BPM101

Interdisciplinary Studies in Construction

STUDY UNIT 1 – INDUSTRY: PROJECTS AND CONTRACTS

Chapter 2: The Nature of Contracts and Project Relationships

STUDY UNIT 1 – INDUSTRY: PROJECTS AND CONTRACTS
Chapter 2: The Nature of Contracts and Project Relationships
Topic 1.2 – Contract Types

Learning Outcomes

• Differentiate between various project types

• Draw connections between project type and the

processes that may be required

• Suggest how a particular project defines people,

planning and process
 STUDY UNIT 1 – INDUSTRY: PROJECTS AND CONTRACTS
Chapter 2: The Nature of Contracts and Project Relationships
Topic 1.2 – Contract Types

• Overview of the different contracts used

• Interaction under contractual and project relationships

Fundamentals
- Contract is the exchange of a set of obligations between two or more parties
- Procurement describes the merging of activities undertaken by the client to
engage parties to produce the development outcome.
2.1 Procurement/Contract Types

1) Traditional (Design-bid-build)

2) Design and Build

3) Management Contracting
 (1) Traditional Procurement (Design-bid-build)

Client
Project Manager
(if appointed)
Design Consultants
A CS MEP QS SpC
Main Contractor

Sub-contractors & suppliers

The client employs a number of organisations that are separately

responsible for the design and construction of works.
Roles in traditional procurement
Individuals or organisations involved in supplying the project in
traditional system can be divided into the following groups:

1. Client
Client, their employees and representatives
Project Manager

2. Design Team
Architect – team leader
Civil & Structural Engineer
Mechanical & Electrical Engineer
Quantity Surveyor
Other designers

3. Construction team
Main contractor
Subcontractors
Suppliers
 (1) Traditional Procurement (Design-bid-build)

Two main features of the traditional method:

• Design process is separate from the construction

DESIGN CONSTRUCTION

TENDER

• Full documentation (i.e. drawings, work schedules, bills of

quantities) must be supplied by the client before the contractor
can be invited to tender for carrying out the work.
 (1) Traditional Procurement (Design-bid-build)

Other features:

• Contractor is usually selected and appointed by competitive

tender, but sometimes by negotiation.

• Terms of many traditional contracts require the client to appoint a

professional consultant (i.e. architect, quantity surveyor, contract
administrator) to act as an independent contract administrator.

Role of contract administrator, usually the

architect, involves dispute resolution, certifying
payments and changes to the project.
Role performed separately from design functions
and decisions made should be objective.
 (1) Traditional Procurement (Design-bid-build)
Other features (cont’d):

• Full documents are needed for the tendering process – including

that from specialist sub-contractors. Adequate time needed for
preparation.

• Client has control over the design through their appointed

consultants (i.e. architect). No design responsibility on contractor.

• Design and construction are separate sequential processes – this

can increase the overall time of the project.

• Reasonable certainty on the cost of the project as contract figure is

usually known at the outset. Contract does have provision for cost
to be adjusted later, if required.

• Speculative risks are balanced between the parties. Lump sum

contract is more in favour of the client compared to a
measurement contract.
 (1) Types of Traditional Procurement Contracts)
Lump Sum Contracts
Contract sum is determined before construction work is started. Contracts
‘with quantities’ are priced on the basis of drawings and firm bills of
quantities. ‘Without quantities’ means a contract priced on the basis of
drawings and usually another document, such as a specification or work
schedules.
Measurement Contracts
Contract sum not finalised until completion of the project, assessed on re-
measurement to a previously agreed basis. Design reasonably complete and
an accurate indication of quality available to the tenderer. A ‘measured term’
contract can also be priced on the basis of rates applied to individual works
that make up part of a larger programme.
Cost reimbursement Contracts
Also, referred to as ‘cost-plus’ or ‘prime cost’ contracts, these work on the
basis that the sum is calculated from the actual costs of labour, plant and
materials to which an amount is added to cover overheads and profit. The
overhead and profit amount can be a fixed-sum, percentage, or some other
reimbursement payment.
 (1) Traditional Procurement (Design-bid-build)

Key advantages

ü Integrity afforded to all the parties

• Designer is responsible to review the work of the

main contractor - products and methods meet
specifications and codes

• Main contractor (with experience) able to pick up

design flaws unlike in the case of design-build
contracts
 (2) Design & Build

Client Project Manager

(if appointed)

Design & Build Contractor

Design Team Construction Team

Contractor, responsible for taking a concept developed by the client,

completing the detailed design, and upon approval on the design, proceed
with construction.
 (2) Design & Build
• Main contractor responsible for undertaking both the design and construction
work on a project

• Level of design responsibility and input from the contractor is much greater than a
traditional contract with a contractor’s designed portion.

• Adequate time needed to prepare the employer’s requirements (by appointed

consultants) and for contractor to prepare their proposal and tender price.

• Employer has control over design elements included in their requirements but
once the contract is let, contractor takes the responsibility of design.
Employer has no direct control over the contractor’s detailed design.

• Contractor appoints their own consultants or use their own in-house team.
Also, common practice for the contractor to take on the employer's consultants
and continue to use them to complete the detailed design.
 (2) Design & Build

Other features:

• Design and construction can be carried out in parallel, the overall

programme time of design and build projects can be shorter.

• Reasonable certainty over costs as contract price is known at the

outset. Unless, employer does require design or specification
changes during the construction period.

• Relatively low risk procurement option for the employer, in terms

of cost and time. There can be a risk related to design and quality.
 (2) Design & Build

Types of Design and Build Contract

Package deal or turnkey contracts

Employer accepts a proposal based on a standard design from
the contractor, effectively providing a single point of
responsibility as the contractor is responsible for the design and
construction of the entire project.

Design and build contracts

Project documents are compiled with the contractor's design
obligations relating to the whole of the works in mind.
 (2) Design & Build
Key advantages

ü Construction team motivated to work with the design team to

develop a design with constructability in mind.

• Creative ways to reduce construction costs without reducing

the functionality - reduced price due to the increased
constructability of the design.

ü Schedule

• Early mobilisation and construction activities proceed

concurrently with the design (unlike traditional contract).
Virtual design and construction technology enables work to
be to visualised as it is designed.
 (3) Management Contracting

Client
Project Manager (if
appointed)

Design Team Management • Construction Mgt

• Procurement
Contractor packaging
• Contract admin

Works contractors Sub-contractors & suppliers

Client enters into separate contracts with the designer (architect or engineer), the construction
manager, and individual trade contractors. Client takes on the main contractor role, while a
construction or project manager provides the active role of managing the separate trade
contracts.
 (3) Management Contracting

Management procurement systems are often used to speed

up the procurement processes, allow the client greater
flexibility in design variation throughout the contract, the
ability to appoint individual works contractors, separate
contractual responsibility on each individual throughout the
contract, and to provide greater client control.
 (3) Management Contracting
• Construction work is completed using a series of separate works
or trade contracts which the main contractor is responsible for
managing - paid a sum for managing the project through the
various works packages.

• Employer starts by appointing consultants and a contract

administrator to prepare drawings, a project specification and
cost plan. Employer has control over design throughout the
project through their professional team.

• Contractor appointed by negotiation or tender, and interview.

Works packages are let by competitive tender. Beneficial for
appointed contractors to be involved as early as possible – to
provide expertise in terms of buildability and schedule of works
packages.
 (3) Management Contracting
Other features:

• Design proceeds in parallel with construction, much of the design of a specialist

nature related to a specific package of work. Early starts reduce overall project
time.

• No certainty over cost at the outset and work proceeds on the basis of the cost
plan. Cost of project will not be known until the final works package is let.

• Design changes are possible during construction phase, provided changes do not
affect work on packages already let.

• Completion within the contract period is an obligation of the contractor, and

extensions of time cannot be granted without permission from the contract
administrator.

• Risk is largely with employer, in terms of costs and time. Degree of trust and in-
house expertise is required. Low risk option for employer in terms of design and
quality – control over the professional team.
 Types of Management Contracts
2 different methods:
(1) Management Contracting (2) Construction Management

(1) Management Contracts

Employer appoints a professional team and a management contractor who is
responsible for managing the works. Management contractor does not
directly undertake any construction - spilt into packages and carried out by
works contractors.
Management contractor
appoints the works contractors,
and they are directly and
contractually accountable to
the management contractor.
Works packages developed
from the drawings, Management
specification and cost plan and Contractor

let out by competitive tender.

 Types of Management Contracts

2 different methods:
(1) Management Contracting (2) Construction Management

(1) Management Contracts (cont’d)

Management contractor contractually responsible for the works

contractors but not liable for any default by works contractor,
provided he has complied fully with the management contract.

Variation to this method 'design and manage' where the

management contractor is responsible for the design team as
well as the works contractors.
 Types of Management Contracts

(2) Construction Management

Employer appoints a professional team with either an in-house manager, or

enters an agreement with a construction manager to oversee the work.
Construction manager does not directly
undertake any of the construction
work, this is split into packages and
carried out by trade contractors.
Construction
Manager
Employer appoints the trade
contractors and is directly responsible
for them. Construction manager
manages the works, but the employer
has a major role in directing the project.
 (3) Management Contracting
Key advantages

ü Construction team motivated to work with the design team to

develop a design with constructability in mind.

• Creative ways to reduce construction costs without reducing

the functionality - reduced price due to the increased
constructability of the design.

ü Schedule

• Early mobilisation and construction activities proceed

concurrently with the design (unlike traditional contract).
Virtual design and construction technology enables work to
be to visualised as it is designed.
 STUDY UNIT 1 – INDUSTRY: PROJECTS AND CONTRACTS
Chapter 2: The Nature of Contracts and Project Relationships

ACTIVITY 1.1:

Compare the advantages of the Design, Bid, Build contract with the
Design-Build contract. When would a Management Procurement
process be even more useful?

SOLUTIONS (Activity 1.1)

 (4) Others

New forms of procurement that involving relationship

contracting - emphasis is on a co-operative relationship
between the client and contractor and other stakeholders

• Public-Private Partnering (PPPs) aka Private Finance Initiatives

(PFIs)
• Alliances such as "pure" or "project" alliances and "impure" or
"strategic" alliances

Focus on co-operation is to ameliorate the many problems that

arise from the often highly competitive and adversarial practices
within the construction industry.
 Chapter 2

2.2 Project Relationships

• Design integration of specialists

• ‘One-stop shopping’ - Design and Build

 Project Relationships

Nominal ‘chain of command’ - Affect communication, coordination and

accountability of work processes & decision making
Project Relationships - Traditional Procurement

The client employs a number of organisations

that are separately responsible for the design
and construction of works.
 2.3 Interactions in adverse relationships
Projects:
Projects:
Projects: Professional Roles
Contractual
Time & Cost & Conflicting
Working
Constraints Priorities
Relationships

Organisations: Communication:
Mutual vs Partial Matrix vs Command &
Interests Control

Influential factors that

individual players are
subjected to, lead to Industry:
deviation from ideal Construction
behaviour thereby Needs vs Existing
diminishing project Capabilities
performance
 2.3 Interactions in adverse relationships

Factors influencing relationships:

Ø Industry
• Construction Needs vs Existing Capabilities

Difference between how it carries out work processes and how

stakeholders wish to do differently - cost savings or an efficiency
premium.

Certain methods of construction are beyond current capability of

professional within the industry, so adoption would pose interface
problems - more learning, clarification and explanation involved.
 2.3 Interactions in adverse relationships
Factors influencing relationships:

Ø Project
• Time & Cost Constraints
Assigned to different project and contractual parties based on standard
or past known practice - proper risk allocation may not be possible.

• Professional Roles & Conflicting Priorities

Professional roles subjected to much stress during project processes.
Architect proactive in resolving design issues but unresponsive to
substantiate cost differences arising from the changes made.
Project managers may dislike attending meetings with architects and
engineers – leading to disproportionate attention and action and affect
communication and performance between the design team and the
implementation crew.
Difficult client who constantly changes his mind would discourage the
most competent professional and adversely affect outcomes.
 2.3 Interactions in adverse relationships

Factors influencing relationships:

Ø Project
• Contractual & Working Relationships

Contracts are crafted to execute the processes subjected to

pre-determined scope and risk elements etc. Relationships
are affected when contractual terms are applied.

Ø Process
• Organisations – Mutual vs Partial Interests
• Communications – Matrix vs Command & Control
 2.4 COMPLEXITY OF PROJECTS

Factors increasing the complexity of a project:

• Advanced technical systems

more specialist knowledge required

• Diverse stakeholder expectation

more managing and interfacing required

• Life cycle development

design has to cater to evolving use(s)
 2.4 COMPLEXITY OF PROJECTS

Reasons for increasing complexity of projects:

Ø Built environment as an extension of life

Ø Concept of organic integration & renewal

Ø Average is not good enough

 Summary
Projects
• Vary in scale and objective
• Identity greatly defined by client and relevant project sector
• Project considerations determine people and processes
involved

Construction Professionals
• Enter the project at different stages and influence the project
• Interrelated by temporary contractual relationships – directly
influencing their behaviour and performance

Conflicts of interest or inadequate communication

• Project adversely affected
• Anticipate / Understand effects on project performance,
productivity and efficiency