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Chapter 2 :procurement &

Contract Delivery Systems
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 Course

Construction Contract Administration

CoTM 4242

By:

Michael K.

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 2. Procurement and Contract Delivery
2.1 Types, Definition & Development
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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 2.1 Types & Development
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.
Factors considered when choosing project delivery
system
Experiences
Practices
Tradition
Working capital

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Source of funding
 2.1 Types & Development
Methods of project delivery system
Force Account,
Design Bid Build (DBB),
Design Build (DB) or Turnkey,
Finance / Build Operate transfer System (BOT)
Construction/Facility Management Consultancy
Alliances and Outsourcing.

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 2.1.1 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 (large, small);
Remote projects;
spatially scattered and maintenance projects
When projects are unattractive to bidders

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 2.1.2 Design-Bid-Build
Is the most practiced type of delivery system in the
Ethiopia Construction Industry

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.
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 Cont.…

This consultant will carry out the design together

with the necessary tender documents which will
be the bases for tendering to select contractors.

Contractors are responsible to construct works

with due care and diligence and complete them in
accordance with the contract, but they are not
held responsible for design deficiencies.

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 Cont.…
 Two Separate Contracts for Design & Construction

Owner

General
A/E Contractor

Responsible for Design Responsible for

9 Costs & Schedule
 Typical Design-Bid-Build Process
(The Four Phases)
NEED

Planning Design Bid Construction Occupancy

Typical
Design-Bid-Build
Process

Contractor
Design Team

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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
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combination thereof)
 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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 2.1.3 Design Build/Turnkey
DB approach

The complete design and building of the project is

carried out by a single contractor.

Reducing fragmentation, adversarial relations and

Project Owners’ risk

Employ only one procurement process

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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
subconsultants
16 suppliers
 Typical Design/Build Process
(The Four Phases)

NEED

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

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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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 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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 2.1.4 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
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BOT project involves a potentially complex
 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,
operation, and maintenance.
Projects completed faster
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 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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 2.1.5 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
 2.1.6 Construction Management consultancy
 A construction management consultancy firm is used to
coordinate all activities from concept inception through
acceptance of the facility.
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

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
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are 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
Construct ability 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
CM at Risk –where the consultant is responsible for any
risks associated with the project ( increase in cost, change
of ground conditions, etc)

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
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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
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
quantities)

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 2.1.6 Partnering, Alliances, Outsourcing

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
increased opportunities for cost saving by continual
improvement,
lack of an adversarial atmosphere,
incentives for innovations and improved cost, time and
quality outcomes.

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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.
 Cont.…
 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.
 If the goal is to seek external financing (indirect
funding), then the client would consider the build-operate-
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transfer (BOT ).
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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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