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Construction Planning & Management Construction Project Procurement process and Construction Project Delivery Methods Dr. Attaullah Shah. Definition It is the process required to supply equipment , material , service and other resources needed to carry out a project that satisfy customer.

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Construction Planning & Management

Construction Project Procurement process and

Construction Project Delivery Methods

Dr. Attaullah Shah

procurement process


It is the process required to supply equipment , material , service and other resources needed to carry out a project that satisfy customer

Procurement Process
procurement management

Procurement is acquisition of goods and services.

Project Procurement Management includes the contract management and change control processes required to administer contracts or purchase orders issued by authorized project team members.

Procurement Management
procurement of items

Procurement means the activities related to purchase, subcontracted items

  • Procurement items are usually classified as goods, work or services (GWS)
    • Goods represent raw material or produced items
    • Work means contracted labor
    • Service means consultation
  • Planning, budgeting, scheduling and follow-up control of all fall under procurement management
  • Logistics plan includes everything related to the transport and storage of materials for the projects. GWS items cannot be scheduled to arrive just-in-time (JIT). Provision must be made to store and protect them until they are needed.
Procurement of Items
procurement management1

Procurement management refers to planning and control of the following

    • Equipment , material or components designed and provided by vendors specifically for the project
    • It may be a portion of a work package or entire work package
    • It may be off-the-shelf (OTS) equipment and components
    • bulk material, like cement, metal piping etc.
    • Consumables items; nails, bolts, lubricants
    • Support equipment for construction, cranes, lifts etc
    • Administrative equipment, computers, project office facilities
Procurement Management

Plan Purchases and Acquisitions. Determining what to purchase or acquire and determining when and how.

    • Purchase of equipment
    • Procurement of works
    • Procurement of supplies etc
  • Plan Contracting – documenting products, services, and results requirements and identifying potential sellers.
    • Developing the requisite documents
    • Specification
    • No and make etc.
  • Procurement Cycle

Request Seller Responses.

    • obtaining information, quotations, bids, offers ,or proposals, as appropriate.
    • Inviting bids
    • Inviting quotations
    • Request for Proposals ( RPFs)
    • Expression of Interest ( EOI) etc.
  • Select Sellers.
    • Reviewing offers, choosing among potential sellers, and negotiating a written contract with each seller.
    • Tender/bids opening
    • Evaluation and Assessment of bids
    • Negotiation if required and allowed
    • Selection of the seller/contractor

Contract Administration –

    • Managing the contract and relationship between the buyer and seller.
    • Reviewing and documenting how a seller is performing or has performed to establish required corrective actions
    • Provide a basis for future relationships with the seller,
    • Managing contract-related changes and, when appropriate,
    • Managing the contractual relationship with the outside buyer.
    • Contract Agreement
  • Contract Closure –
    • completing and settling each contract, including the resolution of any open items,
    • Closing each contract applicable to the project or a project phase.
procurement planning

Procurement planning involves identifying which project needs can be best met by using products or services outside the organization. It includes deciding

    • whether to procure
    • how to procure
    • what to procure
    • how much to procure
    • when to procure
Procurement Planning
procurement planning1

Make-or-Buy Analysis

  • Make-or-buy analysis: determining whether a particular product or service should be made or performed inside the organization or purchased from someone else. Often involves financial analysis
Procurement Planning
make or buy example

Assume you can lease an item you need for a project for $150/day. To purchase the item, the investment cost is $1,000, and the daily cost would be another $50/day.

How long will it take for the lease cost to be the same as the purchase cost?

If you need the item for 12 days, should you lease it or purchase it?

Make-or Buy Example
make or buy solution

Set up an equation so the “make” is equal to the “buy”

  • In this example, use the following equation. Let d be the number of days to use the item.

$150d = $1,000 + $50d

  • Solve for d as follows:
    • Subtract $50d from the right side of the equation to get

$100d = $1,000

    • Divide both sides of the equation by $100

d = 10 days

  • The lease cost is the same as the purchase cost at 10 days
  • If you need the item for 12 days, it would be more economical to purchase it
Make-or Buy Solution
procurement planning2

Expert Judgment

  • Expert purchasing judgment can also be used to develop or modify the criteria that will be used to evaluate offers or proposals made by sellers.
  • both internal and external, can provide valuable inputs in procurement decisions
  • Contract Types
  • Different types of contracts are more or less appropriate for Different types of purchases.
    • Fixed-price or lump-sum contracts.
    • Cost-reimbursable contracts.( cost Plus)
    • Time and Material (T&M) contracts.
Procurement Planning
introduction 1

An owner`s primary goal in choosing a delivery method is to ensure that;

  • It will meet project objectives, at the same time,
  • Allow the project to be delivered on time and within budget.

In a risk-free, predictable world, -- this is simple task

But, world is full of

    • unpredictable forces,
    • Undesirable outcomes.
  • So, owner must monitor the process to prevent unpleasant outcomes along the way.
Introduction -1
introduction 2

Construction projects have many unique characteristics.

  • Creating a large facility takes a long time,
  • It involves a large capital investment,
  • Cost overruns, delays and other problems,
  • Process of building is complicated, why?
    • Component numbers by many suppliers
  • Even if an owner builds repeatedly, the nature of product and parties involved in building depends on
    • Time, Site conditions
    • User needs, Economic health
introduction 3

When compared with other industry professionals, Designers and constructors have less opportunity to transfer lessons learned from project to project.

All of these factors combine to create uniqueness, which carries with it heightened risk.

A building not delivered on time usually costs more than planned, and late delivery can have cascading effects throughout an owner`s organization.

Example: need a facility for chip manufacturer.

introduction 4

Owner`s pitfalls:

Late delivery of facility,

Miss the market,

A competitor enter to market.

How avoid these pitfalls? Set up a team of people;

whose skill match the type of project

Who have a proven record of delivering such projects.

Before team set up, owner decide how members will interact, with owner organization, and each other.

This approach is called project delivery method.

managing project risks 1

Lessons from History;Owner choose a delivery method after studying history. Why projects failed?

Separated functions .. Communication of designer and constructor. In a design change contractor may wait,.

Scope creep .. Scope may be product quantity and character of work, If scope of work increases, the cost also increase. Factors of scope growth. Complexity, politic, critical user left out, miscommunication between users.

Project acceleration .. Buyer prefer quick delivery

Poor working relationships .. Less time, personal wok style, contract forms

Managing project risks-1
separated functions

Two primary professionals` (designer and constructor) communication is key to project success.

Projects tend to be;




Actions of one can have a major impact on the concerns of the other.

Example: A design change after construction has started can adversely affect construction sequencing. So increasing cost due to lost efficiency.

Separated Functions
scope creep

Scope of work on a project : It can be defined as product of;

the quantity of the work, and

the character of work.

Example: 1000 square meter rock excavation defines excavating subcontractor.

Scope of work is primary determinant of costs on a project. If scope increases costs also increase.

Factors on scope increase:

Involving complex and highly political organisations,

Tight timelines

Leaving out of a critical user


Scope Creep
project acceleration

Buyer prefer quick delivery.


Lowers some costs,

Put it into service sooner,

Cut interest costs

Psychological impact

Enthusiasm exist

Risks of going too fast;

a) No consideration of all elements of design

Incomplete documents

b) Construction may be stopped,

Project acceleration
poor working relationships

Unique character of construction.. there is not enough time to work out all the relationships necessary to perform difficult interconnected work.

Personal work styles

Contract forms can work against teamwork

Communication among project participants formally

We can mitigate these pitfalls through organization of team, contract choice, partnering sessions, and delivery methods.

Poor working relationships
assessing project risks

Selecting a delivery method and a contract type involves sequential decision making.

General risks

Project specific risks

Owner organization risk

Assessing Project risks
general risks 1

General risks occur on a project can be classified into four major areas.

Financial .. Project may cost more

Time .. Project may not complete within planned time

Design .. Project may not perform the function

Quality .. Project may have poor quality materials or workmanship

General risks (1)
general risks 2

A project team will address these risks during project development. Risks are approached differently in preconstruction and construction phase.

Preconstruction: it is known as design phase (working out functional, aesthetic, material requirements of the job)

In this phase project team balance DESIGN/COST equation.

Risks occurs when realistic assessments of costs are not part of design process.

Construction: emphasis shifts from DESIGN/COST tradeoffs to executing a project within the constraints defined by contract documents, schedule, and budget.

Risks involve time and external unknowns. Some are community disapproval, labor actions, weather, site, etc.

General risks (2)
project specific risks

In addition to general industry risks, there are specific risks that all owners and designers must take into account during their work.

Site risks .. Neighbours, regulatory environment, geological characteristics, underground conditions, economic region.

Project itself .. Uniqueness, complexity, new technology.

Project-specific risks
owner organization

In addition to technical concerns, there are organizational and financial risks.

Knowledge of building process,

Financial changes

Tightening the schedule

Owner organization
minimizing risk

Once general and specific project risks assessed, owner must build a good project team to minimize the risks.

  • Choosing the right delivery method: Before choosing project team members, owner must choose delivery method. Dilemma here: one of price versus performance
  • Choosing a contract type: goal is to purchase actual construction service for lowest price possible without creating undue risk for owner.
  • Monitoring the entire process: owner must devise mechanisms to ensure that budget is monitored, schedule maintained and quality ensured.
Minimizing risk
delivery methods

The term delivery method refers to the owner`s approach to organizing the project team.

Design/Bid/Build (D/B/B) TraditionalMethod


Construction management method

Combination of these strategies may be employed as well.

Delivery methods
traditional method

Design/Bid/Build (D/B/B) is often considered the traditional project delivery method.

  • All design work is completed
  • Bid process completed
  • Construction Starts.

When this delivery method is selected?

  • When cost is primary important
  • Schedule is secondary important, and
  • scope is well defined.

three-party arrangement: owner, designer, and contractor.

Traditional method
traditional method1

The owner signs one contract with the designer for design services and signs an other contract with the contractor for construction services. Both the designer and contractor work for the owner.

The contractor does not work for the designer; however the owner usually designates the designer as their representative during construction.

The designer is usually paid based on a prearranged fee or on a percentage of the construction contract.

Traditional method
traditional method2


The contractor is paid based on a lump-sum amount.

Designer is paid based on pre-arranged fee, or

on a percentage of construction contract.

In D/B/B -- the responsibility, risk, and involvement of all parties are well defined.

The owner has relatively high level of involvement and control during design, but low involvement during construction.

Biggest disadvantage--: the extended time that may be required for completion the design and bidding the project before starting actual construction. Changes after award can be costly to owner.

Traditional method
traditional method3


Biggest disadvantage--: the extended time that may be required for completion the design and bidding the project before starting actual construction. Changes after award can be costly to owner.

Traditional method
design build method

D/B project delivery method is often chosen to compress the time to complete the project. The completion time usually is reduced because construction can start before all the design is completed.

The owner has considerable control and level of involvement throughout the project. This provides flexibility to the owner for revision of the design during construction.

When Selected?

when the schedule is preliminary,

the cost is secondary, and

the scope is not well defined.

Two-party arrangement: owner and D/B company.

Design/build method
design build method1

A contract is signed between the owner and D/B firm to perform both design and construction services. All design, including construction drawings, are done y the D/B contractor. All construction is done by the D/B contractor, although the D/B contractor may hire one or many subcontractor.

Design/build method
design build method2

This arrangement can reduce the conflicts between the designer and contractor that often occur in the D/B/B delivery method.

How D/B firm is selected?

  • By a qualifications-based selection (QBS) procedure.
  • By price

Owner solicits proposals from a pre-qualified, safety record, schedule, cost performance on past jobs, and other factors from each prospective D/B firm. Thus, selection is based on qualification rather than price.

Design/build method
design build method3

The cost of the D/B services is usually based on some type of cost-reimbursable arrangement,

either cost plus a fixed amount

or cost plus a percentage.

By price: For project that have a reasonably defined scope, the D/B firm is sometimes selected based on price.

For incentives--: The contract may be based on a guarantied maximum amount.

Handling inspection is an issue that must be addressed early in the project, because the designer is also the builder.

Design/build method
design build method4

If qualified individuals are available in the owner’s organization, the owner may perform inspection. In some situations, an independent third party is used for inspection services.

Design/build method
construction management method

There are many variations of the construction management method of project delivery.

1. Agency CM (pure CM): CM is a firm outside the owner’s organization that acts as the agent for the owner. The agency CM firm performs no design or construction but assists the owner in selecting one or more design firms and one or more construction contractors to built the project. The agency CM firm assumes no risks because are contracts are signed between the owner and the designers and/or contractors. Generally agency CM work for a fee.

Construction management method
construction management method1

Corporate CM: is similar to agency CM, except the CM services are provided by the personnel inside the owner's organization.

Design and construction is performed by third party organisations. CM manages and coordinates the overall effort.

Construction management method
construction management method2

3 CM @ Risk: The CM will actually perform some of the project work, thereby exposing themselves to risks associated with quality, cost, and schedule.

  • There are two sub variations in CM @ Risk,
    • Contractor CM: Primarily construction firm that become involved in CM,
    • DesignerCM: Primarily design firms that become involved in CM.
  • The CM @ Risk firm may work on 3 basis;
    • A lump sum,
    • Cost reimbursable,
    • Guaranteed maximum price.
Construction management method
construction management method3

Regardless of the variation of CM methods that is used for project delivery, CM is a single-source management of the project that allows the owner to control his or her level of involvement. To be successful the CM must be involved at the beginning of the project.

The CM must carefully monitor multiple construction contracts to ensure there are no gaps or overlaps in work.

Tracking the cost of multiple construction contracts also requires careful attention.

Construction management method
bridging project delivery method

Bridging is a hybrid method of project delivery for building type projects. The contracts document are prepared by the owner’s designer. These documents define;

  • functional use and,
  • appearance requirement of the project.

Performance specifications are used to specify the construction technology.

The details of construction are developed by the construction contractor.

Final design, consisting of the construction drawings, is done by an engineering/construction constructor.

Constructor performs final design and provides construction services using subcontractors.

fast track projects

Fast-track is the term commonly used for project that must be completed in the earliest possible time.

Construction work overlaps design. As soon as a portion of the design is completed, then construction work is started.

Fast-track project can be performed under the D/B and CM methods of project delivery. Fast-truck applies to project that are schedule driven -- if the owner requests.

For example: the owner may want to complete a process plant at the earliest possible date

Why? --- in order to produce and market a product before a competitor. Or a business may want to complete a building by a specific date

Why? -- to accommodate a special event.

Fast-Track Projects
turn key projects

Turn-key is the term commonly used for projects that are designed, built, and put into operation before the project is turned over to the owner.

The company providing the turn-key services may

  • Secure the land for the project,
  • Perform or coordinate all aspects of the design,
  • Arrange and administer construction contract,
  • Manage construction,
  • Staff and train the personal to operate the facility,
  • Turn project over to the owner.

Turn key project typically are manufacturing or process plant type facilities in remote locations.

Turn-key Projects
key decisions for project delivery

The following issues can have a significant impact on the success of any project and should be considered in selecting the project delivery method.

1. Number of contracts

one contract--------------many contracts

2. Selection criteria


3. Relationship of owner to contractor


4. Terms of payment


key decisions for project delivery1

1. Number of Contracts:

One contract ||| Many Contracts

The number of contracts can vary from one to many, depending on the chosen method of project delivery. For D/B/B projects, the owner awards contracts to two parties:

  • Designer, who may contract some of the design work to other design firms,
  • Construction Contractor, who may contract the numerous subcontractors who perform special construction work.

For D/B projects, owner awards a contract to one party: D/B firm, who may in turn subcontractor to many contractors.

key decisions for project delivery2

1. Number of Contracts:

For CM projects, the owner awards contracts to three parties:

  • The construction manager,
  • Designer
  • Construction contractor.

Under this scenario. There may be many subcontracts awarded under each of these three principals parties.

key decisions for project delivery3

2. Selection Criteria:

Price ||| Qualification

Contractor may be selected on the basis of price or qualification.

  • Designer are selected based on qualification,
  • Contractors are selected based on price.

Qualification are used for unusual products, proprietary work, or services that require special expertise, knowledge, and judgement.

key decisions for project delivery4

3. Contractual Relationship:

Agent ||| Vendor

A contractor may be viewed as an agent or vendor.

  • An agent represents the owner’s interests, works for a fee, and usually is selected based on qualifications.
  • A vendor delivers a specified product or service, works for a price. And generally is selected based on price.
key decisions for project delivery5

Terms of Payments:

can vary from fixed price to cost reimbursable.

Lump-Sum ||| Cost-Plus

Fixed used when detail of work are well understood.

Cost reimbursable... is used when the scope of work is unknown or not clearly defined.

There are ranges of terms of payment from fixed to cost reimb.

    • Lump-sum arrangement,
    • Cost-plus fee with fee a guaranteed max. Price (GMP)
    • Cost-plus fee with a target price
    • Cost plus projects.
key decisions for project delivery6

Terms of Payments:

The above payment terms can be combined into one contract, for example, fixed-price, lump-sum with a unit price for ordinary soil excavation and cost-plus fee for rock excavation.

The amount of payment should be commensurate with the amount of risk assumed by each party.

contract types

Single fixed price

Unit price contract

Cost plus a fee

Contract types
single fixed price contract

Also called Lump sum contracts. In this type of contract, the contractor agrees to perform the work described in the contract documents for a fixed sum of money.

It is used with traditional method

Advantage:Owner knows cost before construction.

Risk: for owner, contract is only as good as accuracy of contract documents.


If scope changes, or error exist in documentation, contract need renegotiated. Process need time.

Single fixed pricecontract
single fixed price contract1

Lump-sum--: intent is to fix project cost by providing complete set of plans and specifications.

However, contractor is entitled to extra compensation for any change -- major source of cost overrun.

Error free complete design is necessary

adequate review of contract document

Single fixed pricecontract
unit price contracts

In this type of contract, owner and the contractor agrees to perform the prescribed work at a fixed cost per unit of work accomplished.

Owner provides estimated quantities,

Asks contractors to bid using unit prices,

Calculates final price. Contractor overhead, profit and other project expenses must be included within the unit prices.

Owner may not quantify the work necessary.

Provides competitive bid situation.

Eliminates the risk of renegotiation.

Work can begin before design completed.

Know knows cost before construction.

Risks: mistaken quantities.

Requires owner on site during quantity measurement.

Not knowing actual price until work nears completion.

Unit price contracts
unit price contracts1

Advantages and disadvantages:

If quality of work can not be determined with a degree of accuracy for lump-sum bid, then this can be used.

Major cost overrun is errors in the estimated pay quantities.

Unbalanced bids by contractors - means cost increase expensive legal disputes

Unit price contracts
cost reimbursable contracts

In cost plus fixed fee,owner agrees to pay the cost of construction plus a fixed fee, which is dependent upon the actual cost of construction.

Cost plus fixed fee with guaranteed maximum cost –the owner to pay the contractor for all costs plus a fixed fee with a guaranteed from the contractor that total cost including the contractor’s fee will not exceed a certain amount.

This contract requires a reputable contractor or construction manager whom owner can trust implicitly.

Risk: project starts with considerable unknowns.

Can be used with CM or D/B delivery methods.

Cost Reimbursablecontracts
cost reimbursable contracts1

Require extensive monitoring

      • material delivery,
      • measurement of work
  • Require a field office of owner to review & approve cost of
      • material, Labor Other costs

This method gives flexibility to owner organization, but owner must have extensive experience with handling projects.

When we can use? When desirable to start construction before design is complete.

Examples :

    • Projects that are complex in nature
    • Projects that must be completed due to emergency situations
Cost Reimbursablecontracts
contract changes

Contract changes occur for three main reasons.

Change in owner requirement, scope of project increases or degreases.

Unforeseen conditions, when contract was agreed to, the work must be performed differently.

Omissions in documents or design features that can not be built as specified, the design must be adjusted.

Contract changes are reality. Generally, fixed prices contracts require the greatest number of changes, cost reimbursable is the least.

Contract changes

Because no two projects are exactly alike, owner choose a delivery method and contract type. Once the project is matched with a delivery method, the owner can choose a contract type and a delivery method.

The goal is to minimize risk while minimizing the costs to organization.

Owner must weigh the risks against the price and come up with a type that best protects his organization.