Developing a construction procurement strategy and … · Darren Talbot (Davis Langdon, an AECOM...

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RICS Professional Guidance, UK

1st edition, guidance note

GN 109 /2013

Developing a construction procurementstrategy and selecting an appropriate route

Developing a construction procurementstrategy and selecting an appropriaterouteRICS guidance note

1st edition, UK (GN 109/2013)

Published by the Royal Institution of Chartered Surveyors (RICS)

Parliament Square

London SW1P 3AD

UK

www.rics.org

No responsibility for loss or damage caused to any person acting or refraining from action as a result of the material included in thispublication can be accepted by the authors or RICS.

Produced by the Quantity Surveying and Construction Professional Group of the Royal Institution of Chartered Surveyors.

ISBN 978 1 78321 021 3

Royal Institution of Chartered Surveyors (RICS) May 2013. Copyright in all or part of this publication rests with RICS. No part of thiswork may be reproduced or used in any form or by any means including graphic, electronic, or mechanical, including photocopying,recording, taping or Web distribution, without the written permission of the Royal Institution of Chartered Surveyors or in line with the rulesof an existing license.

Typeset in Great Britain by Columns Design XML Ltd, Reading, Berks

Printed by Page Bros, Norwich

Contents

RICS guidance notes 11 Introduction 32 General principles (Level 1 – Knowing) 6

2.1 Procurement routes...................................................................................................... 62.1.1 Introduction ..................................................................................................... 62.1.2 General principles............................................................................................ 6

2.2 Traditional (lump sum).................................................................................................. 72.3 Traditional (‘remeasurement’ or ‘measure and value’)................................................. 92.4 Design and build .......................................................................................................... 102.5 Construction management........................................................................................... 132.6 Management contracting ............................................................................................. 152.7 Partnering ..................................................................................................................... 172.8 Public Private Partnerships (PPP)................................................................................ 18

3 Practical application (Level 2 – Doing) 203.1 Introduction .................................................................................................................. 203.2 Identification of primary objectives and parameters ................................................... 203.3 Procurement strategy................................................................................................... 213.4 Selecting a procurement strategy .............................................................................. 22

4 Practical considerations (Level 3 – Doing / Advising) 234.1 Introduction ................................................................................................................. 234.2 Primary objectives ...................................................................................................... 234.3 Project Execution Plan (PEP) ...................................................................................... 244.4 Factors outside the control of the project team.......................................................... 264.5 Client resources ........................................................................................................... 264.6 Project characteristics.................................................................................................. 264.7 Cost issues................................................................................................................... 274.8 Value for money ........................................................................................................... 274.9 Ability to make changes .............................................................................................. 274.10 Project timing ............................................................................................................... 274.11 Construction times....................................................................................................... 284.12 Performance................................................................................................................. 284.13 Accountability............................................................................................................... 29

Appendix: Procurement strategy selection checklist 30

DEVELOPING A CONSTRUCTION PROCUREMENT STRATEGY AND SELECTING AN APPROPRIATE ROUTE | iii

Acknowledgments

RICS would like to thank the following for theircontributions to this guidance note:

Technical author: Roy Morledge (NottinghamTrent University)

Black Book Working group: Chair: AndrewSmith (Laing O’Rourke)

Christopher Green (Capita Symonds Ltd)

David Cohen (Amicus Development Solutions)

Jim Molloy (Department of Health, SocialServices and Public Safety NI)

John G Campbell (BAM Construction Limited)

Kevin Whitehead (McBains Cooper ConsultingLimited)

Michael T O’Connor (Carillion ConstructionLimited)

Michelle Murray (Turner & Townsend PLC

Stuart Earl (Gleeds Cost Management Limited)

Contracts Steering Group:

Chair: Jon Close (BPE Solicitors LLP)

Julie Stagg (Fenwick Elliott LLP)

Peter Barnes (Blue Sky ADR Ltd)

Steven Thompson (Telereal Trillium)

Darren Talbot (Davis Langdon, an AECOMcompany)

iv | DEVELOPING A CONSTRUCTION PROCUREMENT STRATEGY AND SELECTING AN APPROPRIATE ROUTE

RICS guidance notes

This is a guidance note. Where recommendations are made for specific professional tasks, these areintended to represent ‘best practice’, i.e. recommendations which in the opinion of RICS meet a highstandard of professional competence.

Although members are not required to follow the recommendations contained in the note, theyshould take into account the following points.

When an allegation of professional negligence is made against a surveyor, a court or tribunal maytake account of the contents of any relevant guidance notes published by RICS in deciding whetheror not the member had acted with reasonable competence.

In the opinion of RICS, a member conforming to the practices recommended in this note shouldhave at least a partial defence to an allegation of negligence if they have followed those practices.However, members have the responsibility of deciding when it is inappropriate to follow theguidance.

It is for each member to decide on the appropriate procedure to follow in any professional task.However, where members do not comply with the practice recommended in this note, they shoulddo so only for a good reason. In the event of a legal dispute, a court or tribunal may require them toexplain why they decided not to adopt the recommended practice. Also, if members have notfollowed this guidance, and their actions are questioned in an RICS disciplinary case, they will beasked to explain the actions they did take and this may be taken into account by the Panel.

In addition, guidance notes are relevant to professional competence in that each member should beup to date and should have knowledge of guidance notes within a reasonable time of their cominginto effect.

This guidance note is believed to reflect UK case law and legislation applicable at its date ofpublication. It is the member’s responsibility to establish if any changes in case law or legislationafter the publication date have an impact on the guidance or information in this document.

It is the member’s responsibility to be aware of changes in case law and legislation since the date ofpublication.

DEVELOPING A CONSTRUCTION PROCUREMENT STRATEGY AND SELECTING AN APPROPRIATE ROUTE | 1

Document status definedRICS produces a range of professional guidance and standards products. These have been definedin the table below. This document is a guidance note.

Type of document Definition StatusStandardInternational standard An international high level principle based

standard developed in collaboration withother relevant bodies

Mandatory

Practice statementRICS practicestatement

Document that provides members withmandatory requirements under Rule 4 of theRules of Conduct for members

Mandatory

GuidanceRICS code of practice Document approved by RICS, and endorsed

by another professional body / stakeholderthat provides users with recommendationsfor accepted good practice as followed byconscientious practitioners

Mandatory orrecommended goodpractice (will beconfirmed in thedocument itself)

RICS guidance note(GN)

Document that provides users withrecommendations for accepted goodpractice as followed by competent andconscientious practitioners

Recommended goodpractice

RICS information paper(IP)

Practice based information that providesusers with the latest information and/orresearch

Information and/orexplanatory commentary

2 | DEVELOPING A CONSTRUCTION PROCUREMENT STRATEGY AND SELECTING AN APPROPRIATE ROUTE

1 Introduction

1.1 This guidance note discusses constructionprocurement routes and the development of aprocurement strategy and offers an explanationof procurement strategy and routes. Thestrategy will relate to the decisions affecting theselection of the team(s) and how they relate toeach other; the route selected will identify whois responsible for each element of the project.The guidance aims to help the professionalchoose an appropriate route, by setting out thevarious possibilities, with their advantages anddisadvantages, and by indicating the factorsthat should be used in the decision-makingprocess.

In this guidance procurement includes theselection of an appropriate strategy andprocurement route but excludes tendering andcontract selection which are addressed byother RICS publications and guidance.

The first part of this note provides informationon the various routes that can be chosen. Thesecond part deals with the practical applicationof the differing factors to be taken intoconsideration in establishing a procurementstrategy, including identifying the client’sprimary objectives. The third part of the noteconsiders various practical considerations, andimportantly, indicates how to draw up a projectexecution plan. The Appendix compriseschecklists to aid the professional advising aclient on the selection of a route.

Guidance is given under the following headingswhich conform to the Assessment ofProfessional Competence (APC):

+ General principles (Level 1 – Knowing)

+ Practical application (Level 2 – Doing)

+ Practical considerations (Level 3 – Doing/Advising).

1.2 The aim of a procurement strategy is toidentify the best way of achieving theobjectives of the client. Project risks should be

taken into account, as should any constraintsestablished by the client or perhaps hisfunders.

It should be remembered that the constructionproject itself may only be a relatively small partof the entire life cycle of the building or facilityas a whole. The procurement strategy for theconstruction project therefore also needs totake into account where and how theconstruction project sits in relation to that widerpicture. The issue of ‘sustainability’, particularlyin respect of public sector works, is a majorfactor that needs to be considered at thisstage. An appropriate procurement strategy willhelp ensure that the client obtains the rightproject at the right price in the right time.

1.3 The strategy adopted by the client andproject team will affect both the procurementroute selected and the relationships betweenthose engaged in the initiation, design andconstruction of the project. In particular, it mayaffect how these participants are selected, thenature of their role and the extent of theirresponsibility.

1.4 To ensure that the most appropriatestrategy is selected, the chartered surveyorshould first identify the relative importance ofthe client’s primary objectives and the extent ofthe client’s attitude towards associated risk.For example the procurement team will need toidentify what the client’s attitudes and keydrivers are, and state them in a way and in alanguage that is understood by the entireproject team.

Fundamental to the process is understandingwhat the client requires from the project,together with some key information as to howmuch it wishes to spend, what quality it isseeking to achieve, and by what time itrequires the project to be completed. Thisprocess may take some considerable time, butthis is of vital importance given that there is so


much that flows hereafter. It is usual, in manycases, for the procurement team to assist theclient with the formulation of their own ‘brief’for the project.

1.5 Every project will have a business casejustifying it and explaining how it fits with theclient’s business. Various factors, relating to thestrategic fit of the project within the client’sbusiness and financial structure, will underpinthe project. These may include:

+ funding: both the total funds at the client’sdisposal for the project, and the availabilityor readiness of these funds as the projectprogresses, with regard to contractualobligations to make payments

+ time: the required completion date, anyimportant interim milestones when certainstages must be achieved, and any flexibilitybetween the desired completion date andthe absolute last delivery date

+ performance: the required functionalperformance of the final product and anyindications of standards of quality

+ capital versus operational costs: whether abalance is to be struck between capital andrunning costs or whether initial capital costis the primary factor

+ risk: the likely impact to the clientorganisation of risks inherent in the projectprocesses associated with time, cost andfunction; and

+ type of project: the nature of the projectmay influence the procurement strategy.For example, a relatively simple factory uniton a greenfield site will require differentconsiderations to a complicated city-centrerefurbishment of an operational retail facility

1.6 Some of these factors may be in tensiondependent upon the extent of their weighting:greater emphasis on speed or on the certaintyof a completion date may influence project costand may affect design development; emphasison cost certainty or price level may have animpact on speed to completion or designquality; while an emphasis on projectperformance may affect both cost and projectpace.

1.7 This is illustrated in Figure 1. Also shown isthe tendency for emphasis to change duringthe project, from the initial focus onperformance, followed by an emphasis on thecost of the project, to a focus on when theproject will be completed. Once completed, itwill again be the performance of the buildingwhich is most important.

Figure 1: relationship between time, performance and cost


1.8 In addition, public-sector procurementdisplays different characteristics toprocurement in the private sector when valuefor money could be a prime criterion. Thisguidance does not address public procurementwhich is subject to separate RICS guidance.

1.9 Many clients may not be experienced inthe process of construction procurement andmay need both advice and guidance. Theclient’s level of experience and his or her abilityor willingness to engage with the procurementprocess may be another important factor totake into consideration.

1.10 An understanding of the characteristics ofprocurement routes will enable the charteredsurveyor to evaluate which strategies will bemost appropriate for the project and client, bymatching the advantages and disadvantages ofeach and the extent of associated risk. Thevarious procurement routes are discussed indetail in section 2 of this guidance note. In duecourse, there could well be the need for furtherrefinement of the project data in the light of theclient’s strategic changes. Such refinement andreworking of the outputs may undergo anumber of alterations before the client arrivesat a point where the project proposals are at anacceptable level.

1.11 The successful implementation of therecommended strategy may also depend uponthe availability of contract documents to assureeffective adoption. Standard forms of contractare available that can be used with each of thecommonly adopted procurement routes. Theseformalise the responsibilities of the parties forthe design, construction and management ofthe project.


2 General principles (Level 1 – Knowing)

2.1 Procurement routes

2.1.1 Introduction

This section covers the primary informationrequired to satisfy the ‘knowing’ requirementsof the Level 1 competency of the RICSAssessment of Professional Competence(APC).

This section covers the following aspects:

+ the characteristics of the most commonlyadopted UK procurement routes. These areexplained and illustrated. The primaryadvantages, disadvantages and risksassociated with their adoption are provided.

+ the principles associated with collaborativeprocurement arrangements, includingpartnering.

+ particular principles associated with publicprocurement are highlighted.

2.1.2 General principles

It is recommended, firstly, that all the factorsinfluencing a project are identified and theproject requirements analysed. The finalprocurement route for the design andconstruction of the project can then bedeveloped.

Some routes select the design andconstruction teams separately and provide littleopportunity for integration or collaborationduring the design process. Other strategiesenable the design and production processes tobe closely integrated.

It is likely that there will be more than one routethat can be adopted to achieve the aims of theclient and the requirements of the project. It isadvisable carefully to consider each option, aseach will address the various influencingfactors to a different extent.

In the selection of a route, a potential danger isthat only the most obvious course of actionmay be considered – this is not necessarily thebest in the longer term.

Common routes can differ from each other inrelation to:

+ the client’s exposure to financial uncertainty

+ the degree of control that the client hasover the design and construction processes

+ the extent of design information at the timeof tender

+ the information required at the time thatconstruction work can commence

+ the extent of involvement by the contractorand the supply chain in the design stage,when these parties may be able tocontribute to the design and planning of theproject

+ the organisational arrangements thatdistribute risk, responsibility andaccountability; and

+ the sequential character of the process.

Increasingly, experienced clients, or clients withregular demand for construction, are realisingthe importance of building integrated projectteams. These collaborate with and providemutual benefit for the client and the membersof the project team. These may be frameworkarrangements where the establishedrelationship is sustained for a fixed period oftime, or partnering arrangements which arefocused on a series of projects.

Initial consideration must be given to the keyaspects of function, cost, time and associatedrisk.

The cost of the project is usually of paramountimportance to the client, in that often abusiness investment decision is based uponthe balance between the return or benefit to be


achieved against the investment to be made.This is often considered as being two sides ofan equation which must always balance eachother out – with the surplus (as added value)being the difference between the resourceinput (the investment) and the benefits to beobtained. There may be a need to reduceconstruction project costs because of othercost pressures in the overall developmentspend profile.

Project function will relate to the needs andexpectations of the client; function may be ofmore importance than time or even cost wherethe outcome is a long standing building toserve a very specific purpose.

Time is likely to be a very important factor forthe client. The financial benefits of undertakingthe project in the first place will usually bebased upon certain programme constraints.The projected financial outcome will thereforeonly be achieved in full, if the projectcommences the ‘delivery’ of its benefits in linewith a particular timescale.

Risk is inherent in the construction process.The way that risk is to be dealt with is afundamental issue when consideringprocurement strategies and procurementroutes.

The client’s attitudes and drivers may changeover time, as various risks begin to materialise.This is a factor that must be considered in thechoice of a procurement route during the initialstrategy meeting.

Generally, those risks that are external to theproject are less able to be controlled in thetiming or extent of impact upon theconstruction project, while those risks that areinternal to the construction project can be moreeasily managed and can be allocated to theappropriate party in the construction project.

2.2 Traditional (Lump Sum)2.2.1 A commonly adopted UK route,particularly for inexperienced or occasionalconstruction clients, is that known as‘traditional’ It is seen as the ‘least risk’approach, as there is a level of certainty about

design, cost and duration inherent in thestrategy if it is properly implemented. Thesequential nature of the strategy, which isnecessary to assure low risk, does mean that itcan be relatively slow prior to thecommencement of construction.

2.2.2 Under the traditional procurement route,design should normally be completed beforecompetitive tenders are invited and before themain construction contract is let. (To a limitedextent, however, a contractor can have somedesign liability for part of the Works specificallyidentified and usually the subject of aprovisional sum or part of a contractor’s designportion).

Consequently, the client will usually select andappoint the design team prior to the selectionof the contractor. Selection may be on thebasis of experience or fee – usually both.

The contractor is generally selected on bestvalue. Importantly, this does not always meanthe lowest price.

2.2.3 Assuming no changes are introduced,construction costs can be determined withreasonable certainty before construction starts.This may be particularly attractive to clientswith a strictly limited budget or a limit to theirborrowing powers.

2.2.4 The tender documents for the selectionof the contractor should include drawn designsand a specification of workmanship andmaterials which the contractor should use inthe preparation of a price. In many cases, theclient will arrange to appoint a quantitysurveyor to measure the quantity of work to bedone in order to satisfy the demands of thedesign.

2.2.5 In such cases, it is usual for eachcontractor to submit a price based upon thesame work extent. The client is responsible forthe accuracy of these quantities, prepared inthe form of a bill of quantities (although theclient can, via the contract, transfer thisresponsibility to the contractor).

2.2.6 The contractor assumes responsibilityand financial risk for the construction of thebuilding works to the design produced by the


client’s architect, for the contract sum agreed,and within the contract period. The client takesthe responsibility and risk for the design andfor the performance of the design team.

2.2.7 In this route, clients are usually able toinfluence the development of the design tomeet their requirements, because they havedirect contractual relationships with the designteam. When construction begins, they generallyhave a single contractual relationship with amain contractor, but are usually only able toinfluence (and not to control) the constructionprocess through their architect (or projectmanager), acting as their agent for thispurpose.

2.2.8 The route may fail to some degree if anyattempt is made to appoint a contractor for thework before the design is complete. Suchaction could result in many post-contractchanges, which may delay the progress of theworks and increase the costs.

However, it is possible to have an acceleratedtraditional procurement route, where somedesign overlaps construction. This can beachieved by letting a separate, advance workscontract; for example, by allowing groundworks (site clearance, piling and foundations) toproceed to construction once planningpermission has been obtained and while thedesign for the rest of the building is completed,and by tendering the above-groundconstruction separately. This should reduce thetotal time to complete the project, but at therisk of losing certainty of cost beforeconstruction starts. More importantly, asubstantial risk is created in that the contractorwho builds the superstructure has noresponsibility for the foundation works carriedout by another contractor.

2.2.9 Another alternative is to let the work in atwo-stage process, allowing the contractor tobe selected before the design is complete. Thisreduces the pre-construction time involved.

Ordinarily, in adopting this approach, the priceis based upon the predicted cost of knownmajor works elements, with the detailnegotiated later, this can be done in

competition or by negotiation with a chosencontractor. A two-stage process also generallyenables the chosen contractor to be consultedas the design develops. In this case, thecertainty of end-cost is lost in the search for afaster start, but the other risks are usually stillcontained.

2.2.10 The main advantages of a traditionalprocurement route are:

+ competitive fairness, as all tenderingcontractors are bidding on the same basis

+ the fact of being design-led, with the clientable to have direct influence, thusfacilitating a high level of performance andbespoke quality in the design

+ reasonable price certainty at contractaward, based upon market forces (subjectalways to design changes or client-ledchanges, which will have cost implications)

+ where public expenditure or audit demandsare rigid, a satisfactory strategy in terms ofpublic accountability, as it is transparentand based upon competition

+ well-known procedures, ensuringconfidence in those involved throughout thesupply chain; and

+ changes are reasonably easy to arrangeand value where the design needs vary dueto changes in client demands or technology(though this ease can prove a disadvantageas price certainty may be less secure).

2.2.11 The main disadvantages are that:

+ if an effort is made to speed up theprocess by producing tender documentsfrom an incomplete design, this can resultin less cost and time certainty and can bethe cause of expensive disputes

+ the overall project duration may be longerthan for other strategies as the strategy issequential and construction cannot becommenced prior to the completion ofdesign (with no parallel working possible)

+ there is no input into the design or planningof the project by the contractor and supplychain, who will not be appointed at thedesign stage


+ the strategy is based upon pricecompetition, which can result in adversarialrelationships developing

+ for certain types of project (for example, ina city-centre refurbishment of anoperational retail facility), where it is difficultaccurately to define the full scope of theproject, the strategy is likely to result in theclient paying a high-risk premium; and

+ the designers and contractor have littleincentive to advise the client on factors thatmay benefit the operational costs of thecompleted facility.

The organisational structure of a traditionalstrategy is shown in Figure 2.

2.3 Traditional(‘remeasurement’ or ‘measureand value’)2.3.1 Except for civil engineering projects,where there is a level of uncertainty in terms ofthe ground conditions, this procurement routeis only occasionally used. It can be consideredas a variant to the ‘traditional’ route for buildingwork.

2.3.2 With a measurement contract, thecontract sum is only established with certaintyon completion of construction, whenremeasurement of the quantities of workactually carried out takes place. It is thenvalued on an agreed basis. Measurementcontracts are sometimes referred to as‘remeasurement’ or ‘measure and value’contracts and are based upon the principle thatthe work carried out is measured and valued atprices for each type of work tendered by thecontractor.

2.3.3 The contract is not a lump sumarrangement, in that there is no contract sum.Instead, the bill of quantities effectivelyconstitutes a schedule of rates for each unit oritem.

2.3.4 The most effective use of a measurementcontract is where the work has beensubstantially designed, but final detail has notbeen completed. Here, as with civil engineeringprojects, a tender based on drawings and a billof approximate quantities is mostly satisfactory.

Figure 2: Procurement strategy: traditional


2.3.5 Measurement contracts allow a client toshorten the overall programme for design,tendering and construction, but usually with theresult of some lack of early price certainty, asthe approximate quantities reflect the absenceof information on exactly what is to be built atthe tender stage. The scope of the work, theapproximate price and a programme should beclear at the contract stage. Measurementcontracts provide more risk for the client thanlump sum contracts, but can generally havesome programme advantages.

2.3.6 The organisational structure of ameasurement contract strategy is identical tothe traditional lump sum approach, except thatit is not a lump sum contract.

2.3.7 The main advantages of themeasurement route include the following:

+ potential for time savings at the pre-construction stage, with the later aspects ofthe design still on-going as the worksprogress on site

+ competitive prices, as the work is tenderedon standard approximate quantities orschedule of rates, which are used to valuethe completed work on site

+ some public accountability, where this isrequired due to the competitive selectionprocess

+ the fact that the procedures are wellknown, particularly in civil engineeringprojects

+ changes may be made easily, as the laterstages of the design continue to progress

+ some parallel working is possible, as thecontractor is selected before the designand project planning processes arecompleted; and

+ for certain types of project, this strategymay prevent the client paying a premiumfor risk, as contractors may price for‘unknowns’ (for example, a refurbishmentwhere there is a risk of asbestos beingencountered).

2.3.8 The main disadvantages of the route arethat:

+ the route offers poor certainty of price, asthe cost to the client will not be accuratelyknown until the works are complete. Costcertainty will depend upon the level ofassurance in the approximate quantitiesused in the tendering process or thesufficiency of the schedule of rates

+ there is no contractor or supply-chaininvolvement in the early planning or designstage, when the most expensive decisions,or those likely to have an impact on time,are made

+ there is a potential for adversarialrelationships to develop, as with allstrategies that are price-dependent. Thismay be more likely with this route, unless awillingness to negotiate is evidenced byboth the contractor and the design team orclient; and

+ any established project programme couldbe affected while the works are not fullydesigned.

2.4 Design and build2.4.1 Under a ‘design and build’ route, a singlecontractor assumes the risk and responsibilityfor designing and building the project, usuallyin return for a fixed-price lump sum. Becausethis approach includes the integration ofdesign, construction can start before all thedetailed design is completed and the overallproject duration is thus reduced.

2.4.2 There are a range of approaches that canbe referred to as ‘design and build’:

+ Sometimes the contractor will be left tointerpret the requirements of the client andprovide a building as a completed package.In extreme cases, the contractor may beresponsible for obtaining planningpermission and even for project funding.


+ Frequently, the client will employ a designteam to carry out some preliminary designwork and prepare the project brief andother tender documents, including‘Employer’s Requirements’ (a term used insome standard contracts to describe thebasis for the contractor’s submission),outlining the key objectives for the projectand significant criteria for a successfuloutcome.

+ A variant, known as ‘develop andconstruct’, describes a strategy where theclient appoints designers to prepare theconcept design before the contractorassumes responsibility for completing thedetailed design and constructing the works.In this case, the contractor develops thedesign from the detailed brief orspecification, submitting detailed proposalsto the client to establish that they are inaccordance with the requirements of thespecification. Clients are, therefore, in astrong position to ensure that theirinterpretation of the specification takespreference over the contractor’s.

+ Sometimes, the successful contractor willassume responsibility for this design teamand use the preliminary information toproduce the detailed design. In manycases, the contractor agrees in the tendersubmission to ‘novate’ (effectively,contractually, to switch) the contract theclient has with his or her designers to thecontractor. The basis of the appointment ofthe design team should reflect thispossibility of novation. Some designersresist this practice.

2.4.3 It has now been clearly established thata design and build contractor may have a legalduty to provide the employer with a buildingthat is fit for its purpose. This is a significantlyhigher duty than that assumed by an architectunder a traditional route, where the requirementis simply one of due skill and care. Design andbuild contracts may exclude this fitness-for-purpose obligation. In these cases, thecontractor may undertake merely to design tothe same standard ‘as would an architect if theemployer had engaged one direct’. Some

clients are now, however, insisting on fitness forpurpose in their design and build contracts,stating that where there is a discrepancybetween the employer’s requirements and thecontractor’s proposals, the statement ofemployer’s requirements will prevail. To beeffective, however, the statement of employer’srequirements must be clear, complete andunambiguous.

Most clients will need guidance in writing sucha document from an experienced practitioner.

2.4.4 The imposition on contractors of fitnessfor purpose in design is a matter of judgmentfor clients and their professional advisers, eventhough some tenderers in recessionary marketsare likely to agree to undertake such risks. Therequirement for insurance to cover a higherthan normal risk should be weighed against thefinancial ability of contractors to meet designdefault claims. It will usually be preferable, andrepresent better value for money, to impose alesser, yet insurable, liability, which will be thesubject of an insurance payout in the event ofa design fault, rather than a fitness-for-purposerequirement on a contractor of limited financialassets. In addition, if some companies will notaccept fitness-for-purpose provisions, theadoption of these may rule out contractorswhose bids might in other respects be optimalfor the client.

2.4.5 Design and build provides a range ofoptions, from a ‘package deal’, where the clienthas little involvement in the designdevelopment or procurement process(effectively, a complete hands-off approach), toa ‘develop and construct’ route, where theclient appoints designers to draw up his or herbrief to a level of sophistication, leaving thedesign and build contractor to develop detailedor specialist design elements. Standard formsof design and build contract are available.

2.4.6 The main advantages of a design andbuild route are as follows:

+ The client has only to deal with one firm,giving single point responsibility, andsignificantly reducing the need to commitresources and time to contracting withdesigners and contractors separately.


+ Client risk is reduced due to the singlepoint responsibility

+ The strategy enables an integratedconstructor contribution to the design andproject planning.

+ Price certainty is generally obtained beforeconstruction starts, provided the client’srequirements are adequately specified andchanges are not introduced.

+ The total project time of a design andconstruction route may be reduced,because of overlapping activities.

2.4.7 The disadvantages are as follows:

+ Difficulties can be experienced by clients inpreparing an adequate and sufficientlycomprehensive brief or set of employer’srequirements, or in defining what theyrequire.

+ The client is required to commit to aconcept design at an early stage; oftenbefore the detailed designs are completed.

+ Bids are difficult to compare: each designwill be different, and prices and the projectprogramme will vary between design.

+ There is no design evaluation, unlessseparate consultants are appointed by theclient for this purpose.

+ Client changes to the scope of the projectcan be expensive.

+ Design liability is limited by the standardcontracts available.

+ Quality may be compromised as the clientrelinquishes control to the design and buildcontractor.

+ This route may result in a project havingless aesthetic appeal where price andspace dictate how the available budget willbe spent.

The project organisation structure for designand build is shown in Figure 3.

Figure 3: Procurement strategy: design and build


2.5 Construction management2.5.1 Under a construction management route,the client does not allocate risk andresponsibility to a single main contractor.Instead, the client employs the design team,with a construction manager engaged as a fee-earning professional to manage, programmeand co-ordinate the design and constructionactivities and to facilitate collaboration.

2.5.2 Construction work is carried out by tradecontractors, often specialists, through directcontracts with the client for distinct trade orwork packages. Each trade contractor will beappointed when their contribution is required.The arrangement enables the design processto overlap with the construction process tosome extent; this route is therefore usuallyadopted where the primary objective for theclient is relative speed to completion.

However, this is a strategy with little costcertainty for the client at the outset, becausethe costs of the trade contracts will often beunknown until that work is let.

2.5.3 In ‘pure’ construction management, theconstruction manager supervises theconstruction process and co-ordinates theinput of the trade contractors and the output ofthe design team. The manager thus providesprofessional construction expertise withoutassuming financial risk. In practice, however, itmay be to the client’s benefit to have theconstruction manager supply some of theorganisational items (preliminaries), such asgeneral safety scaffolding, producing a fixedcost for these and for the constructionmanager’s own staff. Similarly, in some cases,it may be beneficial for a significant proportionof the trade contracts to be let before theproject commences, to increase the level ofcost certainty.

2.5.4 On appointment, the constructionmanager will usually take over any preliminaryscheduling and costing information alreadyprepared and draw up a detailed programme ofpre-construction activities. Key dates whenclient decisions are required are commonlyestablished, to ensure time for decision-makingand the avoidance of consequential delay.

2.5.5 In adopting a construction managementroute, the client will generally be closelyinvolved in each stage of design andconstruction. The client should haveadministrative or project management staff withthe time and ability to assess therecommendations of the construction managerand take the necessary action. It is advisablefor the client to maintain a strong presence,through staff who are technically andcommercially astute, in addition to possessingthe necessary administrative capability (forexample, to pay the trade contractors). Thisroute is not, therefore, usually suitable for theinexpert or inexperienced client.

2.5.6 With this route, design and constructioncan overlap. As this speeds up the overallproject programme, construction managementis known as a ‘fast track’ route. However,although the time for completion may bereduced, price certainty is not achieved untildesign and construction have advanced to theextent that all of the construction (trade)packages have been let. Moreover, designdevelopment of later packages can affect theconstruction work already completed. Theconstruction manager should, therefore, beable to rely on the services of an experiencedquantity surveyor to prepare approximateestimates and a cost plan.

2.5.7 A package is made up of work for whichone of the trade contractors is responsible: forexample, foundations, concrete, electricalinstallation or decorating. These packages aretendered individually, for a lump sum price,generally on the basis of drawings andspecification.

2.5.8 Construction management is most oftenadopted for large or complex projects, butthere is no intrinsic reason for this. It hasparticular benefits for projects where there is ahigh degree of design innovation, where theclient wants ‘hands on’ involvement, or wheredesign flexibility is needed throughout theproject process. As the client bears much ofthe construction risk with this route, it isprudent for the client to have adequate riskmanagement capability.


2.5.9 The main advantages of a constructionmanagement route are as follows:

+ There is a relative time-saving potential forthe overall project time, due to theoverlapping of design and constructionprocedures.

+ Trade contractors and the constructionmanager are able to contribute to thedesign and to project planning.

+ Roles, risks and relationships for allparticipants are clear.

+ Changes in design can be accommodatedlater than with some other routes, providedthat the relevant trade packages have notbeen let and that earlier awarded packagesare not too adversely affected.

+ The client has direct contracts with tradecontractors and pays them directly. (Thereis some evidence that this results in lowerprices, because of improved cash flowcertainty.)

2.5.10 The disadvantages are that:

+ Price or time certainty is not achieved untilthe last trade packages have been let.Budgeting depends heavily upon designteam estimates, and duration upon thesequence needed to construct the buildingas designed.

+ An informed, pro-active client is required tooperate such a strategy.

+ The client must provide a good-quality briefto the design team. The design will not becomplete until the client has committedsignificant resources to the project.

+ The route relies upon the client selecting askilful and committed team.

+ close time and information control isrequired.

+ the route relies on a proficient andcommitted construction manager or it maybecome no more than a ‘post box’ system,in certain circumstances.

+ The design team must be controlled andkept on programme for delivery of designwhen it is required. This is to ensure thatthe work packages procurement are notdelayed nor the works on site.

The organisational structure of a constructionmanagement route is shown in Figure 4.

Figure 4: Organisational structure of construction management route


2.6 Management contracting2.6.1 With this route, a managementcontractor is engaged by the client to managethe whole of the building process. Thecontractor is paid a fee on top of theconstruction costs for doing so. The fee isbased on the estimated costs of the works asestablished by the quantity surveyor – usuallyadopting a cost plan as the basis forbudgeting. Management contracting waspopular in the 1980s and 1990s, but thispopularity has diminished since then.

2.6.2 Construction works are carried out byfirms employed by the management contractor,referred to as ‘works contractors’. Unlikeconstruction management, the managementcontractor has direct contractual links with allthe works contractors and is responsible for allthe construction works. There is no contractuallink between the employer and the workscontractors.

2.6.3 The management contractor may providesome of the common services on site, such asoffice accommodation, tower cranes, hoistsand security, which are shared by the workscontractors; however, in ‘pure’ managementcontracting, such works are let as a self-contained work package.

2.6.4 The client employs the design team and,therefore, bears the risk of that team delayingconstruction for reasons other than negligence,such as the late receipt of design information.

2.6.5 Management contracting is a ‘fast track’route. The design work will not be entirelycomplete before the first works contractorsstart work, although the design necessary forthose packages must be finished. As design iscompleted, subsequent packages of work aretendered and let. Cost certainty is thus notachieved until all works contractors have beenappointed. A high level of cost management istherefore required, with reliance on the servicesof an experienced quantity surveyor to prepareapproximate estimates and a cost plan.

2.6.6 In this route, with the agreement of theclient and the design team, the managementcontractor identifies preferred bidders forsections of the project and selects them by

competitive tender. The client reimburses thecost of these work packages to themanagement contractor, who, in turn, pays theworks contractors. The management contractorco-ordinates the release of information from thedesign team to the works contractors.

2.6.7 It is prudent, with this route, for the clientto have adequate risk management capability.

2.6.8 The main advantages of a managementcontracting route are as follows:

+ There are programme benefits for theoverall project, due to the overlapping ofthe design and construction processes.

+ The route enables the managementcontractor and works contractors tocontribute to the design and projectplanning.

+ Changes can be accommodated, providedthat the packages affected have not beenlet and that there is little or no impact onthose already let.

+ Works packages are let competitively atprices that are current at the time the workis let.

2.6.9 The disadvantages are that:

+ the client must provide a good-quality briefto the design team; the design will not becomplete until the client has committedsignificant resources to the project

+ poor certainty of price is offered at an earlystage and the potential cost commitmentdepends upon design team estimates

+ the route relies on a good-quality andcommitted management contractor, or itmay become no more than a ‘post box’system in certain circumstances

+ the route reduces resistance to workscontractors’ claims where such demandsare passed on to the client by themanagement contractor

+ design must be closely managed to ensurethat package procurement is kept onprogramme.

+ unless the contract is correctly completed,especially where a proprietary managementcontract is used (such as the JointContracts Tribunal (JCT) form in the UK),


the absence of the completed inter-relatedforms of appointment in a managementcontract will leave the employer open toclaim, or the contractor at risk, wheredesign liability has not been resolvedthrough to design subcontractors

+ there may be gaps in works contractorpackages that would normally be picked upby a traditional contractor

+ the design team must be controlled andkept on programme for the delivery ofdesign information when it is required toensure package procurement proceeds onprogramme.

The organisational structure of a managementcontract is shown in Figure 5.

Figure 5: Organisational structure of a management contract


2.7 PartneringPartnering is a concept that can be applied tomany procurement routes. Partnering is a co-operative relationship between businesspartners formed in order to improveperformance in the delivery of projects. It isnot, in itself, a procurement route.

Partnering is best considered as a set ofcollaborative processes which emphasise theimportance of common goals and raise suchquestions as how such goals are agreed upon,at what level are they specified and how arethey articulated.

Partnering is applied either in project situationknown as project partnering or in a long-termrelationship known as strategic partnering.

There are two views in the constructionindustry regarding the role of the contractbetween the client and the contractor in thepartnering process.

The first view is that partnering is all about co-operation, dispute avoidance and self-improvement and that, as such, a successfulproject partnering agreement can beimplemented independently of the contract,even when the contract contains clauses thatare not in alignment with the co-operativeprinciples of partnering.

The second (and alternative) view supports theuse of the project contract to reinforce theelements of a partnering arrangement. This canbe in the form of a traditional standard formcontract amended to enforce a partneringagreement or in the form of partnering-typestandard contract.

Partnering is normally operated in one of thefollowing ways:

+ a traditional construction contract with aseparate partnering charter; or

+ a two-party contract aligned to partnering.Under this method, the constructioncontract chosen reflects the principles ofthe intended collaborative relationshipbetween the parties. This remains a two-party approach and relies on contractconditions covering the partnering aspects.

The crucial difference to the first approachis that the parties are contractually boundto working co-operatively; or

+ a multi-party partnering contract. A majordifficulty in the acceptance of such a multi-party contract is the perceived complexlegal situation in regard to theresponsibilities and liabilities in a multi-party situation.

In the partnering approach, negotiation ratherthan competitive tendering is the key.

The risks that both parties face as a result ofthe project in question are made transparent atthe commencement of the project, and thepartners to the partnering approach sharethose risks on the basis of which party canbest bear those risks and/or insure againstthose risks.

The essence of any partnering agreement nowinvolves a duty of good faith, mutual co-operation and trust between all parties involvedin the construction process.

Some of the advantages of the ‘partnering’approach are as follows:

+ a reduction in the number of disputes

+ the benefit of early supply chaininvolvement

+ it is based on an open book and a win/winculture

+ there is integration of the design processwith the construction process

+ the main benefits are generated fromstrategic partnering (multiple projects)rather than a single project.

Some of the disadvantages to be consideredare as follows:

+ the partnering process can be abused byone of the parties

+ the partnering process requires more clientresource to compensate for the lesscompetitive environment, and the processcan collapse when one party becomesdisadvantaged

+ to be most effective, partnering needs to bepractised and learnt over a series of


projects and typically requires an earlycommitment in terms of managementresources and direct costs

+ there are the direct costs of workshops, oftraining staff and of the more intensive earlyinvolvement of management in establishingthe partnering approach.

2.8 Public Private Partnerships(PPP)2.8.1 Public Private Partnerships arearrangements where a project or service isprovided by the private sector in partnershipwith the public sector. There are many sucharrangements; the most common in theconstruction sector is known as PrivateFinance Initiative (PFI).

2.8.2 A PFI project involves a long-termcontractual arrangement (usually of 25-30years) between public- and private-sectorparties through a concession agreement.

2.8.3 The private sector agrees to finance andbuild and operate an infrastructure project suchas a hospital, school, road or prison. Thisincludes long-term life-cycle investment androutine maintenance services, sometimestogether with ‘soft services’ such as cateringand cleaning. The public, or public sector, willuse the project without needing to engage withits operation.

2.8.4 A PFI project is usually achieved throughthe creation of a company specifically createdfor that purpose, known as a Special PurposeVehicle (SPV). In return, the SPV either collectstoll money (such as for the Severn Crossings orthe Dartford bridge and tunnel) or receives apayment stream over the life of the concessionfrom the public sector, perhaps as an annual orunitary payment. This will be subject to thedelivery of the services to the specification setout in the concession agreement – there is nopayment for poor delivery or performance.

2.8.5 PFI is possibly the largest infrastructuresector in the UK. Some 600 projects, with acapital value of over £60billion, have beensigned. This includes almost 100 hospitalschemes, over 100 education projects,

covering more than 800 schools, 43 transportprojects and over 300 other operationalprojects in sectors such as defence, leisure,culture, housing and waste.

2.8.6 The private-sector participants in theSPV will include:

+ construction contractors and serviceproviders

+ facilities managers

+ insurance companies

+ banks and bond investors

+ equity investors, including pension fundsand insurance companies; and

+ professional advisors.

2.8.7 Among the public-sector participants willbe government departments (for example, theDepartments of Health, Transport and Defence,and the Home Office) and local authorities (forservices such as schools, street lighting, socialhousing, waste and local roads maintenance).

2.8.8 The advantages of this route include thefollowing:

+ The infrastructure project can be obtainedwithout placing a capital burden on thepublic purse.

+ There is a transfer of risk to the privatesector.

+ There is engagement with the skills andefficiencies of the private sector andperhaps, therefore, better value for money.

2.8.9 The disadvantages include the following:

+ It may be considered to be a relativelyexpensive approach when compared withother routes.

+ The costs of preparing bids can beexceptionally high.

+ The government (in effect, the taxpayer) iscommitted to making payments for the lifeof the concession (typically 25-30 years),unless the income flow is entirelydependent on cash tolls.

2.8.10 Typical arrangements are shown inFigures 6 and 7.


Figure 6: Example of PFI scheme – non-toll based

Figure 7: Example of PFI scheme – toll based


3 Practical application (Level 2 – Doing)

3.1 Introduction3.1.1 This section provides guidance to theprofessional, so that he or she may put intopractice the general principles to satisfy the‘doing‘ requirements of the Level 2 APCcompetency.

3.2 Identification of primaryobjectives and parameters3.2.1 Decisions taken at the early stage ofproject development will usually drive all futurechoices and strategy. This is a vital butcomplex stage. It occurs at a time when bothclient and consultants wish to progress quickly,but when the pace of co-ordination of theissues and ideas is dictated by the ability topredict, foresee and design.

3.2.2 Often, the client will be best advised toappoint a chartered surveyor to co-ordinate theclient function from this stage, or to overviewthe whole process, where the project isparticularly complex.

3.2.3 The application of value managementtechniques can have particular merit. Valuepropositions, such as what is to be achievedand why identified at the early stage in aproject can form a good basis for the strategicbrief for the design.

3.2.4 While some fast-track procurementsolutions deliver speed of completion, othercriteria, such as cost certainty andperformance, may be less achievable withinthese solutions. Similarly, where cost certaintyor performance are considered to be of highestpriority, other criteria may be affected.

Consequently, a structured approach to theprioritisation of the project’s parameters isrecommended.

3.2.5 One approach that can significantlyassist the prioritisation of the client’s objectivesis to discuss with the client at the outset therelative importance of each of the primaryobjectives of the project.

It is likely that the impact on the clientorganisation of failing to achieve each keyobjective, as identified by the business case,will be influential in establishing priorities.

3.2.6 Figure 6 illustrates this approach. Itshows how the first decision (on thedistribution of the importance of time, cost andperformance) can be extended to establishother key objectives and to provide an outputon which procurement strategy can be based.Many projects do not achieve client satisfactionbecause of insufficient consideration of thesefactors at the outset.

3.2.7 The outcomes that must be achieved inorder to satisfy each client will vary with thebusiness ‘mission’ and the primary objectivesfor the project. For example, owner-occupiersmay want a facility that is functional,aesthetically pleasing and relatively inexpensiveto run and maintain; developers, on the otherhand, may aspire to speed and simplicity, whileinvestors in property may look for buildingswith a long functional, physical and economicallife, which retain their marketability. Mostclients will also want low initial cost, but only ifa valuable output is achieved.

Given this variability of criteria, it is prudent toundertake the process described above toensure that individual client needs are satisfied.


3.3 Procurement strategy3.3.1 The procurement strategy identifies thebest way of achieving the completion of aconstruction project – often taking into accountthe best value for money over the entire lifecycle of the building or facility.

3.3.2 The aim of a good procurement strategyis to achieve the optimum balance of risk,control and funding for a project. The choice ofa particular procurement strategy largelydepends on a client’s required balance of cost,quality and time risks.

3.3.3 It should be remembered that theconstruction project itself may only be arelatively small part of the entire life cycle ofthe building or facility as a whole. Theprocurement strategy for the constructionproject therefore also needs to take intoaccount where and how the constructionproject sits in relation to that wider picture. Theissue of ‘sustainability’, particularly in respectof public sector works, is a major factor thatneeds to be considered at this stage.

3.3.4 To establish the procurement strategy,the procurement team needs to establish whatthe client’s attitudes and key drivers are, andneeds to state them in a way and in a languagethat is understood by the entire project team.

3.3.5 Fundamental to the process isunderstanding what the client requires from theproject, together with some key information asto how much it wishes to spend, what quality itis seeking to achieve, and by what time itrequires the project to be completed.

3.3.6 This process may take someconsiderable time, but this is of vitalimportance given that there is so much thatflows hereafter. It is usual, in many cases, forthe procurement team to assist the client withthe formulation of their own ‘brief’ for theproject.

3.3.7 Initially, it may well be that the clientdoes not know much about the constructionproject, which is of course perfectlyunderstandable especially if the client is an end

user of the facility, but it will know the output oroutcome that it requires at the end of theprocess. This output or outcome requirementneeds to be expressed in such a way that theconstruction team can understand the client’sneeds and desires.

3.3.8 It may be useful for the procurementteam to check their understanding of theclient’s requirements by ‘playing back’ whatthey believe the client is trying to achieve. Aspart of this exercise, the team may offer theclient a selection of ‘high level’ constructionproject outputs, for example:

+ a building at a stated cost;

+ a building of a certain size, shape,appearance and performance; and

+ a building constructed to a definedtimescale.

Such statements would need to be suitablyqualified to cover any assumptions made sothat the client is aware of the parameters uponwhich the guidance was being provided.

The appointment of certain consultants toassist with this process at procurement stagemay be necessary and the client should bemade aware of the financial implications (if any)of such appointments.

There is likely to be a period of reflection bythe client on the data presented to see if theparameters of the project align with thestrategic objectives for the client or for itsorganisation.

In due course, there could well be the need forfurther refinement of the project data in thelight of the client’s strategic changes. Suchrefinement and reworking of the outputs mayundergo a number of alterations before theclient arrives at a point where the projectproposals are at an acceptable level.

Eventually, the client’s attitudes and drivers canbe established through the above process, andit is these attitudes and drivers that are behindthe choice of a particular procurement strategyand procurement route.


3.4 Selecting a procurementstrategy3.4.1 The procurement strategy should bedeveloped from an objective assessment of theclient’s needs and the project characteristics.Key to the appropriate selection of a strategy isthe identification of the primary objectives ofthe client, the apportionment of risk, and thedecision as to who is responsible for design.

The assessment, based upon the businesscase for the project, should identify the relativeimportance of key elements, such asperformance, price and time, as judged againstthe risk of under-performance, enabling asuitable balance to be achieved.

A best-fit solution should be looked for; it isadvisable to ensure a client makes an informeddecision, based on sound advice, giving dueregard to the identified criteria and theacceptable distribution of risk.

3.4.2 The selection process usually has twocomponents:

1 Analysis: identification of the relativeimportance of the client’s primaryobjectives and the extent of the client’sattitude towards associated risk. (TheAppendix provides a set of checklists thatmay be used to enable the objectives andpriorities of the client to be ascertained insome detail.)

2 Choice: the consideration of possibleprocurement options, the evaluation ofthese, the identification of those strategiesthat are inappropriate, and the selection ofthe route that provides best fit with theanalysis.

3.3.3 It is recommended that any selectedroute is reviewed again at key times during theprogress of the project, such as when planningapproval is given or before the constructioncontract or contracts are let. This is to takeaccount of the possibility of design failing tomaintain the pace anticipated, or forcircumstances where the programme isotherwise affected by unexpected occurrences.Alternative procurement routes may becomemore suitable if circumstances change.

3.3.4 The client may wish to decide whethercollaborative strategies can be adopted,including whether the constructors anddesigners may agree to a partnering approachwith the client. This is more likely to beadopted where the client is undertaking aseries of projects, through which theperformance of the contributors can be plottedby measures such as key performanceindicators. This approach is seen as particularlybeneficial where mutual objectives can beagreed and a largely ‘open book’ approachtaken to payment, including the disbursementof incentives, where appropriate.

3.3.5 There are other strategies that enablecollaboration and involvement by constructors;these are referred to in the descriptions of eachprocurement route in section 2. The choice ofsuch strategies will depend upon the nature ofthe business case and the client’s prioritisedobjectives.


4 Practical considerations (Level 3 – Doing /Advising)

4.1 Introduction4.1.1 This section identifies the more commonpitfalls or complexities that can arise frompractice that may influence the advice given orthe selection of a chosen route. This wouldsatisfy the ‘advising’ requirements of the level 3APC competency.

4.2 Primary objectives4.2.1 It is a reasonable precept that the greaterthe concentration on defining the project andlinking the prioritisation of objectives to thebusiness case, the greater the likelihood of theclient’s objectives being achieved. It isrecommended that the relative importance ofthe key objectives are discussed with the clientorganisation, which can then highlight therelationship between the initial business caseand the project priorities. This may then form asound basis for the brief and the preparation ofa project execution plan and should ideallyinvolve a range of stakeholders, includingfuture users.

4.2.2 Usually, when the business case isdeveloped, the most important criterion isidentified as that which, if not realised, is thegreatest risk to corporate strategy.

For example, where building use is mostimportant, performance in design will be vital;where the building is being constructed toenable a particular market to be served, timemay be critical; and in cases where the clienthas a precise or limited budget, cost controlwill be most important. In most cases, however,more than one criterion is likely to result fromthe business case. Owner-occupier clients may

emphasise function and price certainty,developers may look for low cost and speed,while investor clients may require quality ofdesign and speed.

Any risk which serves to increase the costs andthereby reduce the ‘added value’ over the lifeof the construction project, or which has aneffect upon the performance of the project, orwhich can delay the delivery of theconstruction project to the target timescale, willadversely impact upon the client’s successfuloutcome of the construction project.

The risks may appear in any number ofdifferent ways, many of which are outside thedirect control of the client.

Such risks can occur at any point in the life ofthe project and the earlier those possible risksare recognised and taken into considerationand allowed for within the chosen procurementstrategy and procurement route, the lessdisruptive those risks will be if they actuallyoccur.

The source of the risks might include some orall of the following:

Political or economic change (globally,nationally or locally)

A change in government and/or a change inthe economic climate prevailing at the timemay result in a different landscape upon whichproject decisions are to be made.

Legislative change-National or localgovernment changes in policy or law.

This is of particular relevance in industrieswhere the client’s affairs are highly regulatedand where such changes would have a


fundamental impact on the manner in whichthe client’s business is conducted.

Environmental influences

Over the course of recent years, the trend hasbeen to place a greater emphasis onenvironmental issues, thereby forcing firms totake account of such pressure in the conductof their business and in the products orservices offered.

Social or technological change

A change in the social environment or sometechnological advancement may result in theclient needing to amend his/her thinking behindthe entire justification for the project.

Competitive influences

Most companies within each industry orbusiness sector do not operate in a vacuumand are therefore always seeking to react tomoves by competitors. On many occasions thiswill involve the need to quickly respond with achange in the product offered to the market.

Risks inherent in the construction process

There are certain features of constructionprojects that create particular challenges andrisks for clients, contractors andsubcontractors. In addition, there are manyvariables that can be impossible to predictaccurately in advance, yet have can haveenormous impact on the ultimate cost andduration of the project.

Many risks may therefore need to be taken intoaccount in considering the appropriateprocurement strategy.

Risks can be accepted by the client, can betransferred to another party by the client, orcan be reduced or mitigated; but risks cannotand should not be ignored.

Ideally risks should be held by the party bestable to deal with that risk, and this is a factorthat should be taken into account whenconsidering the appropriate procurementstrategy.

Risks that are transferred from the client to thecontractor normally have attached to them acost and/or programme impact, and this is in

effect a risk ‘premium’, being a premium that(when recognised by the client) the client mayrather not face.

Categories of risks could include some or all ofthe following:

+ strategic risks, such as failure to obtainplanning permission, or client fundingproblems;

+ external risks, such as changes in theenvironment;

+ project risks, such as overspends or delaysto the programme; or

+ discovery risks, such as poor groundconditions or the like.

Generally, those risks that are external to theproject are less able to be controlled in thetiming or extent of impact upon theconstruction project, whilst those risks that areinternal to the construction project can be moreeasily managed and can be allocated to theappropriate party in the construction project.

A chosen procurement route should be madewith a clear awareness of the likelihood ofoccurrence and severity of the impact of risks.If a procurement route is chosen in this way,the project should be less severely impacted ifthe risk event in question actually occurs.

4.2.3 As the project proceeds, emphasis maytemporarily change, as factors such asprogress, design aspects and cost receiveparticular attention. Upon completion, however,the client will usually be mainly concerned withwhether the primary objectives established atthe outset have been achieved. For someclients it can be easy to lose sight of the initialobjectives as the project itself becomes adistraction.

4.3 Project Execution Plan(PEP)4.3.1 The PEP has an important function in theapplication of a procurement route. It aims toensure that the client’s objectives, as identifiedin the strategic brief, are carried through toreality. It is therefore a primary tool, which can


be used to ensure that the project is completedto the satisfaction of the users, on time, withinbudget and to the required quality standards.The PEP is usually prepared by the projectmanager, if appointed, but is intended for theuse of all members of the project team. Tosome extent, the detail of a PEP will bedependent upon the chosen procurementroute, and the format of the plan may well bedictated by the client or by the constraints ofspecific projects. The form and detail of theplan may also change as the project evolves.The key objective at all times should be toensure that the plan both documents what hasgone before, in terms of decisions that havebeen taken, and looks ahead to set aframework for future action.

4.3.2 The following is a generic list of thetopics that any PEP might include:

+ Overview: a short summary defining theobjectives and the scope of the project infunctional terms. This should specify theproblem that the project is intended toaddress, the project goals and how theproject fits into the client’s business plans.

+ Specific objectives: identification of theparticular functional objectives to beachieved. These should include time, costand quality constraints, as well as anoutline description of the kind ofaccommodation required and the functionalstandards to be achieved. The plan shouldalso define any constraints arising from theneed for transparency and accountability,and should specify how much flexibilitythere is in respect of the time and costconstraints.

+ The proposed procurement route: thechoice of an appropriate procurement routeis perhaps the most important decision inthe entire process. The plan shoulddocument not only what procurement routehas been chosen, but also provide theunderlying rationale, and the methodswhich are planned for the selection of thedesign and construction teams.

+ Project control mechanisms: this section ofthe plan should provide details of theplanned administrative, contractual and

financial mechanisms through which theproject will be controlled. In short, it shoulddefine how the project will be managed. Itis prudent for this section to specify thingssuch as:

– reporting structures, together with anykey dates for committee meetings, andso on

– procedures to accommodate on-goingproject reviews and changes

– any particular client requirements orrestrictions (for example, on the use ofsubcontractors); and

– value, quality and health and safetymanagement procedures.

+ Project time schedule: this should define allaspects of the project timescale, includingcritical dates and milestone events. Theproject schedule will plainly evolve as theproject proceeds, and should eventuallycomprise both outline long-term anddetailed short-term programmes. Theproposed time-scales should, of course,meet the client’s delivery requirements, butit is also important that they are realistic.Imposing unrealistic time constraints simplyincreases the risk to the client of failure tomeet key targets.

+ Project budget: project budgets shouldusually include not only capital constructioncosts, but also on-going and recurrentexpenditure during the project life-cycle.The budget will probably becomeprogressively more detailed as the projectproceeds. A PEP should include details offunding sources and document cost-monitoring and review procedures.

+ Personnel and lines of responsibility: thePEP documents who is responsible towhom, and for what. A PEP should definethe limits of authority and responsibility forall of the key players in the process.

+ It is particularly advisable to specify theprocedures for project completion and thehanding over of the completed facility tothe client. It is recommended that the PEPspecifies who will be responsible for taking


possession of the building and its futuremanagement, what documentation will berequired and what training needs to beprovided.

+ Evaluation methods: the PEP shoulddocument the criteria against which thecompleted project will be measured, andnote how the measurement will be carriedout. It is prudent for these issues to beconsidered at an early stage, in order thatthe project team know how the finaloutcome is likely to be evaluated. Projectevaluation may be impossible unless theevaluation criteria are fixed, but clients’objectives frequently change betweenproject initiation and project handover. Ifmajor changes are likely to occur, forexample, as the result of rapidly changingtechnology, then the PEP should makeprovision for these.

+ Potential problems: it is prudent to identifypotential areas of risk that mightcompromise the successful completion ofthe project, together with a note ofappropriate risk-management strategies.

4.4 Factors outside the controlof the project team4.4.1 Consideration should be given to thepotential impact of economic, commercial,technological, social, political and legal factorsthat may influence the client and the projectteam during the lifetime of the project. Thesemay include:

+ changes to the cost and availability offinance

+ developments in existing technology or newtechnological advances

+ increases in the level of inflation, affectingthe products or trades used in the works

+ changes in the local or national demand forconstruction, affecting tender price levels;

+ reduced ability of specialist trades/labourresources at local or national level due toconstruction projects undergoing at thesame time which can affect ability to meetprogramme requirements and

+ changes to legislation, affecting the designof the works or the methods of achievingthat design.

4.4.2 If simple risk analysis is adopted, ajudgment can be made as to whether riskallowances should be budgeted for in thescheme, in order to cope with likelyoccurrences of this nature. Where changes totechniques or technology are anticipated, alevel of flexibility of design may be required.

4.5 Client resources4.5.1 It is prudent to use the client’sknowledge, the experience of the clientcompany’s organisation, and informationregarding the environment in which it operates,in determining an appropriate procurementstrategy. It is advisable to ascertain the extentto which the client is prepared or able to take afull and active role. Whether involved closely ornot, the appointment of a client sponsor,project manager or representative, withauthority to make or confirm decisions onbehalf of the client, is recommended, to avoiddelays in decision-making or confusion as toauthority.

4.5.2 It is advisable for clients to ensure thatthey arrange project funding in a way thatreflects both their contractual commitments topay and their corporate business financialstructure. Land, legal, consultant and statutoryfees, along with payments for constructionwork, may be required at different times; thefunds will need to be in place and available atthe appropriate times.

4.6 Project characteristics4.6.1 In deciding upon a procurement strategy,the size, complexity and location of the projectshould be carefully considered, with particularattention given to projects with novel elements.If a proposed new building is especially large orcomplex, there may be a greater risk of cost ortime overrun, or, a refurbishment of an olderproperty may run the risk of encountering anunknown amount of asbestos. With any


‘novelty’ factor, estimates of time, cost andperformance may be subject to greater error,with an increased risk of one or more of theproject’s objectives failing.

4.7 Cost issues4.7.1 Estimates of the cost of future buildingsmade at an early stage are notoriouslyinaccurate, but are usually necessary fordecision purposes. It is recommended that theclient is made aware of the level of likelyaccuracy (or uncertainty) of any estimates andunderstands the need for risk allowance.

4.7.2 Where there is the need for pricecertainty, this can influence both project timingand the procurement strategy to be used.Generally, if price certainty is required, designshould be complete before constructioncommences. However, as design can taketime, this may cause delay, except, in general,where design and build strategies are adopted.

4.7.3 Inflation may also affect total cost wherethere is a level of variance; increased priceclauses exist that can compensate thecontractor for such a variance.

4.7.4 Changes to design during the course ofconstruction should be avoided if cost certaintyis to be maintained. Changes, whether initiatedby the client or the design team, often havecost and time implications on the project wellin excess of the change itself. It is thereforeadvisable for the client to fix a date after whichno significant changes should be introduced, orto select a strategy that enables such changesand accepts the consequences (see 4.9).

4.8 Value for money4.8.1 Clients will be keen to achieve goodvalue for money, but few outside the mostexperienced group are likely truly to understandhow this might be achieved or measured.Securing maximum value for money from aconstruction project often requires afundamental re-evaluation of the client’sunderlying value system through the adoption

of value management techniques. This isfrequently a difficult and time-consuming task,which many clients find very challenging, but isnonetheless advisable if the project is to beultimately successful in terms of achieving‘value for money’.

4.8.2 It is common for inexperienced clients toask for the highest quality at the lowest price,to be completed in the shortest time. Theclient’s project manager may have to devoteconsiderable time and effort to arrive at aworkable compromise that meets the client’sreal objectives.

4.9 Ability to make changes4.9.1 It is preferable to identify the full needsof a project during the early stages; however,this is not always possible. In addition, rapidlychanging technology often results in latechanges.

4.9.2 Changes in the scope of a project veryoften entail increased costs, especially if theyarise during construction. Changes introducedafter the design is well advanced or afterconstruction has commenced often have adisproportionate effect on the project, in termsof cost, delay and disruption, compared withthe nature of the change itself. In general, thedesign process will go through a progressiveseries of ‘freezes’ as it develops, but the clientor project team should set a final design‘freeze’ date, after which no significant changesto requirements or design are allowed.

4.9.3 Some procurement routes are better thanothers at handling the introduction of changeslater in the project and reducing the possibilityof having to pay some form of specificpremium. A collaborative approach where costis subject to a target can offer benefits in thisarea.

4.10 Project timing4.10.1 Most projects are needed within a timeframe or by a specific date. This will influencewhether subsequent activity can occur as


planned and in many cases may severely affectthose factors identified as critical or highpriority in the business case.

4.10.2 Setting unachievable programmes willresult in over-runs. The UK constructionindustry may have a reputation for deliveringprojects ‘late’. This can be the result of over-optimism, or a lack of reliable data. Realismmay frustrate an impatient client, butunexpected lateness may have more severeconsequences such as where expected datesto open new facilities are delayed.

4.10.3 The programme of the project can beinfluenced by many factors; a particularly largeor complex project is likely to require more timefor design, specification and construction thana simple small building. It is highly advisable toallow for adequate design time in terms of thetotal project, particularly if design is required tobe complete before construction commences(where, perhaps, cost certainty is required).

4.10.4 Design can be a complex and lengthyprocess, and it is not uncommon for this stageto take as long as the completion of the workitself. Design approval time-cycles should be aconsideration in this process.

4.10.5 When appointing a design team,assurances should be obtained about resourcelevels and the ability of the team to meet keydates or to complete programmes. It is notusual to impose contractual dates upondesigners, although their progress is probablythe key to the overall completion date.

4.10.6 Certain factors may influence theplanned or desired time for design, dependingon when they occur. For example, decisions toprogress with a project may be influenced bythe gaining of planning approval, by thesuccessful operation of a compulsory purchaseorder, by land purchase or by some other non-specific but critical factor (such as obtainingfunding approval).

4.10.7 As outlined above some procurementroutes (such as design and build, constructionmanagement and management contracting)enable an overlap between the design andconstruction stages, with construction able to

start earlier than in sequential routes. Thisoffers the potential for earlier completion. Itmay be prudent to review the plannedprocurement strategy in the light of designprogress at key milestones in the project, suchas obtaining planning permission.

4.10.8 Time has both a cost and a value. If thevalue of a completed project to the client on aweek-by-week basis is identifiable, the value ofrelatively early completion can be assessed.This may form an important factor in thedecision-making process and is often referredto as the ‘time/cost trade-off’. For relativelyearly completion, this may encompass earlyincome flow from a commercial market, andshould enable reduced interest and insurancecharges to be realised. Relatively latecompletion is likely to attract greater interestand insurance charges (among others) andpotential loss of opportunity. The developmentof calculations that identify these sums can bea useful management tool.

4.11 Construction times4.11.1 Total construction time is generallyreliant upon design. More complex structureswill almost certainly take longer both to designand to construct, and may require moreresources. Some general guidance onconstruction times is available through theRICS Building Cost Information Service (BCIS).In most cases, design and other activities arenot included in these times.

4.12 Performance4.12.1 The required performance of theproject, measured in terms of both its responseto the needs of the client (as expressed in thebusiness case), and the quality of individualelements, should be clearly identified. Ifperformance is over-specified, a premium willusually be paid for exceeding actualrequirements, thereby affecting the costobjective.


Over-specification may also lead to timeoverruns. Conversely, failure to recognise thetrue performance objective may lead to anunsatisfactory product.

A post project review will evaluate whether theclient’s initial objectives have been met andshould capture learning for future projects.

4.13 Accountability4.13.1 Another aspect to be considered at anearly stage is the level of accountabilitynecessary to meet the requirements of theclient organisation. For example, to whom willthe client have to justify expenditure? Mustevery penny be accounted for (as in a publiclyfunded project) or are the requirements lessstringent?

4.13.2 Often, both public- and private-sectorprocurement strategies will be affected byprescribed processes or financialconsiderations. European tendering regulation,Official Journal of the European Union (OJEU)and NHS procedures such as Procure 21 aretypical examples.


Appendix: Procurement strategy selectionchecklist

This checklist aims to establish information about client needs and the project underconsideration. This information can be further developed, taking into account thecharacteristics of various procurement strategies and their associated risk. Time, cost anddesign are key criteria in the selection mechanism, as is the inherent risk of a strategy andthe apportionment of this.

Checklist 1: Time

1. The following should be considered:

1.1 Is completion needed by a specific date?Yes h No h

1.2 Is completion needed in the shortest possible time?Yes h No h

1.3 Is the client prepared to pay more for earlier completion?Yes h No h

2. Does the answer to question 1.1 suggest a faster than ‘normal’ total project time in thejudgment of the client’s advisers?

Yes h No h

3. How long is it in months from the date of completion of this protocol until the desired‘move in’ date?

4. Define the reason for the identified completion or ‘move in’ date:

4.1 End of lease h

4.2 Sale of premises h

4.3 New business opportunities h

4.4 Unsuitability of present premises h

4.5 Company restructuring h

4.6 Business milestone h

4.7 Other (specify) h


5. Consider the following:

5.1 Is the need for completion by a specific date or within a specific time frame more importantthan certainty of construction cost before work starts?Yes h No h

5.2 Is the need for completion by a specific date or within a specific time frame more importantthan spending an extended time on design?Yes h No h

6. What is the approximate value, in sterling, to the client of the building or facility in termsof contribution, rental or cost savings per month?

£

7. If the building is completed later than the specified or desired date, will the client:

7.1 Stay in his or her existing premises? h

7.2 Find temporary accommodation? h

7.3 Close down? h

7.4 Adopt some other course? h

Notes:

Specified completion time:

Reason for completion time:

Is required completion time relatively fast?

Is time is seen as the predominant client need?

What is the potential financial implication of earlier or later completion?

What action may the client may take if the dates are not achieved?


Checklist 2: Design

1. Does the client have clear ideas about the building’s functionality and the desired design?

Yes h No h

2. Does the client have a view about specific building life requirement?

Yes h No h

3. Does the site (if selected) pose any particular problems for the designer in respect of:

3.1 Shape or topography h

3.2 Access h

3.3 Storage space h

4. Does the building type suggest relative design complexity?

Yes h No h

5. Does the building type suggest emphasis upon functionality or adaptability?

Yes h No h

6. Does the building type suggest highly complex mechanical, electrical or engineeringinstallations?

Yes h No h

7. Is it anticipated that extensive changes to design may be required during the constructionphase?

Yes h No h

8. Does the client wish to emphasise low running costs?

Yes h No h

9. Does the client wish to emphasise low maintenance costs?

Yes h No h


10. If the client wishes to emphasise product quality, at a higher potential cost:

10.1 Does the client have clear ideas about his or her needs?Yes h No h

10.2 Does the site pose complex design problems?Yes h No h

10.3 Is the building design complex?Yes h No h

10.4 Is functionality particularly important?Yes h No h

10.5 Does the client have a long-term view about the building?Yes h No h


Checklist 3: Cost

1. What is the client’s maximum budget?

£

2. Can the budget be allocated as below:

2.1 Land purchase and feesYes h No h

2.2 Construction, including feesYes h No h

2.3 Fittings and plantYes h No h

2.4 ContingenciesYes h No h

2.5 Other (specify)

3. Will the client need to have a fixed contract price for the construction element of thebudget or will a reasonably accurate budget be adequate?

Yes h No h

4. What is the client’s willingness to pay more to achieve a quicker completion date or toobtain higher quality?

Notes:

Total maximum spending capacity:

Total construction spending capacity:

Need for pre-construction cost certainty:


Analysis

The responses to the checklists should enable the chartered surveyor to establish the following keyfactors. These will affect the choice of procurement route:

+ whether the project is feasible in terms of time and viable in terms of cost

+ if the project is required to be completed by a specified date, whether this is vital to the project’ssuccess in terms of client needs, or whether slippage can be accommodated if cost isconsidered

+ if relative speed is required, whether the client can accept less cost certainty and potentiallyincreased costs

+ whether the project is complex in terms of design or site-related problems; and

+ whether the need to ensure that the project can be built within a budget is a priority.


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RICS Professional Guidance, UK

1st edition, guidance note

GN 109 /2013

Developing a construction procurementstrategy and selecting an appropriate route

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