There are various types of construction projects. These include building construction, heavy or civil engineering works and industrial construction work. Civil works here include the construction of roads and bridges while industrial works deal mainly with medicine, petroleum, chemical, power generation, manufacturing industries. Buildings generally require a significantly smaller teams but this varies depending on the nature of the project. Individual residential buildings require a smaller group or number of individuals compared with high rise commercial buildings. Industrial construction require larger groups of people working together to bring a project to completion.
Construction procurement is involved with the acquisition of the above mention construction works. The methods of procuring buildings rely mainly on the type of contract that has been entered into between the client and the contractor. The four basic types of contacts include:
- Separated contracts/ Traditional ( Lump sum contracts, Measurement contracts, Cost plus percentage)
- Management contracts( Management contract, Construction management contract,Design, management and construction contract)
- Integrated contracts (Design and build contract, Turn-key contract, Build own, operate and transfer (BOOT))
- Discretionary contracts (Partnership, Joint venture)
Traditional Procurement methods
Separated contract or traditional procurement systems are those in which the design and construction stage are separated. The traditional structure for project procurement is seen as a sequential method because the employer takes his scheme to an advanced stage with his professional team before appointing a contractor.
The designer/architect is employed to advise the client, design and ensure that the work is kept within the cost limit and that it complies with the standards required. A Quantity Surveyor can be engaged to give guidance on design costs and budgets, prepare bills of quantities, check tenders, prepare interim valuations and advise on the value of variations.
The contract price/sum is often based on a bill of quantities provided by the Quantity Surveyor which quantifies, so far as possible, every aspect of the works. Consultant structural and services engineers may be employed by either the client or his advisers to design the specialist parts of the project.
Generally, the separation of responsibilities for design and construction causes difficulty in ascertaining whether defects in the outcome are a result of designing or the quality of workmanship. Designing defects render the client liable for losses while workmanship and material quality liability are borne by the contractor.
These types of contracts are usually characterized by inadequate or incomplete designing before construction commences and consequently problems in the determination of the final costs of a project. The various types of separated contracts are discussed below.
Lump sum contract are consequently separated contracts where the contractor gives an estimate of the total cost of a project. This type of contract is effective where all design parameters are measurable. A lump sum contract is compiled after the project briefs, proposals; preliminary and detailed designs have been completed. This type of contract is time consuming as all the required details must be made available before tendering commences. It also has the disadvantage of uncertainty. Before tendering for this type of project, it is important to determine the buildability of the project.
Measurement contracts on the other hand rely on an item by item means of measuring quantities. The tender documents are supplied along with a detailed bill of quantities. The bill of quantities included details on the item serial number, quantity, unit of measurement and the amount required.
The cost plus percentage contract is applied in small project. It is similar to the measurement contract except that an additional cost of the percentage of actual cost is added to the gross sum i.e. after adding the price of individual items.
Management contracts involve the services of a contracted management contractor. The management contractor role ensures that a large number of small subcontractors do not send their quotations. The key roles of this individual include preparing the overall schedule, prepare the work package schedule and to coordinate with the designers in the project.
The construction management project involves a construction manager who assists in procurement, managing the project and coordinate activities. The duties of the construction manger include advising the designers, assisting in procurement and managing the building process.
Design, management and construction projects involve an individual or consultancy taking responsibility for the entire construction process. The client however, is responsible for calling for tenders. The clients also sublet the designing and building of the project to subcontractors in practice.
Integrated contracts include the design and build contract. In this case an individual usually an architect or the engineer is responsible for the entire construction project. This eliminates contractor-designer conflicts. This kind of contract is adopted where the client has no in-house design and engineering departments. The key advantage of this type of contract is the technical expertise and the reduction of unnecessary law suits.
The turnkey contract involves contractors’ roles include surveying, drawing, designing, constructing and testing the output for the client. The client simple ‘turns the key’. The advantage of the turnkey include the fact that the project benefits from a large technical capacity and that it may include on the job training on how to operate on the site.
The build own,operate and transfer (BOOT) contract involves an agreement between the contractor and the owner to the effect that after construction is complete, the contractor can operate the facility for a given duration. This type of contract takes place where the client seeks alternative sources of funding project and is common in the public sector.
The client can raise funds in the contractor’s court to effectuate this contract. Because of the long term nature of this type of contract it is important for both parties to assess the associated project risks and these may be social, economic and political risks of undertaking this kind of project. An example of this would be a BOT contract formed by hydro-electric power plants. In these cases, private companies are contracted to build a power plant and later on operate it for a given duration say 15 years after which ownership may change.
Discretionary contracts include the partnership and Joint venture. In a partnership, the contractor and the client form a partnership .construction commences after the project goals have been set. Disputes between them are settled through their stated (in the contractual agreement) means of dispute resolution.
A partnership agreement will usually define the means of operation that is how the project will be planned, designed and executed. This type of contacts can be long-term or short term. Short term partnership agreements are those that are agreed upon for say a set project period or until completion of a project.
Joint ventures are necessitated by the inadequacies of individual contracting firms. The firms merge forming a ‘mini-company’. These firms also establish a Memorandum of Understanding and internal articles for the duration of the project. The different parties to a joint venture each contribute staff to the new merged company.
The most widely used procurement method in Kenya today is the traditional system of procurement. However, the choice of management contracting is a preferred alternative especially for larger project due to the necessity of proper resource management.