Published on February 28, 2014
CHOSING A CONTRACTOR PROCUREMENT METHODS DESIGN AND BUSINESS LAW 2014, RAFFLES INTERNATIONAL INSTITUTE LECTURER: SANDRA DRASKOVIC
PROCUREMENT METHODS •Procurement is the acquisition of goods, services or works from an outside external source. •It is favorable that the goods, services or works are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location. •Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing exposure to fraud and collusion.
PROCUREMENT METHODS Procurement Acquiring goods and services including functions such as; description of requirements, selection and solicitation of sources, preparation and award of contract, disposal of surplus assets, and all phases of contract management. Purchasing Requisition The document that initiates the process of creating a Purchase Order.
PROCUREMENT METHODS Contract Any written or electronic document containing the elements of offer, acceptance, and considerations that legally binds two or more parties. Purchase Order A Purchase Order is a formal contract client and the supplier with terms and conditions and confirmed order and payment process. A Purchase Order is the only formal commitment that company / client will honour for payment.
PROCUREMENT METHODS •What is a Preferred Supplier? •Suppliers of goods and services with whom the University has negotiated a contract or agreement with set terms, conditions and/or pricing over a fixed period of time. •Departments must use a Preferred Supplier where one exists. •Procurement has identified preferred suppliers through a competitive bidding process, purchasing cooperative or direct negotiation. •Procurement should be notified of any major or ongoing issues with a Preferred Supplier by the Community.
PROCUREMENT METHODS Why competitively bid if there is a Preferred Supplier? •When additional value may be gained by the client a competitive bid will be completed for goods and services provided by a preferred supplier. •When a competitive bid is required, Procurement will manage and facilitate the process.
PROCUREMENT METHODS Procurement process •Procurement may involve bidding process known as tendering. • If the price exceeds a threshold that has been set depending on policy or legal requirements, the purchaser is required to state what is required and make the contract open to the bidding process. •At times, not just price, but other factors such as reliability, quality, flexibility and timing, are considered in the tendering process. A number of potential suppliers then submit proposals of what they will provide and at what price. Then the purchaser will usually select the lowest and the most competitive bidder;
PROCUREMENT METHODS Procurement life cycle: 1. Identification of need: This is an internal step for a company that involves understanding of the company needs by establishing a short term strategy ( three to five years) followed by defining the technical direction and requirements. 2. Supplier Identification: Once the company has answered important questions like: Makebuy, multiple vs. single suppliers, then it needs to identify who can provide the required product/service.
PROCUREMENT METHODS Procurement life cycle: 3. Supplier Communication: When one or more suitable suppliers/contractors have been identified, requests for quotation, requests for proposals, requests for information or requests for tender may be advertised, or direct contact may be made with the suppliers. References for product/service quality are consulted, and any requirements for followup services including installation, maintenance, and warranty are investigated.
PROCUREMENT METHODS Procurement life cycle: 4. Negotiation: Negotiations are undertaken, and price, availability, and customization possibilities are established. Delivery schedules are negotiated, and a contract is completed. 5. Supplier Liaison: During this phase, the company evaluates the performance of the Potential Supplier/Contractor and any accompanying service support, as they are consumed.
PROCUREMENT METHODS Procurement life cycle: 6. Logistics Management: Supplier preparation, expediting, shipment, delivery, and payment for the Potential Supplier/Contractor are completed, based on contract terms. 7. Additional Step - Tender Notification: Some institutions choose to use a notification service in order to raise the competition for the chosen opportunity.
PROCUREMENT METHODS Procurement frauds •Procurement fraud can be defined as dishonestly obtaining an advantage, avoiding an obligation or causing a loss to public property or various means during procurement process by public servants, contractors or any other person involved in the procurement. •An example is the kickback, whereby a dishonest agent of the supplier pays a dishonest agent of the purchaser to select the supplier's bid, often at an inflated price.
PROCUREMENT METHODS Types of Procurement Fraud Reviewing the contract is necessary to establish if elements of fraudulent behavior have been built into the contract. Examine of the tender process is necessary to ascertain if there have been any irregularities •Bid rigging/bid splitting; •Creation of shell companies to facilitate fraudulent payments; •Collusion between suppliers; •Purchase order and contract variation orders; •Unjustified single source awards; •False invoices for products and services for suppliers who do not exist.
PROCUREMENT METHODS Types of Procurement Fraud •Who selected the companies involved in the tender? •Were the relevant financial background checks carried out? Was the due diligence robust? •Do the financial amounts follow the expected format or have they been created. Are they too good to be true? •Are the claims made in the tender submissions achievable and auditable? •Were the companies involved in the tendering exercise realistically expected to be awarded the work or have some companies been included to ‘pad out’ the tender? •Are there any reports/suggestions of any perceived or obvious attempts to influence/interfere with the process?
PROCUREMENT METHODS Types of Procurement Fraud •Who was involved in the tender award process? Have there been any changes in staff from those involved during the tender evaluation? •Have any decisions for supplier disqualification been fully documented and is that paperwork available for inspection? •Is the award document file complete? Examine if there is any missing documentation and additionally whether all the paperwork is legible and available. •Has the bidder taken into account realistic costs to do the job or did he just come in with a low bid to get the job? Did he leave some aspect of the job out of his bid?
PROCUREMENT METHODS The risk of cartel operating within contracts can be high, especially in markets where there is historically a close working relationship between suppliers. It is wise to look out for markers such as: Bid Suppression This is where one or multiple competitors who can/ or who have previously bid, withdraws a previously submitted bid or fails to bid so that the ‘agreed’bidder is successful. Cover Bidding This is where bidders agree to submit bids that are too high. This ensures that the favored bid looks even more attractive.
PROCUREMENT METHODS Bid Rotation This is where bidders submit costs but take turns being the lowest bidder. That way everyone gets a turn and no-one misses out. Market Division This is where competitors divide markets among themselves. In such frauds, competing firms allocate specific customers, products, or territories among themselves Bid or Price Patterns This is where certain patterns of bidding or pricing conduct seem at odds with the current market
PROCUREMENT METHODS •Many clients may want that designers assist them in selecting a contractors and suppliers and possibly in reviewing the contracts. •Some of the provisions in the contractors’ contracts relate to designer’s services . Sometimes designers feel strongly comfortable working with a particular team of contractors – if something goes wrong the client will try to hold designers responsible.
PROCUREMENT METHODS •Some designers provide construction services themselves (design+build) in addition to design work, and present contract for this type of works. •Designers should avoid being placed in a position of doing legal work reviewing the contract and tender process , for this case client should commission an attorney. •If designer’s fee is based on a percentage of construction, a bid which is too low for the amount of work being done can result in the designer loosing fees.
PROCUREMENT METHODS Client consideration being influential on the choice of procurement route: 1. Complexity of a design 2. Controllable variation – how sure the client I of his requirements 3. Degree of competition 4. Client responsibility – does client want to be directly involved in a decision-making during the project stages 5. Risk in the project – commercial, occupation, construction risks 6. General tendering policy 7. Budget and capital for funding and executing the project (the proof of an investment and budget)
PROCUREMENT METHODS Major criteria for bidding process during the tender: 1. Time – the overall timing of the project from inception to completion 2. Quality – the client’s required standards of design and workmanship as expressed in a specification, standards required to be met by the law 3. Cost – market prices, client’s budget
PROCUREMENT METHODS 1. TRADITIONAL PROCUREMENT DESIGN – BID/TENDER – CONSTRUCTION For pricing the project should be fully designed before tender . Tender can have two stages or price can be negotiated with a single contractor or a small select list of firms, favored by the client or architect. 1. Designer prepares the drawings and specifications while the contractor prepares the quantities 2. Designer prepares full documentation with bills of quantities
TRADITIONAL PROCUREMENT CLIENT ARCHITECT STRUCTURAL ENGINEER QUANTITY SURVEYOR MAIN CONTRACTOR The designer leads the design team and is the client’s representative and is present in all the stages of the project. He is the “eye and ear” of the client . The design is completed before the tender stage where the design doesn’t change during construction, so variations are kept to minimum.
PROCUREMENT METHODS 2. DESIGN AND BUILD METHOD A. CLIENT LED DESIGN AND BUILD – Client is fully influential on the design development. The design risk is taken fully by the client. B. CONTRACTOR LED DESIGN AND BUILD – The contractor may provide in-house design facility or independent design teams where contractor will employ design coordinator to ensure the flow of information.
CLIENT-LED DESIGN AND BUILD CLIENT PROJECT MANAGER ARCHITECT DESIGN CONSULTANT SERVICES CONSULTANT DESIGN AND BUILD CONTRACTOR SUBCONTRACTORS
CONTRACTOR-LED DESIGN AND BUILD CLIENT PROJECT MANAGER DESIGN CONSULTANT ARCHITECT DESIGN CONSULTANT DESIGN COORDINATOR SERVICES CONSULTANT CONTRATOR’S PROJECT TEAM DESIGN AND BUILD CONTRACTORS SUBCONTRACTORS
PROCUREMENT METHODS 3. MANAGEMENT CONTRACTING Managing consultant or construction manager to be appointed to join design team at early stages of the project to supervise design process and supervise and coordinate a number of contractors and subcontractors. For the quantity and quality to be assured, for the expertise of the qualified professionals to be appointed to follow up the tendering process and variations to be kept under control.
CONTRACTOR-LED DESIGN AND BUILD CLIENT PROJECT MANAGER ACT AS THE CLIENT REPRESENTATIVE DESIGN TEAM COORDINATOR ARCHITECT CONSULTANT ENGINEER QUANTITY SURVEYOR MANAGING CONTRACTS WITH CONTRACTORS MANAGEMENT CONTRACTOR CON1 CON2 CON3 WORK CONTRACTORS AND SUBCONTRACTORS
PROCUREMENT METHODS PROJECT MANAGER The role of the project manager : -The overall planning, control and coordination of a project from inception to completion aimed at meeting a client’s requirements in order to produce a functionally and financially viable project that will be completed on time within authorized cost and to the required quality standards. - Project management triangle, which are cost, time, scope, and quality. -A project manager is often a client representative and has to implement the exact needs of the client, based on knowledge. A project manager is the bridging gap between the design team, construction team and client.
PROCUREMENT METHODS PROJECT MANAGER
PROCUREMENT METHODS PROJECT MANAGER The role of the project manager : 1. 2. 3. 4. 5. 6. 7. 8. 9. Developing the project plan Managing the project stakeholders Managing Communication Managing the project team Managing the project risk Managing the project schedule Managing the project budget Managing the project conflicts Managing the project delivery
PROJECT MANAGEMENT CLIENT PROJECT MANAGER DESIGN TEAM CONSULTANTS ARCHITECT STRUCTURAL ENGINEER CIVIL ENGINEER SERVICE ENGINEER QUANTITY SURVEYOR PLANNING SUPERVISOR LEGAL ATTORNEY FACILITIES MANAGEMENT CONTRACTUAL AGREEMENT TRADITIONAL DESIGN+BUILD MANAGEMENT CONTRACT
PROCUREMENT METHODS STAGES OF THE PRE-TENDER PLANNING PROCEDURE FOR A DESIGN AND BUILD TENDER: 1. Decision to tender 2. Pre-tender arrangements 3. Site visit and report 4. Enquiries to subcontractors and suppliers 5. Tender method statement 6. Build-up of estimate 7. Pre-tender program assessment 8. Build-up contract preliminaries 9. Response to pre-construction health and safety information 10. Management adjudication and risk management 11. Analysis of tender performance
PROCUREMENT METHODS CONTRACT - CLIENT AND CONTRACTOR 0. General terms and conditions of contract: Which form of contract is to be used? Are there amendments to the standard form? Is the contract period stated in the document? What is the rate of liquidity and damages? Is retention applicable? What is the defect liability period? What are the insurance requirements? What are the payment conditions and terms? What is the required tender documentation and is it complete? What is the quality of drawings accuracy? What are the market conditions in relation to availability of work and materials?
PROCUREMENT METHODS CONTRACT BETWEEN CLIENT AND CONTRACTOR •Drafted by attorney or contractors themselves •Sometimes there are standard form of contracts 1. Scope of work as contractual obligation: WITH SPECIFICATION, TECHNICAL DRAWINGS, DETAILED DRAWINGS AND BILL OF QUANTITIES with clearly stated numbers of drawings for comments, amendments and revisions. 2. Project management and representatives: lines of communication and reporting, management and organizational structure (executives, staff, project members, landlords, etc)
PROCUREMENT METHODS CONTRACT BETWEEN CLIENT AND CONTRACTOR 3. Payment: The most common is the percentage of the amount of the work completed (price will be related to the total lump sum of the bided price for the specific work). A specialist should be commissioned to follow up the work that is completed in order to payment to be finalized. Client can rely of the designer’s assessment of the construction process and status of the project or hire outside construction manager. 4. Retainage: A portion of each payment to be held back as a security for satisfactory completion. It is usually between 10-15% of the amount.
PROCUREMENT METHODS CONTRACT BETWEEN CLIENT AND CONTRACTOR 5. Time for completion: date of commencement (starting date is usually the date when contract is signed if it’s not stated differently), substantial completion (the date when project is completed and ready for occupancy while some additional jobs need to be done, but people can safely occupy the space) and the date of final completion (the date of which the project is complete with all necessary inspection by governmental agencies have occurred and satisfactory completed) should be stated in a contract.
PROCUREMENT METHODS CONTRACT BETWEEN CLIENT AND CONTRACTOR 6. Change order: Amendments to the contract which either increase or decrease the amount of the fee paid to the contractor to the variations and changes on the project. If the portion of work is deleted, the contractor will get the credit. Change orders should be written and signed by both parties before the work is done. 7. Supervision of the work: The most important issues to clinets in their agreement with designers – who will make sure that contractor does his job properly? Daily work should be supervised by foreman from the contractor’s company or neutral third company that will ensure the quality of the work done. Designer’s fee should include supervision of
PROCUREMENT METHODS CONTRACT BETWEEN CLIENT AND CONTRACTOR 8. Insurance: Most contracts require the contractor to obtain various types of insurance in various amount relative to the value of the job. General liability insurance is necessary in case anyone is injured on the job or any property is damaged. This insurance protects the client against the lawsuits. Project should be covered by insurance. 9. Liquidated damage: In this part is stated which amount of penalty contractor is entitled to pay for each day the work is been delayed or late. The amount can be reduced from total amount to a per diem amount. There should be bonuses for the early completion of the work as a balance payment.
PROCUREMENT METHODS CONTRACT BETWEEN CLIENT AND CONTRACTOR 10. TERMINATION: If the contractor fails to finish the work on schedule or to comply with the terms of the contract he may be terminated. Advance notice must be given in writing – the typical time period is 7 days notice. If the work has not been improved, the client will take over and hire another contractor to completed the job. If the project costs more money than original contract, terminated company can be held liable for damages. 11. Contractors’ Licenses 12. Work standards and terms: by the law for example working hours, night and weekend work permission.
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