Construction Contract Administration

[Construction Contract Administration] January 15, 2010
TABLE OF CONTENTS
1.0 INTRODUCTION................................................................................................................. 2
2.0 THE PROCUREMENT SYSTEMS........................................................................................... 2
2.1 TRADITIONAL SYSTEM OR DESIGN-BID-BUILD....................................................................4
2.2 INTEGRATED PROCUREMENT SYSTEMS.............................................................................7
(I)Design and Build.............................................................................................................. 7
(ii) variants of design and build.........................................................................................10
2.3 MANAGEMENT ORIENTED PROCUREMENT SYSTEMS.......................................................12
(i) Management Contracting.............................................................................................. 13
(ii) Construction Management............................................................................................16
Concept of Construction Project Management...................................................................19
3.0 TYPES OF CONTRACTS..................................................................................................... 20
3.1 Lump Sum Contracts................................................................................................... 20
3.2 Continual Contracts..................................................................................................... 20
3.3 Measurement Contracts............................................................................................... 21
3.4 Cost Reimbursement Contracts...................................................................................21
4.0 THE BASIS OF CHOICE OF PROCUREMENT STRATEGY......................................................22
5.0 PUBLIC PRIVATE PARTNERSHIPS.......................................................................................24
6.0 PUBLIC PROCUREMENT ACT OF KENYA AND THE EFFECTS OF BUREAUCRACY.................25
6.1 Purpose of the PPDA.................................................................................................... 26
6.2 Procurement Procedures..............................................................................................26
6.3 An Effective Public Procurement System......................................................................27
6.2 Public Entity Procurement Inefficiency.........................................................................29
7.0 CONCLUSION................................................................................................................... 32
8.0 REFERENCES................................................................................................................... 32
1.0 INTRODUCTION
1
1.0 Introduction | Procurement Systems in Building Works

The procurement of construction project is vast in scope because it involves
the gathering and organizing of myriads of separate individuals, firms and
companies to design, manage and build construction products such as
houses, office buildings, shopping complex, roads, bridges etc. for specific
clients or customers.
Procurement comes the word procure which literally means to obtain by
care or effort; to bring about and to acquire. System is about
organized method, approach, technique, process or procedure. In
this context, project procurement is very much concerned with the
organized methods or process and procedure of obtaining or
acquiring a construction product such as a house, shopping complex
or just a building. It also involves arranging and coordinating people to
achieve prescribed goals or objectives.
2.0 THE PROCUREMENT SYSTEMS

Procurement systems differ from each other in terms of allocation of
responsibilities, activities sequencing, process and procedure and
organizational approach in project delivery. These differences have invariably
affected the project performance.
Today, there are several types or variations of project procurement systems
being widely used in the construction industry. They range from the
traditional system to the many variations of fast-tracking systems. The
introduction of many variations of project procurement system was induced
by the quest for more efficient and speedier project delivery system and
better project performance. They are innovations to the traditional delivery
method aimed at meeting the changing demand of clients or customers. The
different procurement systems present have brought changes not only to the
process and procedure of project delivery but also the aspects of
management and organization.
Procurement phase is identified as being crucial to eventual project success
and a significant component in project failure.
CLASSIFICATION OF CONSTRUCTION PROJECT

PROCUREMENT SYSTEMS
Mastermann (1994) classify project procurement systems into several
categories based on the relationship and critical interaction between design
2

and construction responsibilities. The
procurement systems are as follows:
categorization
of
the
various
construction
project
1) Separated and Cooperative System

2) Integrated System
3) Management Oriented System
The different category and sub-classification
procurement systems can be as shown below:
of
PROCUREMENT
SYSTEMS
INTEGRATED
SEPARATED
&
COOPERATI
Tradition
al
system
Variant of
Traditiona
l System
Sequenti
al
method
Accelerate
d method
Design
and
Build
Package
deal
Variant of
Design
and Build
Turnkey
method
MANAGEMENT
ORIENTED
Manageme
nt
contracting
Constructio
n
manageme
nt
Develop
and
construct
Figure 1.0 Category of Building Procurement Systems

Source: Masterman J W E (1996) Building Procurement Systems: An
Introduction
3
2.1 TRADITIONAL SYSTEM OR DESIGN-BID-BUILD

This is also the Separated and Cooperative Procurement Systems. Under this
system, the responsibilities of designing and construction of the project are
separated and are carried out by different independent organizations
namely the designers and contractors. It is sometimes called linear or
sequential contracting system or multiple responsibilities contracting
approach. It is a system where the project development activities that start
from feasibility study, preliminary design, documentation to construction and
hand over, are carried out sequentially one after another. Traditionally, the
complete working drawings or design has to be prepared by the designers
before tender and construction activities can take place.
It is sub-divided into 2 sub-categories Traditional System and Variants of
the Traditional Systems. The Variant System is further sub-divided into (i)
Sequential Method, and (ii) Accelerated Method.
Under the sequential method or a single stage tendering approach, the
building owner will appoint a team of consultants to act on his behalf to
produce construction drawings, specifications and tender documents and to
administer the tendering processes to select a contractor. Once selected and
awarded the contract, the contractor will carry out based on the drawings
and specifications prepared by the clients consultants.
Client
Limited delegated power as agent
Contracto
r
Consultant
s
Quantity
surveyor
Engineers:
Electrical,
Architect
Subcontractors
Mechanical,
civil/structu
1.0 Introduction
| Procurement Systems in Building Works
ral.
Suppliers
Figure 2.0: Traditional design-bid-build
Project
Brief
Feasibility
Study
Design
concept
Detail
design
Tender &
contract
Construction
Commission
& hand over
Client and Consultants responsibility

Contractors responsibility
Figure 3.0 The Linear or Sequential Process of the Traditional Procurement

System
Contract for construction is between client and main contractor. Design is
usually completed prior to procurement and commencement of construction
Price from the Contractor is based upon a bill of quantities, or working
drawings and specification, which describes the works in detail. Final cost is
measured, based on the actual quantities of work carried out. Usually much
of the work is sub-contracted to specialist firms but the contractor remains
liable. The consultants administer the contract on behalf of the client and
advise on aspects associated with design, progress and stage payments
which must be paid by the client. The separation of the contractor from the
design can mean missed opportunities for contractor or specialist contractor
to input. Specialist elements are tendered separately and the selected
contractors appointed as nominated sub contractors to the main contractor.
This strategy is seen as the least risk approach as there is a level of certainty
about design, cost and duration inherent in the strategy if it is properly
implemented. However, the exposure to risk will increase where the design
phase is rushed, where unreasonable time targets are set or where the
tender documents are not fully completed.
Cost constraints in traditional projects make it even more difficult for owners
to assure project quality. A design professional that reduces its fee as a
consequence of the owners negotiation pressure is likely to devote a
reduced number of hours to the project, often at the expense of
quality control. An owner who uses competitive bidding to obtain the lowest
possible construction price may find that the low bid represents an
unrealistically low construction cost and that the contractor intends to cut
5

corners, adopt an obstructionist or adversarial approach to the project, and
seek excessive change orders or other claims with which to make up the
profit that it left out of its competitive bid.
The accelerated method can be considered as an innovative approach to
speed up the selection of contractor and the commencement of construction.
The method can be divided into 2 sub-categories i.e. two-stage and
negotiated tendering methods. Both methods involve preliminary
discussion with selected few contractors, submission of fixed tender and/or
cost negotiation. Some construction projects are fast-tracked, which means
that construction commences while the final finishing details are still being
added to the construction documents. A less aggressive alternative is to bid
or price the project from scope documents (construction documents which
are approximately 70% complete) so that the bidding/pricing phase
considerably overlaps the end of the design phase. In two- Stage tender,
the Contractor is appointed on the basis of a first stage tender which
determines the level of overhead and profit for each Contractor. The
Contractor then works with the Project Team during the second stage to
develop the designs and establish detailed costings for separate project work
elements. This process will provide for a fixed price on a detailed design
basis. This approach increases the risks of an increase in overall price and a
less certain completion date but contractor involvement is likely to increase
the likelihood that both these criteria are realistically established.
Advantages of Traditional Procurement systems
Competitive fairness, since all tendering contractors are bidding on the

same basis
Design-led, with the client able to have direct influence, thus facilitating a
high level of functionality and bespoke quality in the design.
Reasonable price certainty at contract award based upon market forces

( subject always to design changes or client-led changes which will have
cost implication)
Where public expenditure or audit demands are rigid the strategy is

satisfactory in terms of public accountability since it is transparent and
based upon competition.
Single Contractual Relationship for Construction Stage
The procedures are well known, enabling confidence to be assured in

those involved throughout the supply chain
6
Phased tendering of mechanical/electrical/fire protection sub-contracts can award later
Nominated Sub-Contracts for key specialist elements possible
Disadvantages
It is possible to attempt to speed up the process by producing tender

documents from an incomplete design, but this will usually result in less
cost and time certainty and can be the cause of expensive disputes.
The overall project duration may be longer than for strategies as the
strategy is sequential and construction cannot be commenced prior to the
completion of design with no parallel working.
There is no input into the design or planning of the project by the

contractor who will not be appointed at the design stage.
Does not facilitate early involvement of key specialist elements
The strategy is based on price competition and this can result in

adversarial relationships developing.
Suitable for:
All clients, including inexperienced clients, complex projects and projects
where functionality is prime objective time predictability, cost certainty.
However, it is not suitable for fast track projects.
Particularly attractive to clients with a strictly limited budget or a limit to
their borrowing powers since construction costs can be determined with
reasonable certainty before commencement of construction.
2.2 INTEGRATED PROCUREMENT SYSTEMS

This system, as the name implies, integrates or combines the responsibilities
of design and construction of the project (Ashworth, 2001). Both
responsibilities are contracted out to a single contracting organization. It is
also called a parallel or single responsibility procurement system
whereby the client will only need to deal with a single organisation for both
the designing and constructing the proposed project. In this case, the
contractor will have to engage and be responsible for design and
construction teams. Design and build system falls under this category of
project procurement system. Under this system, the client together with
7

his/her consultants will prepare a tender or bidding document that include
the project brief and clients requirements and invite a number of contractors
to bid. For the purpose of submitting tenders, the invited contractors will
produce their own design, construction and cost proposal. Very often the
successful contractor will enter into a contract based on lump sum price and
a fixed duration (Ashworth, 2001; Edmond, 2003)
(I)DESIGN
AND
BUILD
Design and build method of procurement enables one building contractor or

a construction company to take full responsibility and carry sole liability for
the design and construction of a building. Hence, in effect, apart from the
construction clients role, design and build essentially combines all the
fundamental tasks in construction project design, production and
management in a single package. After identifying the need for a building,
the client satets his requirements adequately in terms of physical design
needs as well as the intended physical use. A selected number of building
contractors are invited to submit their proposals together with estimated
costs. The system invokes design competition which is absent from other
construction procurement systems and permits the optimization of design
and production costs.
Whilst risk is shifted to the contractor, it is important that design liability

insurance is maintained to cover that risk. Changes made by the client
during design can be expensive, because they affect the whole of the
Design-Build contract, rather than just the design team costs.
Fig. 4.0 : Design and Build process Client expresses
development
need
Clients
requirements
prepared
Submission of
proposals
8
Contractor
A
Contractor
B
Contractor
C
Contractors
proposal against
client requirements
Successful
contractor selected
Successful
contractor finalises
design and
produces the
Fig.5.0 : Organisation structure of design and build

Client
Clients
agents
Main
contractor
Contractors project team

Quantity
surveyor
Architect
Engine
er
Contractor
s manager
Contractors site team
Contractual relationship
Site
manag
er
Site
engine
er
Organisational relationship
9
Site
survey
or
Suppor
t staff
Project
brief
Feasibility
study
Tender
documentati
on
Concept
design
Tender &
contracti
ng
Construction
Commission &
hand over
Detail design

responsibility
Contractors
Figure 6.0 The Integrated Process of Project Designing and Construction in

the Design and Build Procurement System
Criteria for choosing design and build option
Main characteristics under which the D&B procurement option may be
appropriate for a clients construction project are when:
Early delivery of project is required

Project is of technical complexity
There is need for early start on site
Price certainty (usually lumpsum) is required prior to production
Construction project is prestigious and hence, single point responsibility is

required.
Economy (time, cost, function, quality, value for money) is required.
(II)
VARIANTS OF DESIGN AND BUILD
The variation or innovation to this mode of project delivery systems includes

(1) Package deal (2) Turnkey (3) Develop and construct. These systems that
entail the contractor to be responsible for both the design and construction
of the project, allow for the early start of construction through the reduction
of the pre-tender activities as such they reduce process time.
10

Package deal or commonly called the all in contracting is a type of
procurement method where a contractor is given the responsibility for
everything that is required and necessary for the design, construction and
delivery of the project. Under this system, the services of the contractor
will include the preparation of project brief, sketch and final working
drawings, getting all the approval from authorities, project financing,
construction, furnishing and commissioning of all equipments and
accessories and handing over the project to the client. In otherwords, the
contractor provides an off-the-shelf building. Typical examples are farm,
factory, warehouse and straightforward office buildings.
Turnkey contract is an American term for all in or package contract.
Under this arrangement, a contractor is commissioned to undertake the
responsibilities for everything necessary and required for the construction,
completion, commissioning and hand over the project. The word turnkey
means that, upon completion, the client is given the key and he can then
enter the project by turning the key. The contractor will have to do
everything from preparing project brief, getting approval, designing,
financing, construction, furnishing and decorating to commissioning and
handing over completed, cleaned and ready for use project (Allen, 2001).
Develop and construct is another of the integrated procurement
approach which is very much similar to design and build. In this case, the
contractor is still given the responsibility for both the design and
construction of the project. The difference is that, under this method the
clients design consultants prepare the concept sketches or designs and
passed them to the contractor who will develop them and produce the
detailed working drawings. The contractor then takes on finishing off the
design and construction of the project based on what it has developed
and produced.
Design, Build and Operate This approach would involve the Client Body
in selecting a company or consortium who would carry out the design and
construction of the facility, but would also act as the operations company
to manage the facility after construction.
Single Contractual Relationship for all design / construction - This approach
has the benefit of allowing the Client to hand over the complete project
(design and construction) to one company
11

More price certainty from early stage depending on price variation clauses
Suitable for well defined work packages, based on performance specification
You get input from the operations personnel directly at the design stage.
Advantages of Integrated procurement system
The integrated design and construction allows for design and
management input fro the building contractor and this leads to production
efficiency in terms of cost and time
b. The method allows for simplified contractual arrangement between client
and contractor with single-point responsibility and improved
communication channels between parties to contract.
a.
c.
Project duration is shortened due to contractors familiarity with his

system and parallel working on design and construction
d.
Clients total financial commitment os known at an early stage and,

provided the client does not introduce major alterations, this will not
change
e.
Client obtains competition in design as well as price
f.
The closer contractor/client relationship leads to a more efficient design
g.
Client obtains a design cost element lower than which an independent

designer would charge under other methods
h.
Construction projects using the system have the potential for early
completion and lower overall costs.
i.
Innovation in construction production is encouraged under this

procurement system and the building contractor, being in charge of
design, can reap the benefit of innovative products and processes.
Disadvantages
The building contractors in-house design expertise may be insufficient to
solve the client's needs efficiently
b. Tendering costs are high as contractors must design and produce accurate
proposals as well as estimates
a.
12

c.
An inexperienced client will still require construction professionals to

advise during preparation of brief, tender information and evaluation of
quality and cost of design
d.
The building contractor requires adequate insurance to cover for the

design failures as well as construction
e.
Tender comparison becomes complex as it involves evaluation of design,

quality and construction cost.
f.
The client finds it difficult and/or costly to introduce variations once

production has commenced on site.
Suitable for:
Complex Construction facilities - requiring specialised skills (technical in

nature) or expertise for instance museums, monuments or buildings that
require non-exposure due to security reasons or due to their sensitive
functions like embassies.
For facilities where expected risks could be very high hence Design and
Build becomes a way to avoid the risks before they occur.
2.3 MANAGEMENT ORIENTED PROCUREMENT SYSTEMS

It is a system that gives greater emphasis on the management and
integration of the design and construction of projects. Under this system, the
management of the design and construction a project is contracted out to a
contractor who acts as a management consultant on behalf of the client. The
construction itself is commissioned to many specialists or subcontractors
who enter into contract with either the management contractor or the client.
This procurement approach that was introduced based on the conception
that a builder or contractor has more expertise to manage the design and
construction of a project. As management consultant, the appointed
contractor does not itself, carry out the design or construction of the project.
Its main responsibility is to manage the design and construction by the
design consultants and the many specialist contractors, respectively.
(I) MANAGEMENT CONTRACTING

Management contract is a contractual arrangement in which a client
appoints a construction company termed as the management contractor
(MC) to manage and coordinate the design and production phases of a
13

construction project. On appointment the MC works alongside the clients
professional advisers and this gives the client expertise not normally
available at pre-contract stages of construction projects executed under the
traditional procurement method. The early appointment of MC enables that
person to contribute to the design of the project. Although the MC does not
directly design or construct any part of the permanent works, he/she gives
expert advice on construction techniques and uses on-site knowledge to
avcoid the design of sections/elements that will be problematic to produce.
He also seeks to meet the design requirements by the provision of specified
common user and service facilities (e.g tower cranes, scaffolding, site offices,
storage facilities, security) and letting each element of the project to a
number of sub-contractors in works packages. The MC provides the
necessary coordination and back-up services to the works contractors and is
responsible for both the terms of their contract and the management of their
works. The MC is paid for the provision of common user and service facilities
in addition to an agreed fee based on a percentage of the estimated
construction cost, for management input.
Fig. 7.0 Organisation structure for management contract
Client
Design
team
Management
Contractor
Contractual relationship
Organisational relationship
Works
contractor
Detail design
and/or shop
drawings
Project
brief
14
Tender doc. &

Concept
Bidding &
Feasibility
client req.
design
contractin
1.0 study
Introduction | Procurement Systems in Building Works
g
Commission &
hand over

Construction
Package Contractors
responsibility

responsibility
Management Contractors
Figure 8.0 The Process of Project Designing and Construction in the

Management Contracting & Professional Construction Management
Procurement System
Criteria for choosing a management contract
1. Early start on site: Where time is of the essence and production cannot
wait until design is fully defined and, hence, the production must
proceed in parallel
2. Complexity of project requirements: complex technologically and
therefore require input of multiplicity of specialist designers and
ultimate users with diverse requirements.
3. Size: Project fairly large and require complex organization and
coordination
4. Maximisation of competition: client require maximum competition in
respect of price for production management expertise and resources
5. Early completion: client requires early completion hence compressed
and expedited development programme
6. Efficient use of resources: client wishes to capitalize on efficient use of
resources and his awareness that contractors advice on buildability at
design phase achieves this objective
7. Lack of in-house management resources
15

8. Flexible budget: client has flexible budget and can take major risky
financial decisions for
9. Contractors expertise: required at design phase
Advantages of Management contract
Early contractor involvement at design phase may lead to better design

and detailing which facilitates productivity and savings on production
cost.
The traditional design/construct split is eradicated, enabling the
contractor to advise on quality, buildability, suitability and availability of
labour, plant and materials and construction methods during the design
phase.
Design and construction are overlapped as well as overlapping the various

work packages. This saves on project time.
Risk of potential contractual claims is minimized as, from the projects

onset, the MC identifies contentious project information and recommends
its modification prior to contract.
The them and us attitude is eradicated as; from the projects onset the
MC becomes part of the project team working together to achieve a
clients objectives of time, cost and quality.
Price is not the only criterion for selection of MC. Rather, in addition, the
ability to make some technical and managerial contribution to the design
and production of a prohect is also considered.
Advance purchasing of essential materials/components and plant can be

effected to ensure their availability for use when required.
Early management contractors appointment enables him to give

information on the organization of construction work, site layout, possible
works contractors and tendering arrangements.
Client obtains keener prices owing to the increased competition for his
construction project.
Disadvantages
16
Problems of coordination can lead to production delays and be grounds of

contractual claims
Client pays twice for duplication of site services, attendances and general
preliminaries
Client is not aware of the

commencement of project on site
Client may have no redress against a MC in respect of performance and

quality, work contractors work, late completion and recovery of damages
for late completion.
financial
commitment
before
the
Client has two sets of fees to pay for the professional services of
design and construction management.
Full financial commitment not known at outset of construction
Need large contingencies for work interfaces
Suitable for:
This approach is generally considered to be appropriate for large, complex
fast-track projects particularly where there is a requirement for maximum
flexibility and to overlap design and construction phases.
(II) CONSTRUCTION MANAGEMENT

Fig. 9.0 Organisation structure for construction management
Client
Design team
Constructio
n manager
Works
contractor
contractual relationship
17

organizational relationship
Project
brief &
client
reqms
Feasibility
study
Concept
design
Detail
design
Bidding
&
contracti
ng
Construction
Commission &
hand over
Design consultants responsibility

Package
Contractors responsibility
Construction managers responsibility

Figure 10.0 The Process of Project Designing and Construction in the Design
and Manage Procurement System
The Construction management (CM) approach to construction procurement
emerged due to clients demand for better quality and faster production at
lower costs. Under this strategy, the client does not allocate risk and
responsibility to a single main contractor. Instead, the client employs the
design team and a construction manager is engaged as a fee-earning
professional to manage, programme and co-ordinate the design and
construction activities and to facilitate collaboration in order to improve the
buildability of the design. Construction work is carried out by trade
contractors through direct contracts with client for distinct trades or work
packages. The construction manager supervises the construction process
and coordinates the design team.
This is a strategy with little certainty for the client at the outset and one
usually adopted where the primary objective for the client is relative speed
for completion. In adopting CM strategy, the client will be closely involved in
each stage of design and construction. The client must have administrative
and project management staff with time and ability to assess the
recommendations of the CM and take necessary action. The client needs to
maintain a strong presence of through a project management team that is
technically and commercially astute. This strategy is therefore not suitable
for inexpert or inexperienced clients. The work packages are tendered
individually, for a lumpsum price usually on basis of drawings and/or
specifications. The final costs will only be known once the final work
elements have been awarded.
Criteria for choosing a construction management
a. Early completion of the construction project is required by client
18

b. The project is of fairly large size and technologically complex
c. Complicated requirements of the project
d. Design and production phases must overlap to expedite production
e. Input comes
requirements
from
several
sponsors/ultimate
users
with
diverse
f. The requirement of a maximum price

g. The demand of an effective utilization of production resources
h. A need for management input at design phase
Advantages of Construction Management
Allows overlapping design/construction stages - Shorter Duration

Work can commence once first Contract Package is awarded
Construction expertise can be deployed during design process (especially

in specialist areas) hence their contribution to the design and project
planning- advance ordering of items
More direct control and influence over production by client due to

contractual relationship with the design team, CM and works contractors.
Fixed price tenders are likely due to timing of Tenders and Works
The client has direct contracts with the trade contractors and pays them
directly ( There is evidence that this results in to lower prices due to
improved cashflow certainty)
Changes in design can be accommodated later than some strategies,

without paying a premium, provided the relevant trade packages have not
been let and earlier awarded packages are not adversely affected.
More control over each element of the works and hence control of
Quality
Roles, risks and responsibilities for all participants are clear.
Disadvantages
19
Full financial commitment not known at outset of construction- price

certainty not known till last trade package is let. Budgeting depends
heavily on design team estimates.
An informed, pro active client is required is required to operate such a
strategy
The client must provide a good quality brief to the design team as the
design team will not be complete until the client has committed
significant resources to the project
Multiple Construction Contracts with Client
Close time and information control is required.
Risk of conflict at Sub-Contract interfaces need for co-ordination
Client pays more in professional fees
Client is exposed to a high degree of risk as CM does not take

responsibility of late completion, faulty workmanship etc.
Suitable for:
Considered appropriate for large / complex projects particularly where

there is a requirement for maximum flexibility and overlapping of the
design and construction phases and where there is high degree of design
innovation where clients wants hand-on involvement.
Construction Management requires constant involvement by the client so
it is really only suitable for experienced clients.
CONCEPT
OF
CONSTRUCTION PROJECT MANAGEMENT
Construction project management (CPM) is a management function in

construction design and production which comprises the planning, costing
evaluating and controlling projects on behalf of the client, so that it is
completed on time, to specification and within budget. Under this system,
the client appoints a construction professional (project manager) who is
given the responsibility for various functions of site identification, land
assembly, approval, funding, design, construction and marketing and he is
paid an agreed fee based on a percentage of the total cost of the
construction project. Generally, the project manager is the bridge between
the client and the project team and is responsible for the task of helping to
establish the overall project objectives and directing , controlling, planning
20

and coordinating the efforts of the project team to the achievement of those
objectives.
Note that, construction project management is not a construction
procurement system. The role of the project manager is to select the most
appropriate procurement system for the project. CPM is therefore concerned
with management of the whole construction project i.e the translation of
clients needs into finished functional physical product. The project
management covers:
Coordination of the diverse interests of ultimate users of completed

facility and the client in order to formulate unified client requirement.
Organization of the process of design and construction of project to
comply with the clients requirements economically and timely.
Advantages of Construction Project Management
Clients brief is prepared by skilled construction professional adequate

briefing document
The them and us confrontation is averted as the PM welds all
participation into effective construction project team
Client benefits from having only one person to deal with in all matters
concerning the project
The architect is released from the tasks and problems associated with
managing the project and hence concentrates on design matters the PM
performs an independent and disinterested role and uses this position
well in directing, coordinating and solving construction problems
Design can be tailored to overlap production, thereby reducing the overall

project time
Disadvantages
Clients project cost increases due to engagement of a representative,

PM s fees
PM carries no financial risk and can only be sued for damages incase of
profdessional negligence or breach of contract.
21
3.0 TYPES OF CONTRACTS

Regardless of the procurement systems one chooses, the type of contract
the parties enter into plays a crucial role in determining the allocation of
risks in execution and administration of the project.
3.1 LUMP SUM CONTRACTS
Where the contract sum is determined before construction work is started.
Under this contractual arrangement, the contractor consents to execute the
entire work described or specified for a stated total sum. Agreed sum is
based on information from drawings, specifications, BQs or site inspection. To
arrive at pre-estimated price, contractor takes in account all contractual
risks, condition of construction market and current workload. No variations
allowed. Lumpsum contract may be procured either lumpsum or fixed.
Adjustment to contract sum for labour, plant and materials price changes is
permissible in former but not in latter, except statutory fluctuations like
taxes.
Suitable for: On minor and maintenance works or where there is adequate
information to enable client know his financial commitment.
3.2 CONTINUAL CONTRACTS
When the client wishes to pursue a programme of construction, his or her
professional advisers may recommend one of the following contractual
arrangements to effect a saving in tendering cost and expedite production.
a.
Serial contracts contractor undertakes to enter into series of separate

lumpsum contracts in accordance with the terms and conditions set out in
initial offer. Standing offer may be determined by competitive pricing of
key items in the proposed projects.
b.
Continuity contracts when client wishes to obtain benefits from

continuity of work, building contractor may be asked to enter into
negotiations based on original lump sum contract. One of the negotiations
are completed and an agreement reached, the contractor executes the
construction works as separate contract packages within their own
parameters.
c.
Term contracts client commissions a building contractor to undertake

specified construction works within a defined cost limit for a definite
period, often 12-36months duration. Valuation of the contractors work is
priced on either schedule of rates or a cost reimbursement basis. Suitable
22

for: low-value ongoing repair and maintenance work where contractors
submit invoices for payment on completion of the specified works.
3.3 MEASUREMENT CONTRACTS
Where the contract sum is not finalised until after completion, but is
assessed on remeasurement to a previously agreed basis.
Prices of sections of work are pre-estimated but the total price cannot be
ascertained until work is measured and valued on completion. Evaluation of
measured construction work is by application of agreed unit rate from either
BQ or schedule of rates. Can be procured on approximate BQs (client s
requirements not known in advance) or schedule of rates
(clients
requirement insufficient to permit production of approximate BQs). A
schedule of rates is commonly used where the extent of works has not been
or cannot be fully determined.Some uses include: Earthworks, Foundations,
Below ground services works, Maintenance period contracts.
Measurement contracts are suitable for projects where clients requirements
are not clearly defined or where prompt commencement on site is required.
3.4 COST REIMBURSEMENT CONTRACTS
Where the sum is arrived at on the basis of prime (actual) costs of labour,
plant and materials, to which there is added an amount to cover overheads
and profit.
The client undertakes to pay contractor the prime cost (actual cost of labour,
plant and materials utilized in the execution of the works). In addition to the
prime cost, the contractor is paid an agreed sum to cover for profits and
establishment charges.
Suitable for projects where:
Client may wish to influence the execution of works hence, assume entire
risk of site operations
An early start is required but the extent of work cannot accurately be

predicted.
High standard of work is required
Work is of emergency, repair.
Variations to this contractual arrangement may be introduced to motivate

and enhance the contractors site performance.
23

a. Fixed fee contractor is paid agreed fee based on estimated cost of
works. This induces contractor to work efficiently for profit.
b. Target cost An estimate is produced for construction project, and once
the estimate is agreed, it becomes the target price which establishes basis
for the determination of a fee for overhead charges and profit. On
commencement of site production, contractor is paid the fee which is
adjusted to correspond with increase or decrease of prime cost over target
cost. Main problem of this approach is reaching an agreement of realistic
target and the effects of costly variations which eventually take the
construction cost over the agreed target price.
4.0 THE BASIS OF CHOICE OF PROCUREMENT STRATEGY

The choice of an appropriate procurement method and type of contract is
influenced by various factors. Once the client establishes the primary
strategy depending on nature of the business case and priorities of the
client, the following factors should then be considered:
a. Factors outside control of the project team Consideration must be
given to economic, commercial, technological, social, political and legal
factors which influence the client and the project team or are likely to do
so during the lifetime of the project. These may include
-
Changes to interest rates
Increases in level of fluctuations affect product and trades to be

used in the works
Changes in national or local demand for construction affect tender

price levels
Changes to legislation affect design of work or achievement of the

design
By adopting a simple risk analysis judgement can be done whether

contingency sums should be budgeted for.
b. Client resources The clients knowledge, the experience of the client
companys organization and the environment in which it operates are vital
in assessing the appropriate procurement strategy. The extent to which
client is prepared to take a full or active role is a major consideration.
24

c.
Project characteristics The size, complexity and location of the

project should be carefully considered and particular attention given to
projects with novel elements. e.g if building is large and complex, there
may be a bigger risk of time and cost overrun. Novel projects present
special risks.
d. Ability to make changes It is preferable to identify the total needs of

the project at early stages but it is not always possible. Rapidly changing
technology often means late changes. Changes in scope of project often
means increased costs, especially if during construction. Some
procurement strategies are better than others in handling the introduction
of changes later in the project and reducing the possibvility of having to
pay some form of specific premium.
e. Cost issues The following cost issues are important:
- Estimates of costs of future buildings at early stage are notoriously
inaccurate but necessary for decision purposes. Where theres need for
price certainty, this influences both project timing and the procurement
strategy to be used. Generally design should be complete if price
certainty is required before construction commences.
- Inflation will inevitably affect total cost where level of variance and
increased proce clauses exist
- Changes to design should be avoided if cost certainty is to be
maintained during construction. Changes whether by client or consultant
have cost and time implications. It is important to fix a date of no more
changes or then choose a procurement strategy that enables such
changes and accepts the consequences.
f. Project timing Most projects are needed within a time frame or by a
specific date. Timing will influence whether subsequent can occur as planned
and in many cases may severely affect those factors identified as critical or
high priority in business case. The programmes of a project is influenced by
many factors and usually a large and complex is likely to require more time
for design, specification, and construction than would for a simple small
building. Some procurement strategies enable overlap between the design
and construction stages, so construction can start earlier than sequential
strategies and offer the potential for earlier completion. Time has both a cost
and a value. If the worth of a project is identifiable then the cost of relatively
late completion and the value of relatively early completion can be assessed
25

and may form an important factor in decision-making process referred to as
time/cost trade off.
g. Construction times Total construction time is a consequence of design.
More complex structures will almost certainly take longer given the same
cost or size, and may require resources. Although it is possible to work longer
hours on site or increase resources, the law of diminishing returns will have
influence because of the limited space and the nature of traditional
construction methods (such as concreting, bricklaying).
h. Performance - The required performance of the project measured in
terms of both its response to the needs of the client expressed in the
business case and the quality of individual elements should be clearly
identified. If quality and performance are particulary important the client will
probably want to keep direct control over the development of the design.
This can be achieved by employing the design team directly.
i. Assessment of risks - For example is this to be a contract with the
lowest possible risk to the client overall; what are the priorities in
apportioning the risks concerning cost, time, and quality or performance;
where are the speculative risks intended to lie? Your risk management
strategy will strongly influence your choice of procurement method.
5.0 PUBLIC PRIVATE PARTNERSHIPS

Public Private Partnerships (PPPs) are increasingly becoming the main form of
procurement for large projects e.g in the transport, schools sector. With PPP,
one contractor provides and operates the assets over an extended period,
usually 25-30 years. PPP is still a relatively new form of procurement and its
application is developing rapidly. PPP at present typically involves the client
specifying outputs as opposed to inputs. The benefits of PPP solutions
include: greater risk transfer to the private sector partner; use of private
sector management to reduce costs; more innovative solutions that offer the
possibility of higher quality provision, wider social benefits from more
ambitious schemes, and commercial utilisation that can cross-subsidise the
project. PPP procurement is more complex than traditional methods and
therefore is less well suited to small building contracts under about 10
million in value.
TOTAL PACKAGE OPTIONS
26
BOOT,
BOT , BOO.

BOOT is a relatively recent procurement method. a clients project need is
met by an entity that contracts to design, build, operate, own for some
period of time and transfer the facility back to the owner. Developers use
their own funding sources to build a public facility in return for the right to
operate it and charge a fee for its use. At the end of an agreed period the
facility may revert to the landholder, which would often be the Crown.
This type of contract focuses on final service delivery and relies upon the
required performance standards being properly documented. Building
contractors involved in this type of development are usually part of a
consortium. The consortium has responsibility for the design, construction
and delivery of the project.
Government and its agencies, as either direct or indirect purchasers of
services from BOOT projects, bear some level of financial and viability risk.
The BOOT process can be modified to suit particular needs. A few variations
already in use are BOT (Build, Own, Transfer) and BOO (Build, Own, Operate).
This arrangement is more common for infrastructure projects than buildings
because the concession allows for tolls or other payments to be made by
end-users to cover the cost of both procuring the facility and its operation.
Extensions of this idea have been cited where buildings have been renovated
and leased back on this basis and other where the facility is required to be
removed and the site returned to an acceptable environmental standard.
An advantage of this is that it extends the ideas of constructability
further to embrace lifecycle cost effectiveness. If the entity proposing
the design solution is responsible for maintaining and operating the facility
then they will have the incentive to reduce long term costs and thus develop
a highly cost effective product over the product lifecycle.
The BOT entity undertakes financing, design, and construction as well as
operation and so the client is taking no direct cost risk other than the
possibility that the facility does not meet its needs or that the concession
agreement is unsatisfactory. The cost of establishing the arrangements can
be considerable, as there are legal and financing costs to be met. These
should be compared with the clients legal and finance costs in undertaking
the project in other forms or options. Clearly the option is unlikely to be
viable for projects of small scope, However, governments are increasingly
using this option for hospitals, prisons and other projects previously
undertaken through other procurement scenarios.
27

Experience with BOO/BOT/BOOT schemes reveals some notable failures.
Generally, theses have been based on failures of trust and/or
communication.
6.0 PUBLIC PROCUREMENT ACT OF KENYA AND THE

EFFECTS OF BUREAUCRACY
The Public Procurement and Disposal Act (PPDA), effective as of 1st January
2007, applies to all procurement of goods, works and services, as well as the
disposal of assets by public entities. Public entities are those that procure
goods, services or works utilising public funds. The definition of public funds
includes donor funds in so far as donor stipulations do not supersede the Act.
If they do, the donor terms and conditions take precedence. As such, public
entities include the central and local governments, courts, commissions,
state corporations, cooperatives, and educational institutions such as
colleges, schools and universities.
6.1 PURPOSE
OF THE
PPDA
This Act does not directly seek to regulate the private sector, though it does
regulate its interaction with public entities. The PPDA was established in
order to:
Maximise economy and efficiency,
Promote competition and ensure that competitors are treated fairly,
Promote the integrity and fairness of procurement procedures,
Increase transparency and accountability in those procedures,
Increase public confidence in those procedures,
Facilitate the promotion of local industry and economic development.
In order to achieve these objectives, the Act establishes procurement and
disposal procedures. It also sets up the necessary structures to ensure that
the procedures are followed and to provide oversight and compliance
through Public Procurement Oversight Authority (PPOA). Its primary role is to
ensure that procurement procedures established under the Act are adhered
to. In doing this, the PPOA is required to advise, establish standards, and
train procurement
entities and persons, as well as advise government on policy issues.
28

The Act also establishes the Public Procurement Administrative Review
Board, which handles complaints, reviews and appeals stemming from
procurement.
Public sector procurement can be broken down into two categories:
Project specific procurement- goods, works or services are sought for
a particular initiative (e.g. a new road, a hospital, plant and equipment).
General consumable procurement relates to items that are required
for a ministry or authority to perform its duties (e.g. fuel, stationery,
vehicle parts, road maintenance and security).
6.2 PROCUREMENT PROCEDURES

The PPDA makes provision for the following forms of procurement:
1. Open tendering
2. Alternative procurement procedures, under which fall:
Restricted tendering
Direct procurement
Request for proposals
Request for quotations
Procedures for low-value procurements
Specially permitted procurement procedures
6.3 AN EFFECTIVE PUBLIC PROCUREMENT SYSTEM

Must be effective in all the following four pillars of the system:
Pillar I legislative and regulatory framework
This covers the legal and regulatory instruments from the highest level
(national law, act, regulation, decree, etc.) down to detailed regulation,
procedures and bidding documents formally in use.
Pillar II. Institutional Framework and Management Capacity
Pillar II looks at how the procurement system as defined by the legal and
regulatory framework in a country is operating in practice through the
institutions and management systems that are part of the overall public
sector governance in the country.
Pillar III. Procurement Operations and Market Practices
29

This Pillar looks at the operational effectiveness and efficiency of the
procurement system at the level of the implementing entity responsible for
issuing individual procurement actions. It looks at the market as one means
of judging the quality and effectiveness of the system when putting
procurement procedures into practice. This Pillar is distinguished from Pillars
I and II in that it is not looking at the legal/regulatory or institutional systems
in a country but more at how they operate. It looks at the efficiency of the
operations and operational practices as implemented by the procuring
agencies. Efficiency is considered to mean that the operational practices
result in timely award of contracts at competitive market prices as
determined by effective and fair implementation of procurement procedures.
There are four sub-indicators (a-d) to be rated under this indicator.
Pillar IV. Integrity and Transparency of the Public Procurement
System.
Pillar IV covers indicators that are considered necessary to provide for a
system that operates with integrity, has appropriate controls that support
the implementation of the system in accordance with the legal and
regulatory framework and has appropriate measures in place to address the
potential for corruption in the system. It also covers important aspects of the
procurement system that include stakeholders as part of the control system.
This Pillar takes aspects of the procurement system and governance
environment and seeks to ensure that they are defined and structured to
contribute to integrity and transparency.
While respecting and acknowledging the goals and principles of the system
of public procurement, the prevention of corruption in the system of public
procurement is based on the following measures:
1. Strengthening the legal framework
The aim of strengthening the legal framework is to ensure that all procedures
in which the state is a partner or a contractual party are subject to strict
rules, thus reducing the risk of corruption. It is therefore necessary to
regulate the overall system of public procurement, which, along with the
conclusion of public contracts for products, works and services, includes
concession contracts and public-private partnerships. By amending the
legislative framework of public procurement, stricter rules and conditions for
the participation of economic operators at competition tender procedures will
apply if they are in any way (in terms of interests, ownership or family
relations) connected with the contracting authority. In addition, the
provisions on the nullity of public contracts will be amended if the conclusion
30

of such contracts is a consequence of corruption by the tenderer or the
responsible person in the tenderer. Transparent procedures contribute to
reducing corruption risks.
2. Strengthening the control mechanisms
Further strengthening of the control mechanisms will proceed in the domain
of supervision and control. An anti-corruption body, which provides
assistance to the system of public procurement through its visible work.
3. Co-operation with other control bodies
This is with the aim of better co-ordination and joint activity of internal and
external institutions of control and audit, and to avoid any overlapping of
competencies.
4. Training concerning anti-corruption and ethics
Methods and conditions of training in the public procurement system, along
with other educational programmes for the system of preventing corruption
in public procurement should be encouraged. This should include both basic
and advanced knowledge of the professional integrity of all those involved in
public procurement activities. The programme to include education of
officials who work on public procurement in state, local and regional selfgovernment units , and other persons involved in the procedures. The course
should serve to acquire basic and advanced knowledge about the
harmfulness of corruption, its appearance, recognition, risks, prevention and
criminal prosecution of the perpetrators.
5. Raising awareness of the importance of preventing corruption in
the system of public procurement
Activities aimed at raising public awareness of the importance of public
procurement and the risks of corruption to be organised both independently
and in co-operation with civil society organisations through campaigns,
round tables and conferences, brochures, clips and posters, etc.
6. Encouraging the use of e-procurement
The use of new ICTs in all segments of public administration and the
openness of access to information, in accordance with the legislation in the
field of the protection of the secrecy of data and other regulations relating to
the accessibility of data, may have a major role in preventing corruption
through better transparency of the procedures of the authorities and
economic operators involved in the processes of building and procuring new
values.
7. Establishment of central public procurement bodies
By providing advisory and consulting services and implementing pilot
projects, efforts are made to encourage the establishment of central public
31

procurement bodies with a view to achieving financial savings by reducing
costs and the number of staff conducting public procurement procedures,
and the risks of corruption.
6.2 PUBLIC ENTITY PROCUREMENT INEFFICIENCY

The Public Procurement system in Kenya can be said to be ineffective to
some extent arising from poor implementation of the Act and/or challenges
that most organizations in application of the PPDA. Inefficiencies in public
entity procurement cost the GOK about KSh.30 billion annually. Prime
contributors to this inefficiency are:
i. Corruption
Corrupt practices are clearly evident in the procurement process. These
practices permeate the systems and occur at every level. Confidential
interviews with small enterprises indicate that in some instances it is the
only way they are able to participate in the process. Officials all give the
impression that their procurement processes are above board, yet meetings
with suppliers waiting in corridors outside the offices give a totally different
perspective. These enterprises often indicate that this is the cost of doing
business with public entities, and the amounts they pay are all factored into
their quotations.
ii. Payment delays
As legislated, payment should take place within 30 days. The reality is that
payments may take as long as 180 days. Delays are a result of several
factors that work together. Failure to adhere to legislated accounting
stipulations, excessive bureaucracy, insufficient funds, quarterly draw-downs
by public institutions (procurement is done in one quarter and the entity has
to wait for the next quarter to receive government funds to pay the supplier),
corruption, staff absences, and poor work ethics all contribute to delays in
payment. Contractors/Suppliers tend to factor in these delays in their
quotations and raise their prices as a result. Given the bureaucracy attached
to payments, authorisation takes long. Most suppliers are not aware of the
penalty
provision. Even those suppliers who know of the provision do not try to
enforce it. They feel that it would prejudice future business with the entity.
iii. Personnel constraints
32

Personnel capacity constraints are rampant in many of the public
procurement entities. Constraints related to knowledge of the PPDA and its
application. At central government level, POs may receive training on the
application of the PPDA and Regulations, but on other levels training is
sporadic. This aspect needs to be addressed through a comprehensive
training programme. ROCUREMENT AND SUPPLY IN KENYA
iv. Limited use of information technology
An issue at all levels of the public entity procurement process is the limited
use of information technology to record and manage the procurement
process. The use of information technology is more advanced at the central
government level, but is less so at the provincial, district and local authority
levels. Computers are most often used to draft letters, prepare spreadsheets,
and compile tenders. E-tendering would also relatively reduce tendering
costs. Software that links the procurement process to the accounting
authority would make the process much more efficient.
v. Poor planning
Despite being required by the PPDA, very little procurement planning seems
to take place in public entities. This is particularly evident at provincial,
district and local authority levels. It should be noted, however, that in many
instances this is not the fault of the PO. POs rely on the various departments
or ministries for their procurement plans and often do not receive them. In
instances where they do receive them, procurement often does not take
place as laid out in the plan, but rather occurs on an ad hoc basis. The
resulting multiple small volume procurement not only significantly adds to
the cost of goods, works and services, but also puts tremendous strain on
the procurement and financial bureaucracy. Overall this results in high
acquisition costs in both price and effort.
EFFECT OF BUREAUCRACY IN PROCUREMENT AND DEVELOPMENT

Mouzelis (1975) suggests that bureaucracy is the typical administrative
apparatus corresponding to legal (legitimate) domination and has many
distinct characteristics, e.g., high
degree of specialization, hierarchical authority structure with limited areas of
command and
responsibility, impersonality of relationships between organizational
members, recruitment of
33

officials on the basis of ability and technical knowledge, and differentiation of
private and
official income (Weber, 1947; Mouzelis, 1975; Bozeman, 2000).Bureaucracy
and corruption have long been considered to be intrinsically connected.
Bureaucrats are stereotyped as greedy, corrupt drains on the economy,
siphoning away public funds and extracting bribes for their own personal
gain.
Through various mechanisms, such as competition, heightened
oversight, and increased efficiency of public services, it is possible that
increases in the size of bureaucracy may lead to a decrease in the frequency
and size of bribes.
Corruption can occur at different points of the government hierarchy and
have varying effects.
Public procurement is a complex matter in a two-dimensional way. First, it
represents many different situations, anything from the construction work of
a new international airport to the acquisition of pencils. Second, the tender
procedures usually include several steps, from designing the tender to
evaluating the bids. Both the procedures and the opportunities for corruption
vary significantly among the categories of procurement.
Effect of bureaucracy in procurement systems
Many appeals and tribunals/committee
a.
Cost and time overruns
b.
Corruption
c.
Inefficiencies
d.
Product is comprised due to quality concerns
e.
Improves accountability
f.
Fairness is exercised
g.
Firms can enter and exit
h.
Lack of innovation and creativity
7.0 CONCLUSION
34

The use of the various project procurement systems shows that the
construction industry is now trying to meet the clients needs. This is
because the different procurement method will have different effect on the
cost, time and quality of the project. Each project procurement system has
its own peculiarity in term of the pre-tender and post tender activities and
processes, division of risks between client and contractors, and the
effectiveness of project monitoring and control.
It is very important at the very outset of the project to carefully consider all
factors when selecting the most appropriate procurement approach for a
construction project. This is because each system has its own feature and
peculiarity that will have effect on the cost, time and quality of the project
i.e. the project performance.
8.0 REFERENCES
1. Akintoye, A and Fitzgerald E (1995) Design and Build: A Survey of Architects Views,
Engineering, Construction and Architectural management
2. Ashworth A (2001) Contractual Procedures in the Construction Industry, UNITEC, New
Zealand
3. Chitkara K K (2005): Project Management - Planning, Scheduling and Controlling Tata
McGraw Hill, New Delhi
4. Kwakye A A (1997) Construction Project Administration In Practice Longman, London
5. Lam, E W M, Albert P C and Chan D W M (2003) Is Design and Build the Preferred Option
to Procure all Projects? Research Fellow, Department of Building and Real estate, The
Hong Kong Polytechnic University
6. Masterman J W E (1996) Building Procurement Systems: An Introduction, E & FN Spon,
London
7. Murdoch J and Hughes W ( 2000) Construction Contract: Law and Management: 3rd Edition
E&FN Spon, London
8. Rowlinson, S (1987) Design and Build Its development and Present Status, Ascot CIOB
9. Songer A D and Molenaar K R (1996) : Selecting Design and Build Public and Private
Sector Owner Attitudess, Journal of Management in Engineering, ASCE.
10. The Aqua Group (2001) Tenders and Contract for Building- 3rd. Edition Blackwell Science,
London
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[Construction Contract Administration] January 15, 2010

1.0 Introduction | Procurement Systems in Building Works