Delivery Management Guidelines Practice Guide 2 ...toolkit.cidb.org.za/Shared Documents/IDM-Toolkit-DMG-6...Construction Procurement Delivery Management Guidelines: Practice Guide

Delivery Management Guidelines

Practice Guide 2 - Construction Procurement Strategy

Version control Version 11 Date 2011-04-20

Status Approved

Construction Procurement

Delivery Management Guidelines: Practice Guide 2 – Construction Procurement Strategy 2

The IDMS

Prov Infr Strat

G1(a) G2G1(b)U‐AMP C‐AMP

PC1

PF1.4PF1.3 PF2.1 PF2.2 PF2.3 PF3 PF4PF5

PF1.1 PF1.2

DP1: Portfolio Management

DP1‐2 Programme ManagementDP1‐1 Infrastructure Planning

Develop/review U‐AMP (including prioritised MTEF works list)

Develop/review C‐AMP (incl portfolio level Work Plans)

Develop /review Constr

Proc Strat

Develop /review IPMP

Manage Implementation

Authorise Implementation

Monitor & Control

Close Out

G3 G4 G5 G6(a) G6(b) G7 G8PC2

PC3

PC4a

PC5

PC4b


T1 T2

PEP2PEP1 IPIP PEP3

DP2: Project Management

DP2‐1 Implementation Planning

Prepare Packages

Define Packages

Develop/Review IPIPs (Prgr & Proj level)

DP2‐2 Design

Design devlpmt

Detailed design

Compile MFC Info

DP2‐3 Works

Construct / Deliver works

Handover works

DP2‐4 Close Out

Contracts Close Out

Adminstv Close Out

PEP4 PEP5 PEP6 PEP7


G8

DP3: Operations & Maintenance

DP3‐1 Recognise & accept assets

DP3‐2 Mobilisation for Facilities Mgt

DP3‐3 Operations DP3‐4 MaintenanceDP3‐5 Demobilisation

of Facilities Mgt



Structure of the Infrastructure Delivery Management Toolkit (IDMT)

Delivery Management Guidelines

Management Companion

Infrastructure Delivery Management System(IDMS)

Practice guides

PG1: Prov InfrStrategy

PG2: ConstrProc Strat

PG3: Perform Mgt



Table of Contents 1. Purpose of this Practice Guide ........................................................................................................................ 5 2. Where am I within the Delivery Management Guidelines ................................................................................ 5 3. Introduction ...................................................................................................................................................... 6 4. Construction procurement strategy .................................................................................................................. 6 5. Delivery management strategy ........................................................................................................................ 7

5.1 General .................................................................................................................................................... 7 5.2 Gather and analyse information ............................................................................................................... 7 5.3 Formulate procurement objectives........................................................................................................... 9 5.4 Make strategic delivery management decisions .................................................................................... 11 5.5 Decide on delivery mode (project or programme) .................................................................................. 14 5.6 Package works ...................................................................................................................................... 15

6. Contracting arrangements ............................................................................................................................. 20 6.1 General .................................................................................................................................................. 20 6.2 Allocate risks for packages .................................................................................................................... 20

6.2.1 Construction service only ................................................................................................................... 20 6.2.2 Maintenance service only .................................................................................................................. 30 6.2.3 Construction and maintenance service .............................................................................................. 31 6.2.4 Construction, maintenance and operation service ............................................................................. 32 6.2.5 Supply and install ............................................................................................................................... 34

6.3 Establish requirements for outsourced professional services ................................................................ 35 6.4 Package professional service contracts ................................................................................................. 35 6.5 Allocate risks for professional service contracts .................................................................................... 38

7. Procurement arrangements ........................................................................................................................... 42 7.1 General .................................................................................................................................................. 42 7.2 Decide on quality strategy ..................................................................................................................... 43 7.3 Decide on procurement procedure ........................................................................................................ 43 7.4 Decide on targeted procurement strategy .............................................................................................. 46 7.5 Decide on tender evaluation procedure ................................................................................................. 46

8. Documenting a construction procurement strategy ....................................................................................... 49 9. Implementing a construction procurement strategy ....................................................................................... 50 10. Annexure 1: Glossary .................................................................................................................................... 55

Table of Figures and Tables



1. Purpose of this Practice Guide The purpose of the Construction Procurement Strategy Practice Guide is to:

1. Establish a methodology to develop a construction procurement strategy at a portfolio, programme or project level

2. Facilitate the introduction of alternative approaches in the delivery and maintenance of infrastructure to improve procurement outcomes

3. Provide supplemental information to the Infrastructure Gateway Process relating to procurement planning (Stage 2).

4. Standardise the available delivery models and the terminology used to describe such models (see Annexure 1)

2. Where am I within the Delivery Management Guidelines

Figure 1 indicates where am I within the Delivery Management Guidelines Figure 1: Construction Procurement Strategy in relation to other delivery processes

Practice guides

PG1: Strategy

PG2: Constr

Proc Strat

PG3: Perf Mgt



3. Introduction Research indicates that the traditional approach to infrastructure delivery works best when:

• A department or municipality has sufficient in-house capabilities and capacity to either undertake the design or to brief consultants and to oversee the design process

• The design and associated documentation is completed before tenders are invited.

The current reality is that departments and municipalities are experiencing difficulties in attracting and retaining suitably qualified staff while multi-disciplinary consulting teams involved in the delivery of infrastructure rarely have completed designs at the time that the contractor is appointed. This has resulted in:

• Severely stressed departmental and municipal oversight resources • A crisis management culture which cuts corners in the planning processes • The fragmentation of design and construction, with aspects such as constructability and cost modelling

determined by the design team and cost consultant only • Tasks being allowed to take their course relatively uncontrolled, sometimes resulting in extreme and

inappropriate risk avoidance or risk transfer • A “pay as you go” culture where significant cost overruns are the order of the day • Consultant driven projects with perverse incentives (for example fee rates as a percentage of the value

of the works) • A history of under-expenditure and poor service delivery, particularly by weaker rural municipalities.

Alternative procurement and contracting arrangements are needed to deliver and maintain much needed infrastructure. This practice guide establishes a methodology to develop procurement strategies at a portfolio, programme or project level by:

• Analysing the medium term expenditure infrastructure plans and identifying spatially located work items in the infrastructure plans grouped into categories of spend with common attributes

• Performing an organisational and market analysis • Formulating primary and secondary procurement objectives • Making certain strategic management decisions • Packaging the works • Allocating risks and deciding on a suitable pricing strategy for each package • Establishing requirements for outsourced professional services and the manner in which such resources

are to be contracted • Deciding on the procurement arrangements • Documenting the choices made in relation to the delivery management strategy, the contracting strategy

and the procurement arrangements in each category and subcategory of spend. • Planning the implementation of a construction procurement strategy or portion thereof.

4. Construction procurement strategy A Construction Procurement Strategy is the combination of the delivery management strategy and contracting and procurement arrangements. A procurement strategy can be developed for a single project, a programme of projects or a portfolio of projects to identify the best way of achieving objectives and value for money, whilst taking into account risks and constraints. Once the necessary decisions relating to the delivery management strategy and the contracting and procurement arrangements have been made, the construction procurement strategy may be implemented in respect of each package i.e. construction works which have been grouped together for delivery under a single contract or a package order . Thereafter, depending upon the choices that are made, the design team might need to be managed, and the contract managed or administered in accordance with the provisions of the contract. Programme management will also be required where projects are delivered in terms of a programme.



It is important to conduct an annual evaluation of the efficacy of decisions made in respect of a construction procurement strategy. This can inform the choices made in subsequent years. The development of a construction procurement strategy, although presented as a sequential decision making process is usually an iterative one as earlier decisions may require adjustment after later decision have been thought through.

5. Delivery management strategy 5.1 General The first stage in developing a procurement strategy is to decide on the delivery management strategy (see Figure 2). The development of a delivery management strategy can, however, only be embarked upon for a portfolio or programme of projects after the deliverable at the end of the infrastructure planning stage has been produced i.e. a medium term expenditure infrastructure plan which links prioritised needs to a forecasted budget.

5.2 Gather and analyse information Step1 Conduct a spend analysis Action: Analyse the spend in the prioritised medium term expenditure portion of the infrastructure plan (see

infrastructure planning stage (1) in the CIDB Infrastructure Gateway process described in Inform Practice Note #22, CIDB Infrastructure Gateway System)

• Cluster needs in terms of types of output e.g. construct a new school, maintain a circuit office • Categorise the clusters into categories of spend, based on their commonality in respect of the following

attributes, as relevant: o Nature of work (e.g. buildings or civil works, construction or maintenance, new construction or

refurbishment or alterations or extensions, preventative maintenance or corrective maintenance or scheduled maintenance or routine maintenance)

o Unit value (e.g. high, medium and low) o Potential for standardisation (e.g. high, medium and low) o One of a kind projects or repetitive projects o Time schedule urgency (e.g. high, medium, low) o Organisational and managerial complexity in terms of number of managerial interfaces /

hierarchical layers either within an organization or project structure / stakeholders to be managed) (e.g. high, medium, low)

o Technical complexity or level of innovation (e.g. high, medium or low) • Identify spatial locations of needs per category of spend • Identify needs which may occur simultaneously on the same site. • List the high level work activities (scope of work) associated with each category or subcategory of spend.

Output: Spatially located projects in the infrastructure plan grouped into categories and subcategories of

spend with common attributes.

The Association for Project Management’s Body of Knowledge states that “The procurement strategy should include potential sources of supply, terms and types of contract / procurement (for example, partnering or alliancing - versus commodity purchasing), conditions of contract, type of pricing, and method of supplier selection”



Figure 2: Deciding on the delivery management strategy Step 2 Conduct an organisational analysis Action: Identify level of the client organisation’s capacity and capability e.g. limited / adequate / unlimited in

relation to areas such as:

• Delivery management • Construction procurement

Gather and analyse information Step Description Output

1 Conduct a spend analysis

Spatially located work items in the infrastructure plan grouped into categories of spend with common attributes.

2 Conduct an organisational analysis

Descriptions of client organisational characteristics

3 Conduct a market analysis

Descriptions of market characteristics

Formulate procurement objectives Step Description Output 1 Formulate primary

procurement objectives Identified primary procurement objectives

2 Formulate secondary procurement objectives

Documented and prioritised secondary procurement objectives

Make strategic delivery management decisionsDescription Output

Decide on how needs are to be met i.e. through: Proposition 1: a Public Private Partnership (PPP) Proposition 2: an Implementing Agent (IA) Proposition 3: another organ of state’s Framework Agreement (FA) Proposition 4: leasing of property Proposition 5: outsourcing Proposition 6: own resources

A delivery management plan which indicates how each category of spend or portions thereof are to be delivered.

Decide on delivery mode (project or programme) Description Output Decide on programme of projects or series of independent projects

Categories of spend or portions thereof delivered as a programme of projects or a series of independent projects

Follow National Treasury PPP procedures if needs are met through a PPP Enter into service level agreement (SLA) with an implementing agent if needs are to be met through an implementing agent Approach another organ of state to make use of framework agreement if needs are to be met through that organ of state’s framework agreement Procure a lease if needs are to be met through the leasing of property

Package works Step Description Output

1 Identify opportunities for framework agreements

Categories of spend or portions thereof to be implemented through own framework agreements.

2 Identify packages A package plan for construction and maintenance projects or a combination thereof which states the mode of delivery for and identifies each package



• Design • Construction / maintenance • Project and programme management • Transaction advice • Health and safety.

Identify client organisation’s appetite for issues such as:

• Increasing capacity • Putting new capabilities in place • Making use of private finance • Assuming contractual risk • Transferring risk to other parties • Health and safety specialist support.

Output: Description of client organisational characteristics. Step 3: Conduct a market analysis Action: Identify at a macro level the available external capability and capacity, e.g. limited / adequate /

unlimited including:

• Construction using the CIDB register of contractors • Design • Project and programme management • Cost consultancy • Transaction advisors.

Output: Descriptions of market characteristics . 5.3 Formulate procurement objectives Step 1: Formulate primary procurement objectives Action: Define the client’s primary procurement objectives e.g.

• Tangible objectives including (see Figure 3) o Budget (cost of the works) o Schedule (time for completion) o Quality and performance characteristics required from the completed works o Rate of delivery

• Environmental objectives • Health and safety objectives • Intangible objectives including those relating to

o Buildability i.e. the ease with which the designed building or infrastructure is constructed o Relationships (e.g. long term relationship to be developed over repeat projects, early contractor

involvement, integration of design and construction etc) o Client involvement in the project o End user satisfaction o Maintenance and operational responsibilities.

Output: Identified primary procurement objectives. Note: 1. An objective is an aim or a goal. It is something that one's efforts or actions are intended to attain or

accomplish. Procurement objectives are required to inform the choices that are made when selecting an



option from the available menu of options in developing a delivery management strategy, contracting arrangements and procurement arrangements for a particular procurement.

2. Procurement objectives are not to be confused with objectives relating to the conceptualisation, planning,

design, construction and maintenance of infrastructure i.e. those relating to fitness of purpose, fitness for purpose and fitness in use (see CIDB Inform Practice Note #28, Objectives linked to infrastructure delivery.)

3. Primary procurement objectives relate to the delivery of the product i.e. the delivery mandate.

Figure 3: Different value propositions and trade-offs available to clients

Step 2 Formulate secondary procurement objectives Action: Formulate secondary procurement objectives based on those listed in Table 1 and prioritise them in

order of importance. Output: Documented and prioritised secondary procurement objectives. Note: 1. Secondary procurement objectives are additional to those associated with the immediate objective of the

procurement itself. They relate to what can be promoted through the delivery of the product Secondary procurement policy objectives influence procurement strategies both directly and indirectly. It is for this reason that secondary procurement policy needs to be considered as early as possible.

2. Competing objectives need to be balanced (see Figure 4)

?

cost

quality / performance Delivery / time

Performance = the project on completion does what it is supposed to do

Value proposition

Primary factor in defining project objectives

Trade offs

1 Cost Clients may sacrifice quality and delivery to achieve cost objectives

2 Delivery Clients may pay higher costs or accept a lower quality if delivery is guaranteed

3 Quality Client may trade higher costs and later delivery for an agreed quality

4 Cost and delivery are equal Client forgoes some quality objectives to satisfy delivery and cost imperatives

5 Quality and delivery are equal Client accepts higher costs to guarantee certain levels of quality and a timely completion

6 Cost and quality are equal Client opts for later delivery if it lowers costs



Table 1: Commonly encountered secondary objectives

Objective Recommended usage To promote broad based black economic empowerment

On all tenders where there are racial disparities in the profile of tenderers. Where it is desirable to promote broad based black economic empowerment through the application of the construction sector score card.

To promote gender or racial equality

On tenders where it is desirable and justifiable to promote: • Gender or racial equity amongst tenderers as main contractors • Employment opportunities for female workers or workers from a racial group.

To provide work opportunities for SMMEs*

On projects where it is desirable and feasible to: • Have SMMEs as a main contractor or joint venture partners • Provide for mandatory subcontracting requirements or obligations to subcontract an agreed

quantum of work. To alleviate poverty* On projects where it is desirable and feasible to provide temporary work opportunities in

construction, particularly in employment intensive works To promote local economic development *

As for the provision of work opportunities for SMME but aimed at targeted local SMMEs

To develop CIDB registered contractors

As for the provision of work opportunities SMME development but aimed at CIDB registered contractors who have specific contractor grading designations.

To transfer / development skills

Where it is desirable to provide work place experience or training to designated persons

To minimise the transmission of HIV-AIDS

Where it is desirable to reduce the risk of transfer of HIV / Aids between and among construction workers and the local community

To reduce environmental impacts

Where it is desirable to promote reductions in negative environmental impacts beyond statutory requirements

To improve health and safety performance

Where it is desirable to promote improvements in health and safety performance beyond statutory performance

* These objectives impact upon the goal of job creation

Figure 4: Competing objectives

5.4 Make strategic delivery management decisions Action: Decide on how needs are to be met in terms of value propositions 1 to 6, as relevant, and identify

which categories of spend or portions thereof are to be undertaken in terms of which propositions. Output: A delivery management plan which indicates how each of the categories of spend or portions thereof

are to be delivered. Note: It can be desirable in some instances to use different propositions to implement the same category of

spend.

Performance / quality

Cost Time / delivery

Social and economic objectives

Quantum of delivery



Proposition 1 - Meet needs through a PPP Action: Evaluate possibility of meeting needs through a PPP using Table 2 Output: Categories of spend or portions thereof to be implemented through a PPP. Note: 1. The PPP procedures established by National Treasury must be followed for those categorises of spend

which are implemented through a PPP 2. The private sector partner in a PPP is incentivised to have the highest regard for life cycle costing as this

partner is responsible not only for construction but also for maintaining the asset to a prescribed standard over a lengthy period of time.

Table 2: Decision table for PPP or non-PPP

Consideration Options Decision criteria for PPP Non-PPP PPP

Contract outcome

Provide infrastructure

Provide assets and services which extend beyond construction for an agreed outcome over time.

The pre-requisites for using this option are that: • The private party assumes substantial financial, technical

and operational risk in the design, financing, building and operation of a project over time

• Capability and capacity exist or can be put in place to effectively manage the PPP

• The nature of the service to be provided through the PPP is such that the risks can be clearly quantified and priced with certainty i.e. there must be a low level of intangibles e.g potential for land claims or latent defects in existing infrastructure

• The quantum of payments associated with the level of service to be provided through the PPP for the life of the PPP are affordable in the context of the client’s available and forecast budget and identified needs

• There is a high level of certainty that the usage of the facility will be required without alteration over the lifetime of the PPP

• The needs to be met are spatially located such that the PPP can be efficiently implemented

• The PPP is attractive to the private sector or conversely, the private sector has an appetite for investment in the proposed transaction

Finance On budget Off budget (i.e. private finance required)

Risk Public body retains substantial risk relating to: • Cost of

construction, operation and maintenance

• Level of service

Transfer substantial risk relating to: • Costs • Level of service to the private sector party

Meet need for works through:

• a PPP

• an Implementing agent (IA)

• another organ of state’s framework agreement (FA)

• leasing of property

• outsourcing

• own resources

1 Gather and

analyse information

2 Formulate

procurement objectives

3 Make strategic

delivery management

decisions

5 Package

works

4Decide on

delivery mode (project or

programme)

Follow PPP procedures if a PPP Enter into service level agreement if Implementing Agent is involved Approach organ of state to make use of framework agreement Procure a lease

Developing a delivery management strategy



Proposition 2 - Meet needs through implementing agent(s) Action: Develop a service level agreement and appoint an implementing agent (see Figure 5) if one or more of

the following statements are true:

• It is the policy of the client organisation not to be responsible for the delivery of an identified project • There is insufficient capability and capacity or the appropriate skills sets to manage the delivery process,

taking into account that different procurement and contracting options require different skills sets, and that some procurement and contracting options do not require the client to have the necessary in-house technical skills to direct the project implementation, or

• The works are linked to the budget of an implementing agent who has both capability and capacity to meet needs.

Output: Categories of spend or portions thereof to be implemented through implementing agent(s). Note: An implementing agent is another organ of state which implements projects on behalf of a client organisation

(see Section 238 of the Constitution of the Republic of South Africa, Act 108 of 1996, which permits one organ of state to exercise any power or perform any function for any other executive organ of state on an agency or delegation basis.) The service agreement may specify the construction procurement strategy that is to be adopted in full or in part. Alternatively, the implementing agent may be given the freedom to develop its own procurement strategy.

.

Figure 5: Contractual arrangements where needs are met through an implementing agent and / or outsourcing

Proposition 3 - Meet needs through another organ of state’s framework agreement Action: Establish the suitability of framework agreements put in place by other organs of state to meet needs

and evaluate the possibility of doing so where an organ of state and the contractor agree that use may be made of their framework contract for this purpose.

Output: Categories of spend or portions thereof to be implemented through another organ of state’s framework

agreement. Note: The Local Government: Municipal Finance Management Act and the Public Finance Management Act permit

an organ of state to make use of another organ of state’s contract provided that such contract is put in place following a competitive procurement process and both that organ of state and the contractor agree to this. (See CIDB Inform Practice Note #15, Framework Agreements).

Client

Implementing agent

Service level agreement with another organ of state

Engineering and construction works

contract (FIDIC, GCC, JBCC or

NEC3)

Supply contract (NEC3)

Outsource i.e. contract with private sector

Public sector responsible for performance of activities

Private sector responsible for performance of activities

Service contract CIDB or (NEC3)

Professional service

contract (CIDB or (NEC3)

Client

Proposition 2 Proposition 5



Proposition 4 - Meet needs through the leasing of property

Action: Consider if property should be leased to satisfy needs instead of providing new infrastructure. Output: Categories of spend or portions thereof to be implemented through the procuring of a lease. Proposition 5 - Meet needs through outsourcing Action: Evaluate possibility of meeting needs through outsourcing to the private sector, based on the

organisational analysis (see Figure 6). Output: Categories of spend or portions thereof to be implemented through outsourcing. Note: An organ of state (client / implementing agent) is not permitted in terms of the Construction Industry

Development Board Act, 2000, to contract a person to perform construction works who is not a CIDB registered contractor. Accordingly, an organ of state (client or implementing agent) cannot outsource construction works to a professional service provider who is required in terms of his contract to subcontract construction works unless that professional service provider is a CIDB registered contractor (see Figure 6).

Figure 6: Contractual arrangements where needs are met through an implementing agent and / or outsourcing

Proposition 6 - Meet needs through own resources Action: Establish capacity of own resources to meet needs, if relevant. Output: Categories of spend or portions thereof to be implemented using own resources. Note: Own resources usually relate to in-house capabilities to perform maintenance activities. Such staff

needs to be briefed and instructed on what is required.

5.5 Decide on delivery mode (project or programme) Action: Review information gathered and procurement objectives and decide on programme or independent

project approach, based on the decision criteria contained in Table 3. Output: Categories of spend or portions thereof delivered as a programme of projects or a series of

independent projects Note: Programme management provides an umbrella under which several projects can be managed. Projects

managed in this way are more likely to be driven by organisational needs rather than personal agendas.

Client / Implementing agent (organ of state)

Prime contractor (CIDB registered contractor)

Professional service provider

(Not a CIDB registered contractor)

Note: The Construction Industry Development Regulations defines: construction works as the provision of a combination of goods and services arranged for the development, extension, installation, repair, maintenance, renewal. removal, renovation, alteration, dismantling or demolition of a fixed asset including building and engineering infrastructure employer as person, body of persons or organ of state who enters into a prime contract with a contractor for the provision of construction works prime contract as construction works contract that does not form part of the scope of work of another contractor

Permitted in terms of CIDB Act Not permitted in

terms of CIDB Act



Table 3: Decision table for independent projects / programme of projects

Options Decision criteria Independent projects

Use where: • A project has one or a combination of the following characteristics:

o High monetary value o Time and schedule urgency o Organisational and managerial complexity (significant number of managerial interfaces / hierarchical

layers either within an organization or project structure / stakeholders to be managed) o Technical complexity of high level of innovation

• A project is one of a kind • There are little or no benefits to be gained by coordinating multiple projects.

Programme of projects

Use where: • There are benefits to be gained by coordinating multiple projects which will not be realised if the projects

were managed independently • Projects are linked to an overall client organisational strategy • Projects are of a similar nature and can be linked together to obtain the advantages of repetition • Projects can be grouped together because of their similar supporting service deliveries, similar

governance requirements, common stakeholder or change management or similar risk profiles • Similar planning, procurement or implementation timelines exist.

5.6 Package works Step 1: Identify opportunities for framework agreements Action: Identify opportunities for meeting needs through own framework agreements per category using Table

4. Table 4: Decision table for framework agreement / non- framework agreement

Consideration Options Decision criteria for framework agreement Non-framework Framework

Contract outcome

Provide specific construction works i.e. provide construction works

Provide broadly defined construction services over a period of time i.e. provide a construction service over a term

Framework agreements are appropriate where: • The budgets available and the detailed scope of the needs are

uncertain • The potential for additional funds to be made available exists • The need involves repetitive work of a similar nature • A quick response time is required • Long term relationships (3 to 5 year) are desirable to achieve

efficiencies. Framework agreements are not appropriate for: • One of a kind or one-off projects or • Projects where the nature and type of work is not known

The pre-requisites for using this option are that: • Enabling procurement policies and procedures are in place,

and • Capability and capacity exist or can be put in place to

effectively manage the framework agreements.

Procurement Separate procurement process for each transaction which creates a contract

Issue package order in terms of framework contract or reopen competition between framework contractors

Flexibility Time frames, scope and level of service defined per transaction.

Flexibility in terms of time frames, scope and level of service over the term of the contract

Output: Categories of spend or portions thereof to be implemented through own framework agreements.



Note: 1. A framework agreement is an agreement between an organisation and one or more contractors, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged

2. A framework agreement gives no work to a contractor and may be non-exclusive. It is a long term commitment between the parties to enable clients to place contracts on pre-agreed terms, pricing structure and specifications for certain types of work over a period of time (See CIDB Inform Practice Note #15 Framework Agreements).

Step 2: Identify packages Actions: Establish packages (see Figure 7), ignoring professional services associated with the works, by

balancing factors such as:

• Independent project / programme of projects • Framework / non-framework agreements • Geographical spread of project • Desired maximum value of contract (subject to the prerequisite associated with this step) • The technical mix of the work • Desire to avoid any awkward technical, contractual or logistical interfaces between contracts • Requirements for construction management • Economy of scale from grouping of projects in geographical areas • Elimination of duplication of effort • The development of the design • Marketability i.e. attractiveness of the packages to the market • Benefits derived from making the contractor

responsible for not only providing the works, but also for maintaining or operating the works over time

• Use of specialist contractors as direct contractors or as selected or domestic subcontractors to main contractors

• Use of large main contractors to manage and mentor small contractors

• Secondary procurement objectives fit Prerequisites: Projects can only be broken down into

smaller contracts (unbundled) when:

• There is administrative capacity to administer the increased number of contracts that result from the unbundling of the project

• The unbundling does not result in an inappropriate division of responsibilities, increased contractual risk, duplication of establishment charges and under-utilization of resources.

Figure 7: The concept of packages

As clients recognise the value of long term arrangements, framework agreements are becoming more popular. A framework in itself gives no work to the contractors and may be non-exclusive. It is a long term commitment between two parties to enable clients to place contracts on pre-agreed terms, specifications, rates and prices and mark-up that are embedded in a framework to cover a certain type of work over a period of time or in a certain locality or both.

(Bower, D, 2003)

Projects are grouped together or divided into packages for delivery under a single contract or a package order



Output: A package plan for construction and maintenance projects or a combination thereof which states the mode of delivery for and identifies each package.

Note: 1. The package plan identifies if the contract is a construction works contract or a maintenance

contract or a contract involving both construction and maintenance. It does not provide any information on risk allocations

2. Large projects are often unbundled into a number of smaller contracts in order to enable smaller local contractors to access work opportunities and to further BBBEE objectives. However, this needs to be balanced against the additional management capacity required to manage a large number of smaller contracts – see the following CIDB inform Practice Notes: • #1, Scaling up delivery and accelerating empowerment, • #10 Attaining social and economic deliverables, • #11 Programme management approach to delivery

3. Some objectives are more achievable on some categories of spend than on others e.g. the potential for creating employment opportunities. Similarly high value packages, particularly those delivered in terms of framework agreements, are most appropriate for achieving secondary objectives relating to local contractor development.

Before entering into the tendering process, the client must draw up a contract plan to determine the number of contracts into which the project will be divided. The basic consideration of this plan is the effect of the number of contracts on the client’s management effort. More contracts will lead to more interfaces and greater management involvement, whereas fewer contracts reduce this involvement but may increase the client’s risk exposure. There are certain principles which should be used when determining the number of contracts: • The size of each contract should be manageable and controllable for construction • The contract must be within the capacity of sufficient contractors to allow competitive tendering • The time constraints of the work and the capacity restrictions allow for the separation of contracts rather than one single

contract. (Bower, D. Management of procurement, Thomas Telford, 2003)

Lean Project Delivery (Lichtig, 2006)

According to Lichtig (2006), design has become increasingly fragmented over the last 100 years. Each specialised participant now tends to work in an isolated silo, with no real integration of participant’s collective wisdom. Project success requires that this fragmentation be addressed directly in order to provide higher value and less waste.

Research into successful projects has shown that there are several critical keys to success (Lichtig, 2006):

1. A knowledgeable, trustworthy, and decisive facility owner / developer 2. A team with relevant experience and chemistry assembled as early as possible, but certainly before 25% of

the project design is complete 3. A contract that encourages and rewards organisations for behaving as a team.

The “big five ideas” in the lean project delivery community are:

1. Collaborate: really collaborate throughout design, planning and execution 2. Increase relatedness amongst project participants 3. Projects are networks of commitments 4. Optimise the project, not the pieces 5. Tightly couple action with learning.

(Lichtig, WA. The Integrated Agreement for Lean Project Delivery. Construction Law, Summer 2006)

Considerations in the choosing appropriate procurement strategies



A power and dependence perspective (After Caniels and Gelderman, 2005)

Kraljic’s purchasing portfolio approach has inspired many researchers to develop purchasing portfolio models following the publication of his matrix in 1983 for single products or product groups. According to Kraljic, a supply strategy is driven by two factors – profit impact and supply risk.

Purchasing strategies within the Kraljic matrix may be described as follows: Kraljic proposed a 4 stage approach for developing supply strategies. Firstly a company classifies all its purchased products in terms of profit impact and supply risk. Subsequently, it weighs the bargaining power of its suppliers against its own powers, Then it positions those products that were identified as strategic in a portfolio matrix. Finally it develops purchasing strategies and action plans for these strategic products , depending on its own strength and the strength of the supply market.

Institution of Civil Engineers 2nd Middle East And Africa Regional Convention – Cape Town, 15 January 2010

Performance in the delivery of infrastructure needs to improve and optimal outcomes need to be delivered within available budgets. This necessitates the following culture changes:

From ToMaster-servant relationship of adversity Collaboration between two experts Fragmentation of design and construction Integration of design and construction Allowing risks to take their course or extreme and inappropriate risk avoidance or risk transfer

Active, collaborative risk management and mitigation

Meetings focused on the past - what has been done, who is responsible, claims. etc

Meetings focused on “How can we finish project within time and available budget?”

Develop project in response to a stakeholder wish list Deliver the optimal project within the available budget “Pay as you go” delivery culture Discipline of continuous budget control Constructability and cost model determined by design team and cost consultant only

Constructability and cost model developed with contractor’s insights

Short-term “hit-and-run” relationships focused on one-sided gain

Long-term relationships focused on maximising efficiency and shared value

Procurement strategy focussed on selection of form of contract

Selected packaging, contracting, pricing and targeting strategy and procurement procedure aligned with project objectives

Project management focussed on contract administration Decisions converge on the achievement of the client’s objectives

Training is in classrooms unconnected with work experience Capability building is integrated within infrastructure delivery

The choice of the contracting system can facilitate or frustrate performance. (ICE-SA (2010))

Pro

fit im

pact

Lo

w

H

igh

Leverage (exploit purchasing power)

8 Pooling of requirements

9 Individual ordering

Strategic (form partnerships)

1 Maintain a strategic partnership

2 Accept a locked in partnership

3 Terminate partnership , find a new supplier

Non-critical (enhance efficient processing)

6 Exploit buying power

7 Develop a strategic partnership

Bottleneck (assure supply)

4 Accept dependence, reduce the negative consequences

5 Reduce dependence and risk, find other solutions

Supply risk Low High



Supplier development and supply chain management sourcing approaches are only really effective in situations of buyer dominance and independence. Buyers will, however, have to normally adopt reactive sourcing approaches where this is not the case because they will be unable to provide the necessary incentives to induce suppliers to invest in the dedicated investments and relationship specific adaptations to make a proactive approach possible. Successful performance outcomes for buyers and sellers require an alignment between goals and aspirations to make the relationship successful for both parties.

Rel

ativ

e sh

are

of v

alve

appr

opria

tion

Equa

lity

Ineq

ualit

y Adversarial arm’s length relationship

Adversarial collaborative relationship

Non-adversarial arm’s length relationship

Non-adversarial collaborative relationship

Arm’s length Collaborative

Way of working

Relationship portfolio analysis There are at least two fundamentals when a buyer and a supplier interact. The way of working (level of operational linkage) can be either arm’s length (i,e, fairly short term contractual basis with few investments to the relationship) or collaborative where extensive investments to the relationship in the form of adaptations to operational processes are made. The commercial intent when entering into a transaction can be adversarial (buyer or seller is primarily interested in maximising its share from the relationship at the expense of the other) or non-adversarial (open transparent commercial information made available and improvements are shared on a relatively equal basis)

Focu

s on

buy

er re

latio

nshi

p

w

ith th

e su

pplie

r

R

eact

ive

Proa

ctiv

e

Supplier development Buyer offers a long term relationship for a commitment by the supplier to provide greater transparency over its input costs, margins and production techniques in order to create innovation)

Supply chain management Buyer undertakes proactive supplier development not only at the first tier but also at all stages in the supply chain from first tier to raw supply material

Supplier selection Buyer selects from available suppliers based on perceived best trade offs (No incentive structure to warrant relationship investments)

Supply chain sourcing Buyer adopts same approach as supplier selection at not just the first tier but as many tiers as possible

First tier Supply chain

Level of work scope with supplier and supply chain

They argue that all these elements need to be brought together in order to align a particular sourcing approach with a specific power leverage circumstance using the appropriate relationship management style.

The sourcing options links together the level of involvement that buyers and suppliers can have with one another (reactive and arm’s length or proactive and collaborative), as well as the nature and degree of the buyer’s involvement in developing supplier and supplier’s own competencies (at the first tier or throughout the supply chain(s) as a whole).

Sourcing options available to buyers

The power leverage perspective (Cox, Ireland and Townsend, 2006)

Buyers and suppliers must select from a range of sourcing options and implement them. According to Cox, Ireland and Townsend (2006), three elements must be in place, namely the specification of the sourcing approaches, an understanding of the power and leverage environments within which relationships must be managed and an understanding of the relationship management styles that can be used to manage particular sourcing approaches effectively.

(Cox, A, Ireland, P and Townsend, M. Managing in Construction Supply Chains and Markets, Thomas Telford, 2006)

Attr

ibut

es o

f sup

plie

r rel

ativ

e to

buy

er

Low

Hig

h

Buyer dominance Few buyers and many suppliers Buyer’s account is attractive to supplier Supplier’s offerings is a standardised commodity

Interdependence Few buyers and suppliers Buyer’s account is attractive to supplier Supplier’s offerings are relatively unique

Independence Many buyers and suppliers Supplier has little dependence on buyer for revenue and has many alternatives Supplier’s offerings is a standardised commodity

Supplier dominance Many buyers and few suppliers Supplier has no dependence on buyer for revenue and has many alternatives Supplier’s offerings are relatively unique

Low High

Attributes of supplier power relative to buyer



6. Contracting arrangements 6.1 General The second stage in developing a procurement strategy is to decide on the contracting arrangements for each package and the professional services required to implement the contracting strategy associated therewith (See Figure 8). The organisational and market analyses and primary and secondary procurement objectives provide the basis for the making of decisions regarding the choice of contracting options. 6.2 Allocate risks for packages 6.2.1 Construction service only Actions: Identify a range of appropriate contracting and pricing strategies (see Figure 9, Figure 10, Figure 11 and Figure 12) as identified in Table 5 and

Works involving construction, refurbishment, rehabilitation, extension or alteration



Allocate risks for packages Step Description Output 1 Decide service

requirements and / or contracting strategy

Service requirements and risk allocations for each package i.e. allocation of

Maintenance service options

Pricing strategy: • Priced contract with a

priced list • Cost reimbursable • Target cost

Forms of contract: • CIDB General conditions

of contract • NEC3 Term Service

Contract • NEC3 Short Term Service

Contract

Construction and maintenance service options

Pricing strategies • As for maintenance and

construction services

Forms of contract: NEC3 Engineering and Construction Contract with or without NEC3 Term Service Contracts

Construction service options

Contracting strategy • Design by employer • Develop and construct • Design and construct • Construction management • Management contractor

Pricing strategies

Design, supply and install option

Pricing strategy • Priced contract with a

price schedule Form of contract: • NEC3 Supply Contract • NEC3 Short supply

Contract

Construction, maintenance and operation service options

Forms of contract: • FIDIC Conditions of

Contract for Design, Build and Operate Projects

• NEC3 Engineering and Construction Contract plus NEC3 Term Service Contracts

Table 6 for each package, linking to the market analysis and procurement objectives with reference to the following factors:

• Cost (price certainty) • Time (early start and or completion driven by income streams, the use of functional space, the facility or

service or structure, budgetary cycles, disruptions to existing facilities and services, project / programme objectives e.g. spending the budget, etc)

• Quality (high or prestige level required) • Complexity (innovative or technically sophisticated end product) • Influence or control the client wishes to exert over the design • Who is best able to carry out the design • Influence or control the client wishes to exert over the management of the planning, interfaces, risk,

design or construction • Controllable variations • Flexibility (avoid costly variations) • Risk (appropriate transfer risk to contractor) • Accountability (single contractual link to employer) • Availability of internal (organisational) and external (market) resources required to provide the works • Incentives to achieve client objectives (e.g. link design and construct responsibilities to maintenance and

operation responsibilities for a period post construction).

Prioritise options then eliminate some models and pricing options that place demands on scarce resources and select options which best fit market analysis and primary and secondary procurement objectives. Identify suitable forms of contract from Table 7 for the selected option and decide on the most suitable option for the package (See also Figure 13).

Note: The abovementioned factors can compete against each other. For this reason it might be necessary to weight each factor, score each factor in relation to each contractual arrangement (i.e. design by employer, design and construct, develop and construct, construction management and management contractor) and look at the weighted totals in order to arrive at the prioritised option.

Output: Risk allocations for package i.e. allocation of responsibilities and selection of a pricing strategy and standard form of contract.

NOTE: 1. Where a management contractor contracting strategy or construction management strategy is adopted,

the allocation of design responsibilities also needs to be identified i.e. design by employer, develop and construct or design and construct.

2. Where a construction management strategy is identified, a professional service provider needs to be procured to manage the associated packages.



Figure 8: Deciding on contracting strategies

Figure 9: The relationship between the employer’s risk and flexibility to effect scope change in different pricing strategies

Figure 10: Typical construction management relationships

Employer’s riskContractor’s incentive / risk

Min Max

MaxMin

Activity schedule (lump sum)

Bill of Quantities

Target cost

Cost reimbursable

Empl

oyer

’s fl

exib

ility

to

effe

ctsc

ope

chan

ges

Min

Max

Pricing strategy

Empl

oyer

’s fl

exib

ility

to

effe

ct s

cope

cha

nges

Employer

Construction manager (professional service

contract)

Contractor (construction

works contract)


works contract)


works contract)

Subcontractor (construction works

sub contract)

Design consultant (professional

service contract)


service contract)

Contract strategy is one of the most important decisions facing a client. The chosen contracting strategy and the allocation of risk, the project management requirements, the design strategy, and the employment of consultants and contractors are inextricably linked and therefore the contract strategy has a major impact upon the timescale and ultimate cost of the project. Because of the diversity of both construction and client’s requirements, no single uniform approach to contractual arrangements can be specified or advocated. A number of alternative strategies are available to the client and each contract should be formulated with a specific job in mind. (Bower, D. Management of procurement, Thomas Telford, 2003)

Price list

Lump sum / activity schedule



Figure 11: Typical management contractor relationships

Employer

Management contractor

Subcontractor (construction work

sub contract)


service contract)

Design consultant (professional service contract)


sub contract)


sub contract)

The most suitable contract strategy for a project must be established based upon a structured in-depth and efficient analysis of all relevant factors (i.e. all relevant options). Issues that affect the selection of a contract strategy are: • Clearly defined project objectives from the client • Responsibilities of the parties to the contract, which must be accurately stated • Risk allocation between the parties involved in the contract • Payment mechanism • Incentive mechanism to achieve a proficient performance from the contractor • Mechanism for the client to supply the necessary data and support to the contractor • Client having enough flexibility to add changes • Clients being able to methodically assess change in a fair manner.

(Bower, D. Management of procurement, Thomas Telford, 2003)

The potential construction risk sources include (Smith, 1999):

Physical Natural ground conditions, adverse weather, physical obstructions

Construction Availability of plant and resources, industrial relations, quality, workmanship, damage, construction period, delay, construction programme, construction techniques, milestones, failure to complete, type of commissioning, insurances, bonds, access and insolvency

Design Incomplete designs, availability of information, meeting specification and standards, changes to design during construction

Technology New technology, provisions for change in existing technology, development costs and intellectual property rights, and need for research and development

The main characteristics of the available choices of risk allocation strategy can be grouped together according to organisational structure or payment mechanisms as illustrated below (Bower, 2003):

Low Control / risk High Client risk Client control effort Client control Information All Information available at tendering Little Little Information needed for controls All Contract type

Fixed price Price fixed with

escalation

Fixed price with incentives

Fixed fee plus costs

Cost plus

The choice of contract and hence risk allocation strategy is determined by the policy decisions of the client and the requirements of the individual project. The client must remember that inappropriate strategy on the retention of distribution of risks will jeopardise the project.



Table 5: Selecting an appropriate contracting strategy for construction works contracts Consideration Delivery model

Design by employer Develop and construct

Design and construct

Construction management

Management contractor

Description Contract under which a contractor undertakes only construction on the basis of full designs issued by the employer (Design is a separate function to construction and is managed by the client or his agent)

Contract based on a scheme design prepared by the client under which a contractor finalises the production information and constructs it (The final design details are integrated with construction and are managed by the contractor)

Contract in which a contractor designs the works based on a brief provided by the client and constructs it (Design is integrated with construction and is managed by the contractor)

Contract (see Figure 10) under which a third party (professional service provider) provides consultation during the design stage and is responsible for planning and managing all post-contract activities for a group of contractors appointed by the employer

Contract (see Figure 11) under which a contractor is responsible for planning and managing all post-contract activities, including, if required, any design of the works or portion thereof, and for the performance of the whole of the contract.

Appropriate usage

Where: • The client wishes

to make significant technical inputs into the design process and design details

• The client requires flexibility in the development of the design

• Reasonable certainty in cost and time is required before a commitment to build is made

• Independent design advice is required, or

• The flow of outstanding production information after the formation of the contract can be tightly managed

Where the employer requires: • Integrated

detailed design and construction, based on the employer’s design concept, and single point accountability

• Standard designs exist which need to be made site specific, or

• The works need to be priced and to commence before the production information has been completed

Where the employer requires: • Integrated

design and construction and single point accountability

• That most risks lie with the contractor in return for price certainty, or

• The cost and completion date be agreed when a decision to proceed with the project is made.

Where it is desirable to appoint a third party to: • Plan, co-ordinate

and control the delivery of a project through a number of contractors appointed by the employer

• Manage the interfaces between interrelated packages on a site

• Manage on behalf of the employer construction related risks associated with a package, or

• Provide professional advice to contractors appointed by the employer

Where: • The employer

has limited capability or capacity to advance the work beyond a strategic brief

• The contractor needs to work alongside the design team to develop the programme for design, procurement and construction

• The employer has limited resources to manage and procure a number of construction works contracts, or

• The employer requires single point accountability for the delivery of a series of or group projects



Consideration Delivery model Pre-requisites Suitable client

accepted production information is available to be incorporated into the scope of work for the contract. The employer has the capability and capacity to make decisions during the design process.

A suitable client accepted design development report setting out the integrated developed design for the project is available to develop the scope of work for the contract

A suitable client accepted concept report setting out the integrated concept for the project is available to develop the scope of work for the contract

There is the need for the third party support to ensure the successful delivery of a project usually through a design by employer contracting strategy

A suitable client accepted strategic brief setting out the project definition information is available to develop the scope of work for the contract

Note: 1. Some community based programme or development programmes involve fledgling contractors, embryonic enterprises or aspirant entrepreneurs. Such enterprises may require third party support in order to complete their contracts satisfactorily. Such support may take the form of construction or materials management support. (See CIDB Specification for social and economic deliverables in construction works contracts). Third party management, which is a form of construction management, is required where there is a significant risk that small contractors may fail to timeously and satisfactorily complete their contracts.

2. The management contractor and construction management contracting strategy may be used in conjunction with the design by employer, develop and construct and design and construct contracting strategy i.e. these strategies are independent of the allocation of design responsibilities. (see CIDB Inform Practice Note #27, Contracting and pricing strategies for works)

3. The construction management contracting strategy is not to be confused with the contract administration arrangements for a package and the management of a series of packages in terms of a programme (see CIDB Inform Practice Note #11, Programme Management approach to delivery).

4 The typical time lines and sequencing of work associated with construction works contracts are indicated in Figure 12.



Figure 12: Typical time lines and sequencing of work for engineering and construction works contracts

Access date

CIDB Infrastructure Gateway Stage

3 Package preparation

4 Package definition

5 Design development

6a Design documentation (Production information)

6b Design documentation (Manufacture, fabrication and construction information )

7 Works

8 Hand over

9b Package completion

Defects date

Completion date

Time line

Contractor commences services on a design by

Contractor commences services on a develop and construct basis

Contractor commences services on a design and construct basis

Management contractor commences services (full



Table 6: Selecting a pricing strategy for construction works contracts Options Description Appropriate usage Prerequisite

Priced contract

Lump sum

Contractor is paid a lump sum to perform the works Interim payments which reflect the progress made towards the completion of the works may be made

Where: • The price risk needs

to be transferred to the contractor

• Greater certainty of final project cost is required possibly at a cost premium

• A clear, unambiguous scope of work exists

Where • Scope of work is

complete in all respects and as such can be priced with certainty.

• Changes to requirements are not anticipated

The design of the works is sufficiently progressed to the extent that the scope of work (works and constraints under which the contractor is to operate) can be robustly defined and pricing is viable

Activity schedule

Contractor breaks the scope of work down into activities which are linked to a programme and prices each activity as a lump sum, which he is paid on completion of the activity The total of the activity prices is the lump sum price for the contract work.

Price list / schedule

Contractor is paid the price for each lump sum item in the Price List / Schedule that has been completed and, where a quantity is stated in the Price List / Schedule, an amount calculated by multiplying the quantity completed by the rate

Where • Scope of works is

complete save for uncertainty on the actual quantity of work to be done

• Little or no change to programme is envisaged

Bill of quantities

Bill of quantities lists the items of work and the estimated / measured quantities and rates associated with each item to allow contractors to be paid, at regular intervals, an amount equal to the agreed rate for the work multiplied by the quantity of work actually completed.

Cost based contract

Cost reimbursable

Contract in which the contractor is paid for his actual expenditure plus a percentage or fee

Where • An emergency exists and there is insufficient time

to scope the works prior to the awarding of a contract

• The scope of work (works and constraints under which the contractor is to operate) cannot be priced ahead of the works

• The employer cannot transfer the project risk to the contractor or the risk pricing by a contractor is prohibitive

• The contract is likely to be disrupted by uncontrollable events

• The contractor is required to subcontract most of the works and services to others in terms of a competitive process (Management contractor)

• Framework contracts are entered into

Internal or external capability and capacity exists or can be put in place to control and manage the employer’s commercial risks and review contractor’s cost Contract is likely to attract a contractor who is has in place cost control systems Target cost

Cost reimbursable contract in which a target cost is estimated and on completion of the works the difference between the target cost and the actual cost is apportioned between the employer and contractor on an agreed basis

Where: • The employer needs to know where the money

is being spent, wishes to reward strong contractor performance; wants to share financial risk with the contractor; and wants to promote collaboration or a culture whereby both parties have a direct interest in decisions that are made regarding the cost and timing of the contract

• An early contractor involvement in the project is required to make inputs into the design process

• Framework agreements are entered into



Note: 1. An emergency is where there is a risk of human injury or death; human suffering or deprivation of human rights; serious damage to property or financial loss, injury, suffering or death to livestock or other animals; serious environmental damage or degradation; or interruption of essential services)

2. A bill of quantities (see Inform Practice Note #21, Bills of Quantities) is a common form of pricing strategy used where the contractor undertakes construction on the basis of full designs issued by the employer. A bill of quantities is usually prepared in accordance with an industry standard system of measurement.

3. The price based and cost based pricing strategies are outlined in CIDB Inform Practice Note #27, Contracting and pricing strategies for works.

4. The management contractor contracting strategy enables costs to be controlled should such a contractor be required to subcontract most of the works and services for which he is reponsible to others, preferably in terms of a competitive tender process, and keeps the work done by himself to a minimum.

5. Framework agreement are generally entered into using cost based pricing strategies. It is possible under certain circumstances to enter into a framework agreement using a priced based contracting strategy (CIDB Inform Practice Note #27, Contracting and pricing strategies for work)

Figure 13: Identifying a suitable form of contract for construction works Note: Where several forms of contract satisfy requirements, consider the need

for the following in the final selection of a form of contract: • Back to back subcontracts (Eliminate FIDIC and GCC 2004 forms of

contract as they currently don’t make provision of subcontracts. (FIDIC has a test edition available))

• Changes to the price arising from employer’s risk are assessed as the cost to the contractor without reference to tendered rates and prices, the philosophy being that the Contractor should not be in a better or worse position than before the change (Use only NEC contracts if this is a consideration)

• The proactive management of risks and the assessment of events leading to changes in the time for delivery or the cost of works to be assessed soon after the event triggering such changes occurs (Use only NEC contracts if this is a consideration)

• Incentivising the whole supply team to perform better (Use only NEC contracts if this is a consideration)

Does the works satisfy all of the following statements: a) the works:

i) are straightforward or repetitive in nature

ii) are of short duration; iii) have almost no requirement

for sophisticated management techniques; and

iv) impose only low risks on both employer and the contractor; and

b) the design of the works is almost complete when construction starts?

Yes Buildings and infrastructure FIDIC Short Form (Green Book) NEC3 Engineering and Construction Short Contract Buildings only JBCC Minor Works Agreement

No

Buildings and infrastructure FIDIC Red Book GCC 2010 NEC3 Engineering and Construction Contract Buildings only JBCC Principal Building Agreement

What are the contractual arrangements?

design by employer design and build / develop and construct management contract

Buildings and infrastructure FIDIC Yellow Book or FIDIC Silver Book GCC 2010 NEC3 Engineering and Construction Contract

Buildings and infrastructure FIDIC Silver Book NEC3 Engineering and Construction Contract

The three main functions of contracts are work transfer (to define the work that one party will do for the other), risk transfer (to define how the risks inherent in doing the work will be allocated between the parties) and motive transfer (to implant motives in the contractor that match those of the client) (Bower, 2003)



• Organisation’s familiarity with a particular form of contract (On one-off projects use the form of contract that is most familiar to the organisation and their professional team.)

Table 7: Selecting an appropriate form of contract for construction works contracts Form of contract Recommended usage Pricing strategy

FIDIC Conditions of Contract for Construction for Building and Engineering Works designed by the Employer (Red Book)

Building or engineering works designed by the employer. (The works may include some elements of contractor designed works)

Bill of quantities

FIDIC Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works, designed by the Contractor (Yellow Book)

The provision of electrical or mechanical plant and the design and construction of building or engineering works.

Lump sum

FIDIC Conditions of Contract for EPC Turnkey Projects (Silver Book)

The provision on a turnkey basis of a process or power plant, of a factory or similar facility, or an infrastructure project or other type of development

Lump sum

FIDIC Short Form of Contract (“Green Book”) as published by the International Federation of Consulting Engineers (Green Book)

Building or engineering works of relatively small capital value or for relatively simple or repetitive work or work of short duration. Use for design by employer or contractor designed works.

Lump sum

Bill of quantities

Cost reimbursable

General conditions of contract for construction works (GCC 2010)

Construction and building works contracts. and contracting strategy. Although its focal point is on the contracting strategy of design by the employer, it is also suitable for the design and construct

Bill of quantities Lump sum

JBCC Principal Building Agreement

Building works where the contractor is not responsible for design of the permanent works or the co-ordination of design elements


JBCC Principal Building Agreement

Minor building works of simple content where • The contractor is not responsible for the

design of the works • The employer appoints direct contractors for

specialised work or the installation of items not undertaken by the contractor

• The construction period is not more than 9 months


NEC3 Engineering and Construction Contract (ECC)

Engineering and construction works, including any level of design responsibility.

A: Priced contract with Activity Schedule B: Priced contract with Bill of Quantities C: Target contract with Activity Schedule D: Target contract with Bill of quantities E: Cost reimbursable contract F: Management contract

NEC3 Engineering and Construction Short Contract (ECSC)

Engineering and construction works which do not require sophisticated management techniques, comprise straightforward work and impose only low risks on both the employer and contractor.

Priced contract with Price List



6.2.2 Maintenance service only Action: Identify a suitable form of contract and pricing strategy for the package (see Table 8 and Table 9):

Output: Identified risk allocation and identified standard form of contract for a package. Table 8: Selecting an appropriate form of contract for term services Form of contract Recommended usage Pricing strategy

NEC3 Term Service Contract (TSC)

Manage and provide a service over a period of time A: Priced contract with Price List C: Target contract with Price List E: Cost reimbursable contract

NEC3 Term Service Short Contract (TSSC)

Manage and provide a service over a period of time which does not require sophisticated management techniques, comprises straightforward work and imposes only low risks on both the employer and contractor

Priced contract with Price List

Table 9: Selecting a pricing strategy for a term service contract

Options Description Appropriate usage Prerequisite

Priced contract

Price List

The price list contains the lump sum prices for each required service and quantities and rates for repeated services to enable contractors to be paid for services provided.

Where: • The price risk needs to be transferred to the

contractor • Greater certainty of final project cost is

required possibly at a cost premium • A clear, unambiguous scope of work exists

The scope of work (services and constraints under which the contractor is to operate) can be robustly defined and pricing is viable

Cost based contract

Cost reimbursable

Contract in which the contractor is paid for his actual expenditure plus a percentage or fee

Where • An emergency exists and there is insufficient

time to scope the works prior to the awarding of a contract

• The scope of work (services and constraints under which the contractor is to operate) cannot be priced ahead of the services

• The employer cannot transfer the project risk to the contractor or the risk pricing by a contractor is prohibitive



Internal or external capability and capacity exists or can be put in place to control and manage the employer’s commercial risks and review contractor’s cost Contract is likely to attract a contractor who is has in place cost control systems

Target cost

Cost reimbursable contract in which a target cost is estimated and on completion of the works the difference between the target cost and the actual cost is apportioned between the employer and contractor on an agreed basis

Where: • The employer needs to know where the

money is being spent, wishes to reward strong contractor performance; wants to share financial risk with the contractor; and wants to promote collaboration or a culture whereby both parties have a direct interest in decisions that are made regarding the cost and timing of the contract

• Framework agreements are entered into Note: 1. An emergency is where there is a risk of human injury or death; human suffering or deprivation of human

rights; serious damage to property or financial loss, injury, suffering or death to livestock or other animals; serious environmental damage or degradation; or interruption of essential services)

2. Framework agreement are generally entered into using cost based pricing strategies. It is possible under certain circumstances to enter into a framework agreement using a priced based contracting strategy (CIDB Inform Practice Note #27, Contracting and pricing strategies for works)

Works involving preventative, corrective, scheduled or routine maintenance



3. The typical time lines and sequencing of work associated with maintenance contracts are indicated in Figure 14.

Figure 14: Typical time lines and sequencing of work for term service contracts

6.2.3 Construction and maintenance service Action: Identify suitable forms of contract for the package, based on

the decision criteria contained in Table 10 and a suitable pricing strategies for the selected forms of contract based on Table 6, Table 7 and Table 9..

Output: Risk allocations for each package i.e. allocation of

responsibilities and identified pricing strategy and standard form of contract)

Table10: Selecting appropriate forms of contract for construct and maintain contracts Option Decision criteria NEC3 Engineering and Construction Contract Use if the period of operation is relatively short, say up to three to 5

years. Design and construction: NEC3 Engineering and Construction Contract Maintenance: the NEC3 Term Service Contract / Teem Service Short Contract for the maintenance work

Use separate contracts if the period for operation or maintenance is longer than say three years.

Note: 1. The making of a single contractor responsible for the design, construction and operation of construction

works enables clients to require the contractor to demonstrate during the initial period of operation that the operating cost and performance parameters can be met in accordance with a pre-agreed cost model i.e. to prove the contracted assumptions. Making the contractor who designs construction works responsible for the maintenance of such works incentivises the contractor to have the highest regard for life cycle costing as such a contractor is responsible not only for construction but also for maintaining the asset over a lengthy period of time.

2 The typical time lines and sequencing of work associated with construction and maintenance contracts are indicated

in Figure 15.

Starting date




7 Works


End of service period

Time line

Works involving construction, refurbishment, rehabilitation, extension or alteration

+

Works involving preventative, corrective, scheduled or routine maintenance



Figure 15: Typical time lines and sequencing of work for construction and maintenance contracts

6.2.4 Construction, maintenance and operation service Action: Adopt, wherever possible:

• FIDIC Conditions of Contract for Design, Build and Operate Projects where period of operation is 20 years on a greenfield site where cost constraints and commitments and other risks are carried by the contractor

NEC3 Engineering and Construction Contract for the design and construction phase and the NEC3 Term Service Contract for the maintenance and operation phase where price based or cost based contracts are desirable (see

Access date




5 Design development

6a Design documentation (Production information)

6b Design documentation (Manufacture, fabrication and construction information )

7 Works

8 Hand over


Defects date

Completion date

Time line

Contractor commences services on a design by

Contractor commences services on a develop and construct basis

Contractor commences services on a design and construct basis

Management contractor commences services (full

Combines design, construction, and long-term operation (and maintenance) of a facility

End of service period



Table 6 and Output: Identified risk allocation and standard form of contract for a package. Note: 1. The advantage of this contracting strategy is that the Contractor is responsible for the operation of the

facility for a long period of time. He therefore has an interest to design and construct quality plant with low operation and maintenance costs. Not only will the plant be ‘fit for purpose’ but it will be built to last.

2. It might be necessary in some instances to develop bespoke contracts to deal with the specifics of the operations phase.

3. The pricing strategies listed in



Table 6 and Table 9 can inform decisions made in deciding upon the FIDIC or NEC3 forms of contract.

6.2.5 Supply and install Action: Identify suitable forms of contract for the package, based on the decision criteria contained in Table 11.

Output: Risk allocations for each package i.e. identification of a standard form of contract. Note: The typical time lines and sequencing of work associated with construction and maintenance contracts are

indicated in Figure 16. Table11: Selecting appropriate forms of contract for supply contracts Option Decision criteria Pricing strategy NEC3 Supply Contract (SC) Local and international procurement of high value

goods and related services including design Priced contract with Price Schedule

NEC3 Supply Short Contract (SSC)

Local and international procurement of goods under a single order or on a batch order basis and is suitable for use with contracts which do not require sophisticated management techniques and impose only low risks on both the Purchaser and the Supplier.

Priced contract with Price Schedule

Figure 16: Typical time lines and sequencing of work for construction and maintenance e contracts

Starting date




7 Works

8 Hand over


Defects date

Delivery date

Time line

Contracting strategy • Design by employer • Develop and construct • Design and construct • Construction management • Management contractor

Pricing strategy: • Priced contract with a

priced list • Cost reimbursable • Target cost • Activity based • Lump sum • Bill of quantities

CIDB accepted Form of Contract

• Discipline specific or multidisciplinary service

• Package specific, programme related or framework agreement

• Priced contract, percentage of cost of construction, cost reimbursable or target cost

Options for services: • construction • construction and maintenance • maintenance • construction, maintenance and

operation

1 Allocate risks for packages

2Establish

requirements for outsourced professional

services

4Allocate risks

for professional service

contracts

3 Package

professional service

contracts

Combines the design, as required, supply, and installation of an asset

Deciding on contracting arrangements



6.3 Establish requirements for outsourced professional services Action: Identify the need for professional services in a required service area (see Table 12) in relation to

each package and the contracting strategy selected for that package. Establish whether or not there are sufficient internal resources with the required capabilities and

capacity to provide the required service. Output: Identified professional services which need to be procured. 6.4 Package professional service contracts Step 1: Decide on contracting strategy Action: Determine if discipline specific or multidisciplinary professional services are to be procured, based

on the decision criteria contained in Table 13. Output: Requirements for outsourced professional services categorized as single discipline or

multidisciplinary. Table 12: Commonly required service areas Service area Description of service Decision criteria Cost consulting Establish the project budget, develop and maintain a cost plan and

monitor and assist the project team in the development of the brief in compliance with the budget Advise on the reasonableness of the cost of tenders received Review / forecast contractor’s cost Note: not required where use is made of the design by employer strategy and the contractor is paid for the construction works based on a bill of quantities

Required where: • Cost advice is required • The project manager is not

responsible for the control budget or the controlling of costs

• Payments are made in terms of cost based contracts.

Contract administration

Administer the contract in accordance with the requirements of the selected contract i.e. as: • Employer’s representative - FIDIC (Green and Silver Book) and

NEC3 Engineering and Construction Short Contract • Engineer – FIDIC (Red and Yellow Book) and GCC 2004 • Project manager – NEC3 Engineering and construction contract • Principal agent – JBCC series 2000 • Service manager – NEC3 Term Service Contract

Required on all contracting strategies

Construction monitoring

Monitor that design assumptions are valid, the design is being correctly interpreted and the work is being executed generally in accordance with the designs, appropriate construction techniques and good practice

Not required where designer provides this service Note: Frequently the designer performs the role of engineer in FIDIC and GCC contracts, agent in JBCC Series 2000 Agreements and supervisor in NEC3 Engineering and Construction Contract.

Construction management

Manage the interfaces between contractors / contractual risk associated with a contract

Required where employer adopts the construction management strategy

Design Establish and develop the architectural / relevant engineering (civil, structural, electrical, mechanical, fire, etc) / building services for project, develop architectural / engineering / building service aspects of the brief and assemble and archive record information. Where the contractor is responsible for design, monitor that the design progresses in accordance with the requirements of the

Required to prepare concept report



Service area Description of service Decision criteria contract

Design lead Set design standards for the project, lead presentations of the design to the client and other parties, co-ordinate and integrate the design prepared by the project team, co-ordinate advice on design-related issues and advise on the design, and lead and co-ordinate submissions to statutory authorities

Required where the design involves a number of disciplines e.g. on a building project where architectural, structural, civil, electrical, mechanical, fire safety and acoustical design services are required

Environmental impact assessments

Undertake work that is necessary to enable the client to satisfy legislative requirements relating to the protection, management and controlled utilization of the environment Assist with obtaining other relevant environmental permits relating to a project and as required by law

Where legislation requires environmental impact assessments

Geotechnical investigations

Provide specialist advice on: • The behaviour of earth materials • The determination of the physical / mechanical and chemical

properties of subsurface conditions and materials that are relevant to the project

• The risks posed by site conditions to humans, property and the environment, and

The design of earthworks and foundations for structures

Monitor site conditions, earthwork and foundation construction Undertake geotechnical design including • Bearing capacity and settlement analysis • Soil and rock slope stability assessments • Design of piles and pile groups • Excavations, and • Dewatering

Undertake geotechnical site investigations Procure the services of service providers to undertake the necessary drilling, testing, sampling, excavation and backfilling, and reinstatement of the site

Where geotechnical advice is required in the planning processes Where geotechnical information needs to be communicated to designers or included in the site information in procurement documents Where geotechnical works require monitoring

Mentorship Develop an emerging contractor through the advice, counselling, experience and inputs of the mentor, so that he or she may in time improve his or her CIDB contractor grading designation

Required where CIDB registered contractors or subcontractors require such support to progress to a higher grade

Occupational health and safety services

Monitor compliance with occupational health and safety requirements, conduct random site audits and issue, where necessary, improvement notifications, contravention notices and prohibition notices Advise on maintaining a healthy and safe working environment

Required on larger contracts or on high risk contracts e.g. those involving working below ground or at height

Procurement documentation

Develop tender and contract documents for package including • The formulation of the contract data for the selected form of

contract and contracting strategy • Pricing assumptions and • Scope of work

Specialist may be required to develop documentation for those contracting strategies for those other than the design by employer contracting strategy

Programme management

Manage a programme of projects with common objectives Required where programme of projects option is selected



Service area Description of service Decision criteria Project management

Manage projects, in accordance with the project stages set out in the CIDB Gate Way Process, where relevant, in a manner that enables the employer to achieve its objectives and in such a manner that: • All projects are developed and managed in terms of a

common procedural approach and integrated with the employer’s administrative processes

• The various elements of the project are properly co-ordinated • The project includes all the work required, and only the work

required, to complete the project successfully • The timely completion of the project is facilitated • The project is completed as far as is reasonably possible,

within the budget that is agreed from time to time with the employer

• The project satisfies the needs for which it was undertaken • Effective use is made of the people and resources involved

with the project is made • Timely and appropriate generation, collection, dissemination,

storage, and ultimate disposition of project information occurs • The systematic identification, analysis, and response to project

risk occurs

Not necessary for • Small projects • Projects involving a single design

discipline. • Design and construct contracts with

early contractor involvement or management contracts

Quantity surveying

Establish the project budget, develop and maintain a cost plan and monitor and assist the project team in the development of the brief in compliance with the budget Develop bills of quantities.

Required where a design by employer contracting strategy is selected and the contractor is paid for the construction works based on a bill of quantities

Third party management support

Construction management services Advise, assist and train contractors in the performance of contracts as main contractors and ensure that work progresses satisfactorily Materials management support Procure, store and issue materials for incorporation into the works either to the construction manager, who will deliver such materials to the place of work or directly to the supported contractor. Establish a stores facility which is capable, at short notice, of supplying all materials required for the project

Required to manage the employer’s risks relating to the failure of fledgling contractors, embryonic enterprises or aspirant entrepreneurs form failing to complete a contract satisfactorily.

Table 13: Nature of required professional services Contract type Decision criteria Discipline specific Use where

• Specialist services are required which are not interlinked with and dependent upon other services which

are provided • Design involves a single discipline • The nature of the service is such that it is essential for a discipline specific designer to be separately

appointed e.g. an architect through a design competition, an engineer with very specialised capabilities in a particular field, etc.

• There is sufficient capacity (internal or procured) to effectively manage the professional team Multidiscipline Use where decisions criteria for discipline specific are not satisfied Step 2: Decide on type of contract Action: Determine the type of appointment based on the decision criteria contained in Table 14 Output: Requirements for outsourced professional services linked to a specific package or a programme or a

number of undefined packages or programmes.



Table 14: Type of appointment

6.5 Allocate risks for professional service contracts Step 1: Decide on pricing strategy Action: Identify a suitable pricing strategy for professional service contracts, based on the decision criteria

contained in Table 15. Output: Identified pricing strategy and standard form of contract for required professional services. Step 2: Decide on form of contract Action: Select either the NEC3 Professional Service Contract or the CIDB Standard Professional Services

Contract by considering the following needs:

• Require a target cost contract (use NEC3) • Require consultants to provide deliverables as opposed to completing the services by a specified date

(use NEC3) • Anticipate many scope changes in a priced contract (use NEC3) • Regular forecasting of time charges and updating of programme (use NEC3) • Services provided on a task order basis / framework contract (use NEC3 – term service option).

Output: Identified standard form of contract for a professional service contract.

Contract type Decision criteria Package specific Use where service is a one of a kind or specific to a particular package Programme related

Use where there are benefits for using the same professional service provider to provide the same service for a programme involving a number of packages

Framework agreement

Use where services are required on an as and when basis for a number of packages or programmes



Table 15: Selecting a pricing strategy for professional service contracts Consideration Options

Priced contract Cost of construction Cost based contract Cost reimbursable Target cost

Description The consultant undertakes to break the scope of work down into activities and price each activity as a lump sum, which he is paid on completion of the activity The total of the activity prices is the lump sum price for the contract work

The consultant’s fee is based on a percentage of the cost of the construction works

Contract in which the consultant is paid for his time expended at agreed rates

Cost reimbursable contract in which a target cost is estimated and on completion of the service the difference between the target cost and the actual cost is apportioned between the employer and contractor on an agreed basis

Appropriate usage

Where: • The price risk needs

to be transferred to the consultant

• Greater certainty of outturn cost is required, possibly at a cost premium

• A clear, unambiguous scope of work exists, which is complete in all respects

Where an early consultant involvement in the project is required to make inputs into the scoping of the project.

Note: 1) This strategy implies

that the cost of the consultant’s services is proportional to the cost of constructing the works. The cost of construction is, however, largely a function of the market and bears no relation to the cost of professional services

2) With this option, the Consultant has no incentive to produce an economical design or other service. The Consultant has in fact a perverse incentive to make the cost of the works as high as possible

Where • The scope of work

cannot be priced ahead of the service

• The employer cannot transfer the risk to the consultant or the risk pricing by a consultant is prohibitive.


Where: • The employer

- Wishes to control time related costs,

- Wishes to reward strong consultant performance ;

- Wants to share financial risk with the consultant; and

- Wants to promote collaboration or a culture whereby both parties have a direct interest in decisions that are made regarding the cost and timing for the contract

• An early consultant involvement in the project is required to make inputs into the scoping of the project


Pre-requisites The scope of work is robustly defined and pricing is viable

There are clear and definite advantages to using this type of procedure over a priced or target cost contract.

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Considerations in developing contracting arrangements (after Bower, 2003) Construction projects are often complex with potential for cost and time overrun or the finished facility performing less than planned. To minimise such risks, the client should select the contract strategy that matches the objectives of the project. These must be clearly established and prioritised before any design or other work begins. The client must decide upon the relative importance of: • Time – earlier completion can be achieved if construction is started before the design is finished • Cost – with the exception of certain ”design and build” contract strategies, a final construction contract sum cannot be

established with any confidence until the design is complete • Performance – some strategies reduce the client’s ability to control or make changes to the detailed specifications

after the contracts have been let The client needs to balance flexibility, risk allocation and incentive with the type of contract, viz: • Incentive – aim to provide an adequate incentive for efficient performance • Flexibility – aim to provide the client with sufficient flexibility to introduce change that can be anticipated but not

defined at tender stage • Risk sharing – aim to allocate risk between client and contractor in a realistic and equitable manner Every time an interface is introduced into the project organisation the management effort required to deliver a successful project is increased, as is the risk of failure. The aim should be to minimise the number of interface between the different organisations. Incentives are used in contracts for two main reasons. One is to align the objectives of the separate parties involved in a contract agreement, the other is to motivate the other party’s behaviour to achieve objectives set by the client. The supply chain network in construction, as a set of contributors to the project value chain, can be classified as: • Professional service firms, who provide a combination of skills and intellectual property to the process, typically

comprising the designers and other professional consultants. Depending upon the procurement route that is adopted, the delivery of professional services can fall within either the client’s project-specific supply chain or the main contractor’s supply chain.

• Construction and assembly firms, who engage in the on-site construction process in a skills focussed manner and are brought together as part of the on-site manufacturing process. Such firms may have overall responsibility for the management of the process or for supplying inputs into the process e.g. fitting, installation, assembly, repair etc.

• Materials and products firms, who provide the materials, products and hired plant involved in the on-site process. These firms form part of the main contractor’s supply chain and involve the make (production), move (logistics) and store (stockpile) activities to and at a particular site.

The diversity and structure in supply chain networks in construction is driven by the demand chains created by a diversity of clients. “Main contractors” act as managers of a supply chain hub or node. (Bower, D. Management of procurement, Thomas Telford, 2003)



7. Procurement arrangements 7.1 General The final stage in developing a procurement strategy is to decide on the procurement arrangements (see Figure 17).

Figure17: Deciding on procurement arrangements

This stage is not always included in a fully developed form in a procurement strategy at a portfolio or programme level. It must nevertheless be completed prior to the finalisation of the package preparation stage at the package level.

Decide on procurement procedureProcurement procedure options • Competitive selection procedure

o Nominated o Open o Qualified o Quotation o Proposal procedure using the -

two envelope system o Proposal procedure using the -

two stage tendering system • Negotiation procedure • Competitive negotiations

procedure o Open o Restricted

Eligibility criteria, if applicable

Quality strategy options

• Life cycle costing • Prequalification • Evaluation criteria • Undertakings at tender stage • Preference • Eligibility criteria

Targeted procurement procedure options • Preferencing • Incentives for KPI’s • Mandatory subcontracting • Contractual obligations

Decide on quality strategy

Description Output De termine quality strategy Suitable quality strategies

Description Output Determine procurement procedure

A suitable procurement procedure

Decide on targeted procurement strategyDescription Output Determine targeted procurement strategy

Suitable targeted procurement procedures

Decide on a tender evaluation procedure procurement strategy Description Output

Identify the appropriate tenderevaluation procedure

A suitable tender evaluation procedure

Tender evaluation procedure options • Method 1:Financial offer • Method 2: Financial offer and

preferences • Method 3: Financial offer and

quality

• Method 4: : Financial offer, quality and preferences

Note: an organ of state’s procurement policy may limit orplace certain restriction on th e use of some of the options



The organisational and market analyses and primary and secondary procurement objectives, as well as the decisions made for the contracting arrangements inform the choices made for the procurement arrangements. 7.2 Decide on quality strategy Action: Determine the strategies to ensure quality in the procurement in addition to the full and unambiguous

specification of requirements in the scope of work, based on the decision criteria contained in Table 16. Output: Suitable quality strategies. Table 16: Selecting suitable quality strategies Mechanism Description Decision criteria Life cycle costing

Incorporate aspects of life cycle costing in the evaluation of tender offers (Link to evaluation Methods 3 and 4)

Use if solution(s) to performance specifications offered by tenderers have an impact upon the life cycle of the project e.g. the solution offered impacts upon issues such as reliability, durability, running costs, after-sales service and technical assistance etc.

Prequalification Invite tender offers only from prequalified tenderers (Link to qualified procedure)

Use where it is essential to ensure that only those tenderers who are capable of providing a quality service are invited to submit tenders

Eligibility criteria

Evaluate only submissions and tenders received from respondents and tenderers, respectively, who satisfy eligibility criteria framed around quality.

Use where the introduction of quality criteria in the eligibility criteria needs to be used to screen respondents in calls for expressions of interest or tenderers to ensure that submissions are only evaluated from those who are able to or are likely to satisfy the quality requirements for the contract

Undertakings at tender stage

Require tenderers to submit draft quality management plans with tender

Use where it is desirable and appropriate to have the opportunity to make inputs into quality management plans at tender stage and to finalise such plans before awarding the contract.

Preference Award a preference for attainment of quality standards (Link to evaluation Methods 2 and 4).

Use where it is desirable but not essential to meet stated quality criteria e.g. be ISO 9000 certified.

Evaluation criteria

Incorporate objective and quantifiable aspects of quality in the evaluation of the financial offer (Link to evaluation Methods 3 and 4).

Use if criteria such as the following have a profound or significant impact on the tenderer’s offer • Technical merit • Response to (ability to relate to) the proposed scope of

work/project design • Aesthetic and functional characteristics • Safety and environmental characteristics • Quality control practices and procedures which ensure

compliance with stated employer’s requirements • Organization, logistics and support resources relevant to the

scope of work • Qualifications and demonstrated experience of the key staff

(assigned personnel) in relation to the scope of work • Demonstrated experience of tendering entity with respect to

specific aspects of the project / comparable projects 7.3 Decide on procurement procedure Action: Select one of the basic procurement procedures based on the decision criteria or pre-requisites

contained in Table , subject to the selected procedure not being in conflict with the employer’s procurement policy.

• If a competitive selection procedure is selected, select one or more suitable options based on the

decision criteria contained in Table 18 subject to the selected options not being in conflict with the employer’s procurement policy



• If a competitive negotiation procedure is selected, select one of the options based on the decision criteria contained in Table 19, subject to the selected option not being in conflict with the employer’s procurement policy.

Determine if respondents or tenderers need to satisfy eligibility criteria relating to their capabilities and capacities in order for their expressions of interest or tenders to be evaluated.

Output: A suitable procurement procedure, with or without requirement, if any, for eligibility criteria to be

included in the procurement documents. Table 17: Selecting a basic procurement procedure Procedure Description Decision criteria Pre-requisites

1 Negotiation procedure

A tender offer is solicited from a single tenderer.

The procurement satisfies one or more of the following criteria • Only one contractor is identified as possessing

the necessary experience and qualifications or product to provide the required service or goods

• The required services or construction works cannot technically or economically be separated from another contract previously performed by a specific contractor

• The service or construction works being procured are largely identical to works previously executed by that contractor and it is not in the public interest to solicit other tenders, or

• The services being procured have a very low ceiling value and it is not cost effective to engage in a competitive selection process

In addition to satisfying the decision criteria, the reason for following this procedure is in accordance with the employer’s procurement policy

2 Competitive selection

The contract is usually awarded to the contractor who submits the lowest financial offer or obtains the highest number of tender evaluation points.

The criteria for the negotiation procedure or the competitive negotiation procedures do not apply.

None

3# Competitive negotiations

The number of tenderers competing for the contract are reduced through a series of negotiations until the remaining tenderers are invited to submit final offers.

The procurement satisfies one or more of the following criteria It is not feasible to formulate detailed specifications for the work or to identify the characteristics of construction works to obtain the most satisfactory solution to procurement needs • There are various possible means of satisfying

procurement needs • The technical character of the construction

works or nature of the services warrants the use of competitive negotiations to realize the most satisfactory solution to procurement needs

• There is potential for obtaining better value for money through negotiations than through a competitive selection procedure

The procedure is permitted in terms of the employer’s procurement policy and the capability exists or can be put in place to execute the procedure

Note: 1. Eligibility criteria are a form of prequalification. They are used to ensure that only those respondents or

tenderers who comply with the eligibility criteria are considered in the evaluation process. Eligibility criteria accordingly need to be framed such that they facilitate the acceptance of the tender offer by the employer (see clause F.3.13 (Acceptance of the tender offer) in the CIDB Standard for Uniformity in Construction Procurement).

2. Eligibility criteria are used to activate the CIDB register of contractors. Eligibility criteria are therefore required whenever the CIDB register of contractors responds to a call for an expression of interest or an invitation to tender (see CIDB Inform Practice Note #3, Applying the register of contractors in construction works contracts).



Table 18: Selecting a suitable option for a competitive selection procedure Option Description Usage Pre-requisite 2A Nominated

procedure Tenderers that satisfy prescribed criteria are entered into an electronic database. Tenderers are invited to submit tender offers based on search criteria and, if relevant, their position on the database. Tenderers are repositioned on the database upon appointment or upon submission of a tender offer

The procurement involves high volumes of work which is repetitive and routine in nature and has an estimated contract value that is less than R0,5 million in the case of services and construction works and R1,5 m in the case of professional services.

The employer has in place • Policy, operational procedures

and appropriate software to effectively and efficiently operate an electronic database;

• The necessary resources to evaluate the capability of applicants and to maintain the data base and add new applicants that satisfy entry criteria at regular intervals

2B Open procedure

Tenderers may submit tender offers in response to an advertisement by the organization to do so

Any procurement except where: • the cost of advertising or the

evaluation of a large number of tender submissions is disproportionate to the value of the work, or

• the cost of submitting a tender is such that very few tenderers are likely to submit tenders

The procedure is cost effective and likely to result in a reasonable number of competitive tenders being submitted

2C Qualified procedure

A call for expressions of interest is advertised and thereafter only those tenderers who have expressed interest, satisfy objective criteria and who are selected to submit tender offers, are invited to do so

The procurement is such that one or more of the following applies: • It is essential that tenders are only

received and evaluated from tenderers who have the necessary capabilities and capacity to perform the contract and it is undesirable to rely on eligibility criteria to “prequalify” tenderers

• The inputs required by tenderers are such that the shortlisting of 4 or 5 tenderers is essential to obtain comprehensive submissions or to make the submission of tenders attractive to potential tenderers

• It is essential for practical reasons that only a manageable number of tender submissions are evaluated

The capability and capacity exists or can be put in place to execute the procedure.

2D Quotation procedure

Tender offers are solicited from not less than three tenderers in any manner the organization chooses, subject to the procedures being fair, equitable, transparent, competitive and cost-effective

Procurement involving low contract values

The estimated contract value is less than the value prescribed in the employer’s procurement policy or, if applicable, the limit prescribed by National Treasury

2E Proposal procedure using the two-envelope system

Tenderers submit technical and financial proposals in two envelopes. The financial proposal is only opened should the technical proposal be found to be attain a minimum threshold score

Where tenderers are required to develop and price proposals to satisfy a broad scope of work established by the employer and it is desirable to evaluate technical proposals without having knowledge of price

The capability and capacity exists or can be put in place to execute the procedure

2F Proposal procedure using the two-stage system

Non-financial proposals are called for. Tender offers are then invited from those tenderers that submit acceptable proposals based on revised procurement documents. Alternatively, a contract is negotiated with the tenderer scoring the highest number of evaluation points

• Where the employer is not really sure as to what it requires or has extreme difficulty in expressing its requirements (The procedure allows the scope of work to be developed together with tenderers)

• Design competitions .

The capability and capacity exists or can be put in place to execute the procedure



Table 19: Selecting a suitable option for a competitive negotiation selection procedure

7.4 Decide on targeted procurement strategy Action: Select one or more of the targeted procurement procedures based on the decision criteria contained

in Table 20 to support secondary procurement objectives. Output: Suitable targeted procurement procedures. Note: Inform Practice Note #10. Attaining Social and Economic Deliverables, discusses a number of targeted

procurement procedures relating to the measurement and quantification of the participation of target groups, the provision of incentives for attaining key performance indicators in the performance of a contract and the creation of contractual obligations to engage target groups in the performance of the contract. It also outlines the approach adopted in CIDB Specification for Social and Economic Deliverables in the Construction Works Contracts for the delivery of a wide range of social and economic deliverables.

7.5 Decide on tender evaluation procedure Action: Identify the appropriate tender evaluation procedure based on the pre-requisites contained in Table

21.. Output: A suitable tender evaluation procedure. Note: Eligibility criteria in the form of attaining a minimum quality score can provide a simple and cost-

effective alternative to the scoring of some aspects of quality in tender submissions. In this procedure, the scoring of quality serves merely to establish that the tenderer is capable of providing the service and to reject the tender submissions of those who fail to attain the threshold score.

Option Description Decision criteria 3A Restricted

competitive negotiations

A call for expressions of interest is advertised and thereafter only those tenderers who have expressed interest, satisfy objective criteria and who are selected to submit tender offers, are invited to do so. The employer evaluates the offers and determines who may enter into competitive negotiations.

There is a need to limit the number of tenderers participating in the process from the outset for the following reasons: • A contract requires a high degree of specialized

input or requires skills and expertise that is not readily available;

• A contract requires exceptional management skills or quality

• A contract requires significant tender inputs in order to respond appropriately to requirements so that a financial offer can be determined, or

• The time and cost required to examine and evaluate a large number of tender offers would be disproportionate to the procurement

3B Open competitive negotiations

Tenderers may submit tender offers in response to an advertisement by the organization to do so. The employer evaluates the offers and determines who may enter into competitive negotiations.

There is no justifiable need to limit the number of tenderers participating in the process from the outset.

1 Decide on quality strategy

2 Decide on procurement procedure

3 Decide on targeted procurement strategy

4 Decide on tender evaluation procedure

Deciding on the procurement arrangements



Thereafter the tender offers can be evaluated on the basis of financial offer or financial offer and preference.

Table 20: Selecting suitable targeted procurement procedures Method Description Decision criteria Preferencing Give a weighting to social and economic policy

objectives along with the usual commercial criteria, such as quality, which are scored at the short listing stage or the admission to a data base

Use to improve the probability that the target group or a social or economic policy are shortlisted or admitted to a data base. (Not required where the target group is likely to be adequately represented on the shortlist or data base)

Give a weighting to social and economic policy objectives along with price and where relevant, quality, during the evaluation of tenders

Use on all contracts above R30 000 as required by the Preferential Procurement Policy Framework Act

Incentives for KPI’s

Incentive payments are made to contractors should they achieve a specified target (key performance indicator) associated with a social or economic goal in the performance of a contract

Use on larger contracts where the Employer is prepared to provide a financial incentive to attain stretch targets

Mandatory subcontracting

Require contractors to invite competitive tenders from targeted enterprises for specified portions of the works in terms of a specified procedure and specific forms of subcontract. Upon the award of the contract, the subcontractor becomes a domestic subcontractor

Use where contracts are sufficiently large and the nature of the work lends itself to do so Do not use where subcontracting requirements make the work unattractive to main contractors

Contractual obligations

Make policy objectives a contractual condition, e.g • A fixed percentage of the work is required to

be subcontracted out to enterprises that have prescribed characteristics, or a joint venture shall be entered into

• Parts of the works are to be executed using employment intensive methods.

Use with caution as, depending upon the nature and extent of the conditions to be applied to a contract, it may at one end of the spectrum be regarded as a form of discrimination and at the other end, a reasonable measure to promote equality Use only where the making of policy objectives a contractual condition does not compromise the constitutional imperative that the system be fair, equitable, transparent, competitive and cost effective

Table 21: Selecting a tender evaluation method Method Pre-requisites Method 1: Financial offer Where the tasks/activities are of a straightforward nature in terms of which inputs are relatively

well known and outputs can be readily defined Method 2: Financial offer and preferences

As for Method 1 except that preferences are applied

Method 3: Financial offer and quality

Where it is justifiable in terms of procurement outcomes or it is necessary in order to determine the most economically advantageous offer to evaluate objective and quantifiable criteria which relate directly to what is to be procured e.g. where criteria such as the following need to be evaluated • Technical merit • Response to (ability to relate to) the proposed scope of work/project design • Aesthetic and functional characteristics • Safety and environmental characteristics • Quality control practices and procedures which ensure compliance with stated employer’s

requirements • Reliability • Durability • Organization, logistics and support resources relevant to the scope of work • Qualifications and demonstrated experience of the key staff (assigned personnel) in relation

to the scope of work • Demonstrated experience of tendering entity with respect to specific aspects of the project /

comparable projects • Running costs • After-sales service and technical assistance • Delivery date, and • Delivery period or period of completion.

Method 4: Financial offer, quality and preferences

As for Method 3 except that preferences are applied



The use of procurement to promote social and economic development (after Watermeyer, 2000 and 2004) Public procurement, because of its nature and size, can have a significant impact on social and economic development. Procurement is also one of the few levers that government has at its disposal to encourage the private sector to embrace certain practices and policy objectives. As a result, procurement objectives can be broken down into primary and secondary objectives. Secondary procurement objectives relate to objectives additional to those associated with the immediate objective of the procurement itself. Such objectives may be framed around both social and economic goals. Social goals include the redefining of business ownership patterns and the composition of the workforce, the distribution of employment opportunities and the relief of poverty. Economic goals include the redefining of the distribution of the size of businesses, increased use of local resources and job creation (i.e. the increase in the total volume of employment generated per unit of expenditure). Economic activity is necessary to create employment and business opportunities in a community. Both the private and public sectors can use procurement to achieve objectives relating to the creation of employment and business opportunities in targeted communities. Targeted procurement procedures enable an employer to effectively and efficiently implement procurement intended, amongst other things, to create employment and business opportunities for targeted labour and enterprises, respectively, in a measurable, quantifiable, verifiable and auditable manner. There are a number of techniques and mechanisms associated with targeted procurement procedures, all of which are designed to promote or attain the participation of targeted enterprises and targeted labour in contracts. These procedures relate to the • Measurement and quantification of the participation of targeted groups through monetary transactions with such groups • Definition and identification of targeted groups in a contractually enforceable manner • Unbundling of contracts either directly so that targeted enterprises can perform the contracts as main contractors or indirectly through

resource specifications which require main contractors to engage target groups as subcontractors, service providers or suppliers within the supply chain or as joint venture partners

• Granting of evaluation points in the evaluation of expressions of interest or tenders (preferences) should respondents or tenderers satisfy specific criteria or undertake to achieve certain goals or key performance indicators in the performance of the contract

• Provision of financial incentives for the attainment of key performance indicators in the performance of the contract • Creation of contractual obligations to engage target groups in the performance of the contract, e.g. subcontract a percentage of the

work to or contract goods or services from targeted enterprises, enter into joint venture with targeted enterprises, subcontract specific portions of a contract to targeted enterprises in terms of a specified procedure or perform the works in a manner such that targeted labour is employed

• Provision of third-party management support to fledgling contractors, embryonic enterprises or aspirant entrepreneurs (targeted enterprises) in the performance of contracts as main contractors to ensure that work progresses satisfactorily

• Acceleration of targeted enterprises in rotating electronic databases to increase their tendering opportunities • Evaluation of procurement outcomes i.e. the monitoring of the attainment of socio-economic deliverables at a contract level

Contract participation goals (after Watermeyer, 2000 and 2004) Key performance indicators relating to the engagement of enterprises, joint venture partners, local resources and local labour in contracts are needed to set targets in contracts or to measure procurement outcomes. Contract participation goals can be used to measure the participation of targeted enterprises or targeted labour, i.e. the flow of money from the contract to the target group. Procedures as to how such goals can be quantified and verified in the performance of the contract should be included in the contract. This can be done in specifications or other contract information which applies to the contract. A generic four level performance-based resource specification which specifies and describes contract participation goals is as follows:

EVALUATION

(The methods by which the contract participation goal is measured, quantified and verified in the

performance of the contract is established in a resource specification – see SANS 1914 or ISO

10845)

Performance requirements

Engage the target groups indirectly or directly in the performance of the contract

PERFORMANCE

DESCRIPTIONS

Engage target groups to the extent that a contract participation goal (a percentage of the value of the contract which represents the inputs of local enterprises or labour (or both) in the performance of the contract) established for the contract is satisfied.

PERFORMANCE

PARAMETERS

Level 1

Level 2

Level 3

Level 4

Provide business and employment opportunities to specified target groups (local enterprises or targeted labour (or both))

OBJECTIVE

Construction Procurement Strategy


8. Documenting a construction procurement strategy The construction procurement strategy arrived at by applying the procedures set out in this practice guide needs to be documented in such a manner that the logic behind the choices that are made at each step can be communicated to and reviewed by others. Accordingly, the specific inputs and outputs of the actions at each step in the stages of the development of a strategy needs to be documented. A construction procurement strategy at a portfolio level should be documented using the headings provided in Table 22. The construction procurement strategy should be presented in tabular form which links each category or portion of a category of spend to a number of high level descriptions as illustrated in Figure 18. The strategic brief that is developed for a package during the package information stage of the package planning phase must, however, set out all the choices made in relation to the package in sufficient detail to enable procurement documents to be drafted to enable the necessary procurement processes to commence. Note: 1. Procurement documents reflect the decisions taken in developing the procurement strategy by setting

options within the tender data and contract data and developing returnable schedules, pricing data and the scope of work to reflect decisions that are taken when determining the procurement strategy

2. The CIDB Specification for social and economic deliverables in construction works contracts facilitates the specification of social and economic deliverables in construction contracts.

Table 22: Recommended headings of a construction procurement strategy developed in terms of the framework

Section Heading Subheadings

1 Background / introduction

2 Delivery management strategy 2.1 Nature and special arrangement of projects and clusters 2.2 Client organisation characteristics 2.3 Market characteristics 2.4 Primary procurement objectives 2.5 Secondary procurement objectives 2.6 Delivery management plan 2.7 Delivery mode 2.8 Packaging strategy

3 Contracting arrangements 3.1 Risk allocations for packages 3.1.1 Contracting and pricing strategies 3.1.2 Forms of contract 3.2 Professional services contracts 3.2.1 Requirements for outsourced services 3.2.2 Packaging for professional service contracts 3.2.3 Allocation of risks for professional service contracts

4 Procurement arrangements 4.1 Quality strategy 4.2 Procurement procedure 4.3 Targeted procurement procedure 4.4 Tender evaluation procedure

5 Satisfying primary and secondary objectives

5.1 Construction procurement strategy 5.2 Issues to be dealt with in the contracts which are not addressed

elsewhere



Figure 18: Sample tabulation setting out construction procurement strategy

9. Implementing a construction procurement strategy

A construction procurement strategy identifies what needs to be procured. This strategy needs to be converted into a procurement plan to ensure that contracts are put in place or package orders / task orders are issued in terms of framework contracts timeously. The starting point in the development of a procurement plan is to understand when in the CIDB Infrastructure Gateway System such actions are required (see Figure 19), what are the processes associated with such actions (see Figure 20) and what are some of the time frames associated with such processes (see Figure 21).

Category of spend

Delivery management strategy

Contracting arrangements strategy for work

Procurement arrangements for works M

eet n

eeds

thro

ugh

prop

ositi

on n

o

Del

iver

y m

ode

Pack

agin

g ar

rang

emen

ts

Con

trac

ting

stra

tegy

Pric

ing

stra

tegy

Form

of c

ontr

act

Qua

lity

stra

tegy

Proc

urem

ent

arra

ngem

ents

Targ

eted

pro

cure

men

t st

rate

gy

Eval

uatio

n pr

oced

ure

A

B

Category of spend

Contracting arrangements for professional services

Procurement arrangements for professional services

Serv

ice

area

Con

trac

t str

ateg

y

Type

of c

ontr

act

Pric

ing

stra

tegy

Form

of c

ontr

act

Qua

lity

stra

tegy

Proc

urem

ent

arra

ngem

ents

Targ

eted

pr

ocur

emen

t st

rate

gy

Eval

uatio

n pr

oced

ure

A

B

Procurement strategy for professional services

Procurement strategy for works



Figure 19: Actions associated with the implementation of a package within a construction procurement strategy

Delivery management strategy for the delivery of the package

PPP Leasing of property

Another organ of state’s framework agreement

Implementing Agent

Outsourcing Own resources

Follow National Treasury’s PPP procedures

Procure a lease Approach organ of state to make use of their framework agreement

Enter into a service level agreement with implementing agent

Procure goods, services and works in accordance with construction procurement strategy

Brief and instruct staff to proceed

Stage 1: Infrastructure

planning

Output: Infrastructure plan which identifies long term needs and links prioritised needs to a forecasted budget for the next few years

Output: Construction procurement strategy for implementing the infrastructure plan in the medium term

Stage 2: Procurement

planning

G G Planning activities at portfolio level

Identified packages for required goods and services • construction • maintenance, • construction and maintenance • construction, maintenance and

operation • supply plant and fittings • design and supply

plus requirements for outsourced professional services linked to packages

Procure services of or issue package order in terms of framework agreement to management contractor

Procure services of or issue package order in terms of framework agreement to management, design and construct or maintenance contractor Procure plant

Procure services of or issue package order in terms of framework agreement to management or develop and construct contractor

Procure services of or issue package order in terms of framework agreement to management or traditional (design by employer)

Procure professional services or issue task order in terms of framework agreement

Services as required to enable stage to be completed

Stage 3 Package preparation

Stage 4 Package definition

Stage 5 Design

development

Stage 6 Design

documentation

Stage 7 – Works Stage 8 – Hand over Stage 9 – Close out



Figure 20: Procurement processes required to implement a construction procurement strategy

Yes

No

No Stage 7 – Works Stage 8 – Hand over Stage 9 – Close out

Yes

Stage 7 – Works Stage 8 – Hand over Stage 9 – Close out

Framework agreement?

1 Prepare package / task order

2 Consult with contractor

3 Finalise package / task order

4 Obtain approval to issue package / task order

5 Issue package / task order

No

Yes

Single contractor?

No

Framework agreement?

Yes

Yes Qualified

procedure?Agreement in place?

1 Prepare calls for expressions of interest

2 Obtain approval for procurement documents

3 Invite contractors to submit expressions of interest

4 Receive expressions of interest

5 Evaluate expressions of interest

6 Prepare evaluation report on short-listing process

7 Confirm shortlist

8 Prepare tender


10 Invite tender offers from short-listed respondents

1 Prepare tender


3 Invite contractors to submit tender offers

4 Receive tenders

5 Evaluate tender submission

6 Prepare a tender evaluation report

7 Confirm recommendation contained in the tender evaluation report

8 Award contract

No

Procure services of or issue package order in terms of framework agreement to management or develop and construct contractor

Procure services of or issue package order in terms of framework agreement to management, design and construct or maintenance contractor Procure plant

Procure services of or issue package order in terms of framework agreement to management contractor

Procure services of or issue package order in terms of framework agreement to management or traditional (design by employer) contractor

Procure professional services or issue task order in terms of framework agreement

Stage 5 - Design development

Stage 6 - Design documentation

Stage 3 - Package preparation

Stage 4 - Package definition

Stage 1 - Infrastructure

Stage 2 - Procurement planning

Portfolio planning activities

1 Prepare package / task order

2 Call for submissions for a package / task order from all contractors

3 Evaluate submissions

4 Obtain approval to issue package / task order

5 Issue package / task order



Figure 22: Procurement processes required to implement a construction procurement strategy

Note: 1. The qualified procedure may take longer but allows time to develop tender documents and reduces the number of tenders to evaluate

2. The time taken for processing the award of task / package orders depends on organisation’s policy.

Start

Prepare tender document(Critical document which if not of good quality can

significantly increase the time to award)

Advertise using CIDB i-tender, media and tender bulletins

CIDB ≥ 5 working days (i-tender)

MFMA ≥ 30 days if above R10m or long term nature or ≥14 days

PFMA ≥ 21 days CIDB ≥ 10 working days (i-tender)

Clarification meeting (if required)

Closing date for tender offers

Award contract

Time is highly variable but within the

control of an organ of state

Prepare call for expression of interest(Critical document which if not of good quality can

significantly increase the time to award) Qualified

procedure?

Advertise using CIDB i-tender, media and tender bulletins

MFMA ≥ 30 days if above R10m or long term nature or ≥14 days ?

PFMA ≥ 21 days? CIDB ≥ 10 working days (i-tender)

Clarification meeting (if required)

Closing date for submissions Time is highly variable

but within the control of an organ of state

CIDB ≥ 5 working days (i-tender)

Shortlist prequalify respondents

Yes

No

Prepare tender document (Critical document which if not of good quality can significantly

increase the time to award)

Invite shortlisted / prequalified

respondents to submit tender offers

CIDB ≥ 21 working days if all contractors are not CIDB registered

No minimum period specified



All the options contained in this practice guideline are supported by the CIDB’s Standard for Uniformity in Construction Procurement. Guidance on their implementation is provided in various CIDB Inform Practice Notes. An organ of state’s procurement policy can, however, not necessarily be aligned with the options that are permitted e.g. it might not make any provision for the control of task / package orders issued in terms of a framework agreement or be geared to implement the qualified or competitive negotiations procedure. It is therefore imperative that an organ of state have an adequate construction procurement policy in place which enables the range of procurement strategies that are provided for to be implemented. Note: 1. Procurement processes are underpinned by methods and procedures and are informed and shaped by

the policy of the procuring entity. A procurement system accordingly comprises (see Figure 23): • Rules and guidelines governing procedures and methods as contained in the CIDB Standard for

Uniformity in Construction Procurement and the CIDB /FIDIC /GCC /JBCC/ NEC3 standard contracts • Procurement documents which include terms and conditions, procedures and requirements, based on

documents prescribed in the CIDB Standard for Uniformity in Construction Procurement • Governance arrangements to manage and control procurement in accordance with minimum

requirements established in the Supply Chain Management Regulations contained in the PFMA or MFMA • Organisational policies which deal with issues such as:

- the usage and application of particular procurement procedures - requirements for recording, reporting and risk management - procedures for dealing with specific procurement issues - the usage of procurement to promote sustainable development objectives.

2. The Public Finance Management Act and the Municipal Finance Management Act requires that: • A separate supply chain management unit be established within the office of the chief financial officer to

implement the institution’s supply chain management system • A competitive tender process be implemented using the following committees:

- Specification committee - Evaluation committee - Adjudication committee

3. CIDB Inform Practice Note #24, Managing Construction Procurement Processes, highlights the legislative requirements for managing and controlling procurement processes and suggests how construction procurement processes should be controlled. It also recommends a number of procurement gates within the procurement process.

Figure 23: Approach to standardising the construction procurement system

Procurement documents

Governance arrangements

Procurement policy

Procedures &

methods

Procurement system

Standardise aspects at an national level based on CIDB Standard for Uniformity in Construction Procurement and standard forms of contract referenced therein

Standardise at organisational level, based on SCM regulations issued in terms of the PFMA and MFMA



10. Annexure 1: Glossary Term Source

client: organ of state that provides the strategic brief, commissions the work and pays for it.

contracting strategy: strategy that governs the nature of the relationship which the employer wishes to foster with the contractor, which in turn determines the risks and responsibilities between the parties to the contract and the methodology by which the contractor is to be paid

ISO 10845-1: Construction procurement- processes, methods and procedures

construction procurement: procurement in the construction industry, including the invitation, award and management of contracts

CIDB Standard for Uniformity in construction Procurement

delivery management: the management of the process of public service delivery as applied to infrastructure and maintenance projects

design and construct contract: contract in which a contractor designs a project based on a brief provided by the client and constructs it


develop and construct contract: ccontract based on a scheme design prepared by the client under which a contractor produces drawings and constructs it


design by employer contract: contract under which a contractor undertakes only construction on the basis of full designs issued by the employer


eligibility criteria: criteria which have to be satisfied in order for the employer to evaluate a submission made in response to a call for an expression of interest or an invitation to submit a tender

employer: the person or organization intending to or entering into a contract with the contractor for the provision of goods, services, or engineering and construction works


expression of interest: a request for tenderers to register their interest in undertaking a specific contract or to participate in a project or programme and to submit their credentials so they may, in terms of the organization’s procurement procedures, be invited to submit a tender offer should they qualify or be selected to do so

CIDB Standard for Uniformity in construction Procurement

framework agreement: agreement between an employer and one or more contractors, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged


implementing agent: an agent of the client who is a government department or state owned enterprise which implements a programme or project on a client’s behalf

management contract: contract under which a contractor provides consultation during the design phase and is responsible for planning and managing all post-contract activities and for the performance of the whole of the contract


package: construction works which have been grouped together for delivery under a single contract or a package order

pricing strategy: strategy which is adopted to secure financial offers and to remunerate contractors in terms of the contract procurement strategy: selected packaging, contracting, pricing and targeting strategy and procurement procedure for a particular procurement


procurement procedure: selected procedure for a specific procurement ISO 10845-1: Construction procurement- processes, methods and procedures



Term Source

procurement strategy: selected packaging, contracting, pricing and targeting strategy and procurement procedure for a particular procurement


programme: the grouping of a set of related projects in order to deliver outcomes and benefits related to the organisation’s strategic objectives which would not have been achieved had the projects been managed independently

programme management: a value adding business function that interfaces strategic management and project management with the aim of realising the potential outcomes and benefits of a programme

Public Private Partnership (PPP): a contract between a public sector and a private sector party, in which the private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project over time

Regulations issued in terms of the Public Finance Management Act of 1999

respondent: a person or organization that submits an expression of interest in response to an invitation to do so


scope of work: means the document that specifies and describes the goods, services, or engineering and construction works which are to be provided and any other requirements and constraints relating to the manner in which the contract work is to be performed

CIDB Standard for Uniformity in Construction Procurement

secondary procurement policy: procurement policy that promotes objectives additional to those associated with the immediate objective of the procurement itself


targeting strategy: strategy which is adopted to promote secondary procurement policy objectives


tenderer: a person or organization that submits a tender offer
