As in other industries, construction procurement is the process of procuring goods and services. A project manager must have a solid procurement procedure in place to achieve optimal efficiency for effective project delivery. This procedure has a significant impact on the operation and must incorporate the most cost-effective supply purchases, while considering schedules, quality, and budget – which are of the utmost importance for the kinds of large-scale projects done in the construction industry. The procurement method selected is a crucial determinant of total profitability and is crucial to the success of any building project. In this article, types of procurement contracts in construction, we take a look at the process involved and the options available to you.
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There are a number of procurement methods used in the construction industry and they include:
General Contracting
General contracting is perhaps the most basic form of procurement, but one that has been widely utilised in the building industry. A contractor’s responsibilities are limited to construction, leaving design and contract administration to a consultant or engineer. Additionally, the client controls the finances and operation.
The primary advantage of the traditional technique is the set criteria for evaluating the cost-effectiveness of this form of procurement. However, as an operational party, the contractor has less influence over the design cost and risk allocation, so there are certain drawbacks, which demonstrates why it is essential for all stakeholders to be involved in a project from the outset.
It is suitable for complex and extensive projects.
Design and Build
The most common form of D&B is when the contractor is responsible for both design and construction. In integrated D&B contracting, the contractor produces the design and constructs the building in accordance with the employer’s specifications. In contrast, novated D&B contracting is closer to the traditional model in that the employer’s design team prepares the design, but then novates the design responsibilities to the contractor, who then constructs the building. The primary benefits of this kind of procurement are the contractor’s single point of responsibility for both design and construction and the flexibility to expedite the project.
D&B is more conducive to allowing contractors to begin construction before the design is finalised. This can be significant, especially for government agencies that must occasionally spend their project funds within the allotted time frame. This technique of procurement is becoming increasingly prevalent, and most employers and contractors have experience with it. Among the downsides of D&B is the employer’s loss of design control. Experience reveals that in order to complete projects within budget, D&B contractors frequently sacrifice design, which can be problematic for employers. It imposes a larger need on employers to precisely describe their requirements without being so prescriptive that they are, in fact, providing a design. Additionally, the client faces the absence of the contract administrator, who serves as his eyes and ears for the project.
Construction Management
For developers with internal management resources that specialise in larger, more complex projects, construction management may be the optimal procurement approach. In this arrangement, all aspects of a project are subcontracted to the lowest and most qualified bidder.
Although this is a very time-consuming and intricate procedure, businesses can save money by making each component as competitive as possible and retaining complete process control. This may also necessitate a complex supply chain management approach.
Joint Ventures
A joint venture permits two or more distinct entities to collaborate on a project. This allows the parties to share both the benefits and the risks. To establish a joint venture, a new business is formed to which each partner contributes resources, such as land, finance, intellectual property, qualifications, skills, or equipment.
Numerous issues in the construction industry can be attributable to obstacles between contracting parties. Joint ventures are a method for overcoming these obstacles since they foster an environment based on mutual goals, teamwork, and trust.
In a joint venture procurement system, identifying the roles of each party can be challenging, but they are becoming an increasingly popular option for enabling smaller companies to undertake larger projects by combining their skills. The smaller companies can then benefit from the larger company’s credibility and financial stability.
Similarly, a larger organisation may choose a joint venture to gain new or specialised resources from a smaller organisation. Overall, it is a viable way to learn about other markets and to share risks and expenses.
In order to work efficiently, there must be a shared vision throughout and the structure must be defined from the outset. Staff relationships will improve collaboration, which will be reinforced by the creation of common technology platforms and collaborative procedures and contracts.
Private financing
Private financing essentially transfers all construction duties to the contractor until the project is completed using privately supplied funding. After the project has been completed, it is handed over to the client.
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Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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