Property Services Agency Design and Build standard form of contract;

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5. client-drafted forms; 6. contractor-drafted forms. It is generally accepted that the use of nationally agreed standard forms of contract provide a stable framework within which the client and the building team can operate with the minimum of difficulty and confrontation. There are, however, some dissenting voices to this approach on the grounds that contracts should be tailored to suit the individual circumstances of each project and that, in addition, the standard form lacks the strength required to safeguard adequately the client’s interests. Such surveys of the use of forms of contract that have been carried out in the recent past show that the most commonly used form of contract for design and build is the JCT Contract with Contractor’s Design, 1981, thus apparently demonstrating that the majority of the industry’s clients, practitioners and contractors believe that this form is the most suitable for use with this procurement system.

The evaluation of submissions The evaluation of design and build proposals and tenders has already been identified as an area where problems are often experienced due to the difficulty of communicating the client’s detailed requirements by means of a single written brief, i.e. without the assistance of drawings or a bill of quantities, which can be subject to various interpretations by the tenderers. One suggested method of mitigating this difficulty is for the client, after the initial appraisal has been made, to interview each tenderer’s design and management team in order to discuss the individual schemes so as to obtain a better understanding of each proposal. Some clients see this approach as being unethical, and contrary to the guidance given in the NJCC’s Code of Procedure, on the grounds that discussions with individual tenderers might result in breaches of confidentiality, and believe that such discussions should be limited to the lowest tenderer. Advocates of the system rebut this suggestion by pointing out that any matters of common interest, or changes in the client’s requirements, resulting from such discussions can, and should, be communicated to the other tenderers in order that they may take the appropriate action and that in addition design and build tenders are not judged solely on the criteria of cost. Once this exercise has been completed and the client is in possession of all of the information needed to evaluate each proposal, they should be ranked in a systematic way in accordance with the attributes of each bid and the client’s needs. Jones [9] has produced a simple method (Table 4.1) for evaluating bids on

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the basis of ranking and weighting; the use of such a system, which should be designed to suit the client’s criteria, is essential in ensuring that the various proposals are correctly appraised and that the chosen proposal provides value for money and fully satisfies the client’s requirements. The inexperienced client may wonder why he cannot ‘pick and mix’ the various attractive elements of each bid and it needs to be understood that not only would this be contrary to the Code of Procedure, and possibly result in a breach of copyright, but also could result in a joint action by the unsuccessful tenderers to recover their costs as well as undermining the client’s credibility with the local construction industry.

Acceptance of tenders Once the successful proposal has been chosen it will be necessary for the client and the design and build organization to enter into one of the forms of contract that have previously been identified. In this context it is essential to ensure that the contract documentation incorporates not only the original employer’s requirements and contractor’s proposals but also any amendments or additions resulting from subsequent negotiations between the two parties.

Implementation of the project Once the contract has been entered into the contractor will normally require a period of time before commencing work on site in which to obtain the necessary planning, building regulation and any other statutory approvals; to carry out the detailed design, or sufficient of it to commence work on site and maintain continuity and progress; and to allow for any lengthy lead in time for material delivery. During this period the client must ensure that detailed drawings and specifications, proposed suppliers and subcontractors and samples of, or specifications describing, materials and equipment are submitted for approval and officially authorized by his representative/agent. The single-point responsibility for both design and construction should ensure that improved communications and team work will result from the use of this system although it must be borne in mind that when using an integrated or fragmented type of contractor these characteristics may not be as evident as when a pure design and build organization has been appointed. Although during the construction period the contractor is theoretically responsible for monitoring progress and advising the client of any envisaged delays in completion it would be a naive employer who does not ensure that independent checks are regularly carried out to ensure that the contractor’s

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Table 4.1 Ranking of design and build tenders

Source: Jones [9]

progress is in accordance with the agreed programme and that the necessary corrective action is implemented should any operation fall behind. While the contractor is also responsible, under the contract, for exercising control of the quality of materials and workmanship and for the installation of quality-assurance schemes the client can, and should, make provision for the independent monitoring of the quality of the works although care needs to be taken to ensure that this activity is carried out in strict conformity to the terms and conditions of the contract. The administration of the project is carried out by an agent appointed by the employer, either from within his own organization or from an external construction consultant; the duties of the appointee can vary but normally include the monitoring of progress and very often quality, with assistance from a clerk of works, as well as the administration of the contractual and financial aspects of the project. It is in the employer’s best interest to ensure that the arrangements made for reimbursement of the contractor during the currency of the project are such as to ensure that difficulties do not arise through disputes as to the level and timing of any interim or other payments which are due. The most common payment procedure currently in use is that of the lumpsum fixed-price method whereby the contractor undertakes to design and construct the project in accordance with the approved drawings and specification for the sum quoted in his tender, which is only adjusted when changes in legislation that could not be envisaged at tender stage are implemented and the client instructs variations during the design and construction period.

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When using this procedure, and the JCT Form of Contract, interim payments will normally be made, either on a monthly instalment basis against a measured amount of work completed, or in accordance with a system of agreed stage payments entailing the agreement and reimbursement of fixed sums when specific progress stages have been reached. When this method is being used the design and build firm applies for payment and the employer’s agent checks the application against the amount of work completed, or the actual against planned progress, and issues an appropriate certificate to the employer confirming the amount of the payment that needs to be made. Alternatively, the client can appoint an adviser, most usually a quantity surveyor, to examine claims for payment and ensure that value for money is being obtained. It has been suggested that this arrangement is less effective than it would appear in that unless a number of variations have been requested by the client, the examination of interim claims is so simple as not to require such professional expertise. Contractors, however, appear to support such an appointment and indeed often go so far as to recommend this course of action to their clients on the grounds that an independent professional must act in an unbiased capacity to ensure that fair and equitable interim and final payments are made. Cynical observers suggest that such an appointment is mere window dressing by some contractors in order to achieve an aura of respectability for their commercial operations. The vexed question of variations has been the subject of much discussion in the context of the design and build system of procurement with one school of thought stating that variations are unusual when using this method because all design decisions are made prior to construction work commencing and maintaining that in addition such changes are discouraged by contractors. The second, more realistic, school suggests that design and build organizations are aware of the need for flexibility to accommodate a client’s particular requirements by means of variations and the desirability of providing a sufficiently detailed breakdown of their tender to facilitate the simple evaluation of such additions or omissions. It is essential, therefore, that clients ensure that such a breakdown is included in both tender and contract documentation and that the number of variations should be minimized but where they are required their cost and time consequences are agreed before any instructions are issued.

The product The Centre for Construction Management and Information (CCMI) 1986 survey [5] showed that there was a general agreement between the contractor,

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architect and client participants that the three main benefits resulting from the use of the system were speed, single-point responsibility and savings in cost.

Speed On the question of speed and completion on time, a number of authoritative studies have found that, to varying degrees, design and build projects were associated with shorter overall project times than when using conventional systems, although the individual design and construction periods were often longer. The reduction of the overall project period is attributed to the systems ability to overlap the design and construction phases, improved communications between the various members of the project team, the integration of the two basic functions of design and construction and the improvement in buildability and use of contractor’s resources resulting from this latter characteristic. However, despite design and build projects generally having a better record in terms of overall completion times, it has been found that their ability to satisfy clients is more variable than when using conventional systems and it may well be that this characteristic stems from the existence of the three different types of design and build organizations, i.e. pure, integrated and fragmented, as research appears to have demonstrated that the use of the latter type in particular is less successful in reducing the time taken for the overall implementation of the work than the first two.

Single-point responsibility There appears to be general agreement that one of the main benefits to the client when using this system is the advantage of single-point responsibility with direct contact between the two parties to the contract enabling misunderstandings to be minimized and procedures to be simplified. One dissenting note has been struck in this respect by the results of the 1986 CCMI study [5], which found that this characteristic was not of paramount importance to client respondents, although architects and contractors identified single-point responsibility as the runner up to cost as a prime advantage.

Cost On the question of cost it has been established that the client is interested, on any project, in the early prediction of the total amount he will have to pay and the variance between this figure and the final contract sum, as well as

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endeavouring to ensure that value for money is being achieved. In this respect the design and build approach enables the contractor to be more positive about the final cost to the client at an earlier stage. Evidence also exists to support the widely held belief that when using this system the initial and final costs are lower than when using other methods of procurement basically as a result of diminished design costs, the integration of the design and construction elements and in-built buildability of the detailed design. Once again, research [10] has found that fragmented design builders performed badly, in terms of client satisfaction, on cost-performance criteria by comparison to the other two categories of organization and it has been pointed out that value for money is difficult to assess because of the different methods, designs and services offered by contractors and the limited amount of information usually available at the tender adjudication stage.

Functionality and quality It is interesting to note that the 1986 CCMI survey [5], or indeed any other published examination of the design and build system, does not identify high levels of functionality or quality as a benefit when using this method of procurement. This result undoubtedly reflects the prevailing attitude among most clients, and certainly architects, that design and build is most suitable for simple uncomplicated projects and the belief that the aesthetics and quality of the finished product when using this method is lower than achieved by other systems of procurement. Current experience does not support this viewpoint as many large, complex and prestigious projects have been, and are presently being, constructed using this method seemingly confirming the opinion of many that the risk of the client obtaining a crude design solution, or a substandard project, arises only if the employer’s requirements are inadequate and the selection of the bidding contractors not carried out correctly. A growing, and expert, body of opinion contends that the system is suitable for the implementation of most types of building provided that the employer’s requirements are carefully and accurately specified. It may well be that, if the system is used with aptitude and skill by competent clients, designers and contractors, most types of new build projects can now be successfully implemented using this system. Having said this, there is a remarkable lack of independent authoritative advice available to clients on how to provide a satisfactory brief and generally commission a design and build project and this deficiency, added to the possible use of an inexperienced fragmented design builder, can produce a dangerous set of circumstances which could result in the client’s functional and quality needs being unsatisfied.

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4.3 VARIANTS OF DESIGN AND BUILD The three systems that are now discussed, i.e. package deals, the turnkey method and develop and construct are considered to be the main variants of design and build although, as with all procurement systems, many other less identifiable variations of the method may be in use within the industry.

4.3.1 Package deals The package deal system is the precursor and parent of design and build proper. As the name suggests the intention of the original concept was that clients would be able to purchase a total package, virtually off-the-shelf, to speedily satisfy their building needs at an economical price. While the idea of being able to buy a suitable building in the same way as if one was purchasing any other large consumer article is attractive in theory, in practice the fact that package dealers provide an adapted standard product means that they are unable to satisfy fully the needs and criteria of the majority of clients. The fundamental difference therefore between the design and build and package deal systems is that the former method provides a bespoke design solution to suit the client’s specific requirements whilst the latter uses a proprietary building system in order to produce a scheme which is unlikely to satisfy all of the client’s needs. Figure 4.2 illustrates the system and the various relationships between members of the project team. Provided that the purchaser’s requirements are flexible, this method can be an attractive proposition particularly as the probable reduction in the design, approval and construction stages of the project can lead to savings in time and cost. The majority of package deal contractors, by their very nature, employ their own in-house designers and can thus be categorized as pure design builders and as such be expected to perform well particularly in terms of the speed and time criteria. Some of the products of this method lack aesthetic appeal, but as the potential client is often able to see actual examples of the contractor’s product before reaching a decision, this potential difficulty can often be avoided. Another aspect of the use of this particular variant that needs to be carefully examined is that of the proven stability and safety of the design. While many proprietary systems have been tried and tested in use over many years and are often less prone to teething troubles than bespoke designs, some serious failures have occurred in the past and the client would be wise to arrange for this possible problem area to be examined by an independent expert. In all other respects the package deal replicates the characteristics of the design and build system, although the forms of contract used with this method

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Figure 4.2 Contractual and functional relationships, package deal

are likely to be contractor-drafted, rather than any of the nationally recognized standard forms, and great care therefore needs to be taken by clients if this type of document is to be used.

4.3.2 The turnkey method This system is, as the name implies, a method whereby one organization, generally a contractor, is responsible for the total project from design through to the point where the key is inserted in the lock, turned and the facility is immediately operational. The responsibility of the contractor is thus, when using this variant, often extended to include the installation and commissioning of the client’s process or other equipment and sometimes the identification and purchase of the site, recruitment and training of management and operatives and the arranging of funding for the project (Figure 4.3). The turnkey method was pioneered in the United States in the early 1900s where it has been extensively used since that time, by the private sector, for the

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Figure 4.3 Contractual and functional relationships, turnkey system

construction of process plants, oil refineries, power stations and other complex production facilities. The use of the system in this country has been limited to similar types of projects although the amount of work in the industrial and commercial sector of the industry carried out by this method appears to be small by comparison to the US. However, many UK consultants and contractors have been involved in turnkey projects overseas, particularly in developing countries, where the volume of work carried out by this method is higher than in Europe or the US. Apart from these characteristics the turnkey method generally echoes the features of its parent system although the forms of contract usually used with this variant are drawn from the process engineering industry rather than the construction industry.

4.3.3 Develop and construct When using this system the client’s consultant is provided with a brief, which he may also help to formulate, from which he prepares conceptual drawings/ sketch designs, and a site layout often including the disposition of individual buildings and their plan forms.

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Figure 4.4 Contractual and functional relationships—develop and construct

The contractor develops the conceptual design, produces detailed drawings and chooses and specifies materials and submits these proposals with his bid in the same way as with design and build proper (Figure 4.4). The use of this variant is therefore appropriate where the client desires, or needs to, determine the basic concept of a project before inviting competitive tenders and yet still requires a single organization eventually to take responsibility for the detailed design and execution of the project. It is thus apparent that the main difference between design and build and this variant is the extent to which the design of the project has been developed by the client before inviting tenders. In most cases the design will be developed at least up to outline planning stage and may, in sensitive planning locations, be taken to the point where full planning approval could be obtained. This method is most frequently used where the client: employs his own inhouse consultants; sees advantages in using a consistently retained consultant with previous experience of similar types of projects; may wish to limit knowledge of his intentions to a trusted few; and wishes to minimize the

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differences, so often experienced at tender stage, between normal, individual design and build submissions. While it is contended by most authorities that it is the develop and construct contractor’s responsibility to ensure the structural sufficiency of the whole design and that the building is fit for its intended purpose this is a grey area and clients would be well advised to ensure that the question of design responsibility is adequately defined and covered in both the tender and contract documentation for the project. Once again, all other aspects and characteristics of this variant echo those of the other integrated methods included within this category of systems, with the forms of contract being those previously described for the parent design and build approach.

SUMMARY Common characteristics of integrated procurement systems There are a number of advantages and disadvantages common to all of the methods included within the category of integrated procurement systems. Advantages 1. The single point of contact between the client and the contractor that is unique to this category of procurement systems means that the client has the advantage of dealing with one single organization that is responsible for all aspects of the project. 2. Provided that the client’s requirements are accurately specified certainty of final project cost can be achieved and this cost is usually less than when using other types of procurement systems. 3. The use of integrated procurement systems enables design and construction to be overlapped and should result in improved communciations being established between client and contractor. These two characteristics enable shorter, overall project periods to be achieved and project management efficiency to be improved. Disadvantages 1. If, as often happens, the client’s brief is ambiguous and does not cummunicate his precise wishes to the contractor, great difficulty can be experienced in evaluating tender submissions. 2. The absence of a bill of quantities makes the valuation of variations extremely difficult and restricts the freedom of clients to make changes to the design of the project during the post-contract period. 3. Although well-designed and aesthetically pleasing buildings can be obtained when using this category of procurement systems, the client’s control over this aspect of the project is less than when using other methods of procurement.

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Specific characteristics Each of the individual systems within the integrated category have specific advantages, disadvantages and characteristics. Design and build Disadvantages The performance of design and build contractors is subject to considerable variation dependent upon whether they are pure, integrated or fragmented organizations. Levels of technical and managerial competence are likely to be lower as the client’s choice moves from the first, through the second to the third type of contractor due to the difference in capability between an organization specializing in design and build with in-house resources covering all disciplines (pure); a general contractor with partial in-house expertise (integrated); and a medium/small builder in consortium with an outhouse design team (fragmented). Conversely, project costs are likely to increase as the client’s choice moves from fragmented through integrated to pure design and build organizations. Package deals Advantages 1. The client is usually able to see actual examples of the package dealers’ product in real situations and assess their practical and aesthetic appeal. 2. Many proprietary systems have been tried and tested over a period of years and are thus likely to be free of the initial constructional defects which affect some bespoke projects. Disadvantages 1. This method uses proprietary building systems to produce schemes which may not satisfy all of the client’s needs. 2. Some serious structural failures have occurred among some of these proprietary systems, which have also suffered from other less serious defects as a result of poor design and detailing. Turnkey method Advantages When using this system the client is able to operate his facility and commence production immediately he takes possession of the project.

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Develop and construct Advantage This system is useful where the client has his own in-house design expertise, regularly uses external designers and sees advantages in retaining them, wishes to restrict the knowledge of his intention to build or wants to minimize the difficulties of comparing disparate design and build submissions, while at the same time requiring a single organization to take responsibility for the detailed design and construction of the project. Disadvantage Responsibility for the design of the project can be a possible area of dispute when using this system due to the involvement of both the design consultants and the contractor in this aspect of the project. The effect that these characteristics have on the selection of the most appropriate procurement system for a specific project is discussed in detail in a later chapter but as a general guide it can be safely stated that most new-build industrial and commercial projects—where the client’s requirements can be unambiguously and comprehensively delineated, and remain constant during the currency of the project, and which are not required to be of high architectural merit—could be procured by one or more of the integrated procurement systems that have been described.

REFERENCES 1. Building Economic Development Committee (1983) Faster Building for Industry, NEDO, London, May. 2. Building Economic Development Committee (1988) Faster Building for Commerce, NEDO, London, November. 3. Moore, R.F. (1984) Response to Change—The Development of Nonraditional Forms of Contracting, Occasional Paper No. 31, CIOB, Ascot, September. 4. Junior Organization, Quantity Surveyors Divisional Committee (1985, 1986, 1988, 1990) Surveys of Contracts in Use, 1984, 1985, 1987, 1989, RICS, London, November. 5. Centre for Construction Market Information (1986) The Design and Build Market 1986, CCMI, London. 6. Rowlinson, S. (1987) Design Build—its Development and Present Status, Occasional Paper No. 36, CIOB, Ascot, May. 7. Rowlinson, S. (1986) An analysis of the performance of design build contracting in comparison with the traditional approach, unpublished PhD thesis, Brunel University. 8. National Joint Consultative Committee for Building (1985) Code of Procedure for Selective Tendering for Design and Build, RIBA Publications Ltd, London, October.

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9. Jones, G.P. (1984) A New Approach to the JCT Design and Build Contract, Construction Press, London, 1984. 10. Rowlinson, S., and Langford, D. (1984) The Contractor as Designer, paper to the LABSC workshop, conference on The Organisation of Management of Construction, Waterloo, Canada.

5 MANAGEMENTORIENTATED PROCUREMENT SYSTEMS

5.1 INTRODUCTION The last two decades have seen a substantial increase in the use of managementorientated procurement systems in the UK mainly as a result of clients, particularly those in the commercial sector, demanding earlier commencement and completion times than could be achieved when using conventional methods, more control over project costs and higher standards of functionality and quality than were being obtained by other means of building procurement. Carter [1] maintained that the introduction of management contracting was due to changes which had occurred since the early 1960s in respect of: 1. the diversity, complexity and standardization of building techniques; 2. the growing prominence of the subcontractor; 3. the growth in size of projects, demand for tighter time and cost targets and for a more unified and purposeful management of the total process. The systems that have been included within this category exhibit the characteristics common to all management-orientated systems whereby the contractor is elevated to the status of a consultant and special emphasis is placed on the integration of the management of both design and construction. This trio of methods comprises management contracting, construction management and design and manage. All of the systems that are now described should, in theory, enable the project to be more readily effected in accordance with the client’s needs, especially accelerated commencement and completion, than would be the case if the work was carried out using more conventional procurement systems. 77

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5.2 MANAGEMENT CONTRACTING 5.2.1 Definition It should be said from the outset that this procurement system is examined from the viewpoint of the procedures laid down in the documentation associated with the 1987 edition of the JCT Standard Form of Management Contract and does not therefore reflect any of the many varied methods of operation used prior to that date although reference may be made to these in the text. Reference must also be made to fee contracting at this stage. This method is where, in exchange for a fee, the contractor agrees to carry out building works at cost while at the same time providing some limited management expertise to the client and his design team. This system of procurement has a long history of the specialist use in the UK dating from the 1920s and was the forerunner of management contracting proper and is in reality an integral part of the evolvement of the method in current use. This and the fact that the characteristics of the original fee contracting approach are basically those of the cost-plus method that has previously been described has led to the decision not to treat this arrangement as a separate entity but as part of management contracting itself. The main characteristics of this procurement system are: 1. The contractor is appointed on a professional basis as an equal member of the design team providing construction expertise. 2. Reimbursement is on the basis of a lump sum or percentage fee for management services plus the prime cost of construction. 3. The actual construction is carried out by works or package contractors who are employed, co-ordinated and administered by the management contractor. Many definitions of the method exist but all contain, in part at least, these fundamental features. For the purposes of this guide the following definition has been adopted: Management contracting is a process whereby an organisation, normally construction based, is appointed to the professional team during the initial stages of a project to provide construction management expertise under the direction of the contract adminstrator. The management contractor employs and manages works contractors who carry out the actual construction of the project and he is reimbursed by means of a fee for his management services and payment of the actual prime cost of the construction. 5.2.2 Genesis While the concept of management contracting appears to have originated in Sweden [2] the system was also developed in the USA as a result of the General

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Services Administration (GSA) and the Public Building Service (PBS) requiring phased construction and greater consultant’s and contractor’s co-operation on the civilian federal building projects for which these two organizations were responsible. According to Heery [3] up until the late 1960s management contracting, known incidentally in the USA at that time as professional construction management (PCM), was rather informally used but as the cost of construction increased during the early 1970s and delayed projects became more frequent, PCM began to be used more frequently. In the mid-1970s the GSA restricted construction management firms to acting solely in a consultant capacity in order to preclude them from undertaking any of the direct works. At the end of the decade, the same powerful organization further limited the use of the method as a result of difficulties experienced in ensuring there was enough incentive to perform, problems regarding liability and the need for a firm price tender before start on site— the wheel had turned full circle! Despite this apparently retrograde step there is no suggestion that the management contracting system will not continue to be used, where appropriate, in the USA although Flanagan [4] and others have suggested a reduction in its use has occurred and that this will continue in the foreseeable future. Although fee contracting was used as early as 1928 in the UK by Bovis it was not until 1969 that pure management contracting gained recognition when the Horizon project, a large complex cigarette manufacturing factory for John Player in Nottingham, was built using this method. Whereas in the USA the growth in PCM was led by architectural and engineering consultancy practices, in the UK the major contracting companies were the first to offer management contracting services to their clients, with the number of contractors increasing by 50% between 1979 and 1983 and the 20 principal UK management contractors having, in the latter year, a combined turnover using this system of about £580 million (Table 5.1). Prior to, and for most of, the 1970s the large majority of, if not all, management contracting projects emanated from the private sector and it was not until the end of the decade that the method began slowly to be accepted and used by public clients who had succeeded in overcoming the difficulties associated with the need to ensure public accountability. After the initial reluctance the use of the method increased, mainly as a result of a perceived success rate and good track record, with both local and central government carrying out major projects using the system. In the latter half of the decade, growth in the use of the management contracting system was not as dramatic as in the previous 10 years and indeed it has been suggested that it is losing out in favour of construction management. Notwithstanding this possibility the launch of the long-awaited JCT management contract in 1987 ensured that the method joined the other

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Table 5.1 Growth of management contractors

Source: Naoum and Langford [5]

established and officially approved and accepted procurement systems on offer to the industry’s clients. However, it has been noticeable that since the middle of 1989 a number of influential clients have publicly declared their intention not to use the management contracting system on any future projects due to the difficulties they have experienced when using this method on their past and current schemes. The problems that have led to clients’ apparent disenchantment with this method are those of delays caused by trade/package contractors over which the client has no control; the additional costs incurred when using this system (which could average out at 12% more than when using other procurement forms), and the difficulty experienced in achieving reasonable quality standards. It would thus appear that as in so many other aspects of business management and our daily lives, the use of management contracting may be following the trend set in the USA in the late 1970s and suffering a significant and perhaps permanent reduction in the foreseeable future. 5.2.3 Share of the market Management contracting has now become well established in the UK over the past two decades as an acceptable alternative to other, more conventional methods of procuring buildings of all types. Naoum’s 1988 survey [6] of 170 projects that had been implemented using the management contracting system confirmed that whilst the majority of the projects identified were in the commercial and industrial sectors, residential, health and other types of buildings had also been carried out using this method (Figure 5.1).

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Figure 5.1 Percentage of management contracting by building type Source: Naoum [6]

Figure 5.2 Percentage of management contracting by construction type

Figures 5.2 and 5.3 from the same survey show that both new build and refurbishment projects and privately and publicly commissioned schemes have been successfully carried out using this method of procurement. The value of UK projects carried out by the management contracting method in 1984 was estimated at £890 million in a survey carried out by the CCMI in 1985 [7] although this figure was conditioned by the fact that some contractors have difficulty in separating other associated types of contracting from the pure management variety.

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Figure 5.3 Percentage of management contracting by sector

Management contracting was forecast in the same survey to grow by 9% during 1985 and continue to increase in use for the following 4 to 5 years. Those contractors who were less established in this field tended to be more pessimistic and saw less growth than their larger counterparts. Figure 5.4 illustrates the dramatic increase in the number of management contractors since the mid-1970s and shows how from five contractors in 1970 the figure had grown to nearly 40 at the end of 1982. In addition, a further 18 contractors had been identified at this time who were offering some form of management package or seriously considering doing so in the very near future. While the latter part of the 1970s and the first half of the 1980s experienced this substantial increase in both the numbers of management contractors and the annual value of work carried out using management contracting, the RICS survey of ‘contracts in use’ published in 1988 [8] showed that the percentage of contracts, by value, employing management contracting had decreased from 14.4% in 1985 to 9.41% in 1987. A survey of the level of use of procurement systems by 47 of the top 500 UK companies carried out by Masterman in 1988 [9] confirmed this reduction. A number of authorities in the recent past have hypothesized that the trend towards the increased use of management contracting in the 1980s might not be so inevitable in the next decade and it would appear that, as a result of the

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Figure 5.4 Number of contractors introducing management contracting since the 1990s, after CCMI [7]

general reduction in the use of this method that occurred during the late 1980s and the more recent disillusion with the system expressed by some major clients of the industry, this forecast is likely to come to fruition.

5.2.4 The process Figure 5.5 illustrates how the system operates functionally and contractually. The management contract arrangement does not fit neatly into the conventional pattern of pre-contract and post-contract stages and Dearle and Henderson [10] have identified three distinct periods. 1. the period before the appointment of the management contractor; 2. the preconstruction period; 3. the construction period.

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Figure 5.5 Functional and contractual relationships, management contracting

The question of timing of the appointment of the management contractor should be aired at this stage as there are two schools of thought regarding this matter with a number of respected sources suggesting that the management contractor should be engaged in advance of the architect and other consultants and made responsible for their appointment and the reimbursement of the design team. The more usual arrangement, however, and that laid down in the JCT Practice Note for the 1987 Management Contract [11], is for the client directly to appoint his consultants in advance of the engagement of the management contractor and to be responsible for their reimbursement and management. The three stages of the process are now described and discussed based upon the procedures incorporated within the JCT standard form of contract for management contracting.

5.2.5 Pre-appointment of the management contractor This period will encompass many of the activities usually associated with the conventional pre-contract stage, i.e. carrying out of a feasibility study, formulation of the brief, etc., although they will be carried out in this case on an accelerated timescale.

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During the early part of this stage the employer appoints his contract administrator, an architect, a quantity surveyor and any other professional advisers that are considered necessary—these consultants form the design team which initially assists in the preparation of the brief and prepares drawings and a specification which describe, in general terms, the scope of the project. Once this documentation has been prepared, the employer, with advice from appropriate members of the professional team, invites tenders from management contractors using one of the methods of selection and appointment that have been devised for this purpose. All of the various methods are likely to contain the following fundamental elements: 1. A list is formulated, probably some 10 to 15 in number, of management contractors. 2. These contractors are invited to submit a written reaction to a brief description of the project including the timescale and estimated cost of the works. 3. On the basis of their initial response, three to five management contractors are selected to proceed to the next stage and issued with a questionnaire, the answers to which will provide an accurate profile of their organization and experience of management contracting. They are also provided with detailed information about the project, its design, programme and cost aims, invited to submit their proposals for managing the project and, separately, their fee bid, expressed as a percentage of the total project cost, for implementing these proposals. 4. It is also usual for the contractor to be asked to state the reimbursement he will require for providing the necessary management services during the preconstruction period. The evaluation of the contractors should be made on the basis of their written proposals and verbal presentation and should not be determined solely by the level of the individual fee proposals. Great emphasis needs to be placed upon the importance of the way in which the management contractors propose to manage the project and the content and manner of their project team’s live presentation of this aspect of the selection process. The criteria for the selection of the successful management contractor should include: 1. experience of management contracting and a previous record of success in performing this and the conventional general contractor’s role on projects of a similar size, complexity and type and completing work on time and within budget; 2. a detailed understanding of all aspects of the scheme and the evident ability to match his management team to the needs of the project—particularly

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in the case of the project manager whose competence and experience will be crucial to the success of the project; adequate financial resources with sufficient capacity for the bonding and insurance requirements of the project; sufficient standing within the industry to ensure that any difficulties with suppliers or trade/package contractors are dealt with expeditiously; the ability of both the head office organization and the site project team to co-operate with the client and his consultants throughout the life of the project; the level of the management fee.

A survey carried out during the preparation of a guide [12] produced by the government-funded industrial development agencies in 1984 revealed that employers were of the opinion that the following criteria, in descending order of importance, were significant when selecting a management contractor: 1. personalities 2. understanding of the project 3. assessment of budget cost and experience of firm 4. management fee 5. method of construction 6. content of submission 7. industrial relations 8. contract conditions 9. fixed charges 10. format of presentation 11. contractual arrangements The aim of the selection procedure is not to achieve the lowest fee and other charges but to select the management contractor with the right experience, resources and managerial skill and the client would be well advised to use one of the various assessment techniques that are now available in order accurately to evaluate the subjective variables that will be present in each submission. Once the management contractor has been selected he and the employer enter into a form of contract—the JCT 1987 Management Contract now being accepted as the industry standard—and the second phase of the project commences.

5.2.6 Pre-construction period During this period the management contractor provides certain services to the client’s design team, these will normally include [11]:

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1. the preparation of the overall project programme; 2. the preparation of material and component delivery schedules and the identification of those items which require advance ordering; 3. advising on the ‘buildability’ and practical implications of the proposed design and specifications; 4. the establishment of agreed construction methods, particularly those affecting the design; 5. the preparation of a detailed construction programme; 6. advising on the provision and planning of common services and site facilities; 7. advising on the breakdown of the project into suitable packages for trade and/or works contractors; 8. preparing a list of potential tenderers for the works or trade contracts and investigating their capabilities and financial standing; 9. assisting in the preparation of tender documents and obtaining tenders from approved trade/works contractors and suppliers; 10. the preparation, in consultation with the client’s consultants, of the documentation necessary to ensure the efficient placing of the proposed trade/works/suppliers contracts or orders. A number of the listed responsibilities impinge on those that are normally included in the duties of the design team who, while remaining responsible for the design of the building, must be prepared for a dialogue with the management contractor, for example, on methods of construction and buildability in order to reach an agreed design which best meets the client’s needs. During this period the management contractor has other functions, which must be carried out before the end of the pre-construction phase, including the agreement of the contract cost plan/estimate of prime cost with the cost consultant. Other matters relate to the agreement of the services to be provided by the management contractor—the terms of the joint policy for insuring the project; the identification of the management contractor’s resident site manager; and the agreement of the common site facilities and services that will be provided or secured by the management contractor. When the contract administrator is satisfied that all the preparatory work has reached a stage when it will be practicable to commence the construction of the project, he notifies the client who then has 14 days in which to decide whether the project will proceed or not. If the project is aborted at this stage the management contractor and design team are reimbursed their costs in accordance with their respective contracts. In the case of the contractor he is paid the pre-construction-period fee which will have been agreed and stated in the contract. If, however, the management contractor is notified that he is to proceed, he

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is given possession of the project site in accordance with the previously agreed date for possession and thus becomes responsible for securing completion of the project on, or before, the date for completion or any extended date fixed under the conditions.

5.2.7 Construction period The management contractor does not carry out any of the construction work himself. The actual work is divided into a series of separate packages, generally for different trade or functional elements of the building, and the management contractor usually enters into standard JCT contracts with works contractors for the implementation of these packages. The duties of the management contractor during this period can be summarized as the setting out, management, organizing and supervising of the implementation and completion of the project using the services of his trade/ works contractors. The selection of tenderers, the establishment of the conditions of the works contracts, the obtaining and scrutiny of works contract tenders and recommendations for the acceptance of the most favourable offer are all matters which are dealt with jointly by the client, the appropriate consultants and the management contractor. The management contractor is precluded from carrying out any of the trade/ works packages himself or through any associated or subsidiary company, or to profit from the construction activities, so that he can avoid any conflict of commercial interest between the client and himself and retain his consultant status. Payment is therefore made to the management contractor during the construction period by means of interim certificates based upon the prime cost of the work so far completed. At the same time directions are given for the amounts that are to be paid to the individual works contractors. The certificates will also include the reimbursement of an instalment of the construction-period management fee and the cost of the management contractor’s directly employed resources. Retention is deductible on all elements of the prime cost including the management contractor’s fee. The monitoring of the cost of the project against the contract cost plan is carried out on a continuous and regular basis by the architect and quantity surveyor with the assistance of the management contractor, in order that accurate and up-to-date information on committed and future costs is always readily available. The consecutive receipt of tenders for the works contracts enables the consultants to maintain the contract cost plan by the redesign of later packages if this is judged to be necessary in the light of the result of earlier tenders. The

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management contractor’s own costs should be monitored against an agreed figure contained within the contract cost plan. The architect has the power to issue variations on the project, generally described as ‘project changes’ and also for the works contracts, described as ‘works contracts variations’. He can also order a postponement and issue instructions to accelerate the progress of the project, or alter its sequence, or timing. As with most other procurement systems, variations to the original brief are to be avoided if at all possible but should such variations be necessary, it is essential that the management contractor and other appropriate consultants assess the effect of the proposed changes on programme and cost before a decision to proceed is made. The formulation of the construction programme necessary to achieve the completion date is the responsibility of the management contractor and although extensions of time can be granted under the JCT form of management contract, these do not necessarily affect the project completion date. This approach is intended to ensure that the consultants and the management contractor concentrate on completing the project on time rather than on formulating reasons for obtaining an extension of time. However, the JCT management contract has been designed deliberately to provide a low-risk environment for the management contractor, which results in his liabilities being limited, in the same way as the other members of the professional team, to responsibility for any negligence in the performance of his management function. As a result of this approach the management contractor is given relief from the imposition of ascertained and liquidated damages for any overrun on the project which is not covered by an extension of time, and has been caused by reasons outside his reasonable control, or indeed for delays caused by any of the works contractors. During the construction period the management contractor is responsible for supervising the construction operations and ensuring that all of the work is built to the standards originally defined by the design team. This responsibility can be supplemented by the appointment of clerks of work with the cost being borne by the employer. Should any of the works contractors be unable or unwilling to remedy any defects identified in the work they have carried out, it may not be possible to recover the cost of rectifying the faults. In line with the philosophy of the management contractor’s status as a consultant, the cost of the necessary rectification devolves upon the client and employers are therefore advised to establish a contingency fund to cover the risk. Once substantial completion of the works has been effected, handover of the project is carried out in the normal traditional manner with the

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management contractor providing the following information or undertakings: 1. a written undertaking that the project conforms to the original or amended brief; 2. a written undertaking that all costs have been paid and that there are no claims, litigation or the like pending; all works contractors’ accounts have been finalized or will be finalized within a maximum period of 12 months; 3. ‘as constructed’ drawings and a comprehensive specification for all aspects of the project; 4. commissioning and test certificates, servicing and maintenance manuals and operating instructions for all elements of the building and services including equipment and plant; 5. a written programme of recommended maintenance for the building, services and plant/equipment; 6. a written undertaking confirming that final testing and balancing of the building services will be carried out once the building is fully occupied and operational; 7. written confirmation of the date of commencement and completion of the defects liability period; 8. a certificate, issued by the architect, confirming that the project is to his total satisfaction. It cannot be sufficiently stressed that the management contract is a high-risk form of procurement for the client and it is therefore essential that when using this system he is completely and continuously involved in the project and that his contract adminstrator/project manager is highly competent and experienced.

The product The performance of management contracting in relation to other conventional methods of procurement has been well documented in literature and research particularly by Naoum [6], Sidwell [13] and Barnes [14] and the system is now examined in the context of the three classic clients’ criteria of functionality/ quality, cost and time. Function and quality Provided that the management contractor is appointed during the early stages of the project, and in advance of any decisions being taken regarding the detailed design of the building, he should in theory be able, by advising on buildability, construction methods and techniques and the economics of the proposed design, to make a major contribution to achieving an agreed design which fully meets the client’s needs and is capable of being economically and speedily implemented.

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However, for this theoretical advantage to become a reality it is essential that the design team are prepared to enter into an open dialogue with the management contractor on all aspects of the project and to ensure that he is well briefed as to the design constraints and client’s requirements so as to avoid unhelpful and impractical suggestions being made. The client must therefore ensure that his consultants are fully aware of, and committed to, the philosophy of the system, are receptive to suggestions from the management contractor on any aspect of the design and desirous of working as a team in finding solutions to problems that arise during both the design and construction stages of the project—notwithstanding such co-operation the design team remain responsible for the design of the project. Whilst the majority of authorities believe that the management contractor can make a worthwhile contribution during the design phase of the project, some are not convinced of the validity of this claim and maintain that the management contractor’s personnel are generally constrained by a lack of experience and understanding of the design function and the need to change from the narrow profit-orientated approach of the general contractor to the wider view that needs to be taken by the client-orientated consultant. Naoum’s survey [6] of 10 client organizations, with experience of the use of management contracting, appears to support this view as it found that 80% of the respondents did not believe that the use of this procurement method provided a better design than that achieved when using the conventional approach. However, most of those surveyed did acknowledge that management contracting was not chosen for this characteristic in the first place. On the question of the quality of the completed project, Barnes [14], when examining hospital projects, found that the level that had been achieved ‘appeared to be largely better under the management contracts than the general conventional expectation’. Other sources of information on this criterion indicate that the quality standards achieved are at least as good as those obtained on conventionally procured projects. It should, however, be noted that while quality control is the primary responsibility of the management contractor, the architect may also wish to be represented on site in order to monitor this aspect of the project. There is thus in these circumstances some duplication of site supervision, and the costs associated with this activity, as well as the possibility of friction between the management contractor and the designer which could be to the detriment of the client. This potential problem should therefore be resolved prior to construction commencing on site. Time The CCMI’s 1985 survey [7] of management contracting established that the clients who were sampled believed that the use of this method was most

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Figure 5.6 Performance in relation to contractual arrangement Source: NEDO [15]

appropriate where fast design and construction periods were required or where an early start, and/or early completion, were needed. On major projects where these criteria must be met, the use of conventional methods of procurement is not appropriate and management-orientated systems have flourished as a result of their perceived ability to fragment the building operations and enable design and construction to overlap. Sidwell’s research [13] into the attitudes of client organizations to management contracting supports this perception in that 100% of the respondents to a questionnaire comparing this method with the conventional approach were of the opinion that management contracting allows an earlier start to be made on site and resulted in speedier completion of the project; 90% of the respondents also believed that the use of this system resulted in more reliable predictions being made as to the eventual length of the construction period. The 1983 NEDO report, Faster Building for Industry [18], shows that when used in this particular sector of the client spectrum, separate management procurement systems produce the best performance times (Figure 5.6). Barnes’ comparative study [14] of three hospital projects, one using a conventional procurement method and the other two management

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contracting, found that ‘the pace of construction work on all of the projects did not differ sufficiently to conclude that management contracting has an overwhelming advantage in speeding up construction’. However, the study did establish that the risk of delay was reduced as a result of the system’s flexibility and its ability to be able to accommodate and overcome difficulties and changes. As Noaum and Langford [5] have established that the highest-ranking criteria identified by clients when using management contracting for their building projects are increasing the reliability of time estimates and minimizing the duration of pre-construction and construction periods, it would appear that on the basis of all of the available evidence this system satisfies the client’s needs in terms of the time criterion. Cost The client’s perception of the financial consequences of using this procurement system, as identified in the CCMI’s 1985 survey [7] of management contracting, was that it tended to cost more than conventional methods and in addition the uncertainty regarding the end cost was seen as a distinct disadvantage. The survey of 10 experienced clients carried out by Naoum [6] found that: 1. all of the respondents believed that management contracting was more profitable to the contractor than to the client; 2. 30% of the clients surveyed were of the opinion that management contracting involved fewer claims; 40% believed the method involved the same number of claims as other methods and the remainder did not believe the method involved fewer claims; 3. only 20% believed management contracting was cheaper than other methods; 40% thought the method produced the same level of cost and the remainder were of the opinion it was not cheaper. And although the authors conceded that there were conflicting opinions about the cost factor the views expressed appear to confirm the results of the CCMI survey. Many others have questioned whether management contracting is the most effective way of building, although all have acknowledged that the savings of time that can be achieved may well result in cost savings, or additional income, offsetting the extra construction costs. There is also a suspicion that ‘relieved from the constraints of competition, the management contractors expenditure on site estabishment, plant and other preliminaries is lavish—at the client’s expense’ [13]. Problems that emerged during the late 1980s have resulted in management contracting becoming even less economic in straight financial terms than other procurement approaches. Trade contractors have now become reluctant to undertake projects at competitive prices due to the onerous contract

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conditions imposed upon them by management contractors and the high level of risk they are now being asked to accept. Extra costs have been incurred as the result of the duplication and overlapping of site management and other services by the principal and subsidiary contractors due to lack of the economic definition of common services and supervisory responsibilites by the management contractor. It has, however, been suggested that the trends that have been described are a temporary phenomenon and may well be reversed once the market becomes less buoyant and the use of the JCT management contract has taken effect, although it must be remembered that this document limits the management contractor’s liability to that of professional negligence for his advice and thus imposes further financial risk upon the client. The absence of a tender sum when construction commences is seen by many clients as a distinct disadvantage and to some as reason for not using the system at all. Exponents of the method maintain that the lack of such a safeguard does not necessarily mean that there is less control over the eventual construction cost as strict supervision can be exerted over this aspect of the project. This contention is based upon the fact that each package of work is normally the subject of keen competition between construction contractors and it is therefore possible to monitor costs closely and if necessary adjust later works packages in order to absorb any cost overruns incurred so far, subject, of course, to the client’s acceptance of the reduction in scope or specification of the package in question. The fragmented nature of the construction element of this procurement system allows the final account for the project to be settled progressively during the duration of the works and ensures rapid settlement once the project has been successfully completed. Other characteristics In general, this system enables the client’s consultants and the management contractor to become a professional team of equals committed solely to meeting the client’s needs. In addition the emphasis on the management aspect of construction activities should be beneficial and ensure the effective control of the project. Specifically, the following characteristics are associated with this procurement system. 1. A high degree of flexibility is built into this method, which enables delays to be overcome or reduced, changes to be absorbed and rescheduling of works packages to be implemented. 2. The fragmented structure of the construction process, i.e. the use of works packages, means that the financial failure of any of the works contractors only has a limited effect on the total project. 3. The management contractor’s knowledge and experience should ensure that

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industrial relations on the project are better than when using more conventional procurement methods. Research and development of new techniques and processes may result from the greater involvement of the contractor during the design stage. The initial philosophy, that has been fundamental to this system since its inception, of the management contractor’s liabilities being limited, like all other members of the professional team, to any negligence in the performance of his management function means that the client must accept far more risk and responsibility than when using many other procurement systems. The JCT form of management contract reflects this philosophy but many of the forms of contract that were used prior to its publication, and may still be used in the future, do not adopt this approach and force contractors to accept risks more appropriate to conventional contracting. Contrary to the original principle, management contractors have had to accept the risk of construction rather than just the management. Specifically, clients have made management contractors responsible for construction contractors, time overruns, remedying of works-package defects and even design. These responsibilities bring risks which are similar to those associated with conventional procurement arrangements and place the management contractor in a position where he needs to decide whether to accept the unreasonable risks himself, and pass on only the reasonable hazards to his works contractors, or ensure that the latter takes all of the risk with the inevitable consequences. Assuming that the use of the relatively new JCT form of management contract becomes universal, this deviation from the original philosophy may not be long-lasting although much irreparable damage to the method may well have already been done. There is little doubt that this procurement system increases the amount of administrative effort required of all of the participants and produces a much greater amount of paperwork than many of the other methods.

All of the individual methods of procurement contained within the management-orientated category have a number of characteristics in common and it is thus not proposed to reach any conclusions as to the advantages and disadvantages of the management contracting system until all of the members of this group have been considered. It is, however, apposite to say at this stage, particularly in the light of the tribulations that this particular system is currently experiencing, that management contracting is not, as it has often been seen in the past, a panacea for all of the construction industry’s ills but rather, if properly applied, a viable alternative to conventional methods especially where the project is large and/or complex.

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5.3 CONSTRUCTION MANAGEMENT 5.3.1 Definition NEDO’s customer’s guide to using the construction industry, Thinking about Building [15] defines this system as the method where the management service is provided by a fee-based professional and all construction contracts are directly between the client and the trade (package) contractors. It will thus be seen that the fundamental difference between this procurement system and management contracting, which are often confused with each other, is that with this approach the client enters into a direct contract with the individual works contractors. The construction manager then acts as the employer’s agent when dealing with each of the separate contractors. The main characteristics of the system are: 1. The construction manager is appointed as a consultant during the initial stages of the project and has equal status to the members of the design team. 2. Reimbursement is made by means of a lump sum or percentage fee for management services. 3. The physical construction of the project is carried out by works, or package, contractors who are employed by the client and co-ordinated, supervised and administered by the construction manager. For the purposes of this guide the construction management system has therefore been defined as: The Construction Manager adopts a consultant role with direct responsibility to the client for the overall management of the construction of the project, including liaising with design consultants, to meet agreed objectives. The construction manager is reimbursed by means of a professional fee and all construction is carried out by means of works packages which are the subject of direct contracts between the client and the package contractors.

5.3.2 Genesis In the US architects and engineers began to offer construction management services to their clients during the 1960s and the method has usually been referred to in North America as construction project management (CPM). It was not until a decade later in the 1970s that this method began to be used in the UK in response to demands from clients of the industry for greater certainty about the overall performance of their project and in particular the need to control the risks of cost and time overruns and detrimental external influences on very large and complex projects. These problems were further exacerbated when in the mid-1980s a depressed

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and uncertain world economy, coupled with high interest rates, exposed commercial developers to large financial risks and construction management appeared to provide extra management expertise and a control structure which was seen as being needed to deal with the increased levels of uncertainty arising from these effects. Since that time the system has been increasingly used by major developers, particularly on projects in London and the south-east, with apparent success although often to the detriment of UK consultants and contractors who seem unable to meet the standard of service and cost parameters demanded of, and achieved, by American and other European design and construction organizations. The use of construction management in the UK by the public sector has been very limited although it now appears that certain government agencies are experimenting with this procurement system and for the reasons given in the preceding section are forsaking management contracting in favour of the construction management approach.

5.3.3 Share of the market Unfortunately, there is little evidence in the literature of any research having been undertaken into the past, current or future market for construction management services. Such information as is available indicates that the amount of building work carried out using this procurement method has substantially increased, from what must have been a very low level, since the 1970s and certainly the use of the construction management system is less common than the utilization of management contracting. Bennett [16] maintained that the vast majority of construction management work in the UK is carried out by about 15 national contractors with approximately 40 other contracting organizations having experience of the method. He was also of the opinion that there are a very small number of active professional construction management firms currently trading. Notwithstanding the lack of definitive information, sufficient evidence exists from the technical press to enable Table 5.2 to be formulated incorporating details of major projects that have been, or are currently being, implemented using this method. It is therefore likely that, allowing for chronological overlap, an annual workload of some £400 million-£500 million in value will have been carried out between 1985 and 1990, i.e. some 50% of the estimated value of management contracts for the same period. These figures confirm the current popularity of construction management among the larger more sophisticated developers for use on their major projects. However, the fact that such mega-schemes are currently at their numerical peak will probably result in a substantial reduction in the number and value

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Table 5.2 Major construction management projects 1985–90

of projects that will be carried out in the immediate future although it would appear that this procurement system is becoming increasingly popular amongst expert and discerning clients.

5.3.4 The process There is considerable variation in construction-management procedures and practice and therefore the following discussion concentrates on that process which appears likely to become accepted within the industry as good practice. The functional and contractual operation of the system is shown in Figure 5.7. There is general agreement that the construction manager should be appointed as early as possible in the life of the project, alongside and of equal status to the designer, with both consultants dealing directly with the client.

Figure 5.7 Functional and contractual relationships, construction management

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This equal-status situation can only be effective if there is an experienced third party who is directly responsible to the client for co-ordinating and managing the activities of the two corresponding organizations. An examination of recent literature describing current construction management projects reveals that generally this co-ordinating role is carried out by the client’s own in-house project management personnel and the client is thus more intimately involved with the management of the project than if a more conventional procurement method had been used. As a consequence of this characteristic, it is unlikely that any but those entrepreneurial clients who have the ability, resources and inclination to oversee a major project will, or should, use this procurement system unless they are prepared to appoint a consultant project manager to protect their interests. Elaborate procedures have been developed for the selection of the construction manager with their unusual thoroughness probably reflecting the comparative novelty of the use of the approach in the UK. Simpler selection methods may well be formulated, or evolve, as experience is gained. Current procedures are similar to those used for the selection of management contractors and according to Bennett [16] comprise the following stages. 1. A preliminary list of 10–12 experienced organizations is formulated and each of them is provided with a brief description of the project. 2. The companies will then be asked to confirm, or otherwise, their interest in the project and provide details of their experience in this field. 3. A short list of three to six firms will then be produced by the client on the basis of the information provided by the interested respondents. 4. The short-list organizations are then invited to make formal submissions, on the basis of more detailed information about all aspects of the project provided by the client. 5. The formal written submission should be in the form of an offer to provide a specific service for a specified fee. 6. After the receipt of the formal submission each firm should be interviewed in order to discuss the submission and allow the client to meet the construction manager’s key project-management personnel. 7. The normal form of interview is a presentation by the firm followed by questioning by the client in order to identify weaknesses, obtain missing information and evaluate the organization’s personnel. 8. The choice of the construction manager is made by the client and should be based on a full discussion and evaluation of the short-listed organizations’ strengths and weaknesses against a list of weighted criteria. Once appointed, the construction manager’s responsibilities, whilst varying for each project dependent upon its particular characteristics, will generally consist of:

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1. the overall planning and management of the total project from inception to completion; 2. the assessment of the design to ensure buildability, compliance with budget costs and programme, value for money and economy; 3. the provision of advice on real construction costs and the establishment of cost budgets for the project; 4. identification of all statutory requirements, advising the client of their time and cost implications and suggesting alternative methods, if necessary, of meeting these requirements and including the establishment of a safety policy for the site; 5. the planning, management and execution of the construction phase of the project including the division of the work into appropriate packages; the obtaining of tenders for each work package and ensure that pre-ordering of essential materials or equipment is undertaken. 6. during the currency of the project ensuring that the client is kept informed on progress, costs and levels of future expenditure; evaluating and issuing variations once they have received the client’s approval, agreeing interim payments and final accounts with the works contractors and advising the client on contractual claims. These duties must be incorporated into some form of legal agreement which will establish a contract between the client and the construction manager and determine the roles, responsibilities and liabilities of each of the parties. In the UK, standard forms of contract do not exist for use for the appointment of construction managers and specifically designed contracts are therefore usually produced on a project-by-project basis and tend to include very detailed schedules of the construction manager’s responsibilities. At the annual conference of the Construction Management Association of America (CMAA), which took place in the USA during the autumn of 1988, the publication of contract documentation for use on construction-management projects was announced. Other associated documentation was due to be released in 1989 and it was forecast that this documentation would begin to influence contractors in 1990–91. However, it is likely to be much longer before a set of standard documents are available. It has been suggested that the method of reimbursement of construction managers for their services is somewhat confused as a result of their responsibilities varying from project to project and by the common practice of dividing the remuneration into two separate parts—the first a percentage fee for management services and the second normally a lump sum for the provision of general site facilities and site-based management. It is maintained that this method of payment mixes together consultant and contractor responsibilities and thus makes it difficult to separate management costs and undermines the creditabiiity of the construction manager’s consultant status.

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This concern can be partially mitigated by the level and fixed cost of the construction manager’s site-based staff being agreed in advance and the provision of common services and facilities being made the subject of a works package. The fee is normally fixed and predetermined at the outset and covers the construction manager’s overheads and profit. During the pre-construction stage the construction manager will be primarily involved in the preparation of the project cost budget and the forecasting of the client’s cash-flow requirements together with the preparation of tender documents, the selection of potential works contractors, managing the tendering procedures and reviewing, evaluating, making recommendations for acceptance of tenders and drafting contracts—quite elaborate procedures have been devised by construction managers to administer these duties. Construction managers do not carry out any of the construction work themselves but are responsible for the control and co-ordination of package contractors who actually implement the works under a series of direct workspackage contracts with the client. The construction manager acts under this arrangement as the agent of the employer. Works contracts tend to be private forms based upon amended standard forms of contract, although there is a growing use of the ‘JCT with Contractors Design’ form as the basis for contracts between clients and works contractors, particularly where the latter has design responsibility. During the construction period one of the main tasks of the construction manager is to control the cost of the project against the agreed budget, estimating the cost of design and construction proposals, using valueengineering techniques to review design proposals, monitoring tender costs and adjusting the content of future work packages to ensure adherence to the approved estimate of the cost of the work. Time management, or programme control, is another fundamental task for which the construction manager has responsibility—its purpose is to establish a programme for the project and ensure that the work is completed within the time agreed with the client. Specifically, the manager will agree the preconstruction element of the programme with the client and the design consultants and subsequently determine the time required to complete each works package, establish the relationship between each package, agree individual programmes with each package contractor, monitor progress and correct any deviations from the established programme. As the designer is not always the best person to ensure the quality of the work on site, the construction manager should be responsible for quality control but must involve the whole project team in establishing the initial standards for works contractors and subsequently monitoring quality and ensuring defective work is remedied at the expense of the perpetrator. Interim applications for payment submitted by the works contractors are examined and assessed by the construction manager, together with the

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appropriate members of the design team, and recommendations made to the client for payment. The validity on any claims for variations, delays, etc., submitted by the works contractors is established by the construction manager who assesses and agrees their value and recommends the necessary action to the client after discussion with the appropriate designer. Final accounts are dealt with in the conventional manner. The final elements of the construction process, i.e. the inspection and handover of the separate works packages once substantial completion has been effected, the issue of individual completion certificates to works contractors and the monitoring of defects liability periods are the responsibility of the construction manager working in unison with the other members of the professional team.

5.3.5 The product The three criteria of functionality/quality, time and cost are now examined in the context of the performance of the construction-management procurement system.

Functionality/quality There is no evidence to support the view that there is an improvement in the quality of the project’s detailed design as a result of the involvement of the construction manager during the intitial stages of the development. Indeed, it has been suggested that contrary to this widely held belief the construction manager’s staff often have a poor understanding of the design process and because of their contractor’s training, and consequent commercial bias, are often unable to adopt an objective approach to design matters. On the question of the manager’s contribution to the ‘buildability’ of the project Bennett [16] found when examining a number of projects during a 1986 study that ‘the detailed designs observed were no easier to construct than those produced in conventional practice’. However, provided that the construction manager implements the correct quality-control procedures during the construction stage to ensure that works contractors are aware of the standards expected of them, and that their performance is strictly monitored, it is likely that a high level of quality will be achieved and, if the manufacturing industry experience is repeated, will be accompanied by an increase in productivity. Overall therefore, the combination of an experienced design-orientated construction manager and the correct construction quality procedures stand a good chance of ensuring better-than-average performance in this area of the project.

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Time The construction-management method has two basic characteristics which should lead to faster completion. Firstly, construction is undertaken by separate works contractors with each work package being capable of starting as soon as firm designs are available for that package, and the successful tenderer appointed. Thus, project design and construction can be overlapped. This approach can be reinforced by clients pre-ordering and procuring critical materials and components ahead of construction and the fact that construction managers who are normally responsible for the time management, programming and monitoring of the design activities can ensure that information delays are minimized. Secondly, the use of this system should ensure that designs are more easily built as a result of the construction manager’s input at design stage and the consequential avoidance of unnecessarily complicated work and reduction of overlapping between individual works contractor’s operations. The reader will appreciate from previous comments that have been made as to the efficacy of such involvement by management contractors that this advantage can sometimes be more imaginary than real and is only successful when the manager’s staff are expert and experienced in this field. When comparing conventional methods of procurement with unconventional approaches, such as construction management, the NEDO reports of 1978 [17] and 1983 [18] both confirmed that, on average, the design and construction phases of projects using the unconventional route were completed more quickly than when using conventional procurement systems. Olashore’s [19] comparative analysis of management contracting and construction management established that significant savings in time could be made and early starts on site achieved when using either of these methods although the average time overruns when using the latter method were less than when using the former approach. Thinking about Building [15] advises the use of this method when early completion of the project is important or crucial. An examination of contemporary reports on construction management projects such as Broadgate and Chelsea Harbour reveal that those involved with the project believe that the enlightened management approach being adopted on site and the fact that a positive attitude to difficulties and problems has been engendered has led to the dramatic improvement in speed of construction over conventionally managed projects. It has been suggested that this discriminating approach stems from the involvement of American clients and construction managers whose very positive approach has persuaded British consultants and contractors to adopt a more constructive attitude to the project and the solving of specific problems—it will

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be interesting to see if, when the Americans move on, the British construction industry will have retained these attributes.

Cost The use of works packages ensures that competition can be achieved on a major part of any project being carried out using the construction management system of procurement and the fact that the employer enters into direct contracts with the works-package contractors ensures a greater measure of control over costs and the overall financial state of project. It is also possible, during the construction phase of the project to adjust the scope or specification, and thus the cost, of the uncommitted work should the contract already awarded have exceeded their estimated cost. Olashore’s comparative research [19] showed that the construction management projects that were surveyed had a lower average cost than the management contracts that were examined and that the average cost overrun for the former method was 3% whilst the corresponding figure for the latter was 7.3%. However, very little further specific evidence appears to exist with regard to the comparative cost of this method and it must therefore be a matter of conjecture as to its relationship with other procurement methods in this respect. The use of value engineering by construction managers has been cited as a means of improving the value for money provided to clients when using this system. It has been suggested in literature by some advocates of this technique that capital cost savings of between 5 and 10% have been achieved in return for additional fees of 1% with no reduction or, in some cases, even an increase in value. Although the question of the level of direct construction costs remains unresolved, there is a real possibility that the effect of the likely saving in time that will be achieved when using this method will mean that in terms of the client’s total real costs a net saving may be achieved as a result of reduced financing changes, earlier rental income, etc. The system’s association with the fast-track approach, which is demanding of management skills and can lead to the need for heavy expenditure on resources in order to achieve the necessary extra speed of construction, makes for extreme difficulty in reducing direct costs when using this method. In practice such cost benefits that can be achieved depend upon more mundane day-today management activities such as the close scrutiny of the works contractor’s accounts (so as to ensure that overcharging does not occur because of complex internal accounting procedures), contra-charges or any other aspects of normal commercial contracting. One of construction management’s main weaknesses is that it leaves the client

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vunerable when, at the commencement of the project, he has entered into the first works contract and is irrevocably committed but in return has no guarantee as to what the final cost of the project will be. This shortcoming has to be accepted by the client if he wishes to maintain the system’s philosophy of the construction manager’s responsibilities being limited to those of professional negligence. There is, of course, no lack of evidence that on many projects various forms of incentives, designed to increase the construction manager’s risk, have been implemented in an effort to overcome this weakness and to ensure that the estimated final cost is not exceeded. In these cases it is likely that the careful detailed planning and costing of the project, which is normally characteristic of this method, will be carried out with even more caution with the result that the usually high pre-construction costs associated with this method of procurement will be further increased. There is thus very little evidence to suggest that the use of construction management will result in large cost savings, or the converse, and it therefore appears that the best that can be said is that this system, when correctly used ought not to perform worse than conventional methods and on large, complex and innovative projects is likely to produce better results in terms of cost than when using many other procurement methods.

5.3.6 General The emphasis on management which is inherent in this approach generally results in clients and designers making timely decisions to match the needs of construction and, should the need for design changes occur, being in a position where a concerted effort by the whole project team can be made to minimize the time and cost penalties that could be incurred by the client. As in the case of proposed late changes in the design many of the benefits arising from the use of construction management centre on the project team’s knowledge and experience working unambiguously in the client’s interest throughout the life of the project and leading to improved buildability, the minimizing of problems during the construction period and the close matching of the contents of the work packages to the capabilities of the works contractors. The method also provides for strict control of the design process particularly in terms of the co-ordination of the production of design information with the requirements of the construction programme. Anecdotal evidence also indicates that a good sense of team work and a positive approach to problem solving is engendered when construction management is used. The latter characteristic may be the result of the greater client involvement that the use of this system demands and the better working relationships that

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result from this, including those between the construction manager and works contractors that stems from the client entering into direct contracts with each individual contracting organization. The fact that under this arrangement the client is responsible for direct payment of the works contractor’s accounts usually results in an improvement in the cash-flow position of the individual contractors as they are paid earlier than when operating under other methods of procurement, on a ‘pay when paid’ basis, when main or management contractors have this responsibility. Clients should be aware, however, that the use of construction management involves them in additional administrative duties and responsibilities to those accepted when using most other methods of procurement and also increases the risks they carry, particularly those associated with cost overruns, delays and claims. The fact that they are often faced with the need to make timely decisions in their more involved role as the leading member of the project team may be unattractive to those clients used to the more leisurely style of consultation with their professional adviser which characterizes conventional practice. Despite their self-proclaimed expertise in the area of buildability, contractor-based construction managers are often unable, because of lack of experience on the part of their staff in this field of activity, to contribute in a constructive and sensitive manner to the improvement of the design of the project. Despite the advantages gained by works contractors when involved in construction-management projects it is possible that they can feel more exposed when tied to a direct contract with the client and lacking the protection of a main contractor. More of the responsibility for co-ordination and performance rests with them, as does much of the site management and ‘attendance’ tasks previously undertaken by the main contractor on more conventionally managed projects and under certain circumstances they can also be allocated onerous design responsibilities. As is the case with all building procurement systems the circumstances of each project and the competence and experience of the design and construction teams need to be weighed against the advantages and disadvantages that have been identified as characteristic of construction management before a decision can be made as to its suitability for use on a specific project. It is, however, true to say that until it is better established and has been tried and tested over a longer period of time, and wider range of projects, than is currently the case, this method needs to be executed with great care and precision in order to ensure that the potential benefits, particularly speed of construction, can be achieved. On the basis of its current track record, construction management has now become an accepted procurement system and subject to it being used correctly and efficiently is likely to become firmly

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established as one of the most efficient methods of successfully managing large, complex building projects. In this context the report [20] published in 1991 by the Centre for Strategic Studies in Construction at the University of Reading concluded that the aims of a client who wishes to follow the ‘management path of procurement’ are best achieved through the construction-management method.

5.4 DESIGN AND MANAGE 5.4.1 Definition In this procurement system a single organization is appointed to both design the project and manage the construction operations using package contractors to carry out the actual work. The single organization responsible for the project can be either a contracting organization or a consultancy practice with the former being elevated to the status of a consultant upon appointment although the client may well employ an in-house or consultant project manager to supervise the project and will invariably appoint an independent quantity surveyor to oversee the financial aspects of the scheme. The main common characteristics of the system are therefore: 1. A single organization is appointed to both design and manage the project. 2. The single organization can either be a contractor or a consultant. 3. The actual construction of the project is carried out by works, or package contractors who, in the case of the contractor variant, are employed by the contractor; when using the consultant variant the works contractors are directly employed by the client. Reimbursement is by means of a lump sum or percentage management fee with the actual cost of the works packages, together with any common services, being paid in the case of the contractor variant. In this guide the design-and-manage system has thus been defined as: The design and manage organization acts as a consultant, normally with direct responsibility to the client for the design and construction of the project. All construction is carried out by means of works packages, which are either the subject of direct contracts between the client and the package contractors (consultant variant), or contracts between the design and manage organization and the package contractor (contractor variant). In the former, variant reimbursement is by means of a professional fee and in the latter by means of a fee together with the actual cost of common services and works packages.

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Figure 5.8 Functional and contractual relationships, design and manage

Figure 5.8 illustrates the alternative functional and contractual relationships observed in this procurement system.

5.4.2 Contractor-led design and manage When using this variant of the system, clients usually obtain single, or sometimes two-stage competitive bids and proposals from a small number (generally three to four), of suitable contractors on the basis of an enquiry document containing details of the client’s requirements, conceptual designs, etc. Tenderers are usually required to state their lump-sum design-andmanagement fee and offer a guaranteed maximum price (GMP), with their submissions and the contract award is normally made on the basis of the financial level of the bid and the tenderer’s design proposals. The requirement for tenderers to be tied to a GMP reflects the approach sometimes adopted by clients when using management contracting (which has already been discussed, and deprecated), in terms of the essential need to divorce the contractor from the profit motive associated with the conventional approach to construction projects, when the client wishes to receive and benefit from independent management advice from a contracting organization adopting a consultant role. The total loyalty to the client’s

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objectives essential to the success of management-orientated procurement systems is undermined by the insistence on the GMP requirement being incorporated within any agreement between employer and contractor and as such should not be demanded of any contractor when using the design and manage system. Design of the project can, as in the design and build method, be carried out by in-house designers, external consultants or a combination of both but whichever type of resource is used the responsibility for the total design rests firmly and comprehensively with the design and manage contractor. Close co-operation between the client, the design and manage organization and in some instances works-package contractors on matters of detailed design is a characteristic of this method with all the main parties, particularly at crucial states of the project, often locating technicians and designers on site so as to resolve problems that may arise and to carry out the detailed design of the scheme. All of the construction work is carried out by means of trade, or sectional, work packages which enables design and construction to be overlapped with all of the benefits such an arrangement brings. Provision is often made for the design and manage contractor to provide site-establishment works and common-user services from his own resources—this approach should be discouraged, and the necessary work implemented by means of packages, in order once again, to ensure that the contractor’s consultant status is not undermined. The best-known example of the use of this variant of the method is probably the design and construction of the £25 million Nissan car plant complex at Washington, Co. Durham which was carried out during the period 1984 to 1985 and where the following note [21] was circulated to tenderers: Whilst the system is intended to encourage early resolution of every aspect of design, the progressive letting of work packages gives clear opportunities for the design of services to be delayed until a fairly late stage. It is intended that this opportunity should be used so that client/contractor dialogue can continue as long as possible in the interest of obtaining services precisely matching the client’s present, or future, needs. While this approach illustrates one of the main advantages that are gained when using this system, it also highlights the difficulties that can be caused by the ability of all of the management-orientated methods to cope with the client’s desire to postpone decisions until the latest possible moment. Apart from the difficulties of providing an accurate forecast of the final cost of the project and the effect that any late changes are likely to have on completed or current work, there is always the real likelihood that delays to the overall progress of the project can occur and clients must thus be made aware in the strongest terms of the dangers inherent in implementing late amendments to the original design.

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Latest dates must be agreed by which time such alterations, if essential, can be allowed. In the majority of projects, where this variant of the system has been used, the client has appointed an independent financial consultant, usually a professional quantity surveying practice, to provide advice on the financial and contractual aspects of the scheme. Once the design and manage contractor is appointed, the formulation of work packages, obtaining offenders and financial monitoring and control of the project is the subject of joint management and liaison between the two parties although the contractor remains contractually responsible for all aspects of package contractor management. The design and manage contractor is usually reimbursed the sum of: 1. 2. 3. 4.

the design fee; the management fee; the fee for, or the net cost of, site establishment and common user services; the net total of all the works contractor’s final accounts up to the GMP, if appropriate.

Where a GMP is incorporated within the contract, it is subject to adjustment in accordance with the pre-contract agreement which will have been described within the tender documentation. In essence such an agreement will reward the contractor for any savings made against the GMP and penalizes him when this sum is exceeded as a result of his own mismanagement. Payment is generally made on the basis of the net cost of works contractors’ accounts by means of the ‘open book’ method of accounting whereby the design and manage contractor’s financial records of the project are made available to the client, or his financial advisor, in order that the actual cost of the works can be verified and interim certificates issued in the conventional manner subject to standard retention rules which are usually applied. The question of quality control is a vexed one with the responsibility for this function nominally being allocated to the design and manage contractor but in reality usually devolving upon quality controllers, generally in the form of clerks of works or inspectors, independently appointed by the client. This scenario appears to be the norm for those projects where the consultant contractor’s status is undermined by the client’s desire to try to obtain the best of both worlds by introducing a commercial element into the contract as an incentive to the contractor to minimize costs whilst at the same time requiring him to act as an independent consultant. Under these circumstances there is always the possibility that quality may well suffer unless additional supervision is brought in to monitor the standard of workmanship and adherence to specification of materials and equipment. Apart from the costs incurred in employing and managing the supervisory staff, this approach must undermine the close relationship between the client

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and the design and manage contractor that is intended to form the fundamental basis for the success of any project where this particular procurement system is being used.

5.4.3 Consultant-led design and manage This variant is also referred to, in literat0ure, as the alternative method of management (AMM), with Raymond Moxley, an architect in private practice, being credited with its development. The fundamental difference between this and the contractor-led variant of the system is that, in this case, it is the client who enters into a contract with each individual work-package contractor leaving the consultant with the comparatively risk-free responsibility for the design and management of the project. While contractor-led design and manage reflects a practical, and often highly commercial approach to project implementation, AMM was originally conceived as the application of a philosophy, and a set of principles, to the construction process. The philosophy mirrors the systems creator’s belief that the efficiency of most construction projects suffer as a result of poor communications, an unnecessarily large and complex management hierarchy, over-planning of the project and lack of commitment to the client’s cause by most of the participants. The principles for the management of a project that were therefore established can be summarized as follows. 1. Documentation, particularly drawings, are not a product but a means of efficiently communicating the clients requirements to the implementor. 2. Communications between client, consultant and works contractor/ tradesmen should be as direct as is practically possible. 3. As changes are inevitable on construction projects, full pre-planning is not the best means of control and a more flexible and less-detailed short-term approach to programming should be adopted. 4. The client’s interest is best served by all of the participants being committed to the project objectives not their own individual aspirations. However, in replacing the contractor on site, the consultant is placed in an unfamiliar role and, apart from a high level of competence, must possess exceptional personal qualities, social skills and substantial and continuing support from his practice office. In the case of consultants who are not operating out of a multi-disciplinary practice it will be necessary for the missing expertise to be bought in from an external source. In most of the recorded cases this buying-in has tended to be for the quantity-surveying discipline. As there are a limited number of professional practices that have the necessary attributes and experience to successfully design and manage complex construction projects, clients need to make certain that short-listed consultants

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are meticulously examined so as to ensure they are capable of carrying out a function which demands talents that are not necessary when acting as designer, financial adviser, design-team leader or even the client’s project manager. Fraser [22] in assessing a primary school project undertaken by this method, identified the difficulties encountered by an inexperienced consultant carrying out a design and manage project which demonstrated and reinforced the real need for careful selection by the client of any consultant organization offering this service with particular attention needing to be paid to ensure that sufficiently experienced and qualified staff are available for use on the project. The majority of consultant practices will carry out both traditional design work and design and manage projects and there is always present the possibility of conventional design attitudes contaminating staff working on this unconventional approach to managing projects. The accepted practice of building a ‘Chinese wall’—that is an imaginary division restricting communication between two activities housed in the same building or organization—may be effective but clients need to satisfy themselves that the attitudes of the staff that will be involved in their project are appropriate for the procurement system being used. As the client is responsible for the direct reimbursement of the various workpackage contractors, the only payment made to the design and manage consultant is for the cost of the agreed fee for designing and managing the project. The site establishment and common-services elements are carried out by works contractors as one or more of the packages. Some consultants are prepared to provide the client with a guarantee that the project will be completed on time, and within the estimated cost, and to accept penalties and incentives for failure or success in achieving the agreed objectives. Once again the introduction of commercialism by the adoption of this approach could be seen as undermining the credibility of the consultant as an independent, objective adviser to the client. According to the limited amount of literature available, clients appear less prone, when using the consultant variant, to appoint independent quality controllers than when adopting the contractor-led alternative and where the consultant is not tied to any penalty, or bonus, this approach may be valid, particularly where the consultant is experienced in running design and manage projects. However, clients should make certain that the quality-control aspects of the project are examined prior to work commencing and a comprehensive monitoring regime established.

5.4.4 Common characteristics of both variants The ability of this system, in common with others in the management-orientated category, to enable work to commence on site before the total design has been

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completed has been identified by both research [22] and literature [23] as the main advantage offered by this procurement method. The Building Research Establishment’s (BRE) case study [24] of the use of consultant design and manage in the implementation of a primary school established that it was chosen because of its recognition of the importance of time in the building process and the fact that ‘it was specifically designed to cater for those projects which were in a hurry’. The study also found that with conventional procedures a total time of 19 months for carrying out a feasibility study, detailed design, tendering and construction would have been required, whereas all of these operations were carried out in less than 10 months whilst, at the same time, maintaining quality standards and cost targets. A comparison of the time scales for a project carried out by conventional and design and manage systems is illustrated in Figure 5.9. In the case of the Nissan project the contractor-led team completed the design and construction of the complex scheme in a total time of 18 months. If conventional methods of procurement had been used, the client’s quantity surveyor expressed the opinion that this period would have been appreciably longer and the task of implementation more difficult and less efficient. A further common feature of both variants is the presence on site, generally on a semi-permanent basis, of the personnel responsible for the design of the project whose duties whilst resident include further detailed design, clarification of existing design details, liaison with works contractors to ensure buildability and working with the client’s representatives so as to make certain that the project’s functional requirements are maintained and achieved. The shortened lines of communication between the various parties, closer understanding of the design by the works contractors and rapid decision-making engendered by this characteristic of the system is beneficial particularly in the improvement that is achieved in the relationships between the client and the design manager and the latter and the works contractors. It should be noted, however, that the presence on site of the designer, which is essential for maximum success, can be both time consuming and expensive and requires a total commitment from the designer manager, which is not always achieved. In the same context the need for close client involvement with the project, particularly with regard to design matters, and the requirement that decisions may often have to be made very quickly can apply considerable pressure to some clients and/or their representatives with the result that the relationship between the employer and the design and manage organization, which should have been enhanced by the use of this particular system, can become strained. The fragmented and overlapping nature of this procurement system allows

Figure 5.9 Comparison of traditional and manage programmes, Source: Fraser [22]

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any changes introduced by the client to uncommenced works packages during the construction period to be incorporated provided they are implemented prior to tenders for the appropriate package being obtained. Any attempt to introduce such amendments after tenders have been received, or work commenced, must normally result in delays and additional costs being incurred. Cost monitoring and control can be more strictly implemented when using the design and manage system than when other procurement approaches are adopted mainly due to the ability to redesign and continue to make cost reductions for the remaining elements of the project. The overlapping of design and construction inherent in this method allows the design to be amended to reduce the cost of a particular work package if previous costs have proved more expensive than envisaged. The BRE case study concluded that the sum total of the project’s costs, i.e. fees, the cost of capital and the total of payments to the package contractors, was likely to represent a net saving when compared to the costs that would have been incurred if more conventional procedures had been used. Although the project that had been examined had been implemented by the consultantled design and manage method, there is no reason to believe that the conclusions reached would not also apply to the contractor variant. When using this method it is necessary that the client be prepared, as with the other management-orientated procurement systems, to commit himself to the project without any guarantee (unless the GMP approach is adopted), of the final financial outcome. It is therefore likely that the private sector will appreciate the value of the savings in time that can accrue, and be prepared to accept the need for this commitment, under conditions which would not normally be acceptable to the guardians of public accountability. There are no standard forms of contract in existence to formalize the legal relationship and responsibilities between the two main parties and little evidence exists as to the actual documentation used on completed projects, but it can be fairly safely assumed that in the case of the contractor variant the contractor’s own, often onerous, form is used. The Association of Consultant Architects (ACA) contract forms have been designed to be used with the consultant-led alternative and this document and various JCT forms, often heavily amended, have been utilized for the works-package element of the project. Detailed conclusions with regard to the use of this procurement system will be reached at a later stage, but it should be said in the meantime that this method when properly implemented is capable of being used successfully, on a wide range of types, sizes and values of projects and could well become more widely used by clients particularly in the light of the forecast reduction in the future use of management contracting.

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SUMMARY Common characteristics Advantages 1. The use of this category of systems enables commencement of the project to be accelerated, which in turn, should enable earlier completion to be achieved than when using procurement systems in the separated or cooperative categories. 2. Early advice can be obtained from the contractor/manager on design, buildability, programming, materials availability, together with general construction expertise. 3. The systems within this category have a high degree of flexibility to allow for delays, variations and rescheduling of work packages. 4. As when using the systems within this category the financial structure of the project is fragmented, the monetary failure of any works contractor will only have a limited effect on the total process. 5. The use of individual work packages to carry out all construction work ensures that competition can be achieved on up to as much as 90% of the construction cost of the project and makes it possible to adjust the cost, or scope, of uncommitted work should the packages already awarded have exceeded their estimated cost. Disadvantages 1. One of the fundamental aims of this category of procurement system is the elevation of the contractor to the status of a client’s adviser/consultant with the result that the contractor’s contractual liabilities are limited, in the same way as other members of the professional team, to accepting responsibility for any negligence in the performance of his management function. All of the systems within this category allocate the majority of the project’s risks to the client. These can be particularly onerous where workspackage contractors fail to perform and affect following and parallel operations. 2. Although the contractor/manager is responsible for supervising construction and ensuring that work is built to the standards identified by the design team, the fact that his obligations are limited to his management performance means that the client is liable for the cost of remedying any defects resulting from the substandard performance of any works contractor who is unwilling, or unable, to rectify his own faults. 3. The whole question of maintaining quality control is problematic when using the procurement systems within this category and the client may therefore need to appoint additional site supervision to avoid difficulties

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in determining the responsibility for defects and to ensure that the specified quality standard is achieved. 4. The client does not have a firm price tender available before commencing work although both private and public accountability can be partially satisfied as the majority of the construction cost can be subject to competitive tender. Characteristics of individual management systems The individual main advantages and disadvantages of the procurement systems contained within this category are now identified. Management contracting Advantages 1. A variant of the pure system enables the client to obtain, from the management contractor, a guaranteed maximum price (GMP) for the construction element of the project. 2. This method is perceived as allowing accelerated project progress and completion but the results of research are somewhat ambiguous in this respect and it can only be concluded that the risk of delay is reduced and that time targets are unlikely to overrun. Disadvantages 1. Where a GMP is obtained the management contractor’s status as the client’s adviser/consultant is jeopardized and there can therefore be the real possibility of a conflict of loyalty. 2. Current research indicates that the project costs incurred when using this system are higher than those generated when using the conventional or design and build systems. This situation results in the main from high tenders submitted by works contractors, as a result of onerous contract conditions and high levels of risk imposed by management contractors, and the duplication of management and common services costs brought about by the presence of both the management contractor’s and package contractor’s site organizations. Construction management Advantages 1. This method, if correctly applied, can result in a more constructive and positive attitude being exhibited at management, supervisory and operative levels.

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2. The fact that the client enters into direct contracts with individual workspackage contractors enables a high level of immediate cost control to be achieved and also ensures that the works contractors’ cash flows are improved as a result of receiving direct payments from the client, rather than through an intermediary. 3. The increasing use of value engineering by construction managers is seen as a positive means of improving the value for money provided to clients. 4. The client’s increased involvement in the management of the project, when compared to other methods, promotes better working relationships within the project team. Disadvantages 1. The nature of this system requires the client to be deeply involved at all stages of the project, to have sufficient in-house expertise to be able to co-ordinate the activities of the construction manager and the design consultants and to be able to accommodate the additional administrative duties and responsibilities inherent in the system. 2. The present position on fees is confused as the construction manager’s responsibilities vary from project to project and the division of reimbursement into a percentage fee and a lump sum for the provision of common site services can jeopardize the construction manager’s status as the client’s consultant and lead to a conflict of loyalties.

Design and manage The single organization responsible for the design and management of the project when using this system can be either a contractor or a consultant. The common characteristics of the two methods are now described followed by the individual characteristics of each system.

Common characteristics Advantage The on-site presence of the project designers for a substantial part of the construction period is beneficial to the project in that it results in shortened lines of communication, closer understanding of the design and rapid decision-making. Disadvantage The near-permanent presence on site of the designer(s), which is essential for maximum success, can prove costly and time consuming and requires an above average commitment from the designer/manager.

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Contractor-led design and manage Advantage When using this variant the client can gain the advantage of obtaining a GMP for the construction element and a fixed-price Jump sum for the design and management of the project. Disadvantage When taking advantage of the contractor’s GMP offer the client may well jeopardize the contractor’s status as the client’s consultant with the result that a conflict of loyalties may occur. Consultant-led design and manage Advantage Many consultants are willing to agree a fee structure with the client which will incorporate cost penalties and incentives which can be applied if agreed criteria are, or are not, achieved. Disadvantage When acting in a lead capacity, and in essence replacing the main contractor, the consultant is placed in an unfamiliar role which requires a high level of managerial competence and experience and many designers are unable to meet the demands of this unusal role. The way in which these characteristics are taken into account when selecting procurement systems is dealt with in Chapter 8. Suffice it to say at this stage, that the systems contained within the management-orientated category are likely to be most appropriate on large, complex fast-moving projects where the client has sufficient internal resources to enable him to become involved in the management of the project.

REFERENCES 1. Carter, J. (1973) Management contracting: the Horizon Project, Architects Journal, 14 February, pp. 395–400. 2. Sidwell, A.C. (1982) Paper to Seminar on Management Contracting, Institute of Quantity Surveyors, London, 1 December. 3. Heery, G.T., and Davis, E.M. (1976) Construction programme management, Building Technology and Management, December, pp. 22–6. 4. Flanagan, E. (1987) Paper to seminar, Procurement Attitudes in the Nineties, Industrial Development Agencies, Glasgow, 13 February. 5. Naoum, S.F., and Langford, D. (1987) Management contracting—the client’s view, Journal of Construction Engineering and Management, III(3), 3 September.

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6. Naoum, S.G. (1988) An investigation into the performance of management contracting and the traditional methods of building procurement, unpublished PhD thesis, Brunel University. 7. Centre for Construction Market Information (1985) Survey on Management Contracting, CCMI, London, February. 8. Junior Organization, Quantity Surveyors Divisional Committee (1988) Survey of Contracts in Use 1987, RICS, London, November. 9. Masterman J.W.E. (1989) The procurement systems used for the implementation of industrial and commercial building projects, unpublished MSc Thesis, University of Manchester. 10. Dearle, and Henderson (1988) Management Contracting—a Practice Manual, E. & F.N.Spon, London. 11. Joint Contracts Journal (1987) Practice Note MClI, Management Contracts under JCT documentation, Building Employer’s Confederation, London, December. 12. Joint Technical Committee (1984) Guide to the Engagement of a Management Contractor or Project Manager, Industrial Development Agencies, Cardiff, Belfast, Glasgow and Gateshead, October. 13. Sidwell, A.C. (1983) An evaluation of management contracting, Construction Management and Economics, 1:45–6. 14. Barnes, M. (1984) Management Contracting for Health Building—a Comparative Study, Department of Health and Social Security, London, November. 15. Building Economic Development Committee (1985) Thinking about Building— A Successful Business Customer’s Guide to Using the Construction Industry , NEDO, London, November. 16. Bennett, J. (1986) Construction Management and the Chartered Quantity Surveyor, RICS, London, March. 17. Building and Civil Engineering Economic Development Committee (1978) Construction for Industrial Recovery, Chairman F.C.Graves, NEDO, London. 18. Building Economic Development Committee (1983) Faster Building for Industry, NEDO, London, May. 19. Olashore, O.B. (1986) Management contracting and construction management— a comparative analysis, unpublished MSc dissertation, Brunel University. 20. Centre for Strategic Studies in Construction (1991) Construction Management Forum, Report and Guidance, CSSC, University of Reading, January. 21. Lush, E. (1986) Fast Tracking for a Japanese Company, paper to Project Procurement and Management seminar, Birmingham, 16 July. 22. Fraser, I. (1980) AMM case study, designing and building a primary school, Architects Journal, pp. 1163–6, 10 December. 23. Thomson, N. (1978) Alternative Method of Management, Building, pp 67–74, 27 January. 24. Building Research Establishment, AMM (1978) Case Study of Office Rehabilitation Project, BRE Journal.

6 THE BRITISH PROPERTY FEDERATION SYSTEM

6.1 INTRODUCTION This method of procurement was born out of the frustration of the members of the British Property Federation (BPF), particularly the major propertydeveloping organizations, at the perceived substandard performance of the UK construction industry and the confrontational attitudes engendered by existing procurement systems and the associated forms of contract. The system was developed from first principles and incorporated those elements of all the main systems currently used throughout Europe and the United States which the system’s architects considered appropriate to ensure the elimination of the worst features of the existing methods of procurement. The resulting document was heavily biased in favour of the client and the desire to transfer the maximum amount of risk to the consultants and contractor. Since its publication at the end of 1983 it would appear that the use of the system has been limited to a comparatively small number of projects. However, it has to be accepted that the introduction of the system was a watershed in terms of the emergence of the assertive, experienced client as a force for change within the industry.

6.1.1 Definition This system was designed to: change attitudes; produce good buildings more quickly and at a lower cost; create a fully motivated, efficient and co-operative building team; remove overlap of effort…which is prevalent under the existing system; redefine the 121

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risks so that the commercial success of the designer and the contractor depends more on their own abilities and performance; re-establish awareness of real costs…and eliminate practices which absorb unnecessary effort and time and obstruct progress towards completion. [1] The system was devised primarily for use with the conventional method of procurement, i.e. pre-tender design and specification by design consultants with competitive tenders being obtained from, and construction carried out by, main contractors although the systems author’s maintain that many elements can also be used with other approaches such as management contracting and construction management. It is therefore suggested that the BPF system is not in reality a true procurement method but rather a very detailed administrative framework into which various approaches can be slotted to suit the requirements of a particular project and no attempt has thus been made to closely define the system, as others have been defined, but the following summary attempts to encapsulate its fundamental elements. 1. The client appoints a client’s representative, a design team leader and any other appropriate consultants to design the project in whole or part. Reimbursement of the designers is on the basis of lump-sum fees and bonuses. 2. Tenders are invited using drawings and specifications but no bills of quantities. Any elements of the project that have not been designed at this stage are sufficiently defined in the tender documentation to enable the tenderers to design the residual sections or elements. 3. Tenderers submit lump-sum bids, on a fixed-price basis for projects of less than 2 years’ duration, together with a priced schedule of activities and provide a programme for each project activity specifying the resources and construction methods that are to be used. The tenders will be accompanied by whatever design submissions that may be required. 4. The contract is normally awarded to the lowest acceptable tenderer and a supervisor appointed by the client whose role is to ensure that the project is constructed, and if appropriate, designed in accordance with the contract documents.

6.2 GENESIS The BPF is an association of property developers, commercial organizations and large retailers with very substantial property portfolios. By 1980 members of the Federation had become concerned about the frequently occurring problems experienced in building, particularly poor design, inadequate supervision and incorrect choice of material. It was felt that many procurement

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systems caused delays, were inefficient and often cost more than was necessary as well as causing and sustaining confrontational attitudes between consultants and contractors which were not in the best interests of the client. A large number of the members of the organization had carried out developments abroad and were of the opinion that the performance of the UK construction industry compared very unfavourably with the way in which the Europeans and North Americans implemented their construction projects and it was decided that something had to be done about the high cost and slow speed of the design and construction of their developments. It was thus that a working party of managing directors and chief executives of the most powerful commercial property interests in the UK was established with an urgent remit to ‘draft an improved management system for the building process appropriate for members of the BPF [1]. The working party met frequently, feeding their experiences to the three consultants and Professor Donald Bishop of University College, London, who had been appointed to provide them with assistance. A technical subcommittee of contract directors and managers from the larger member companies was also established and met frequently to consider the consultants’ detailed proposals. Dr Martin Barnes, one of the consultants and reputably the main architect of the system, is quoted by Waters [2] as saying: We looked at the U.S. system, European and U.K. current practice and conclude that a forward looking system was necessary which was not reflected in any rivals. We started with a clean sheet, wrote down what people should do and avoided using existing professional names. We tried to balance incentive with risk. [2] It is indicative of the approach adopted by the BPF that during the system’s gestation period no formal consultations took place with any of the construction industry’s representative bodies, apparently in an effort to ensure that the new approach was not sullied by the reactionary attitudes of the industry’s establishment and that the system was innovative. It was, however, intended that, in addition to relying on informal consultations during the formulation stage with individuals that ‘the BPF respected’ the various professional institutions and contractors’ federations and the Joint Contract Tribunal would be asked for their opinions of the system once it had been implemented. The manual describing the system was eventually published in December 1983 and, during the following months, was received with a mixture of interest, scepticism and some mild hostility. The industry as a whole was both curious and sceptical, while quantity surveyors individually tended to be ill-disposed towards the proposals as a result of the use of bills of quantities being actively discouraged. The Quantity Surveyors division of the Royal Institution of Chartered Surveyors (RICS) adopted a more objective attitude and within 3 months of

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the launch of the new system the Working Party set up to examine the BPF’s proposals had produced a report [3] which gave it a cautious welcome, while at the same time pointing out that only the experience of the clients, consultants and contractors who used the method would reveal whether it was an improvement on existing procedures. During June 1984 a new form of contract, based upon the then current edition of the Association of Consultant Architect’s (ACA) contract, was launched for use with the system and accompanied by conditions of engagement for consultants. At the same time it was stated that an adaptation of the existing JCT form of contract With Contractors Design was also suitable for use with the new method.

6.3 SHARE OF THE MARKET The sponsors of the system did not expect it to be adopted wholesale by the industry or, it would appear their own members, overnight but anticipated a slow piecemeal growth as clients began to recognize the advantages of the system and its individual components. This philosophy was still being restated some 2 years after the systems launch and although articles have appeared in the technical press describing projects that have been carried out using this system in part or whole, very little written evidence appears to exist as to its level of use since 1983. The author’s survey of the procurement systems used by clients in 1987/88 showed that the use of the BPF system was limited to 18% of private, experienced primary clients, i.e. property developers, all of whom were members of the BPF and that this level of use only represented just over 20% by value of the total amount of work carried out by all the clients surveyed. The Federation, when questioned in the past as to the extent of the current, or past, usage of the system are unable to provide any statistical information and are only able to confirm that many of their members are using the method, or elements of it, on various types and sizes of projects. Anecdotal evidence suggests that the use of this method remains limited amongst BPF members and is little used by other client organizations. No forecasts can be found for the future use and growth of the system and it appears likely that the 1986 predictions of slow take-up of the system are likely to remain valid for the foreseeable future.

6.4 THE PROCESS The BPF manual divides the process into five stages—concept, preparation of brief, design development, tender documentation and tendering, and

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construction—each stage ending at a point at which the client will normally decide whether or not to proceed any further.

6.4.1 Concept In this stage the client is responsible for developing the concept, preparing an outline cost plan and establishing the financial viability of the project, and after examining the various available options, preparing the outline brief for the scheme. Once this document has been finalized a specification for the detailed brief that will be required in the second stage of the process is formulated. It has been suggested that unless the client has his own in-house experts this responsibility may be too onerous for the average employer. However, this possible difficulty may well have been appreciated by the authors of the BPF manual which states that if the client is confident that the scheme will go ahead he can at this stage, appoint a client’s representative. The manual defines this appointment as the individual, or organization, responsible for managing the project on the client’s behalf and with his interest at heart. The position can be held by an employee of the client or a consultant and the holder may emanate from any of the professions associated with the construction industry. Some of the duties of the client’s representative can even be undertaken by the design team leader. The RICS Working Party Report [3], while recognizing that many clients perceived significant and real advantages in vesting overall responsibility in one body, concluded that the powers of the client’s representative could be significantly diluted by any, or all, of the options that have been included in the system for the appointment of this critical post. These options include the conditions that: the client’s representative can be more than one person; the client may carry out some of the duties in-house; and the design team leader may be required to assume some of the client’s representative’s responsibilities. It is surprising that, in the light of the BPF’s obvious intention to attempt to clarify responsibilities when using this system, the possible permutations resulting from these alternatives could well lead to a dilution of the benefits that are usually associated with the appointment of a project manager—the ultimate client’s representative—and the possible need to form a team to carry out the wide-ranging duties. There is also an apparent anomaly between the fact that the client’s representative has ‘no authority to vary the brief, the cost plan or the master programme except under the directions of the client’ and the expectation that he will carry out the administration of the project and its associated contract. It is therefore questionable as to whether he has the necessary authority to carry out this role efficiently and effectively.

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6.4.2 Preparation of brief At the commencement of this stage the client appoints his representative, if he has not done so already, together with the design leader. The latter appointment is described in the BPF manual as ‘the person, or firm, with overall responsibility for the pre-tender design and for sanctioning the contractor’s design’. Some of the responsibilities of the design leader may be undertaken by the client’s representative. Once appointed, the design leader prepares a design programme and submits this, together with his lump-sum fee quotation, to the client’s representative for approval. This approach reflects the philosophy, adopted by the BPF throughout the system, of reimbursing consultants by means of lump-sum fees in order to overcome the lack of incentive that is seen as being inherent in the more usual percentage-fee method of payment. Difficulties have been foreseen in the forecasting and calculating of such fixed fees at a time when the scope of the works and nature of the building have not been defined accurately. The question has also been posed as to why consultants, if they are to accept the risk of forecasting the cost of their duties, should not benefit, as do the contractors, from the results of any savings they are able to make in the cost of the design and construction of the project. The development of the brief is theoretically carried out by the client’s representative with assistance from the design leader, once he is appointed. This document is intended to be a detailed statement of what is required of the building and of the cost and time limits of the project. The brief should include sufficient information to allow the architectural design to be developed, and outline planning consent to be obtained, and is a basic reference document for use throughout the various stages of the project. Although the BPF manual implies that the client, or his representative, dictate and develop this document, in reality this responsibility appears more likely to follow the precedent established by more conventional procurement systems and devolve upon the design leader. Once the brief has been established, the client’s representative advises the design leader of the target cost and the latter then has the responsibility of confirming, or not, that it is possible to provide a building within this sum that satisfies the brief. The target cost is then included in the master cost plan (MCP), which is defined as: A schedule, prepared by the client’s representative, of expenditure required to implement the project. Much has been said and written about this arrangement whereby the control of the cost of the project is vested in the client’s representative and the design leader rather than the more usually appointed quantity surveyor. Concern has

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been expressed at the general fragmentation of the cost management of the project resulting from this set-up and the danger of the client being without the services of an independent cost consultant. There is, of course, no reason why the client’s representative should not be a quantity surveyor in his own right or alternatively employ such an adviser himself. At this point the client, with assistance from his representative, must decide approximately how much of the design work he is going to assign to the design leader, and how much to the contractor, bearing in mind which of these two has the greater incentive, desire and ability to satisfy the client’s requirements. Any elements of the project that are not included in the brief to the design leader will thus become the design responsibility of the contractor. In order to effect this philosophy the BPF manual lays down that the design team undertake the preparation of pre-contract design information, i.e. the design concepts, aesthetic qualities and as much of the detailed design as allocated by the client. The tenderers then develop the detailed design associated with their chosen construction methods and any residual design not being carried out by the design team. One of the major concerns expressed during the public debate that took place following the systems launch in 1983 was that of the division of responsibility for the design of the project between the contractor and the design team and the allocation of liability should problems arise as the result of poor design. At the same time the absence of the contractor during the preparation of the brief and the development of the design means that while on the one hand the contractor is expected to accept greater design responsibility, on the other, no consultation has been allowed during the critical conceptual stages of the project. The system therefore has a built-in fluidity regarding design decisions, and more importantly the consequent responsibilities, which could well lead to difficulties should design failures occur. At the end of this stage the client’s representative is in possession of a brief, a master programme containing a schedule of the main items of work, an associated cost plan which itemizes the expenditure anticipated during the design stage of the project and the expected cost of construction. Both of these costs will be updated and expanded as more information become available.

6.4.3 Design development The client’s representative issues the design leader with the brief, master cost plan and master programme at the commencement of this stage. The design leader and the other consultants, if separately retained, having previously submitted quotations for carrying out the work in each of the remaining stages,

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are appointed on a lump-sum fee basis for each stage with the possibility of being awarded a supplementary payment if the design work is completed on time and within budget. This method of reimbursing consultants has been criticized previously on the grounds that they are not fully aware of what services are required; but concern has also been expressed at the fact that the result of the client failing to come to terms with the established consultants will be that the design team will be placed in a strong bargaining position or, more probably, the client will be forced to agree a basis for their appointment from the beginning. The design leader’s task is to expand the brief into a description of the required project in the form of drawings and specification. He also prepares a priced design programme which itemizes and prices each element of the design work; the total of these prices will equal the agreed lump-sum fee for stages three and four with payment being made each month for those elements of the project on which work is complete. The report of the RICS Working Party [3], whilst accepting the need for the design team to work within an agreed programme, expressed the opinion that the quantification and pricing of the design consultant’s work on a price-per-drawing basis was unrealistic as it is unlikely that any one drawing could be completed in isolation; although endeavouring to be even handed the report implied that such a system was unlikely to be workable in practice. As the design of the project progresses, the client is advised of all actual, and possible, cost changes so that in the light of these he can decide whether to order design modifications or to accept changes, i.e. generally increased expenditure. The outcome of this exercise allows the client’s representative to update the MCP. A novel method of solving any disputes that may arise between the client and his consultants has been incorporated within the system by the appointment of an independent adjudicator. This appointment is made by the client’s representative, after discussion with the design leader, and it is intended that all the parties to the agreement accept the adjudicator’s ruling on any matters that are referred to him as final. Some commentators see this innovation as being in direct conflict with the avowed intention of the system to change attitudes within the project team to ensure a common purpose, but this type of arrangement may well be necessary in order to deal with the problems that are likely to arise when design teams fail to meet agreed targets. The sanctioning rather than the normal approving of the work of the design team is another new term and concept that has been introduced for use during stages three and four and appears to be a negative way of indicating approval. This technique has been seen as an attempt to check on the work of the design team whilst not accepting any responsibility for doing so. The BPF manual describes the concept of sanctioning, which also applies

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to contractor’s design drawings, as one of nihil obstat, i.e. nothing hinders. Once the client’s representative is satisfied that the material meets the client’s requirements, he returns one copy to the designer endorsed ‘returned with no comment’ thus supposedly ensuring that the building will be fit for its intended purpose. Doubt has been cast on the morality and, more importantly, the legality of this attempt to absolve the client and/or consultants of any responsibility by use of this way of indicating approval and it is possible that the courts may not endorse the client’s right to adopt such a technique.

6.4.4 Tender documentation and tendering Once detailed planning permission has been obtained, tender documents are produced by the design leader and consultants. These usually consist of the appropriate drawings, specifications, conditions of contract and, if required by the client, bills of quantity. The manual stresses that the success and effectiveness of the BPF system is dependent upon this documentation being comprehensive, accurate and unambiguous and that it should not be distributed to tenders until these criteria have been fully met. This requirement is even more essential when bills of quantities are not prepared. Of course, in the recommended system no bills of quantities are used and this element of the method is that which initially caused most comment and criticism from the technical press, consultants, contractors and particularly from those professional members of the industry with a vested interest in ensuring the continuing use of bills of quantity, i.e. the quantity surveyors. The more rational critics of this aspect of the system were at the time of the launch concerned about two fundamental flaws in the proposals. The first related to the probability that the Federation saw the abolition of bills of quantities as a means of exposing the lack of preparedness of the design team and the real possibility that in closing this perceived loophole those design teams, who had previously gone to tender on an incomplete design by manipulating the contents of the bills of quantities to cover up their inadequacies, will use the facility to delegate to the contractor that part of the work which they have not got around to designing. The second, but more widely held concern, refers to the fact that the lack of bills of quantities will result in each tenderer having to take off quantities for his own use, and that of his subcontractors, thus creating additional work for all tenderers. These extra responsibilities will be reflected in increased overheads, and thus tender costs, which will eventually need to be passed on to the client by means of higher tender prices. The specification, and the way in which it is written, is crucial to the success

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of the system as it is intended that the client should benefit from the contractor’s knowledge of construction methods and the availability and cost of building materials and components. This document also describes the items that have been designed by the consultants and the limits within which the remaining items are to be designed by the contractor. One of the principles of the system is that anything which can be adequately described in the specification should be left to the contractor to design and choose the supplier. To some observers this seemed to be an imprecise definition particularly as a detailed specification, a bill of quantities and all of the tender drawings are normally required to describe most projects in order to obtain meaningful tenders. Each tenderer is required to submit a priced schedule of activities with his bid. This document, which will probably be in outline only at this stage, must include a programme for each activity and specify the resources and construction methods expected to be used. This information is intended to be utilized for managing the construction work, monitoring progress and reimbursement of the contractor. The manual also recommends that fixed-price tenders should be obtained for all projects of less than 2 years’ duration and that a single index should be used for calculating adjustments to the contractor’s price for lengthier project durations. Following the launch of the system, many contractors expressed their dissatisfaction with this arrangement particularly in the case of subcontracted work where a single index would be totally inappropriate. Normally the contract for any project will be awarded to the lowest acceptable tender, although it should be appreciated that adjudication on the bids that are received will become much more difficult as the amount of contractor-designed work increases and tenders become proportionally less easy to compare on a simple monetary basis. The reader will recall that the design team will be paid a supplementary fee if the accepted tender is within a previously agreed percentage of the forecast construction bid. However, if the lowest tender is above the estimated figure the client can request the consultants to redesign the project without reimbursement.

6.4.5 Construction The responsibility for all aspects of the management of the project during this stage lies with the client’s representative, although the services of the design team will be required to sanction the contractor’s design and assess variations. The supervision of the contractor, to ensure that the works are carried out in accordance with the specification and drawings, is the subject of a separate

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appointment by the client for this specific purpose, which is defined in the BPF manual as: The person, or firm, responsible…for monitoring that the works are built in accordance with the contract documents. The supervisor may be an architect, engineer, building surveyor, or possibly a resident engineer or clerk of works. Some or all of the responsibilities of the supervisor may be allocated to the design leader or another consultant. The other unorthodox, and final, appointment that is made during this last stage is that of the adjudicator. This consultant, acting as an expert, is substituted for the quasi-arbitration role assumed by the architect when using conventional procurement systems. Disputes between the client’s representative and the contractor are dealt with by the simple expedient of immediately referring the problem to the adjudicator for a speedy decision. If either party disputes this decision, it can be referred to arbitration once the project is completed. The arbitrator appointed at this stage may not be the same as the one appointed for stages three and four as the skills required for each of the stages are different. The RICS Working Party that examined this system posed a number of questions in the context of this appointment: 1. Is the construction industry sufficiently disputatious to warrant such appointments or have the few projects that have gone wrong given an incorrect perspective? 2. Does such an appointment infer a lack of confidence in the Client’s appointees, the chosen procurement system, conditions of contract, etc., and will it undermine the authority of the consultants? 3. Will the presence of an adjudicator encourage disputes and how many will ultimately have to go to arbitration despite the presence of the adjudicator? and, 4. Is adjudication cost effective to the client? The report of the Working Party appears to suggest that the answer to all but the last of these questions is ‘yes’, although once again there is no evidence available from the BPF to confirm this implied suggestion. However, it should be remembered that the BPF system was born out of a total lack of confidence in the construction industry’s ability to satisfy the client’s needs and requirements and the aim of its authors has unashamedly been to protect the client’s interests by establishing a system which covers every eventuality. The BPF manual states that during the construction stage, and one assumes at the beginning rather than any other time, the contractor is to be encouraged to propose to the client’s representative any changes to the design of the project which will save money or time. Any financial benefit derived from such

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suggested changes as are implemented is to be shared between the client and the contractor in such proportion as is agreed in the form of contract. The contractor is reimbursed during the currency of the project on the basis of completion of the operations listed in the schedule of activities. Thus, payment is nominally made in accordance with the actual results achieved, which will not necessarily be directly related to the value of the construction work completed. The detailed schedule is also used as a basis for reporting progress, estimating time of completion and identifying future problems that may need to be resolved. More concern has been expressed, by both consultants and contractors, at the substitution of a schedule of activities for the traditional bill of quantities than any other aspect of the BPF system and whilst much of this may be a reflection of the conservative and reactionary nature of most members of the professions, and the contracting fraternity, there are a number of areas where real worries exist. From a contractor’s viewpoint, the deceptively simple principle of activity packages could lead to severe cash-flow problems as no provision is made for partially completed work, or materials on site, with the consequent need for the contractor to schedule his programme in such a way as to ensure he receives regular, acceptable interim payments. Some observers have gone as far as to suggest that contractors may wish to physically complete an activity in order to assist the financial returns on the project rather than carrying it out in the correct sequence at the proper time. This approach would result in work normally left to a later stage being accelerated in advance of its normal schedule simply to maintain the most advantageous cash flow. The authors of the system expect that, as all of the parties to the contract are encouraged to ensure that decisions are made in good time, there will be few variation orders raised during the construction period. It is envisaged that any necessary variations will originate from proposals for changes which will have been costed, and the time implications assessed, before the decision to implement them has been taken, thus helping to maintain control of cost and time and enabling final payment to be quickly settled. The BPF’s expectations of fewer variations has been seen by some as a pipe dream which will quickly dissipate if the American experience, where despite projects having normally been bid on the basis of completed design drawings and specifications, variations are still numerous, is repeated in this country. The theory of the establishment of an agreed price before work is commenced is sound and desirable but its practical application is likely to prove more difficult than envisaged as, apart from the problems of establishing a fair valuation without the help of a bill of quantities, there are likely to be many occasions when the work in question cannot be accurately foreseen and can only be fairly priced when complete. Additionally, the method of originating

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and evaluating the variations that are required has been seen by some as cumbersome and chaotic. When the BPF system was launched at the end of 1983 it was not accompanied by a specifically designed form of contract, although it was hoped that it would be possible to amend any of the appropriate JCT standard forms of contract so that they were suitable for use with the new system. It was also foreshadowed that the use of an especially designed BPF/ Association of Consultant Architect’s contract was intended and such a document was eventually published in June 1984. This document reflects the procedures and requirements laid down in the manual and the two basic philosophies that are fundamental to the system. In this context the form of contract assumes that: 1. the contractor is given sufficient information at tender stage to enable him to provide a firm price or is willing to develop the design in an acceptable manner within the quoted price; and 2. the employer should, wherever possible, know what the ultimate price will be and the timescale within which the project will be completed. Legal experts, having examined the document and identified a small number of clauses which might not be enforceable in law, welcome the new form of contract as an available alternative to the JCT forms which sets out, relatively clearly, provisions which should prove acceptable in practice.

6.5 THE PRODUCT The performance of the system must be judged against the objectives set by the authors on behalf of their client, but this task is made extremely difficult by the lack of factual evidence from the apparently limited number of projects where the BPF method has been used. These objectives are therefore examined, not against actual achievement, but by comparison to the most likely result. The objectives that are now examined are those described in the extract from the BPF manual shown on pp. 121–2. 1. Change attitudes and create a fully motivated, efficient and co-operative building team—the proposals to achieve this aim are likely to be effective if only because of the changes that have already been initiated within the industry over the past decade, albeit mainly at the behest of major clients. However, the attempt to change attitudes could well be damaged by the fact that the system incorporates a number of adversarial elements, such as the appointment of an adjudicator, to sort out expected disputes between the client’s representative and the designers and the undisguised biased role of the client’s representative and the system as a whole.

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The enhancement of the efficiency of, and communications between, the members of the project team is seen by professional commentators as a laudable aim but it is also generally agreed that the practical application and acceptance of this philosophy will prove difficult to achieve. 2. Produce good buildings more quickly and at a lower cost—the BPF manual has been criticized for its lack of specific attention to the question of quality although the introduction of the new role of supervisor should, in theory, ensure quality standards are maintained. It has, however, been argued that if previously unconnected with the project, the supervisor will not have detailed knowledge of the design and this may result in this appointment being less successful than if the design leader carries out this function. On the question of the speed of design and construction some saving in time may be achieved by the overlapping of the design and construction phases when the contractor is responsible for a major element of the design. If the BPF system operates as envisaged, the main causes of project delays such as poor briefs and the design team’s inability to provide information on time should be eradicated thus minimizing, if not eliminating, overruns. Any saving in time could, however, be offset by the time taken at tender stage by the contractors to develop the design and cost those elements of the project which have not been designed by the client’s consultants. What appears to be a mandatory period of 8 weeks has been allocated within the manual for tendering purposes and it has been suggested that such a period is insufficient time to enable the tenderers to liaise with the design team, and prepare the necessary proposals and estimates, particularly if the ‘contractor-designed’ element of a project is substantial. Such reports that have appeared in the technical press describing current and completed projects that have used, in whole or in part, the BPF system of procurement do not appear to support the contention that this method results in quicker completion, although all of the buildings were reported as being on programme or having been completed within the programmed period. It is on the question of the lower-cost objective that most discussion took place, after the details of the system had been published, with the fact that there is no one person nominated to assume clearcut and sole responsibility for managing and monitoring cost on behalf of the client. One of the most constantly voiced criticisms of the cost aspects of the system centres upon the difficulties that will arise at tender stage when substantial parts of the project could be designed many times as a result of the involvement of many main, and subcontractor, tenderers. In the same way all of the main contractors/tenderers and their subcontractors will need, in the absence of a bill of quantities, to take off and bill their own quantities to enable them to price the project. Both of

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these additional duties will undoubtedly increase the cost of tender preparation and lead to these extra charges eventually being passed on to the client. Finally, in the context of tendering, contractors may consider, particularly in times of an abundance of bidding opportunities, that because of the increased risks they will be expected to accept when involved with this system, they should decline invitations of this nature. Should this occur competition would be minimized and one of the principal objectives of the system, i.e. to reduce the cost to the client, defeated. 3. Allocation of commercial risks to the designer and the contractor—there is little doubt that the system should achieve this objective, particularly when in theory at least, payment to all of the participants will only be made if they perform their individual functions expeditiously. However, the system’s success in this respect will only be ensured if consultants and contractors are prepared to accept what, by normal standards, are very onerous conditions and the client understands that, as with the acceptance of all risks, there could well be a financial penalty imposed by the risk takers to cover the likely cost of such additional responsibilities.

SUMMARY Although this system has now been in operation for some time little literature and research exists as to the actual performance of the method in real situations and any conclusions reached on its characteristics are thus considered to be very provisional. Advantages 1. Provided the specification is comprehensive, and correctly written, the client should benefit from the fact that the design of adequately specified elements can be left, together with the choice of supplier if appropriate, to the contractor. 2. Benefits should accrue from the fact that the contractor is encouraged to propose changes in design which will save money, or time, and is then given a share of any financial savings made. 3. Provided that the contractor is given sufficient information at tender stage, or is willing to develop the design in a satisfactory manner after the contract has been entered into, the client will always have the benefit of having a firm price for his project. 4. Clients may benefit from the built-in incentives to consultants to improve their efficiency in the production of drawings, together with other critical information, and more accurate cost estimates.

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5. Disputes should be settled more expeditiously as a result of the arrangement for their immediate referral to a pre-agreed adjudicator. Disadvantages 1. Although one of the avowed aims of the system was to reduce costs of the complex tendering/design procedures, the absence of a bill of quantities, the increased risk placed upon contractors and the enlarged professional team are more likely to result in this approach increasing cost to the client, particularly when the building industry is fully committed, or overcommitted. 2. Problems may be experienced in adjudicating on tender submissions as the element of contractor-designed work increases and bids become more difficult to compare. 3. Whilst in theory the system is designed to produce buildings more effectively and expeditiously than other existing methods, many authorities doubt that this is the case and experience to date appears to confirm this latter view particularly with regard to speed of completion. 4. In addition to the ambiguity regarding design decisions and responsibilities, which could lead to problems if failures occur, the lack of consultation with tenderers at design stage could cause difficulties, particularly as the contractor is expected to accept greater responsibility for design. Although it is unlikely to solve the fundamental problems besetting the construction industry, the BPF system is seen by most expert observers as a comprehensively designed method of managing projects and as a refreshingly new approach to old problems [2, 4]. Doubts have, however, been expressed as to whether certain features of the system will be acceptable and operate satisfactorily in practice, but only the experience of those clients, consultants and contractors who have used the method on actual projects will reveal whether it is an improvement on any of the existing procedures.

REFERENCES 1. 2. 3. 4.

British Property Federation (1983) Manual of the BPF System for Building Design and Construction, BPF, London. Waters, B. (1983) The BPF System, Building, pp. 25–30, 16 December. Royal Institution of Chartered Surveyors, Quantity Surveyors Division (1984) Report of a Working Party on the British Property Federation System for Building Design and Construction, RICS, London, February. Johnston, G.L. (1987) Draft report on the manual of the BPF system, unpublished report, Joint Technical Committee of the Industrial Development Agencies, Belfast, September/October.

7 CLIENTS AND THEIR NEEDS

This chapter looks at clients of the construction industry and at their needs in terms of achieving success in implementing their building projects. Different types of clients have differing needs in this respect and it is therefore necessary, in order to ensure a satisfactory outcome to the implementation process, that these are identified and then matched with the procurement system whose characteristics are most likely to satisfy those needs.

7.1 CATEGORIZATION OF CLIENTS The increasing complex and varying demands placed upon the construction industry by its clients not only stem from the need to provide more sophisticated commercial and industrial working environments at minimum cost and maximum speed, but additionally from the fact that client organizations are also complex with different categories of customers requiring discrete solutions to their procurement needs. As it has been established [1] that individual categories of client determine project success by different criteria, it is necessary for members of the industry to be aware of these various customer groupings, and their basic characteristics in order to assist them in the selection of the most appropriate procurement system for their particular project. Clients have been traditionally divided into the two basic and classic categories of public and private organizations but it has also now been universally acknowledged that subdivisions of these categories have existed with the two main divisions relating: 1. to the client’s experience of implementing building projects; and 2. to whether or not they are ‘primary’ or ‘secondary’ constructors. The question of experience has been examined in detail by a number of researchers [2–4] who have all concluded that the client’s approach to all aspects of construction is determined by whether they are ‘experienced’ or ‘inexperienced’. 137

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The definition of these two categories is based upon the frequency with which clients commission projects and it is suggested that those organizations who only carry out the construction of a new project once every 5 years or more should be categorized as inexperienced and those who carry out projects on a continuous, or regular basis, i.e. more than once every 5 years, should be described as experienced. The other main characteristics of the experienced client organization normally include: 1. an expertise in managing and controlling construction projects; 2. the employment of in-house construction managers, and perhaps designers; 3. a detailed knowledge and understanding of the construction industry and its procedures; 4. an ability to produce a comprehensive initial brief incorporating prioritized objectives for the project’s cost, timing, quality and functionality; 5. a desire for a detailed, consistent and continuing involvement throughout the life of the project. Generally, communications and relationships between experienced clients and other members of the building team are likely to be good and in the specific area of selection of procurement system this category of customer will usually be well aware of the need to carry out this task in a disciplined and logical manner and in advance of the appointment of any external consultants other than a project manager. The inexperienced client on the other hand often exhibits much less positive characteristics which may include: 1. a lack of expertise in managing and controlling construction projects; 2. no knowledge and understanding of the construction industry and its procedures; 3. an inability to produce a comprehensive initial briefer prioritize objectives; 4. an inconsistent and ill-disciplined desire to be involved with the project on a random and intermittent basis; 5. a desire to make changes to the project throughout its duration and a lack of understanding of, or unwillingness to accept, the consequences of such action; 6. a weakness for being influenced, with regard to construction matters, by external parties other than his own advisers. It thus follows that communications and relationships between the building team and inexperienced clients are often less than perfect, added to which this category of customer is more likely to select the procurement system for his project, despite advice to the contrary, by default rather than by the rational and orderly approach advocated by knowledgeable practitioners. The other main subdivision of the public and private categories refers to the

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relationship of the client’s business activities to the completed construction project and research [3] has identified two subcategories, i.e.: 1. Primary constructors, whose main business activity and primary source of income derives from constructing buildings for sale, lease, etc.; 2. Secondary constructors, who require buildings to house and undertake their main business activities and whose expenditure on construction represents a small proportion of their annual turnover. The vast majority of primary constructors, by their very nature, will also be experienced clients and thus exhibit all of the characteristics previously described for this type of organization. The majority of the large UK industrial and commercial organizations, together with the miriad of medium and small companies in this sector of the economy, can be categorized as past, current or future secondary constructors. Only the larger or more active firms are likely to be experienced clients of the construction industry, with the majority of the organizations having little if any experience of building. There is thus a consensus of opinion among most authorities that clients can be categorized firstly, as public or private, then as experienced or inexperienced and finally, as primary or secondary constructors. These categories, together with examples of the types of client that fall into the various classifications are illustrated in Figure 7.1, but it should be borne in mind that many other subcategories probably exist in addition to those identified.

7.2 CLIENTS NEEDS When a client first considers implementing a building project, he will often have some difficulty in establishing the technical parameters and requirements of his proposed facility but is likely to encounter few problems in identifying his needs in terms of the overall performance of the project. These are usually stated, by inexperienced constructors, as being: minimum cost, minimum time and a high level of functional performance/quality. This simplistic approach disregards the essential fact that it has long been recognized that these requirements are interrelated and conflicting and that it is impractical to try to achieve all three objectives. At least one, and more often two, will need to be sacrificed to some extent and individual clients will need to weight each of the criteria to suit their own organization’s particular circumstances and the project’s technical, commercial and other characteristics [1] The weight given to each criterion by different clients will obviously vary, although the balance which was originally required may not be possible and

Figure 7.1 Categories of clients

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Figure 7.2 Client’s primary objectives, typical weighting of factors Source: Walker [5]

compromise between conflicting factors may have to be reached. Figure 7.2 illustrates a typical weighting of the most common factors. Many studies of the needs of clients have been carried out over the past two decades. In 1975 the Wood Report [6] revealed the results of case studies of 50 building and civil engineering projects which showed that clients consistently mentioned the criteria of ‘cost (meeting the budget), low maintenance costs, time, quality, functionality and aesthetics’ as being necessary for a project to be considered successful. Typical client’s requirements were defined by Bennett and Flanagan [2] in 1983 and can be summarized as: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

functional building at the right price; quality at the right price, i.e. value for money; speed of construction; balance between capital cost and long-term ownership costs; recognition of the risks and uncertainty associated with the project; accountability in the public sector; innovative design, high-technology building; maximizing taxation benefits; flexibility to change the design during construction; the building should reflect the client’s activities and image; minimizing future maintenance; need to keep any existing buildings operational during building work; a desire to be actively involved in and kept informed about the project throughout its life.

In the same year the Faster Building for Industry Report [7], which was produced from research carried out mainly to established customer’s attitudes to the timing and speed of their projects, stated:

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Very few customers were interested in speed per se or had explicitly considered the influence of time on costs and returns from the project. In principle, they were not prepared to pay for exceptionally fast construction projects. They wanted good value buildings at the right time but as a rule they were more vague in their notions about time than about any other aspect of building. The Building Economic Development Committee’s sister report Faster Building for Commerce [8], was published in 1988 and drew on 60 case studies, detailed information on 260 other projects and a statistical analysis of 8000 projects. It established that client’s priorities were determined by their need to minimize the commercial risks associated with property development and that their main concern was with the functionality of their buildings. Fast and punctual construction periods were demanded as a matter of course and quality standards were high and often very demanding. In addition, the facility to revise cost targets and introduce changes to their schemes at all stages of the project was a prime requirement. In the same year the Centre for Strategic Studies in Construction, based at the University of Reading, produced a report [9] on the future of the building industry in the UK which maintained that although the modern client is more sophisticated than in the past, he needs, in terms of construction projects, broadly remained the time-honoured triumvirate of time, cost and quality. More specifically, the reports confirmed that clients did not want any surprises during the implementation of their projects and required certainty of performance in all three criteria as well as: 1. value for money—public sector clients also want accountability; 2. a durable and easily maintainable building with affordable running costs, no latent defects with rapid rectification of any minor problems which may occur; 3. clear allocation of responsibilities amongst members of the project team with a minimal exposure to risk for the client; 4. an early indication of a firm price for the project and comprehensive information on any future contractual claims; 5. An early start on construction work with minimal interference from external sources such as planning, building control, etc.; 6. a non-confrontational business relationship with the contractor who should give guarantees, and a good ‘after sales’ service. In 1988 the author carried out a survey of approximately 50 large industrial and commercial clients with a view to obtaining statistical information on the selection of procurement systems by client organizations.

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Figure 7.3 Average rating, by clients, of criteria for project success

The respondents were asked to rate in order of importance a list of criteria that had been established by previous research that they considered essential to ensure project success. Figure 7.3, shows the results of this exercise in graphic form. On the basis of the results of the survey it can therefore be postulated that the criteria that were considered to be ‘important’ to ‘very important’ are representative of the paramount needs of the majority of clients for ensuring project success. There is a body of evidence to show that individual categories of clients determined project success by different criteria and as part of the analysis of the statistics produced by the author’s survey, the responses received from the five common categories of client previously identified were examined. Public experienced primary constructors accounted for above 8.5% of the total respondents and they rated the various criteria as illustrated in Figure 7.4. The order of priority and rating of the importance of the criteria by this

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Figure 7.4 Average rating of criteria by public experienced primary constructors

category of clients conforms to the stereotype of publicly funded bodies, such as industrial development agencies and local authorities, with the need to be seen to be obtaining the lowest price for the project and satisfying public accountability taking precedent over the certainty of early completion of the works and the facility to make changes to the design of the project. Just over 2% of the respondents were public experienced secondary constructors and their rating of the listed criteria is shown in Figure 7.5. Although the small sample obtained cannot be considered necessarily to be representative of this type of organization, the rating of the various criteria again conform to the public perception of this group of clients, with the need to obtain the lowest cost initially, and finally, being paramount. In this case, however, the certainty of meeting the contract completion date is seen to be more important than the ability to ensure accountability.

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Figure 7.5 Average rating of criteria by public experienced secondary constructors

Private, experienced primary constructors amounted to nearly 15% of the total number of respondents and were all property developers and their rating of the listed criteria is shown in Figure 7.6. This group’s premier requirements, as would be expected, are for a certainty of completion date and final cost, together with minimum financial risk, while being much less concerned with the ability to change the design, the need for high-quality or innovative architecture. Five of the seven criteria rated as ‘important’ relate to the financial needs of the client. This may well reflect the substantial influence that funding organizations financing a development can have on the management of the project.

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Figure 7.6 Average rating of criteria by private experienced primary constructors

Private, experienced secondary clients, i.e. major and active manufacturers, retailers, service organizations, etc., were the largest group of the whole sample, representing nearly 63% of the total and the rating by this category of the various criteria is as graphically represented in Figure 7.7. It is somewhat of a surprise to see that the ‘accountability’ criterion is rated the most important requirement of this particular group, although the fact that the respondents all operated in an extremely commercial environment, with the need to satisfy the shareholders of their respective organizations by maximizing profits, probably explains the premier rating of this need. The presence of ‘certainty of date of completion’, ‘value for money’ and ‘certainty of final cost’ are reflections of the obvious need to ensure that production; or whatever, commences as planned and that costs are both controlled and predictable.

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Figure 7.7 Average rating of criteria by private experienced secondary constructors

At the other end of the scale, the low rating of ‘flexibility to change design’, although still just within the ‘desirable’-to-‘important’ ranges, is more likely to be more imaginary than real as most clients in this category appear, according to perceived wisdom and anecdotal evidence, to be prone to make design changes during the construction period, despite being aware of the practical and financial consequences of their actions. The final category that was examined was that of private, inexperienced secondary constructors who amounted to slightly in excess of 12.5% of the sample and represented that sector of manufacturing and service industries who were rarely involved in building. The results of their rating of the listed criteria is shown in Figure 7.8. Apart from the high rating of the need for ‘flexibility to change design’, which highlighted the inexperience of this group of

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Figure 7.8 Average rating of criteria by private inexperienced secondary constructors

respondents, there is little difference between these results and those for the experienced private secondary constructors in the criteria rated ‘important’ to ‘very important’ although the comparative lowly position of ‘certainty of financial cost’ again demonstrates the lack of experience of this category of client. Although certain criteria such as ‘value for money’, ‘certainty of completion date’, ‘certainty of final cost’, ‘lowest possible tender’ and ‘desire to be involved’, were highly rated by all of the five groups, there was sufficient difference between the various categories, in the way they prioritized the listed criteria, to support the findings of previous research [4], which found that the ranking of priorities depended upon the category of client and the project typology.

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SUMMARY Whilst the client’s primary criteria for project satisfaction remain the classic trio of time, cost and functionality/quality, these three basic needs do not reflect the more subtle, numerous and important secondary criteria which have been identified from past research and literature and the author’s 1988 survey. A simple example illustrating this contention can be seen in the case of the criteria ‘time’ which, for the great majority of clients meant ‘certainty of completion date’ rather than the ‘shortest design and construction period’. To the uninitiated the latter criterion might appear more important than the former, but many clients of the construction industry realize that a guaranteed completion date enables them to make firm arrangements for the occupation of the building, and commencement of the profit-making activities, while what might start out as theoretically the shortest possible design and construction period could possibly in practice be considerably extended. There also appears to be sufficient evidence to suggest that the priority of the client’s primary and secondary needs will be further amended, although probably not so drastically, dependent upon the type of building being considered. On the basis of the available evidence it is likely that the most common secondary criteria for project satisfaction for all categories of clients are: 1. Time (a) certainty of completion date and other time related estimates; (b) early commencement of construction work; (c) design proposals to be submitted expeditiously; (d) rapid rectification of defects. 2. Cost (a) certainty of cost estimates; (b) value for money, i.e. functionality and quality at right price; (c) ease of accountability; (d) lowest possible tender; (e) reduction/elimination of risks in general and cost and time overruns in particular; (f) realistic maintenance and running costs. 3. Functionality/quality (a) general suitability for purpose; (b) reliability and durability of design; (c) guarantees and after-sales service; (d) innovative design/high-quality architecture where appropriate. 4. General (a) desire to be actively involved and informed during currency of project; (b) clear allocation of responsibility/single-point responsibility;

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(c) flexibility to change design during construction; (d) need for positive and constructive advice from consultants; (e) fully motivated and co-operative project team—no conflict. As it has been established that different categories of clients have different priorities when selecting secondary criteria, no attempt has been made to place the listed criteria in any particular order.

REFERENCES 1. Hewitt, R.A. (1985) The procurement of buildings, unpublished project report submitted to College of Estate Management for RICS diploma in Project Management. 2. Bennett, J. and Flanagan, R. (1983) For the good of the client, Building, pp. 26, 27, 1 April. 3. Naphiet, H. Naphiet, J. (1985) A comparison of contractual arrangements for building projects, Construction Management & Economics, 3, 217–31. 4. Rowlinson, S. and Newcombe, R. (1984) Comparison of procurement forms for industrial buildings in the UK, paper to the 4th International Symposium on the Organization and Management of Construction , Waterloo, Canada. 5. Walker, A. (1984) Project Management in Construction, Collins, London. 6. Wood Report (Building Economic Development Committee) (1975) The Public Client and the Construction Industries, Chairman Sir K.Wood, NEDO, London. 7. Building Economic Development Committee (1983) Faster Building for Industry, NEDO, London, May. 8. Building Economic Development Committee. (1988) Faster Building for Commerce, NEDO, London, November. 9. Centre for Strategic Studies in Construction, University of Reading (1988) Building Britain 2001, University of Reading.

8 THE SELECTION OF PROCUREMENT SYSTEMS

We now examine the practice and theory of the selection procedure, that is the way in which clients actually choose the procurement systems they use to implement their building projects and the methods they should employ to select the correct route so as to ensure a successful outcome to the design and construction process. Although much more attention has been paid to the selection and use of procurement systems over the past two decades, the lack of training in this particular aspect of construction management amongst architects, engineers and quantity surveyors has resulted in many consultants still being devoid of any real expertise in this area. Inexperienced clients are, of course, totally reliant on this body of experts for advice on the overall management of their projects, and the more specific task of selecting procurement systems, with the result that incorrect decisions are often taken sometimes with unfortunate consequences. While experienced client organizations are likely, as the result of the expertise gained in implementing their own capital programmes over many years, to be more expert in this area of construction management, they, too, can suffer from their selection processes being based upon biased past experience and the conservative decisions of their in-house experts. This chapter endeavours to identify the means by which most clients decide which procurement system to utilize and then to provide sufficient guidance so as to make the process of choosing the right option less hazardous.

8.1 HOW CLIENTS ACTUALLY SELECT THE PROCUREMENT SYSTEMS THEY USE Although we are now aware that there are various categories of clients most past research and literature, when examining the question of how procurement 151

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systems are selected, only differentiates between experienced and inexperienced employers and this aspect of procurement systems therefore has been examined within this constraint. The reader should also always bear in mind that clients are not a homogeneous organized group of individuals, or organizations, and are thus unable to apply uniform standards from their own, or the average consultant’s, knowledge of such matters. This situation is further exacerbated by the dearth of easily accessible sources of objective and practical information which could provide them with worthwhile guidance.

8.1.1 Inexperienced clients The inexperienced client’s dilemma, when endeavouring to select the most appropriate procurement system, has been well described by Sidwell [1] who asks: How can he make a reasoned choice between selective, serial, negotiated or cost reimbursement types of tender arrangements and in addition choose between consultant contractors, management contracts, package deals, etc? It is at this point that the Client clearly needs competent professional advice on the suitability of these various methods for the particular project in question. The two government sponsored reports [2, 3] on building for industry and commerce found that inexperienced clients are at a disadvantage because they are unlikely to get maximum service from the industry and also experience difficulty in obtaining good impartial advice on procurement. Faster Building for Industry [2] also established that, in addition to the lack of sources of information and advice, clients had no means of judging the suitability of any particular procurement system or method to suit their particular needs. Great difficulty was also experienced in obtaining information from other clients with recent building experience. Professional bodies were found to be unhelpful and there was rarely a sound basis for choice and comparison between the various available systems. As a result the large majority of clients were heavily dependent on consultants and contractors although many made their first approach through familiar channels such as estate agents, local building surveyors, etc. The Centre for Construction Market Information’s Report [4] on the design and build market, published in 1986, found that the majority of commercial clients taking part in the survey appointed architects as their principal advisers even if subsequently they chose a non-conventional procurement path. It was also established that the quantity surveyor’s role as an independent and neutral

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adviser had grown in scope and stature in the recent past. It was noticeable that very few clients made any call on contractors for advice during the pre-contract period. A survey [5] of over 240 industrial organizations, the majority of whom were inexperienced, carried out in 1978 found that whilst their approach to the implementation of their construction projects varied widely many appointed an architect as their principal adviser, while some contacted contractors directly. Other surveys appear to confirm this approach. It would therefore appear from literature and past research that most inexperienced clients, when faced with the task of selecting the most suitable way of carrying out their building project appoint an adviser, or obtain professional advice of some kind, in order to assist them in choosing the appropriate method of procurement. The most likely professional to be consulted is an architect, although quantity surveyors, estate agents, building surveyors, project managers and contractors are also used as a source of advice and information. The survey of clients carried out by the author in 1988 was undertaken in an attempt to establish in much more detail than could be obtained from existing sources of how they made the choice of procurement system. The group of inexperienced, private secondary clients responded as illustrated in Figure 8.1. It would thus seem likely that inexperienced clients choose their procurement systems mainly as a result of the influences of their own corporate environments, colleagues’ advice and to the lesser extent their own personal experience of a similar project with the use of external consultants being a very significant means of obtaining advice. The rating of the criterion ‘other means’ reflected the views of a small number of respondents who stated that they made their decisions by analysing the advantages, talking to manufacturers consultants and choosing the most appropriate system for the project. Contrary to anecdotal evidence, contractors’ marketing activities had not had any effect on the decisions that had been made and the use of the services provided by the major professional institutions was minimal. If these results are typical, the concern expressed by past reports with regard to obtaining information and advice could be considered to be unfounded. However, the respondents to the survey were selected from the top 500 UK companies and although inexperienced in terms of the actual amount of construction work executed, it is likely that the calibre and experience of the organization’s managers and the effectiveness of the company’s policies and financial procedures is such as to provide an environment in which decisions on the selection of procurement systems, or construction consultants, can be easily and safely taken. It is therefore suggested that most inexperienced clients do, indeed still, find great difficulty in obtaining accurate information and objective advice.

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Figure 8.1 How inexperienced, private secondary clients decide which procurement system to use

8.1.2 Experienced clients Unlike the inexperienced client, those organizations that regularly carry out construction work should have little difficulty in obtaining information from, and dealing with, the construction industry as they will have developed a method of working, based upon past experience, which should enable a high level of success to be attained. In reality, however, it would appear that, as a result of a lack of expertise in selecting the most appropriate procurement system, a relatively poor overall performance by the project team and other factors, the performance on most construction projects is less than acceptable. So how do experienced clients choose their procurement routes? The Chartered Institute of Building’s (CIOB) guide to contractor selection [6] advises clients that before deciding on their procurement strategy they should fully investigate all the options available taking into account all of the factors peculiar to the project. In order to implement this sound advice, clients will usually delegate the

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Table 8.1 Client’s source of advice on the selection of procurement systems

Source: Hewitt [8]

responsibility for the supervision of administration of the project to an in-house or external manager. The study carried out by NEDO [7] found that in 57 cases out of 60 this post was filled from amongst the client’s own staff with the remaining three being taken by external project-manager appointments. The experienced clients amongst the respondents usually had their own in-house construction professionals who took great care in the selection and appointment of design and construction teams, although it was also established that their choice of procurement method was ‘frequently guided by advice from the principal consultant’. It has been suggested [8] that if the client is unable, or does not wish to carry out the overall management of the project, there are three ways of delegating all, or some of this task. 1. A lead consultant is appointed who undertakes part of the management of the project. 2. A consultant is appointed to assist in the setting up of the project organization and development of the initial brief. 3. A professional construction project manager is appointed to carry out all, or part of the overall management. A survey of experienced Clients [8] carried out in 1985, found that while the public clients amongst those surveyed obtained the majority of their advice on procurement methods from in-house consultants, private clients obtained most of their advice in equal parts from architects and quantity surveyors. Table 8.1 shows the level of advice on procurement methods obtained from the various sources that were surveyed. The author’s 1988 survey obtained information about the way all of the four main categories of experienced clients decided which procurement systems to use and from what source they obtained their advice. Public, experienced

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Figure 8.2 How public, experienced primary clients decide which procurement system to use

primary constructors chose the procurement systems they used by the means shown in Figure 8.2. As all of the respondents were government-funded industrial development agencies, all with their own in-house project managers and with their operations subject to considerable scrutiny and governed by fairly strict procedures, it was no surprise to discover that they took advice from their in-house experts and closely followed their own organization’s policies and financial regulations. As the majority of the work carried out by these agencies is repetitious and designed and managed by external consultants, the next two sources of advice are also typical of such organizations and not therefore unexpected. On first examination, the comparatively heavy reliance on the marketing activities of contractors is disconcerting and not at all characteristic of such a category of client. However a closer look at the figures revealed that 50% of the respondents considered this source of information to have no significance with only half of the remainder being of the opinion that it was highly significant.

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Figure 8.3 How private, experienced primary clients decide which procurement system to use

Only one public, experienced secondary client was surveyed and this organization relied solely on the advice obtained from their own internal construction experts. All of the private, experienced primary clients were property developers or, in the case of the BPF, the association that represents property developers and commercial and retail organizations with large property portfolios. These respondents made their choices by the means illustrated in Figure 8.3. Property developers are in general considered to be conservative organizations and their responses to this part of the survey confirm this view, relying as they do on previous experience and their own organizations’ policies and regulations. Not all developers carry their own in-house construction experts and thus rely on advice on many matters from external consultants and this state of affairs is confirmed by the respondents rating both of these sources of advice equally— none of the other bases for selection were of any significance. Finally, the way in which private, experienced secondary clients obtained advice and made their procurement choices is shown in Figure 8.4. These results

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confirm the influence of the experienced organization’s own in-house experts on the choice of procurement system with advice from external consultants being considered far less significant. It is suggested that the reliance on previous experience of similar projects and the restraints of company policy could result in a conservative approach to the selection of the most appropriate method and this appears to be borne out by the fact that more than 75% of the value of work carried out in 1988 by the respondents was implemented using either the conventional or design and build systems with little, if any, use being made of any of the managementorientated procurement systems. The remainder of the criteria were considered to be of little significance and the ‘other means’ related to the need to ensure that the chosen system was appropriate for the project and reflected the complexity and timing of the work.

SUMMARY It has been demonstrated that clients of the construction industry experience difficulty in obtaining objective and comprehensive advice on the selection of the most appropriate procurement system for their particular needs. Inexperienced clients appear to rely heavily on external consultants, and in the case of the larger organizations, in-house experts for advice; architects and quantity surveyors are the most widely used consultants for building projects. When asked to place a list of suggested bases for selection in order of significance, inexperienced clients rated the following as being of the highest significance when they were choosing procurement systems: 1. 2. 3. 4.

following company policy or financial regulations; obtaining advice from in-house experts; obtaining advice from external consultants; on the basis of previous experience on a similar project.

It is therefore concluded that decisions are made about procurement methods mainly as a result of the influences of the inexperienced clients’ corporate environment, previous experience and advice obtained from external consultants. It should, however, be noted that these results were obtained from large and sophisticated organizations and could well be atypical of inexperienced clients as a whole. Unlike inexperienced clients, those organizations that regularly carry out construction work have little difficulty in obtaining information from, or dealing with, the construction industry in terms of choosing procurement systems or establishing procedures for managing projects.

SUMMARY

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Figure 8.4 How private, experienced secondary clients decide which procurement system to use

In general, it has been found that public, experienced clients obtain advice on procurement methods from their own in-house experts; experienced private clients were guided by external consultants. The former category selected their procurement systems in order of significance in the following way: 1. 2. 3. 4.

obtaining advice from in-house experts; following company policy and/or financial regulations; on the basis of previous experience on similar projects; by taking advice from external consultants.

Contrary to the supposed general rule, it was found that, in order of significance, private, experienced clients, who only built to facilitate their main industrial or commercial activities, made their decisions by: 1. 2. 3. 4.

taking advice from in-house experts; using previous experience on similar projects; following company policy and/or financial regulations; taking advice from external consultants.

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There is evidence to suggest that the reliance of all categories of clients on previous experience and the restraints of company policy and financial regulations could result in a conservative approach being adopted to the selection of the most appropriate procurement method. Although it has not been possible to establish in detail how clients select their procurement systems, there is no reason to doubt the results of past research and studies which have found that the process is not carried out in a systematic and logical manner and that such decisions are often made by default.

8.2 THE METHODS CLIENTS SHOULD USE TO CHOOSE THEIR PROCUREMENT SYSTEMS The way in which the most appropriate procurement system for any specific project should be chosen is now considered and the various guides and aids to selection reviewed in order to establish a basis from which the reader can work, should he be faced with task of making such a selection in the future.

8.2.1 The principles governing the selection of procurement systems The construction industry is a fragmented, diverse industry carrying out the design and construction of unique and often extremely complex, expensive and lengthy projects in a hostile environment by means of a temporary management organization comprised of groups of highly qualified individualistic professionals who are frequently unknown to each other. To exacerbate this state of affairs these individuals have two sets of objectives. Their first, and usually foremost aim, is to satisfy the aspirations of the permanent organization who employs them. These aspirations are likely to centre around the maximization of profits, coupled in most cases with the second objective—a desire to maintain good relations with the client, the achievement of accepting professional standards and a mutually successful project. The environment in which projects are implemented is thus far removed from the relative stability, permanence, and sense of company loyalty which usually exists in industrial and commercial client organizations. It is therefore necessary for clients, particularly those that are not experienced in implementing construction projects, to be aware of the working of the construction industry, its procedures and the characteristics of temporary management organizations. Having established an understanding of the construction industry, the client then needs to create a framework and discipline for his project—the so-called

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project strategy—within which the policies necessary for the successful implementation of the project can be formulated. At this time we are only concerned with the policy he adopts for the determination of the process of selecting the most appropriate organization for carrying out the design and construction of his project, i.e. the procurement system. This choice needs to be made in a disciplined and objective manner and in advance of the appointment of any design consultants or contractors. In order to ensure a successful choice of procurement system, the client’s brief must be clear and comprehensive and contain not only the aesthetic, technical and performance criteria for the project, but of equal importance, his primary and secondary objectives in terms of functionality, quality, time and cost. In Chapter 7, the ever-present conflict between these three primary objectives was briefly discussed together with the need for weighting to be applied to reflect their relative importance to the objectives and the inevitable necessity to compromise between conflicting factors. Achieving adequate functional performance and the right level of quality is usually the dominant primary objective in most construction projects. Unless the completed facility is suitable for its purpose and intended use, the client’s needs will not have been satisfied and value for money will not have been achieved. The client must therefore establish a minimal acceptable level of functional performance and quality for his project at an early stage and ensure that the brief accurately reflects his needs and, if appropriate, any tolerances he is prepared to allow the designers. The primary objective of time needs to be considerably refined before it becomes meaningful in the context of the brief, as it can refer to any number of variants of this basic requirement. The client may wish, for example to: 1. reduce the project duration (i.e. the period from commencement to completion), to the minimum in order to ensure a rapid return on the monetary and other resources that he has expended or to reduce onerous finance charges; 2. shorten the construction period so as to minimize disruption to his existing operating facility; 3. commence the construction of the project as quickly as possible in order to satisfy political pressure or to facilitate the needs of his expenditure programme; 4. carry out the design and construction of the project in such a way as to enable a specific construction completion date to be met. Once the parameters of the time objective, or its variant(s) have been established, it/they, too, will need to be incorporated within the project brief.

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Any project where the costs exceed the expected benefits from its use, or the revenue from its sale or lease, should probably not have been undertaken. It therefore follows that an acceptable level of cost must be established for every project—this is the third primary objective. Different categories of clients may well have differing subgoals within the overall cost objectives, for example: 1. Public clients, and those whose financial regulations demand it, will often require the tenders for the project to be the lowest received on a fixed-priced lump-sum basis and to be subject to minimal change during the life of the project. 2. Others may be prepared to accept an indicative cost at the beginning of the construction period, provided they are kept informed by means of accurate forecasts of the likely final cost, at regular intervals, during the currency of the works. 3. All will want value for money but some may be prepared to authorize additional expenditure during the construction period in order to achieve changes in design which will enable them to enhance the performance of the new facility and operate it more efficiently. Having determined the dimensions of the three basic objectives and weighted them, a compromise must be reached between two or more of the objectives in order to establish a set of objectives which do not conflict and can practically be achieved. During this exercise there is also a need to take into account the secondary objectives that clients often have for their construction projects. These subordinate aims can include: 1. the need to use members of the client’s specialist staff, own labour force or the services offered by subsidiary sister companies; 2. the provision of training courses—for the client’s proposed workforce who will eventually operate the new facility; 3. the use of the client’s existing plant or structures within the new project; 4. the transfer of maximum risk to parties other than the client; 5. the incorporation, within the design and construction period for the new building of separate operations being carried out by designers and/or contractors directly employed by the client; 6. the achievement of minimum maintenance and running costs, i.e. costs in use; 7. the need for single-point responsibility or the use of design professionals. Despite the fact that these objectives are termed secondary, they can, particularly in combination, have considerable influence on the eventual selection of a procurement system for the project and must therefore always be taken into consideration when making such decisions. Having determined the primary and secondary objectives of the project

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and incorporated these into the brief, it is necessary to compare these requirements with the characteristics of each of the available procurement systems in order to identify the best match that can be achieved between the two. Although it would be unusual to achieve a perfect match, this exercise, provided that it is carried out systematically, will ensure that the most appropriate procurement system is chosen. The majority of the available methods and aids that can be used to select the most appropriate procurement system for a particular project are based upon the matching of the client’s requirements with the characteristics of the various arrangements for designing and constructing buildings which have been identified in previous chapters. When examining these characteristics, it should be noted that there is a lack of definitive information available on the relative costs of the individual procurement systems. Where reference has been made to this characteristic, any conclusions drawn refer to simple project costs, i.e. construction cost plus consultant’s fees plus supervision plus regulatory fees, etc., and do not take into account finance charges, cost in use, etc. As it has been established that clients require discrete solutions in order to properly satisfy their procurement needs, no attempt has been made to make recommendations as to the suitability of particular procurement methods for specific types of projects or categories of clients. However, the following general guidelines will be of use in ensuring that the client’s attention is focused on the category(-ies) of procurement systems that are best able to meet the project criteria. Separate procurement systems are suitable for use: 1. on projects where competitive bids are required in order to ensure financial accountability and minimize tender costs; 2. where time is not ‘of the essence’; 3. where there is a need to ensure that high standards of quality and functionality can be achieved; 4. on complex and/or prestigious projects where the design needs to be under the direct control of the client; 5. where design changes may need to be made during the currency of the works and the client is prepared to accept the time and cost implications of such changes. Co-operative procurement systems are suitable for use: 1. where the collaboration of the contractor is needed during the early stages of a project in order to contribute to the design, buildability, methods of construction, costing, programming material procurement, etc.; 2. where modest savings of time are required;

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3. where, in the case of the negotiated and cost-reimbursable systems, the client is prepared to accept a cost penalty in order to gain the advantages that are associated with these methods; 4. when, as in the case of continuity and serial contracts, the client has more than one similar project, or a programme of projects, to implement within a given period. Integrated procurement systems are suitable for use: 1. on projects where the client requires the overall project period to be as short as possible, but needs to be aware of his financial commitment at tender stage; 2. where the client requires one organization to accept responsibility for both design and construction and, if necessary, for all other aspects of project procurement such as funding, land purchase, production, equipment procurement and installation, training of management and a workforce, etc.; 3. where the client is able accurately to define his requirements at tender stage and is unlikely to wish to amend them during the currency of the project; 4. when the total project cost needs to be minimized. Management-orientated procurement systems are suitable for use: 1. when the commencement of the construction of the project needs to be accelerated in order to evoke speedy completion; 2. where early advice is needed from a management contractor or construction manager on design, buildability, programming, construction methods, procurement of plant and materials, etc.; 3. where the client may wish to have the flexibility available to incorporate design amendments into the project during the construction period; 4. where certainty of achieving completion dates is required and takes priority over construction costs; 5. when the project is of high value and complexity and thus requires the use of sophisticated construction and management techniques in order to ensure success; 6. on projects where the client wishes to be objectively involved in the overall management; 7. when the client, in the case of design and manage, wishes to appoint a single organization to be responsible for the design and management of the works whilst, at the same time, acting in a ‘consultant’ role. It is stressed, once again, that these general guidelines are given in order to focus the attention of the reader on the most suitable categories of procurement systems for further study and examination as part of the selection and matching process.

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The next section of this chapter looks at this stage in more detail by examining the various methods that are currently available to assist in selecting the most applicable procurement route.

8.3 GUIDES AND AIDS TO THE SELECTION OF PROCUREMENT SYSTEMS We have seen that in order to reduce the possibility of selecting the incorrect procurement system, it is necessary to approach this decision in a disciplined and systematic way. The past, present and continuing proliferation of different methods of procuring building projects has led to an increasing demand for systematic methods of selection to be devised. The major difficulties in devising such methods have been identified by Skitmore and Marsden [9]: 1. No single person, or knowledge ‘czar’, has been found who is fully conversant with all the main procurement arrangements. 2. In addition, no consensus has been found between experts which easily systemizes procurement selection. 3. Ireland’s [10] study of the factors affecting procurement selection concluded that no mutually exclusive sets of criteria uniquely and completely determine the appropriate procurement arrangements for a specific project. However, methods have been devised which partially overcome these difficulties or in the case of some of the simpler approaches, ignore them entirely. A selection of the most effective of these techniques, guides and aids is now examined in some detail. Franks [11], in the second edition of his work on procurement systems, rates each of the systems he describes in terms of their ability to satisfy the seven basic requirements which he has identified as being common to the majority of clients. Table 8.2 replicates his method of rating four ‘systems’. The ratings relate to a scale of 1 to 5 where 1 is the minimum and 5 is the maximum in terms of the individual system’s ability to satisfy the listed requirements, and these are of course subjective. Whilst the inclusion of ‘project management’ amongst a list of procurement systems is considered to be ill-advised, the principle of the use of a method of rating the individual characteristics of the various methods against a list of client’s needs is valid and might be considered as the first step in applying logic and discipline to the selection process. Franks [11] makes two further points in the context of making comparisons: 1. It is essential when making comparisons to ensure that one is comparing ‘like with like’; in the case of the various available procurement systems this

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Table 8.1 Rating the system

Source: Franks [11]

rule is difficult to obey without using a complex system of ranking and weighting. 2. The factors that are likely to affect the client’s needs include external forces such as the ever-changing political, economic and social environments. The Building Economic Development Council’s booklet Thinking about Building [12] contains a chart which relates the characteristics of the most commonly used procurement systems to a list of nine client’s priorities or needs for his project, which are framed as questions. By simply answering the questions that are posed, the most apparently appropriate procurement system(s) can be identified and given further consideration (Figure 8.5). Once again this guide, whilst useful in terms of eliminating unsuitable procurement systems from all of the available alternatives, is insufficiently sophisticated to enable a final decision to be taken as to the most appropriate method of designing and constructing the project being examined.

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In 1988 Skitmore and Marsden reported [9] on their attempt to formulate a universal procurement selection technique and described the two approaches they adopted. The first was a multi-attribute technique based on the NEDO procurementpath decision chart illustrated in Figure 8.5, which was, however, modified to overcome what were seen as two major deficiencies. Firstly, the criterion answers listed in the original NEDO chart were restricted to a maximum of three alternatives. This was altered to allow the user to rate each of the criteria in terms of the priority that he wished them to have. Secondly, the NEDO selection method assumes that all of the listed criteria are of equal importance to the client, but as each procurement system may have a differing degree of relevance to each priority relative to the other procurement paths, a measure of their suitability needs to be built into the process. This was achieved by indicating the relative utility of each procurement path against each criterion on a numerical scale enabling a set of utility factors to be established for use in the decision chart. These factors were initially determined by means of a method of scoring based upon the work of Fellows and Langford [13], which were confirmed by comparison with a survey of the opinions of five experts. Table 8.3 shows the revised procurement-path decision chart, incorporating the various utility factors, which is intended to be completed as follows: 1. Having considered all of the client’s priority questions, the user enters the relative importance of each criterion in the client’s priority rating column on a scale of 1 to 20. 2. The rationalized priority rating is then calculated for each criterion by dividing individual priority ratings by the sum of all the ratings, and this is entered into the chart. The total of all the rationalized priority ratings should always be equal to 1. 3. All of the rationalized priority ratings are then multiplied by each of the utility factors for the various procurement paths and the results entered into the chart. 4. The results for each procurement system are then totalled and ranked on the basis that the most appropriate method has the highest total result. Table 8.4 shows a chart which has been completed for a hypothetical industrial project. The second method reported by Skitmore and Marsden [9] utilized the discriminant technique which examines data collected under a set of criteria which are characteristics on which the various procurement systems are expected to differ. Using these criteria the researchers hoped to discriminate between procurement paths for decision-making purposes.

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This approach involves the use of a fairly advanced statistical technique, requires the use of complex computer software and can be time consuming. It is therefore suggested that, despite its apparent success, this technique is unlikely to be suitable for use by busy clients and consultants until such time as it becomes more ‘user friendly’. On the other hand, the multi-attribute technique when applied to a NEDOtype selection chart would appear to be eminently suitable for use by clients of the construction industry provided that they are able to obtain the services of an independent project manager to assist them in applying the techniques to their particular project.

Figure 8.5 Identifying your priorities Source: Thinking about Building [13]

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Bennett and Grice [14] have used both the Building EDC Thinking about Building guide [12] and Skitmore’s and Marsden’s work [9] to tabulate the strengths and weaknesses of the various procurement systems (Table 8.5). The table provides an opportunity for clients to weight the various criteria in order to reflect their priorities. The authors stress the need to determine the priority given to the project’s objectives by means of a detailed discussion of the issues involved between the

Table 8.3 Revised procurement-path decision chart

Source: Skitmore and Marsden [9]

Table 8.3 Continued

Table 8.4 Completed procurement-path decision chart: hypothetical project 1: industrialist requiring industrial unit quickly to realize grant and commence production as soon as possible (using provisional utility factors)

Source: Skitmore and Marsden [9]

Table 8.4 Continued

Source: Bennett and Grice [15]

Table 8.5 Example of procurement-system selection

Source: Bennett and Grice [14]

Table 8.6 Example of procurement-system selection

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client and his adviser and the fact that the utility factors allocated to each procurement system should be reviewed in the light of the characteristics of both the clients and the project. It is pointed out that the circumstances of a specific project or client may result in the need to pose different or additional questions, or amended utility factors before the form is completed, as shown in Table 8.6 and the choice of procurement system made. The final guide that is examined was originally released at the end of April 1988 by the RICS Quantity Surveyors Division in the form of an expert computer-system package affectionately known as ELSIE [15]. This appellation was derived from the initials of the lead consultant (L-C), who was seen by the authors of the system as the prime mover in setting suitable parameters for the management of any project. In this context it is interesting to note that at the initial launch of the system the purchase of the software element of the package was restricted to members of the QS division of the sponsoring institution in order to ensure, to quote the then Secretary of the division, ‘the stock in trade of the QS profession knowledge does not leave the profession’ [15]. The package consists of a report, The Strategic Planning of Construction Projects [16], which can, incidentally, be purchased by non-members of the RICS, and four linked modules held on six diskettes designed for use on IBM compatible microcomputers with at least 2 Mb of hard disk capacity and a minimum of 512k main memory. The four modules are: 1. financial budget—which enables the user to produce approximate estimates based upon a brief formulated by answering questions posed by the program; 2. procurement—provides recommendations on the most appropriate procurement systems; 3. time—provides advice, during the early stages of development, on the likely overall project duration; 4. development appraisal—provides an evaluation of the feasibility of the project at an early stage, including the forecasting of finance charges and fees, yields and rental levels and cash flows. Although the procurement module has always been capable of dealing with all types of new building projects, the other three modules were originally only able to provide information on new commercial buildings. Since the original launch, however, the scope of building types has been enlarged to include new buildings for light industrial use which includes warehouses, factories, hi-tech and nursery units and allows for repetition and a mix of different types of buildings on the same site. The procurement module is the only element of the ELSIE system that concerns us in our search for guidance in selecting the most appropriate

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procurement route but before examining this module in more detail, a brief excursion into expert systems is necessary to ensure that the reader has at least a rudimentary understanding of this type of computer program. Despite the computer’s proven ability for storing and manipulating large quantities of complex data, it still compares very unfavourably with the average human’s facility for dealing with intricate problems within a relatively short time span. Much research has been carried out in the area of artificial intelligence in an attempt to replicate the human facility for efficiently resolving problems and this has eventually led to the development of knowledge-based expert systems which mimic the activities of the specialist expert. The knowledge or expertise of such specialists is held within the system so that it can be used to solve further problems on demand and is usually in the form of rule of thumb or conclusions reached by experts through logic. This is known as the knowledge base. In addition to the knowledge base an expert system usually consists of: 1. a program, the inference engine, which carries out the reasoning and other activities as directed by the knowledge base; 2. a compiler/checker who converts data and knowledge into a form which can be manipulated by the inference engine and checks the knowledge base for consistency; 3. a user interface which provides a means of communication with the user of the system. In the case of the ELSIE system, it was decided to utilize a commercially available expert system shell, the Savoir Shell, capable of dealing with probability, rather than certainty, instead of creating a bespoke system from scratch. Knowledge-based or expert systems are therefore computer-based methods of using specialist human knowledge so as to allow greater access to rare expertise which, by having a system base, is likely to be more consistent in operation. Typical areas for the application and use of expert systems are where problems of choice between alternatives arise and where the information available is not definitive or complete—the selection of the most appropriate procurement system for example. The ELSIE procurement module is worthy of further examination as it probably provides the most readily accessible and comprehensive aid to selection that is currently available to clients. The module is able to provide advice on all types of ‘new build’ projects and provides guidance on the suitability of five basic procurement systems or their variants: 1. conventional 2. two-stage conventional

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Figure 8.6 Questions asked regarding the quality of the client’s brief

3. design and build 4. management contracting 5. construction management Once the module has been accessed via the microcomputer, series of questions are posed on the screen which require the user to provide information about the project, relating to: 1. 2. 3. 4. 5. 6. 7. 8.

the quality of the client’s brief; the timing of the project; the level of quality required; the complexity of the building services installation; the nature of the design; the need for specialist construction methods or materials; the acceptable level of uncertainty on price; the need for changes during the construction period.

Typical examples of the type of questions displayed on the screen during the consultation are illustrated in Figures 8.6 and 8.7. Once all of the relevant questions have been answered, and an evaluation of the information been made by the system, recommendations are given on a results screen (Figure 8.8). The summary contains two elements of information:

GUIDES AND AIDS TO THE SELECTION OF PROCUREMENT SYSTEMS

Figure 8.7 Questions asked regarding certainty of time

Figure 8.8 Procurement method suitability summary

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1. a list of the most appropriate procurement systems ranked in order of suitability; and 2. an indication of the extent to which the various systems will satisfy the client’s requirements. To quote the literature [16] which accompanies the ELSIE system software: This distinction is important since in some situations the highest rated method may still have a fairly low rating (e.g. ‘may be appropriate’) due to the conflicting requirements of the project. For example a client with an incomplete brief may require that a very large complex project be completed within a very tight time schedule and that a fixed lump sum commitment be obtained for the construction work before site start. This combination will result in a very low rating irrespective of the chosen path. The low rating will indicate a need for caution even if the method is ranked first. An explanation of the reasons for the guidance that has been given is available in substantial detail via the computer system. The information that has been provided by the user, together with subsequent results, can be stored on a project-by-project basis, and/or printed out so as to obtain a paper record of the process and the recommendations. The procurement module of the system is therefore yet another method of obtaining advice and guidance on the selection of procurement systems for particular building projects which, it is continually stressed in all the documentation, only provides a second opinion and highlights possible problem areas. Despite this caveat the ELSIE system appears to be the most useful of the five aids that have now been described particularly as; as a result of the formation of a commercial organization to market and support the future use of the system, its sale is no longer restricted to members of the RICS. Whichever of these methods is utilized, it will always be necessary, in order to achieve project success, for the client to determine a detailed comprehensive brief incorporating his primary and secondary objectives. The matching of these criteria against the characteristics of the various available procurement systems can then be carried out by any of the means that have been described or by the simple expedient of carrying out a detailed comparison and selection by a process of elimination of the inappropriate methods.

SUMMARY 1. The choice of procurement systems is now so wide, and projects are becoming so complex, that the selection process needs to be carried out in a disciplined and objective manner and within the framework of the project strategy and project brief.

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This brief must contain the client’s primary and secondary objectives in terms of functionality, quality, time and cost. 2. There is no ‘best buy’ among procurement systems. Client organizations are complex and different categories of clients require discrete solutions to their procurement needs, added to which the prevailing economic climate often influences the choice of the procurement method. It therefore follows that the choice of system must be made by matching the criteria and objectives of the project brief with the most suitable characteristics of the various procurement methods. 3. Three general rules of thumb can be applied to the selection of procurement systems: (a) The conventional system and its variants will enable a project to be implemented efficiently and cost effectively provided the complete project documentation, based upon tried and trusted construction methods, is available at tender stage. (b) Where design documentation is not sufficiently complete to allow the project to be effected, in accordance with the client’s timing requirements, it will be necessary to implement the works by nonconventional procurement methods. (c) Non-conventional methods of procurement produce better performances, in terms of speed, in both the design and construction phases of projects. 4. A small number of guides and aids are available to assist clients in the selection of the most appropriate procurement system. Unfortunately, some of these adopt a simplistic approach to the selection process with the result that the subsequent recommendations are generalized and only succeed in reducing the number of possible alternatives to be considered. Any worthwhile guide needs to be user friendly but at the same time must incorporate a means of prioritizing client-project criteria and relating these to the suitability of the various procurement systems. Currently, the selection methods proposed by Bennett and Grice [14] and the ELSIE computer system [15] would appear to provide the most accessible and useful guidance— although the latter system is heavily conditioned and should only therefore be used as a basis for further consideration. When using any of these aids inexperienced clients should obtain advice from an experienced consultant.

REFERENCES 1. Sidwell, A.C. (1982) Project procedures—the client’s dilemma, Quantibuild, pp. 51–6. 2. Building Economic Development Committee (1983) Faster Building for Industry, NEDO, London, May.

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3. Building Economic Development Committee (1988) Faster Building for Commerce, NEDO, London, November. 4. Centre for Construction Market Information (1986) The Design and Build Market 1986, CCMI, London. 5. Building and Civil Engineering Economic Development Committees (1978) Construction for Industrial Economy, NEDO, London, August. 6. Estimating Practice Committee, Working Party (1979) Contractors election—a Guide in Good Practice, CIOB, Ascot. 7. Building Economic Development Committee (1974) Before you build—What a Client Needs to Know About the Construction Industry, NEDO, London. 8. Hewitt, R.A. (1985) The procurement of buildings, proposals to improve the performance of the industry, project reports submitted to the College of Estate Management for RICS diploma in Project Management. 9. Skitmore, R.M. and Marsden, D.E. (1988) Which procurement system? Towards a universal procurement selection technique. Construction Management and Economics, vol. 6, E. & F.N.Spon Ltd, London, pp. 71–89. 10. Ireland, V. (1985) The role of managerial areas in cost, time and quality performance of high rise commercial building projects, Construction Management and Economics, vol. 3, E. & F.N.Spon Ltd, London, pp. 59–87. 11. Franks J. (1990) Building Procurement Systems—a Guide to Building Project Management, CIOB, Ascot. 12. Building Economic Development Committee (1985) Thinking about Building, a Successful Business Customer’s Guide to using the Construction Industry, NEDO, London. 13. Fellows, R.F. and Langford, D.A. (1980) Decision theory and tendering, Building Technology & Management, pp. 36–39, CIOB, October. 14. Bennett, J. and Grice, A. (1990) Procurement systems for building, Quantity Surveying Techniques, New Directions, (ed. P.S.Brandon), BSP Professional Books, Oxford. 15. Ashworth, G. (1988) ELSIE, the QS’s thinking friend, Building, p. 97, 17 June. 16. Badon, P.S., Basden, A., Hamilton, I.W. et al. (1988) Expert Systems, the Strategic Planning of Construction Projects, RICS, London, January.

9 THE FUTURE

9.1 GENERAL There is no reason to doubt that in the future building designs will become increasingly complex, costs will continue to escalate, projects will increase in size and building owners will continue to make even greater demands upon the industry and that as a result, the proliferation of procurement systems will continue. It is, however, suggested that, as human behaviour is unlikely to dramatically change, client organizations, in their turn, will also continue to choose the procurement systems they use from a narrow range of the numerous methods that are likely to be available in the future. Should this forecast prove to be correct, it will become even more essential that clients are made aware of all of the available procurement alternatives and make their choices by the use of more sophisticated methods of selection than are currently utilized for this purpose. As most clients rely to some extent on consultants to provide advice on the selection of the most appropriate procurement system, these advisers should become more aware of this need and adopt a more pro-active attitude to this aspect of project management. Very few clients will be able, or wish, to implement the more sophisticated selection procedures themselves and consultants should use the opportunity of their involvement with this process to make firm, considered proposals even if these conflict with their client’s preconceived ideas. As it is likely that the number and variations of procurement methods will substantially increase in the future, it is even more essential that such advice should be competent and that there may well evolve, to fill the existing vacuum, an independent expert consultant acting as a ‘broker’ providing objective advice [1] at an early feasibility stage in the project’s life avoiding the need to become committed to any design consultant or contractor in advance of deciding which procurement route to follow. Consultant project managers should be well placed to provide this advice although there is no evidence to suggest that sufficient expertise is available within such organizations at the present time or that they are generally perceived by clients as being experts in this area. 183

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It has been established, both in theory and practice, that success is much more likely to be achieved if clients have a consistent, continuing and detailed involvement throughout the life of a project—a view which has been confirmed by the experience of participants in the mega-commercial projects currently reaching completion in the southeast of England. It is therefore probable that as the results of such successful involvement becomes more widely known amongst other client organizations, that they will also wish to participate more fully in any schemes that they commission. As a consequence of this increased participation, experienced clients with their own in-house project-management staff may well take the next logical step and carry out the management of their projects themselves only using consultants for their design and cost-controlling expertise. Current trends also indicate that the use of consultant project managers is increasing and it is suggested that this might well lead clients without the necessary in-house staff to adopt this philosophy using out-house consultants to manage their projects with architects, engineers and quantity surveyors carrying out the design and cost-control functions. If such increased participation does occur, clients will hopefully also improve their input into the briefing document and ensure that it clearly and comprehensively describes their requirements in terms of their primary and secondary objectives and in particular the criteria and priorities for cost, time, functionality and quality. The 1988 Building Britain 2001 report [2] produced by the University of Reading for the National Contractors Group, identified two major areas of construction activity where pressure for change was already building up. The most significant of these was seen to be the completion of the European internal market by 1992 and the resulting increase in the size of the UK’s ‘home’ market providing the opportunity for dramatic growth for contractors, consultants and suppliers. The pressure for all of these members of the UK construction industry to adopt the different structures and practices of our continental European partners will be substantial and may well result in the professions having to work to European standards and in particular the adoption of common European Community procurement methods [3]. However, a report commissioned by Building and Le Moniteur in early 1991 concluded that the European domestic market will only open up very slowly, mainly as a result of the majority of clients not being prepared to employ any contractor who does not have a local presence. It also established that local subsidiaries of large international contractors were popular with clients and that joint venturing was acceptable. The other area where substantial change was forecast is that of information technology, which could provide the basis for fully integrated management

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systems carrying out the complete design and construction of projects under the aegis of one organization. The report warns that: The British building industry must find ways of overcoming the professional and commercial barriers to the full and productive use of information technology. Unless this is achieved, building in Britain will use imported components and the labour force will be employed as sub-contractors to foreign firms.

9.2 INDIVIDUAL PROCUREMENT SYSTEMS What of the future of the individual procurement systems that have been previously described? The fact that no accurate detailed assessment has been able to be made of the past fluctuations in the level of use of the various methods suggests that it will be even more difficult to forecast any future changes. However, although it has not been possible to provide a definitive estimate of the future level of use of the various categories, or individual procurement systems, the following general predictions are made in the hope that they might eventually prove to be reasonably accurate. The conventional system will undoubtedly continue to be used for a substantial percentage of all types of building projects. It has been suggested that in times of recession the level of use will stabilize and might even increase. Perhaps the best that can be said is that the decline in use of this method is likely to become less dramatic than it has been over the past two decades and, under certain circumstances, might even be halted altogether. All of the procurement methods within the co-operative category are variants of the conventional approach and will therefore exhibit similar characteristics, in terms of their future level of use, as their parent system. Design and build is currently forecast to continue to grow, within the foreseeable future, at a comparable rate to the growth that it has achieved over the past 10 years. Its increasing use by inexperienced industrial and commercial clients could, however, produce a future backlash as a result of the inevitable problems that are likely to occur in the following years as a result of its selection for inappropriate projects, poorly drafted employers’ requirements and the activities of inexperienced design and build contractors. The general perception that this procurement method was only suitable for small, uncomplicated aesthetically unimportant projects has now been partially overturned and will probably be totally eradicated within the very near future as it becomes accepted as being appropriate for use on most types of projects. The fate of Management contracting is more difficult to forecast. Much has been reported in the technical press over the past year or so of the difficulties

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that are being experienced on projects that have been implemented by using this procurement system. Many of the critical reports have been refuted by the parties to the contract, although it must be said that the most active defenders of the system have been contractors rather than client organizations. A large proportion of the difficulties, that have undoubtedly been experienced, relate to the contractual and financial relationships between the management contractor and his works contractors, which appear to have deteriorated to a point where many of the latter organizations have stated that they are no longer prepared to become involved in management-type contracts. It has been suggested [4, 5] that this situation stems from the demands of the clients who, contrary to the fundamental principles of pure management contracting, have imposed onerous commercial conditions upon the management contractors who, in their turn, have passed on these impositions to their own works contractors. These present difficulties are likely to lead to a reduction in the use of this system in the immediate future and perhaps more permanently. It is unfortunate that such a probable decrease results from the incorrect selection and use of the method by clients who were attracted to this approach by its much publicized and heralded ability to ensure that projects were managed effectively and did not suffer the delays and cost overruns experienced when using more conventional procurement systems. It is therefore suggested that the use of this system may well, in the shortterm at least, decline quite substantially. Whether or not the level of use will recover in the foreseeable future to anything like its present standing is a matter for conjecture. The use of Construction management on the other hand should, in a buoyant economic environment, increase as a result of the unpopularity of management contracting and the apparent success of this system in meeting the needs of the major client organizations who have so far been the biggest users of this method. In times of economic downturn, however, the use of this procurement system is unlikely to grow and in the short term, following the reduction in the activities of the property developers who have so far been its main customers, may well decline. Despite this temporary setback, the long-term future for this method is forecast as being good with the positive ‘can-do’ attitude of its protagonists being seen as a major attribute for future success. The reader will recall that the actual use of the Design and Manage system appears to be greater than would have been supposed from an examination of the existing evidence and that it also seems to have remained stable over a lengthy period. On the basis of the available evidence it could therefore be predicted that the level of use will probably remain constant relative to the value of overall construction activity. It has, however, been suggested that in the light

SUMMARY

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of the wide range of projects that this system, and its variants, is capable of dealing with, it may well become more popular in the future. Finally the British Property Federation system—the sponsors of this relatively new method have always envisaged a slow and partial acceptance of the system. Such evidence as exists appears to confirm their original forecast and there are no indications that the current level of use is likely to dramatically increase amongst members of the Federation or indeed within the small group of nonmembers who have experimented with the method.

SUMMARY Any forecaster becomes a hostage to the future and no attempt has therefore been made in this chapter to do any more than suggest the possible scenarios for the future development of procurement systems in general and for each individual method in particular. It is almost certain that new variants of the main systems will be produced by clients, or the industry itself, in order to satisfy some future demand or criteria that will undoubtedly stem from the social or business environment in which client organizations operate. These are also signs that entire new systems such as ‘partnership deals’— where a contractor agrees with a client to undertake the construction, or design and construction of a series of projects over a number of years rather than compete for individual contracts—and other methods like ‘develop, design and construct’, ‘design, build, operate and transfer’, etc., are beginning to be used. It must also be appreciated that should the future demands of the client, and the project, be such that none of the currently available procurement systems is suitable, there is no practical reason why a bespoke method of designing and constructing the project should not be formulated, with relative ease. Professionals that advise clients must in future, if the industry is to become more efficient in meeting cost, time and functionality criteria, set out and explain to their employers the risks and obligations of each appropriate procurement system. They must also make sure that clients realize that their needs will change with each project and that these can be affected by changes within their organization’s financial and managerial and, to a lesser extent, the perceived strength and stability of their company. It also needs to be recognized that, more and more, the economic climate prevailing within the construction industry itself, at the time of the selection of the procurement system being used, must also influence the client’s choice. Finally, and perhaps most importantly, client organizations must realize that in the future they will need to become, particularly when using methods within

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the management-orientated procurement-system category, increasingly involved in the management of their projects in order to ensure their performance criteria and project criteria are met.

REFERENCES 1. 2. 3. 4. 5.

Rowlinson, S. and Newcombe, R. (1984) The influence of procurement form on project performance, paper to 4th International Symposium on the Organization and Management of Construction, Waterloo, Canada. Centre for Strategic Studies in Construction (1988) Building Britain 2001, National Contractors Group, London. NEDC Construction Industry Sector Group (1990) Construction to and beyond the year 2000, proceedings of conference 31 January and 1st February, NEDO London. Hayes, R. (1986) Who carries the risk? Management Contracting—yesterday, today and tomorrow, Building Technology and Management, pp. 42–5, June. Ridout, G. (1987) Time to sort out management contracting, Building, p. 20, 6 February.

INDEX

Alternative method of management 111 Ashworth, A. 46, 176

Buildability 68, 87, 90, 100, 102, 106 Building Research Establishment 113, 115

Barnes, M. 33, 39, 90, 91, 92, 123 Bennett, J. 2, 97, 99, 102, 137, 141, 168, 174, 175, 181 Brandon, P.S. 35 British Property Federation system 55, 121–36 adjudicator 128, 131 advantages 135, 136 bills of quantities 129 clients representative 125 concept 125 construction 130–3 cost 126, 127, 134 definition 121, 122 design leader 126, 128 design development 127–9 design responsibility 127 disadvantages 136 form of contract 124, 133 future of 187 genesis 122–4 level of use 18 manual of 12, 122, 123, 133 master cost plan 126 preparation of brief 126, 127 process 124–33 product 133–5 RICS working party on 124, 125, 131 risk 121, 135 sanctioning 128, 129 schedule of activities 130, 131 share of the market 124 speed 134 supervisor 130, 131 tender 129, 130 use of 121

Carter, J. 77 CLASP 46 Clients 137–50, 154–60 categorization 137–9, 140 characteristics 138 criteria for success 142–50 experienced 138, 139, 154–60 inexperienced 138, 139, 152, 158–60 needs 139–50 participation 148, 184 primary 137, 139 private 137, 139 public 137, 139 secondary 137, 139 Construction management 77, 96–107, 118 advantages 105, 117 cost 100, 101, 104, 105 definition 96 disadvantages 106, 118 forms of contract 100 functionality and quality 101, 102 future of 186 genesis 96, 97 product 102–5 process 98–102 responsibilities of construction manager 99–102 selection of construction manager 99 share of the market 97 time 101, 103 works contracts 101 Continuity contracts 44, 45, 50, 51 advantages 45, 50 cost 45

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190

INDEX

criteria for success 44 disadvantages 45, 50, 51 risk 45 time 45 use of 44 Contractual and functional relationships conventional system 25 design and build 59 package deal 70 turnkey 71 develop and construct 72 management contracting 84 construction management 98 design and manage 108 Conventional Method advantages 49 characteristics 24, 39 construction 32–5 cost 35 definition 23, 24 design stage 29–31 disadvantages 49 form of contract 32 future of 185 genesis 24–7 level of use 17 preparation stage 28, 29 product 35–40 process 28–35 quality and functionality 39 share of the market 27, 28 tendering 31, 32 time 37, 38 variants 40, 53 Cost-reimbursable contracts 46–9, 51–3 advantages 48, 51 characteristics 47, 48, 49 cost plus contracts 47 disadvantages 48, 51, 52 Design and Build 55–68 acceptance of tenders 64 advantages 73 cost 67 definition 56 disadvantages 74 employer’s agent 65 employer’s requirements 60 evaluation of submissions 63, 64 forms of contract 62, 63

fragmented 61 functionality and quality 68 future of 185 genesis 56, 57 integrated 61 level of use 17 obtaining tenders 60, 62 product 66, 67 process 59–66 share of the market 57 single point responsibility 64, 67 speed 67 use of 68 variants of 69–73 variations 66 Design and Manage 55, 77, 107–15, 118, 119 advantages 109, 118, 119 common characteristics 107, 112–115 consultant-led 111, 112 contractor-led 108–11 definition 107 disadvantages 109, 118, 119 future of 186 guaranteed maximum price 108, 110 level of use 18 work packages 109, 110 use of 115 Develop and Construct 55, 71–3, 75 advantages 75 design responsibility 73 disadvantages 75 use of 72 Dearle and Henderson 83 ELSIE 176–80 European Community 184 Expert systems 177 Fellows, R. 167 Flanagan, R. 35, 79, 137, 141 Franks, J. 2, 165, 166 Fraser, I. 112, 113 Grice, A. 168, 174, 175, 181 Hayes, R. 186 Heery, G.T. 79 Hewitt R.A. 14, 137, 139, 155 Higgins, G. 9 Hillebrandt, P.M. 14

INDEX

Horizon project 79 Ireland, V. 165 Jessop, N. 9 Johnston, G.L. 136 Jones, G.P. 64, 65

191

advantages 43, 50 cost 43, 44 disadvantages 43, 50 time 43 use 44 Newcombe, R. 137, 148 Olashore, O.B. 103, 104

Langford, D.A. 68, 93, 167 Management contracting 77, 78–95 advantages 117 ascertained and liquidated damages 89 construction period 88–90 construction programme 89 contract administrator 85 cost 88, 89, 93, 94 definition 78 disadvantages 117 evaluation of management contractor 85, 86 form of contract 78, 86, 89, 94, 95 functionality and quality 90, 91 future of 185 genesis 78 level of use 18 payment 88 pre-appointment of management contractor 84 pre-construction period 86–8 process 83–90 product 90–5 risk 89, 90 selection and appointment of management contractor 84, 85, 86 share of the market 80 time 91–3 use of 95 variations 89 works contractors 88, 89 Marriott, O. 26 Marsden, D.E. 165, 166, 167, 169–173 Masterman, J.W.E. 19, 82 Moxley, R. 111 Naoum, S.G. 80, 90, 91, 93 Naphiet, H. 137 Naphiet, J. 139 Negotiated contracts 43, 44, 50

Package deals 55, 69, 70, 74 advantages 74 design 69 disadvantages 74 use 69 Perry, J. 2, 3, 4, 31, 47 Powell, C.G. 24 Procurement systems categorization 2–5 co-operative 3, 40–53 conventional 23–40, 49–53 evolution 7–13 future of 183–8 guides and aids to selection 165–81 guidelines for use 163–5 integrated 3, 55–76 level of use 13–18 management-orientated 3, 77–120 selection 151–82 separated 23–40, 49–53 Project objectives 139–50 cost 139, 141, 149 functionality 139, 141, 149 primary 149, 161 quality 139, 141, 149 secondary 149, 162, 163 time 139, 141, 149 Project strategy 161 Ridout, G. 188 Rowlinson, S. 16, 19, 28, 61, 68, 137, 148 SCOLA 46 Serial contracts 45, 46, 51 advantages 46, 51 characteristics 51 disadvantages 45 performance 46 use 46 Sidwell, A.C. 78, 90, 92, 93, 152 Skitmore, R.M. 165, 166, 169–73

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INDEX

Slough Estates Plc 10 Thompson, P.A. 47 Thomson, N. 113 Turnkey method 55, 70, 71, 74 advantages 74 characteristics 70 use of 71 Two-stage selective tendering 40–2, 50 advantages 42, 50 code of procedure for 40

cost 41, 42 disadvantages 42, 50 time 41, 42 University of Reading 27, 107, 142, 184 Walker, A. 141 Waters, B. 123 Wright, M. 47