Construction Procurement System Types

A number of different procurement routes and options exist in the construction industry;

1.     Traditional (Design - Bid - Build)

2.     Design and Build

3.     Management Contracting

4.     Construction Management

5.     Design and Manage

Traditional System - 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 is employed to advise the client, design and ensure that the work is kept within the budget and that it complies with the standards required. A Quantity Surveyor can be engaged to give assistance on design costs and budgets, prepare bills of quantities, check tenders, prepare interim valuations and advise on the value of variations.

Advantages of Traditional System

• Competitive tendering is possible with detailed documentation
• High quality of functional standard are possible
• There is cost certainty at the start of construction
• Independent advice is given on most aspects of the process
• BoQs  make for ease of valuation of variations and high level of cost control and monitoring
• There is a flexibility for design changes in the construction stage
• A combination of the best design and construction skills is possible

Disadvantages of Traditional System

• Decision processes are slow and convoluted
• Total project time is the longest of all options and no parallel working is possible
• No integration between design and construction process leads to reduced team spirit & tend to cause problems at construction stage
• The clients’ liability& risk is significant – where the client is inexperienced
• Due to time pressure in the pre contract stage, the documentation may have errors - Cost overruns

Methods in Traditional System

Lump sum method means the contractor agrees to build a project with a specific scope for a fixed price. A lump-sum contract is suitable if the scope and schedule of the project are sufficiently defined to allow the contractor to fully estimate project costs.

Cost plus is a contract agreement wherein the purchaser agrees to pay the cost of the work, including all trade contractor work, labor, materials, and equipment, plus an amount for contractor overhead and profit. These types of contracts are favored where the scope of work is indeterminate or highly uncertain, and the kinds of labor, material, and equipment needed are also uncertain.

With cost-reimbursable alternative contracts, contractors are paid for the work with a mix of reimbursable and fixed or incentive costs. Cost-reimbursable alternative contracts are effective when the general scope of work and schedule are defined, but there is uncertainty in quantities or execution. Under cost-reimbursable alternative contracts, uncertainty in project scope is borne by the client. Cost-reimbursable alternative contracts offer significant flexibility for responding to conditions that are uncertain. There are different variations of basic cost-reimbursable alternative contracts, including cost-reimbursable plus fixed fee, cost-reimbursable plus performance-based incentives, direct cost-reimbursable plus fixed construction management costs, and others.

Unit price means this kind of contract is based on estimated quantities of items included in the project and their unit prices. The final price of the project is dependent on the quantities needed to carry out the work. In general, this contract is only suitable for projects in which the scope is reasonably well established, and the different types of items (but not their numbers) can be accurately identified in the contract documents. 

A guaranteed maximum price (GMP) contract is a cost-type contract, in which the construction contractor is compensated for actual costs incurred, plus a fixed fee subject to a ceiling price. The contractor is responsible for cost overruns, unless the GMP has been increased via formal change order as a result of additional scope from the client. Savings resulting from cost under runs are returned to the client.