Procurement & Contract

Management
Procurement & Contract Management Process

Delivery System Contract Formulation

Procurement Method Contract
Contract Types Administration
Contract Closing

3.2.Procurement
3.1.Contract Management 3.3.Contract
Planning Management

Procurement Preparation
Tendering
Tender Evaluation & Notice of
Acceptance
 Chapter one
Contract Planning
 Contract Planning
Construction projects are components of a certain business or
development demands. That is, they are formulated if and only if
such businesses or development demands acknowledge their
contribution and it is a must to involve them.
• Contract planning includes decisions on proposed Delivery
Systems, Procurement Methods and Contract Types to be
followed and used together with its provisions for alterations.
This is because such decisions are related to regulatory requirements
such as:
• Ethical (Neutrality, Formality, and Impartiality);
• Economical: (Proof of Competition, Least Qualified and Evaluated
Bidder);
• Accountable: (Obligations and Rights);
• HSE (Health, Safety and Environment); and
• Transparent: (Accessibility and Notice of Advertisement).
 Definition, Types and Developments
•

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.
Procurement and Contract Delivery system is often determined
during the Basic Planning phase of Construction Project
Procurement and Contract delivery systems are developed
overtime.
The development was based on problem solving for the previous
type and the Development of the Construction Industry
technologically and management wise.
 Force Account - Since development started

Design Bid Build (DBB) – 1950s / 1987

Design Build (DB) / Turnkey - 1970s Onwards / Mid 1990s

Finance / Design Build Operate - 1980s / ……

CM / Facility Management - Mid 1990s / 2000s

Alliances & Outsourcing – 2000s / 2000s

The different Procurement and Contract Delivery Systems and their

development overtime
Design Bid Build (DBB)
DB
CM
 Contract Types(Based on the contracting parties)
Generally, contract can be of three types( Based on
Unilateral or Optional or If the contracts are recognized by
law where the promise by one party is binding and if the
performance is carried out by the other party who is not bound
merely by embarking on the performance required.
Bilateral Contracts are contracts entered to promise for an
obligation performed in the future where both (two) parties are
mutually bound. Such obligations are often termed as
executory.
Multilateral Contracts are contracts entered to promise for
an obligation performed in the future where all (three or more)
parties are mutually bound
 Contract Types
based on the contractor payments
In Construction Industry, the following eight contract types are
so far practiced:
Lump Sum Contract,
Bill of Quantities or Unit Rate Contract,
Cost Plus Fixed Fee Contract,
Cost Plus Percentage of Cost Contract,
Item Rate or Schedule of Rates Contract,
Labor Contract,
Hybrid Contract, and
Special Contract
 Lump Sum Contract:
When the Project or Tender price is determined and quoted as a total
sum of money without individual ratings to execute the whole of the
works or services according to the drawings and specifications. In such
contracts:
 It is difficult to administer changes and amendments but experiences
of similar projects are used as a basis to this effect,
 Works or services are checked based on the specifications, the
conditions of contract or terms of reference and drawings if any
for acceptance and closing of accounts, and
 Payments are agreed at different stages of works or services.

A Lump Sum Contract is more suitable for works of smaller in size and where
the contracting parties have prior experience of similar projects.
But it is not advisable for projects with considerable uncertainties such
as; difficult sub surface situation, unusual projects, maintenance
projects, etc.
A Lump Sum Contract mainly includes Contract Agreement, Drawings
and Technical Specifications.
Bill of Quantities Contract:
When the Project or Tender price is determined and quoted
from unit rates assigned to detailed bill of quantities, it is called a
Bill of Quantity Contract.
The Bill of Quantity includes short description of specifications,
unit of measurement, quantities and columns for pricing the unit
rate and its total amounts.
In such contracts:
 It is relatively easy to administer changes and amendments
because actual and assigned quantities can be compared,
Works or services are checked based on the specifications, the
conditions of contract or terms of reference, drawings if any and
the priced bill of quantities for acceptance and closing of
accounts, and
Payments are made based on measurements of executed
works and material on site provided on site.
 Cost Plus Fixed Fee Contract:
 When projects are fast – track and required to be completed
expeditiously and
 where it is difficult to estimate the project cost before, the
project expenses called costs will be recorded and a fixed
amount which is agreed upon by the contracting parties will be
added as payment to the contractor.
A contract that stipulates to reimburse cost together with an
additional fixed fee.

Desirable when the scope and nature of the work can at least
be broadly defined and for important structures such as
monumental buildings which are Time and Quality driven than
Cost driven.
 Cost Plus Fixed Fee Contract:
The work is executed in the best interest of the owner with
regard to the project quality and time,
There is no way that the contractor can loose,
Changes and Amendments can be accommodated amicably,
The amount of the fixed fee is determined as a lump sum from
a consideration of the scope of the work, its approximate cost,
nature of work, estimated time of construction, manpower and
equipment requirements, and
The owner could not easily anticipate the final project price
and can cause budgetary problems.
Cost Plus Percentage of Cost Contract:
This type of contract is similar to the Cost plus fixed fee contract
but its fixed fee is made variable using a percentage of the cost
which is meant to cover the overhead and profit costs of the
contractor.
Contract Administration becomes intense in such type of
contract in order to protect the interest of the owner.
This is because the payment is made by determining the actual
cost of the work plus a certain percentage.
The disadvantage of such kind of contract is the tendency to
increase the cost of the work to earn more profit by way of
percentage of enhanced actual cost.
Item Rate or Schedules of Rates Contract:
A different form of fixed contract but priced based on the unit
rate approach for individual or groups of activities, not the whole
project.
Labor Contract:
When the Project owner is responsible for the provision of
major resources such as materials and Equipments other than
labor, small tools and equipments and their management.
Hybrid Contract:
A contract that combines two or more contract types is called
Hybrid Contract.
This type of contract is designed to meet the special
requirement of certain classes of works to suit their particular
needs.
Special Contract:
As the name implies, in certain circumstances such as use of
specializations, urgency, supplementary nature and continuity
of services or works; remoteness and smallness of projects, etc
requires special arrangements. These include
Packaged Contract Continuing / Supplementary Contract
Running Contract, and Sub Contract
Choice of contract type
There are there essential requirements of any contract:
Incentive. The aim is to provide an adequate incentive for
efficient performance from the contractor. This must be
reflected by an incentive for the client to provide appropriate
information and support in a timely manner.
Flexibility. The aim is to provide the client with sufficient
flexibility to introduce change which can be anticipated but not
defined at the tender stage. An important and related
requirement is that the contract should provide for systematic
and equitable evaluation of such changes.
Risk sharing. The aim should be to allocate all risk between
client and contractor. This must take account of the
management and control of the effects of risks which may
materialize. The contractor will include a risk contingency sum
in his tender as protection against the risks he has been asked
to carry.