INSTITUTE OF TECHNOLOGY

DEPARTMENT OF CONSTRUCTION
TECHNOLOGY AND MANAGEMENT
PROCUREMENT AND CONTRACT MANAGEMENT
FOR COTM 5th year

(BY Wondirad W.)

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 INTRODUCTION
General Description

Procurement:
procurement can be defined as the purchase of goods
and services at the best possible prices, delivery dates
and legal terms.
Procurement is a process used to select the lowest
competitive and qualified bidder for procuring
services or works or goods from potential
competitors based on reasonable relevant criteria.
That is competitive procurement which in turn
implies a contractual acquisition/procuring of
goods or services or works.
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 General Description
Why Procurement & Contract management is to
be discussed?
It ensures:
Fair competition and
Fair distributions of obligations and rights among
stakeholders
Fair competition helps
To acquire the rights of the owner
To value market principles & effective utilization of
finance
to get impartial and neutral opportunity for business
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 General Description
Fair distributions of obligations and rights helps:
To allocate appropriate risks among contractual parties
To entitle remedial rights to contractual parties
In general the following things determine the
construction process involved and the relationships
and roles of stakeholders along the process.
The delivery system chosen
the procurement method adopted
the contract types decided

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 Contract and procurement management
Process
Procurement and Contract Management involves three
major processes:
• Contract Planning,
• Procurement Management and,
• Contract Management which in turn consists of the
following

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 Contract Planning
Procurement and Contract Management
processes shall be based upon the approved
contract planning provisions; that is,
the contract delivery system,
the procurement method and
contract types decided upon .

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 Contract Planning
The approved contract provisions can only be changed
following the change process stated in the contract
planning document and if and only if:
The Environment and Context considered are
not correctly analyzed or changed,
Their application can remarkably affect the
objective of the project, and
Procurement management process justifies
change of the Contract Types.

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 Procurement Management
Procurement Management is a process of selecting
individuals or organizations to carry out the intended
services and / or works. It is based on provisions made
on contract planning phase.
It involves
the preparation of procurement documents
Invitation and submission of tender proposals
Opening and Evaluation of tenders

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 Procurement Management
The following issues are necessary for a successful
Procurement Management phase:
 knowing and ensuring the implementation of
procurement related National and International laws,
rules and regulations,
adherence to the provisions made during the contract
planning phase including their change processes,
establishment of a flexible procurement team, and
adhering to the principles of Proof of competition,
Impartiality, Neutrality, Accessibility and Formality.

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 Contract Management
Contract Management: is a process of
reaching contractual agreement for
implementation, its administration and
finally concluding the contract. It based on
provisions made on contract planning phase.

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 Contract Management
The following issues are necessary for a successful
Contract Management phase:
 knowing and ensuring contract related National and
International laws, rules and regulations,
adherence to the provisions made during the contract
planning phase including their change processes,
identifying, recognizing and involving all potential or
key stakeholders to form a contract team,
understanding, mapping and monitoring all contract
conditions agreed upon, and
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ability to administer changes, claims and disputes.
 Applicable Laws, Rules, Regulations and Guidelines
The following Rules, Regulations and Guidelines are useful for
Procurement and Contract Management
Ethiopian Financial Laws and Ethiopian Procurement
Regulations by MoFED
Ethiopian Civil and Procedural Codes by MoJ
Public Works Related Organizations Establishment
Proclamations, their Policies, Strategies, Duties and
Responsibilities, such as MWUD, ERA, MWR, etc by FGovt
Project Formulation Guideline, Volume II, MoFED, 2000
ADB, WB, EC and Other Bilateral Donors Policies and IMF
Regulations

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INCOTERMS, UNICETRAL and Other Internationally
acknowledged Construction Related Laws and Regulations
Ethiopian Urban Planning & Building Laws - Draft
Labor, Business, Intellectual Rights, Environment Protection,
etc Laws
Standard Instruction to bidders, MWUD – 1995
Standard RFP for Construction Consultancy Services

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General and Particular Conditions of Contract: MWUD, ERA,
FIDIC, WB, ADB, EC
Construction related Codes of Practices such as EBCS 1 – 12
by MWUD
Construction related CPN, draft – MWUD
Construction Related Standard specifications by QSAE,
MWUD, ERA
Construction Related Regulations by Municipalities and
RBWUD

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 2. Contract planning
2.1 Introduction and purpose
Procurement and Contract Delivery
Types, Definition
Procurement and Contract Delivery system is the way Project
Owners together with Project Regulators and Financiers
determine the assignment of responsibilities to Project
Stakeholders along the Construction Process.
A formalized contractual approach which allows an owner to
secure planning and design services and build a project,
assuring effective management throughout.
 Procurement and Contract Delivery system is often
determined during the Basic Planning phase of Construction
Project.
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 Types of delivery system
Project Delivery method is an organizational concept
which assigns specific responsibilities and authorities to
people and organizations and which defines relationship
of the various elements in construction of a project.
Methods of project delivery system
Force Account,
Out Sourcing
Design Bid Build(DBB)(traditional del. system)
Design Build (DB) or Turnkey,
Finance / Build Operate transfer System (BOT),
Construction/Facility Management Consultancy
16 Alliances and Outsourcing.
 Force Account
When the Project Owners engage themselves to
undertake the project, it is called a force account
delivery system. This system is promoted for
• Comparative advantage of cost, quality and time
• Scale of projects and technology new and small
• Remote projects and maintenance works
• spatially scattered and maintenance project s

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 Design-Bid-Build
(Two Separate Contracts for Design & Construction)

Owner

General
A/E Contractor

Responsible for Design Responsible for

18 Costs & Schedule
 Cont…
This is the most practiced type of delivery system in
the Construction Industry of Ethiopia since the 1987.
 After project owners did prepare the Basic Planning
that identifies construction project programs, they
call upon the participation of Design and / or
Supervision Consultants either by tender or by
negotiated contracts.
This consultant will carry out the design together
with the necessary tender documents which will be
the bases for tendering to select contractors.
These process is called Design - Bid - Build and
hence the name for such delivery system.
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 Design bid build

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 Merits of DBB
Contractors bid competitively ,based on complete
design documents to maximize the built product for
the price
The owner selects the Designer on the basis of
qualifications or ability
The Designer is active in construction administration,
so design intentions are followed.
Design and construction roles are clearly defined, and
responsibilities and liabilities clear.
Owner is an active participant in design process.

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 Demerits of DBB
Fragmented contract for the project owner
Severe Adversarial relations between the contracting parties,
rather than foster a cooperative atmosphere
Non - Impartiality of the Design and Contract Administration
services
Project owner responsibility for risks associated with the
design and contract administration
Design-Bid-Build construction phases are sequential and may
require more time
No built-in incentives for contractors to provide enhanced
performance (cost, time, quality, or combination thereof)

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 Demerits of DBB
Owner is at risk for final construction cost. Actual
construction costs are not known until design and
bidding are complete.
The inability of design and contract administration
consultants to cope up with new construction
technologies and constructability issues of their designs.
The indirect contractual obligation assigned for the
Design and Contract Administration consultants.
Often prone to adversarial positions that lead to disputes
and claims

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 Design Build/Turnkey
DB approach
Enhance the Force Account System
Reducing fragmentation, adversarial relations and
Project Owners’ risk
Employ(use) only one procurement process
Single contractor to provide the entire Construction
Process (Design and Construction Implementations)

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 Design-Build (Turnkey)
Owner

Design-Build
Firm

Designers and Consultants Subcontractors and Suppliers

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 Design-Build

OWNER

DESIGN-BUILD
FIRM

design
subcontractors construction
design subcontractors
sub consultants
26 suppliers
 Typical Design/Build Process
(The Four Phases)

NEED

Typical Planning
Design/ Design
Build Construction
Process Design/Build
Team Occupancy

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 Design Build/Turnkey
A design-build contract may also include
responsibilities that extend beyond the design and
construction phases of a project, shifting more
performance risk to the private sector. These have
include
Design-Build-Warranty
Design-Build-Maintain
Design-Build-Operate

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 Advantage of DB
reducing fragmentation and adversarial relations between
designers and constructors;
minimizing Project owners’ risk transferable due to Designers’
faults;
accountability and entire responsibility for both design and
construction is onto a single contractor;
employers’ responsibility to co-ordinate is avoided;
single point responsibility minimizes the opportunity to claims
the client budget or financial requirement is defined early
enough
Earlier schedule and cost certainty

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 Advantage of DB
Accelerated project delivery by:
Fast-tracking design and construction
Close coordination between designer and contractor
Early contractor involvement to enhance
constructability of plans
Innovation and quality improvements through:
Alternative designs and construction methods suited
to the contractor’s capabilities
Flexibility in the selection of design, materials, and
construction methods

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 Disadvantage of DB
The disadvantage of this delivery system is
loss of control,
cost of tender and
cost of risks.
Accelerated construction can potentially
overextend the workforce.
Traditional funding may not support fast-
tracking construction or may require
accelerated cash flow.
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 Build Operate Transfer

Build - Operate – Transfer(BOT) is a form of procurement

and contract delivery system that promotes Public Private
Partnership (PPP) in which a private company is
contracted to finance, design, construct, and operate for a
certain period (usually 10 years) and transfer.
The project owner is not responsible for any liability other
than force majeure and agreed upon claim adjustments.
The Operation period between completion and transfer
gives the contractor an opportunity to verify the quality of
the output of the services and works
BOT project involves a potentially complex contractual
structure
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 Advantages of BOT
This delivery system is advantageous because of
It minimizes owners’ scarcity of financial
resources;
It devoid of considerable risks from the project
owners
The facility is well operated and transferred
with free of charge or minimum compensations
to project owners.
Integrates the process of design, construction,
33 operation, and maintenance.
 Disadvantage of BOT
Disadvantages of BOT are:
Cost more in the long run
Longer tendering process
Costly tendering
Future political change may disrupt
prior agreement
No capable local contractors
Contractors not interested in all works

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 Construction/Facility Management Consultancy
Response to problems associated with DB and BOT
Construction management consultancy firm is used
to coordinate all activities from concept inception
through acceptance of the facility.
Facility management consultancy adds operation of
facility during operation to Construction
Management Consultancy.

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 OWNER

ARCHITECT
LIMITED
CONSTRUCTION
ADMINISTRATION

DESIGN
DATA DETAILED
CONSTRUCTION
COORDINATION

FEASIBILITY
+COST DATA

Architect’s
design GENERAL
consultants CMa CONTRACTOR

subcontractors

Construction Management: materials suppliers

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“Agency” Form
 Construction Management consultancy
CM is involved in the whole construction processes where as
all the others involve only during the implementation phase
after major decisions was made during the Basic planning
phase
Construction Management Consultants then represents Project
Owners to carry out the following services:
Feasibility studies of Construction related services
Plan and Monitor the Triple Constraints of Project
Performances
Lead and Organize regulatory systems of the Construction
Industry
Valuation, Quantity Surveying and Procurement and
Contract Management Services
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 Construction Management
Construction management is a broad term covering a
variety of project delivery scenarios in which a
construction manager becomes an integral part of the
team, at early stages in the project, to oversee such
elements as schedule, cost, and construction
methodologies and procurement strategies
The general Construction Management variations are
Construction Management-at-Fee (CM at-Fee) and
Construction Management-at-Risk (CM-at-Risk),

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 CM at-Fee
CM-at-fee is a delivery method similar to the DBB
In CM-at-fee method,
the construction manager is responsible for project and site
management,
 but is not involved in actual construction work.
The construction manager monitors cost, time, quality and
safety,
 but does not take responsibility for them.
The construction manager is paid a fixed or time based for
services provided
The construction management organization takes an advisory
role or role of an agent to the client
The CM has limited risk because construction contracts are

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between the owner and individual contractors.
 Construction Management-at-Fee
(CM at-Fee)

Owner

Agency
CM

A/E
GC

Designers and Consultants

Subcontractors and Suppliers

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 Advantages of CM at-Fee
Advantages of CM at-Fee:
Managing and administering all phases
of a project.
Treats Planning, Construction and
Design, as an Integral Task.
Cost and Schedule Control
Constructability input at design stage

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 Disadvantages of CM at-Fee
Disadvantages of CM at-Fee
No contractual relationships with trade contractors
No contractual responsibility for outcomes of a
project
Client retains the risks
Additional cost for the Construction Manager

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 CM at-Risk
In CM-at-risk, the construction manager, apart
from providing constructability inputs at the design
stage, is also responsible for construction means
and methods and delivery of the completed work,
including quality and performance of the asset
All procurement in the project is done by the
construction manager,
owner contracts with the designer and the
construction manager-at-risk,
construction manager-at-risk contracts with the
subcontractors. But, still, the client retains the final
decision in project delivery
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 Advantages of CM at-Risk
Advantages of CM at-Risk
Good for clients with insufficient staff
Owner flexibility
Responsible for cost and time overruns
Holds and manages trade contractors
Constructability design review
Legal position as a General Contractor
Works closely as a teaming effort and
encouraging trust and partnering
Phased construction (fast tracking) possible
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 Disadvantages of CM at-Risk
Disadvantages of CM at-Risk:
Lack of capable construction managers
Demanding work organization
Lack of cost certainty for each work packages
Lack of contractors who can provide both
construction management and construction
services
Fragmentation, as compared to DB& BOT
No exactly defined work packages (bill
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quantities )
 Partnering, Alliances

which focuses most on management of relationships

and value adding to ensure quicker, cheaper and quality
services and products with less disputes are recent
developments.
This is a method where an owner/developer and a
contractor agree to work together  by freely sharing
resources, risks and knowledge during the course of the
project
These systems require to overcome cultural and
behavioral barriers among interest groups and control
motivated performance based management
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 Partnering, Alliances
This type of project procurement can be
distinguished from others by
collective performance of obligations by
the owner/developer and contractor,
decision-making by consensus,
commitment to resolve disputes without
resort to litigation

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 Partnering, Alliances
The advantages of partnering are
increased opportunities for cost saving by
continual improvement,
lack of an adversarial atmosphere,
cultivation of good public relations and
increased prospects of repeat business,
incentives for innovations and improved cost,
time and quality outcomes.

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 Partnering, Alliances
However, partnering is not an easy solution.
It requires commitment, discipline and trust
and can demand significant adjustments in
the relative, traditional positions of an
owner/developer and a contractor.

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 Choice of Project Delivery
Methods: Some Considerations
Choice of project delivery methods can be pictured in a
different context, which displays the project delivery
methods viewed by means of two criteria. This is based
on whether the project delivery methods are based on:
approach (segmented or integrated), and
Source of finance (direct or indirect funding)
If the goal is to seek traditional or segmented delivery
methods, then the client would consider the following
delivery methods.
Design-Bid-Build (DBB)
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Construction Management (CM) at fee.
 Some Considerations
If the goal is to seek integrated delivery methods, then
the client would consider the following delivery
methods.
Design-Build (DB)
Construction Management (CM at-Risk)
Design-Build-Operate-Transfer (BOT)
And if the intention is to seek direct project funding,
the owner may consider the following options:
Design-Bid-Build (DBB)
D-B (Design-Build)
Construction Management (CM) at fee and at risk.
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 Some Considerations:
If the goal is to seek external financing
(indirect funding), then the client would
consider the build-operate-transfer (BOT ).
 Note: It is worth mentioning that the
above division is based on the normal
procedure or the usual practice. It may
vary as agreed up on.

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 THANK YOU

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