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3. Prourement method The following procurement methods are the most well known:

1. Traditional procurement 2. Design and build procurement 3. Private Public Partnership ( ) 4. Concessions

Traditional procurement: In the traditional approach, the client accepts that consultants are appointed for design, cost control, and contract administration, and that the contractor is responsible for carrying out the works according to the contract drawings and specifications. He is also responsible for his own working methods. The Contractor has the responsibility for all workmanhip and material, including work by sub-contractors and suppliers. The Contractor is also responsible for any defects, other than those which are directly related to faulty design or arise from misuse. The Contractor is chosen after competitive tendring on documents giving complete and detail information. With the traditional procurement method, there are the following types of Contract:

Lump sum contract Measurement contract Cost reimbursement contract

Lump sum contracts: The Contract Sum is determined before construction starts and the amount is entered in the Agreement. The Contractor undertakes to carry out a defined amount of work in return for an agreed sum. This can be a fixed amount not subject to recalculation in which case the client does not have the opportunity to make variations after work has started. The sum can be subjected to limited fluctuations in the cost of labour, plant, materials etc. In such a case, the amount is determined by a formula, or by checking vouchers, invoices etc. Lump sum contracts can be:

with quantities without quantities

Lump sum cotracts with quantities are priced on the basis of drawings and bills of quantities. Items which cannot be accurately quantified can be covered by an approximate quantity or a provisional sum. Lump sum contracts without quantities are priced based on the basis of drawings and contract documents. The work to be carried out is described in the Schedule of Work, where the lump sum is the total of the priced items. An itemized breakdown of the lump sum will be a usefull basis for valuing additional work. Where only a lump sum is tendered, then a supporting Schedule of Rates or a Contract Sum Analysis will be needed from the tenderer.

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Example: A Contractor wins the tender to build a house for 100,000 euros. If the house is completed in accordance with the drawings and specifications describd in the contract, then the Contractor will receive the amount of 100,000 euros.

If the Client requires additional work, the Contractor should get payed extra for these works. If the Contractor fails to complete the house, the Contract may have a provision for this and

specify the amount that shall not be payed to the Contractor.

Generally, the Contracts do NOT include clauses for all possible things that may go wrong in a project.

If the Contractor is to be payed before completing the works (during constructon), this shall

be specified in the Contract. Otherwise, the Contractor is payed when all works are completed (entire contract).

BUT, the Employer cannot refuse to pay the Contractor due to some minor defaults or

minor incompletion of works (substantial performance). For these incompletion or default works, the Employer can proceed with claims against the Contractor.

Measurement contracts: Measurement contracts are sometimes referred as remeasurement contracts, schedule of rates contracts, contracts with approximate quantities. According to this type of Contract, the Contractor is responsible to complete the works and get payed according to the unit prices in the contract. This contract includes in the contrct documents a bill of quantities which details all the items needed for the completion of the works. The Contractor enters against each item his unit rate. This is multiplied by the quantity to give the value of the item.

The advantage of measurement contracts is that if during construction works it is necessary to alter the quantities, the value of each item can easily be determined by applying the Contractors rate to the revised quantity.

Mostly used when the Engineer cannot be certain of the final quantities, for example in

case of services (construction works of sewerage network) where unexpected conditions such as obstacles from existing services or soil conditions may arise and therefore the quantities change very often.

Cost reimbursement contracts:

These are sometimes referred to as cost plus contracts. The contractor undertakes to carry out an indeterminate amount of work and he is payed based on the actual cost of labour, plant and materials (honestly and properly) plus an agreed fee to cover overhads and profit. Checking the prime costs which are directly related to the works is relatively straightforward. The variable is the fee, which should be agreed beforehand and establishing precisely what it covers.

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There are three types:

Cost plus percentage fee: The fee charged is directly related to the prime cost. It is a percentage of the prime cost. The contractor has no incentive to work at maxmum efficiency.

Cost plus fixed fee: The fee is a fixed lump sum usually based upon an agreed estimated cost. This is mostly used for works that are largely foreseeable. The contractor has an incentive to work efficiently so as to remain profitable within agreed fee.

Cost reimbursement based on a target cost The Employer and the contractor agree the most likely cost of the contract, the target, together with an associated fee. If the Contractors costs exceed the target, his fee is reduced and vise versa.

Fee

Cost

Target Cost