Procurement System Practice

A construction project is one method of delivering a solution to a client's specific business

demands, whether for investment, growth, or increased efficiency.Only when no alternative
structure exists or appears to exist that will satisfy or seems to suit the demands of a customer is
a new building or renovation or adaptation of an existing structure required.(Turner, 1990) When
a new construct option is chosen over renting, leasing, or owning existing real estate, a
customized solution that attempts to achieve specific objectives is frequently required.
Identifying and prioritizing these objectives might be difficult given the variety of stakeholders
who may be involved inside the client organization.(Smith et al ,2001) As a result, proper
engagement and debate among stakeholders is required before project objectives are prioritized.
New construction projects are almost always one-of-a-kind, one-of-a-kind designs developed on
one-of-a-kind locations. Thus, while developing a project delivery plan, a client should be made
aware of the complex array of activities and procedures involved in the procurement process so
that they may be managed correctly.

The selection of a procurement methodology entails determining the most appropriate overall
arrangements or delivery system for the procurement, which includes establishing a contract
system for each of the contracts or work packages involved as components of the chosen
delivery system, as well as how the procurement will be managed by the agency or management
system to suit the delivery system and contract system.

A procurement system, also known as a delivery system, is an organizational structure that

allocates particular roles and authority to individuals and organizations while also defining the
numerous aspects in the development of a project. Traditional (separated) procurement systems,
design and construct (integrated), management (packaged), and collaborative procurement
systems are the four types of procurement systems (relational). In response to market needs, sub-
classifications of these systems have proliferated. According to (Holt et al,2000) there are so
many variables to each of the frequently used procurement methods that there is a very wide
variety of methods accessible, despite the frequently recognized terminology. For example, the
NSW Government (2005) specifies more than eight versions of the design and construct system
in its procurement rules. However, there are several regularly used procurement systems and
contracting procedures, each of which is explained here.

The decision on the procurement system to utilize should be made as soon as feasible and
supported by the client's project business case. The risks connected with any procurement
system, as well as how they may influence the customer, should be taken into account. The
employer recognizes that design work will largely be separated from construction in the
conventional way, consultants are recruited for design and cost management, and the contractor
is responsible for carrying out the works. This duty covers all workmanship and materials, as
well as any work performed by subcontractors and suppliers. The contractor is typically hired by
competitive tendering based on comprehensive information, but may be hired sooner if required
through negotiation based on partial or fictitious information.

A contractor assumes responsibility for some or all of the design under design and build
procurement. The contract should expressly state this, and the scope of design liability should
always be stated as clearly as feasible. Unless otherwise stated in the contract, it appears that the
obligation for design is an absolute duty under which the contractor promises suitability for the
purpose intended.
Some design and construction forms limit the contractor's design obligation to the standard
professional responsibility to use reasonable care and skill. As a result, independent consultants
hired by the contractor face no additional obligation than usual. An indemnity or acceptance of
liability is likely to be useless unless supported by proper indemnity insurance, which should be
reviewed before hiring a contractor. If the contractor does not have in-house designers, as is
commonly the case, and instead hires external consultants, the identity of the consultants should
be confirmed before a tender is approved.
The client's needs may be conveyed short and simply, possibly as little as a site layout and
timetable of accommodations. On the other hand, they may be a multi-hundred-page paper with
exact specifications. The contractor's involvement may be limited to accepting a client-supplied
scheme design and generating specifics and manufacturing information. It is preferable,
however, to describe in terms of performance requirements rather than prescribing in detail,
because this places the burden for design and selection squarely on the shoulders of the
contractor.

Tendering System

There are three types of tendering systems which are used in construction project which are:
-Open Tendering;
-Selective Tendering; and
-Negotiated Tendering

The employer publishes his intended project and allows as many contractors as are
interested to submit for tender papers under open tendering. Occasionally, he requests a deposit
from applicants, which is reimbursed "upon receipt of a bona fide offer." This strategy, however,
might be regarded to be wasteful of contractors' resources because many may spend time drafting
tenders for no reason. Also, knowing their prospects of winning the contract are slim, contractors
may not thoroughly research the contract to determine their minimum price, but instead offer a
price that will guarantee them a profit if they win the contract. As a result, the employer may be
provided simply "a lottery of pricing," rather than the lowest price for which his project may be
built. If he accepts the lowest bid, he takes the risk that the tenderer has not examined the
contract well enough to assess the risks involved, or that the tenderer has the technical or
financial capacity to complete the task properly. True, the employer can check the lowest
bidder's resources and experience and reject his tender if the enquiry proves unsatisfactory;
however, several bids may be below the estimated cost of the job, and if such tenderers appear
satisfactory and their bids are not far apart in value, it is difficult for the employer to choose
other than the lowest. The engineer advising the employer may believe that all such low offers
are unsatisfactory, but he cannot advise the employer on what alternative bid to take since he
lacks assurance of knowledge.

The employer announces his project and encourages contractors to apply to be placed on a
selected list of contractors who will be contacted to bid on the project through selective
tendering. Contractors who apply are given a series of questions to answer about themselves in
order to 'pre-qualify.' The employer benefits because he may pick just those contractors who
have sufficient experience, are financially secure, and have the means and expertise to complete
the assignment. Furthermore, because just a half-dozen or so contractors are chosen, each
contractor is aware that he has a good chance of winning the contract and so has an incentive to
properly review the tender documents and submit his most competitive bid. However, because
all contractors have been pre-qualified, it is difficult to reject the lowest price, even if it looks to
be suspiciously low unless there is an evident error. A problem with both open and selective
tendering is that a contractor’s circumstances can change after he has submitted his tender. He
can make losses on other contracts which affect his financial stability; or may be so successful at
tendering that he does not have enough skilled staff or men to deal with all the work he wins.
Neither method of tendering nor any other means of procuring works can therefore guarantee
avoidance of troubles.

Negotiated tenders are achieved by inviting a contractor of the employer's choosing to submit
quotes for a project. This is usually done for specialist work or when specific equipment is
required as an extension of existing work or for further work after a previous contract. When
there is an extremely short deadline or emergency work is required, negotiated tenders might be
employed. A negotiated tender has a strong probability of being satisfactory since it is frequently
founded on past acceptable collaboration between the employer and the contractor.
 When a contractor is called to tender, he presents his pricing, and if there are any
questions, they are reviewed and typically resolved without trouble. Thus, price errors may be
eliminated, giving both the engineer advising the employer and the contractor confidence that the
task would be finished on time assuming no unanticipated problems develop. Negotiated tenders
for public works, on the other hand, are uncommon since the standing regulations of public
bodies do not generally enable them. However, a private employer or corporation that is not
subject to the constraints stated in the next section can always negotiate a contract, and many do,
especially for modest work. Even when a negotiated proposal is accepted, detailed contract
documentation are usually prepared to ensure that the contract is on a solid foundation. The
production of the papers also implies that they are accessible for open or selective bidding in the
event that a negotiated tender fails or the chosen contractor is unable to complete the work.

Contract

A lump sum contract establishes a single fixed fee for all project work. These types of
construction contracts are often known as "fixed price" or "stipulated amount" contracts. Lump
sum contracts have a set fee for all work completed on the project. These contracts may include
incentives to compensate the builder if the project is finished ahead of schedule. These
agreements may also include fines, known as "liquidated damages," for late completion of a task.
Owners generally utilize these contracts to avoid change orders for any additional or otherwise
unspecified work. When a lump sum contract is signed, the builder assumes greater risk since the
owner is not bound to pay more than the initial amount if the project goes over budget, issues
arise, or other changes occur throughout the project. Some lump sum contracts take this into
account by adding distinct provisions for unanticipated expenditures and adjustments. If an
owner chooses a lump sum contract for a project, builders may usually charge a higher fee to
account for the added risk they are taking on. Otherwise, any unanticipated expenditures might
either cut into a builder's earnings or result in a project that is not completed as planned.

Unit pricing contracts often highlight the sorts of jobs performed as well as the resources utilised
on those activities. This type of classified pricing makes it easy for owners to examine each
expense and helps builders to charge more properly for each category. Unit pricing contracts
price out distinct categories depending on factors such as work type and resources required. This
form of construction contract is not often utilised for large construction projects, but rather for
minor works such as repair or maintenance. When the scope of work changes, unit pricing
contracts make it easy to alter prices.

Cost plus contracts often require the owner to pay for all project expenses, such as materials,
labour, and other project expenditures. Furthermore, these contracts will include an agreed-upon
price or percentage that covers the builder's overhead costs and profit, which the owner will also
pay. Cost-plus contracts compel owners to pay for all project expenses in addition to a payment
to cover the builder's overhead and profit. Depending on the sort of cost plus contract, the owner
may wind up paying more than expected and so bears more risk than the builder.

Tender Evaluation

A tender is a proposal submitted by a prospective provider in response to a request for proposals.

It makes a proposal to deliver products or services. An invitation to tender may be issued for a
variety of contracts, such as equipment supply, the primary construction contract (which may
include design by the contractor), demolition, enabling works, and so on.

Following the completion of a pre-qualification questionnaire (PQQ) in response to a client-

posted advertisement and maybe a pre-tender interview, an invitation to tender may be issued. A
pre-qualification questionnaire and pre-tender interview allow the client to generate a short list of
suppliers who are likely to be most acceptable for their specific project and will then be asked to
tender. This reduces inefficiencies and waste in the tendering process. In response to an
invitation to tender, invited tenderers will submit a tender that includes their pricing for
delivering the products or services, as well as recommendations for how the client's needs will be
met, if these have been asked. Mid-tender interviews may be performed to clarify issues that may
otherwise result in an incorrect tender being filed. They can also provide the customer with
information on potential challenges or opportunities in the project as mentioned in the bidding
papers.
 Once tenders have been received, a thorough evaluation procedure must be carried out in
order to select the chosen tenderer. This is referred to as tender evaluation (or sometimes, tender
adjudication). Historically, tender evaluation may have simply found the lowest-priced
complying bid. This may still be suitable for extremely basic supply contracts, but it may not
result in the best value bids being picked for building projects. Tenderers in such systems have a
tendency to make low-ball bids and then find methods to charge more after the contract is
obtained.

In the long term, assessments that identify the tender that best satisfies the client's
demands and gives the most value for money might be more advantageous. In contrast to the
lowest-price strategy, this is frequently referred to as the ‘most economically advantageous
tender' (MEAT) strategy. Because the client's goals, goals, and definition of value will be
different for each project, the assessment criteria will be different as well. Assessment criteria are
referred to as ‘selection criteria' during the pre-qualification phase and ‘award criteria'
throughout the tender process.

Tender Report

A tender report is an analysis or assessment report generated by a quantity surveyor on

tenders filed by tenderers. This report was created to advise the public sector customer, i.e. the
government or the private sector employer, on the best contractor for the project by analyzing the
submitted tender papers in many aspects and determining a price for the subsequent contract.
The customer or employer will pick his or her preferred contractor after considering the
suggestions in the tender report and the advise of the experts. The whole procedure, as well as
the outcomes of the tender review, are kept secret.

Tender Boards or Tender Assessment Panels will be created upon the filing of tenders by
tenderers. Tender Boards or Tender Assessment Panels are groups of independent personnel,
including a quantity surveyor, who conduct a tender receiving process for competitive tenders,
review and confirm best and final proposals. The tender board meets on a predetermined day and
time to open and process submitted tender papers, which are subsequently given to acquisition
teams for commercial, technical, and financial examination. Tenders shall be opened and
conducted in an open and transparent manner, according to the Tender Board. Tenders will also
be examined, and suggestions will be given to the customer and the Tender Board. The approval
and acceptance of a tender occurs during the tender's validity period, which is typically 60 days
as specified in the tender document. To avoid the prolongation of one tender, the tender should
be examined and a recommendation provided within 30 days of the tender being handed over. If
the tender must be extended owing to unforeseen circumstances, consent from the recommended
tendering party must be sought at least two weeks before the validity period expires.

The tender assessment procedure is often separated into two stages: preliminary stage
assessment and final stage assessment. The preliminary stage of tender evaluation, also known as
Preliminary Analysis, consists of an analysis of the tender's completeness, an analysis of the
mandatory documents, and an analysis of the minimum capital required for the project, whereas
the final stage of tender evaluation consists of an analysis of the tenderers' technical and financial
capabilities. Aside from that, the tenders will be subjected to an arithmetic check as part of the
tender review process.

By tenders may be considered, they must be submitted before the tender closing date and
time specified in the Letter of Invitation to Tender. Due to fairness and accountability, late
tenders will not be accepted or submitted, and will not be opened for further evaluation. This is
typically used for public-sector initiatives with very strong transparency and accountability
criteria. The decision to open and examine such a tender, however, is entirely at the discretion of
the Tender Board and the private sector employer. Furthermore, tenders altered on the tenderer's
own initiative, whether in writing or in other forms, without the project client's or employer's
approval, will be rejected for consideration.

Award of Contract