School of Civil and Environmental

Engineering

COTM 5104: CONSTRUCTION MANAGEMENT

Chapter 4
Procurement and Contracts
4.1 Procurement
March 2018

Prepared by Getaneh G.
Contents
Procurement
1. What is Procurement?
2. Project delivery systems
3. Stages of Civil Engineering projects
4. Bid preparation
5. Bid evaluation
6. Selection of bidders

2
 1. Procurement
1.1 Procurement: Definition
 Procurement is the acquisition of appropriate goods,
works and/or services at the best possible total cost of
ownership to meet the needs of the purchaser in terms
of quality, quantity, time, and location.
 The complete action or process of acquiring or
obtaining personnel, material, services, or property by
means authorized in pertinent directives.
 Corporations and public bodies often define processes
intended to promote fair and open competition for
their business while minimizing exposure to fraud and
collusion.

3
 1. Procurement
1.1 Procurement: Definition
 In short, Procurement is obtaining goods, works,
consultancy or other services through purchasing,
hiring or obtaining by any other contractual means.
 Tendering/Bidding: is a stage in the procurement
process extending from advertisement (invitation to
bid) up to signing of contract.
 Tender/Bid is an offer which incorporates: the sum of
money, time and other conditions required to carry out
the contract obligations in order to complete a project
or a part of it consisting of specified works.
 When signed and submitted the Bid/Tender creates a
legally binding and valid offer.

4
 1. Procurement
1.2 What is to be Procured?
 Goods: include raw material, products and equipment
and commodities in solid, liquid or gaseous form,
marketable software as well as installation, transport,
maintenance or similar obligations related to the supply
of the goods if their value does not exceed that of the
goods themselves.
 Works: all works associated with the construction,
reconstruction, up grading, demolition, repair or
renovation of a building, road, or structure, as well as
services incidental to works, if the value of those
services does not exceed that of the works themselves;
and includes build-own-operate, build- own-operate-
transfer and build operate- transfer contracts.

5
 1. Procurement
1.2 What is to be Procured?
 Consultancy Services: a service of an intellectual and
advisory nature provided by consultants using their
professional skills to study, design and organize specific
projects, advice clients, conduct training and transfer
knowledge.
 Services: mean any object of procurement not related
to professional skills other than works, goods and
consultancy services; such as transportation, printing
and duplicating books, maintenance, security, janitorial,
electricity, telecommunication and water supply
services.

6
 1. Procurement
1.3 Procurement Basics
 Construction Industry involves procurement and
contract management systems in order to ensure fair
competition and distributions of obligations and rights
among stakeholders.
 Competition helps:
 The Project Owners’: acquire the five rights
(Counterpart, Cost, Time, Quality and Quantity)
 The Project Financiers’ & Regulators’: value market
principles and effective utilization of finance, and
 The Project Providers’: get impartial & neutral
Opportunity for business.

7
 1. Procurement
1.3 Procurement Basics
 Procurement can also be expressed as a method used
to employ or buy services or works or goods for the
value (in the form of money) which includes reasonable
profit.
 An effective and efficient procurement method
ensures the following rights called the "Five Rights".
 The Right Quality;
 The Right Quantity;
 The Right Cost / Price;
 The Right Counterpart; and
 The Right Time.

8
 1. Procurement
1.3 Procurement Basics
A. The Right Quality
 Right Quality is always based on two major factors.
These are the technical expectation and the economic
consideration, i.e.; Price & Availability.

B. The Right Quantity

 The quantity should be computed carefully and
included in the BOQ correctly.
 If the quantity is found mistakenly small :
 Project Budgeting will be affected due to less
quantities;
 Construction planning will be affected and cause
under stocking;
 Tenderers can manipulate their offer due to it;
 Overzealous contract administration is caused; and
 Contractor cash flow will be affected. 9
 1. Procurement
1.3 Procurement Basics

B. The Right Quantity

 On the other hand if the quantity is mistakenly
more, it will cause:
 High stocking;
 More storing places and risk of spoilage;
 Unhealthy practices due to over budget
provisions; and
 Manipulation in tendering.

10
 1. Procurement
1.3 Procurement Basics
C. The Right Cost/ Price
 Tendering together with negotiation and market
intelligence techniques is the only way that ensures the
right cost and accomplishing the task successfully.
 Competition is the bases for determining the Right Cost
or Price.

D. The Right Counter Parts

 This is to guarantee that the parties agreeing to
accomplish the task shall be fit to the job.

E. The Right time

 The right time for the provision of resources and
accomplishment of obligations of each party shall be
set and agreed.
11
 2. Project Delivery Systems
 Contract/project delivery system is the way project
Owners together with project regulators and financiers
determine the assignment of responsibilities to project
stakeholders along the construction process.
 It is often determined during the basic planning phase of
the construction project.
 Delivery systems are basically classified in to two broad
areas:
 Force Account, and
 Outsourced.

12
 2. Project Delivery Systems

2.1 Force Account

 When the project owners engage themselves to
undertake the project, it is called a force account
delivery system.
 Such a system is often promoted if the Project Owners
believe that there is a comparative advantage in
quality, cost and time.

2.2 Outsourced delivery systems

 Most of the project delivery methods/systems are
found under the category of outsourcing.

13
 2. Project Delivery Systems
2.2 Outsourced delivery systems
 Most of the project delivery methods/systems are
found under the category of outsourcing.
 The criteria for such category are based on:
segmentation, integration and financing.
 Integrated Process Delivery Methods
o Design-Build-Operate;
o Design-Build-Operate-Maintain;
o Design-Build-Finance-Operate;
 Segmented Delivery Methods
o Design-Bid-Build;
o Design-Build;
o Construction Management;
o Pure Operations and Maintenance (O&M)

14
 2. Project Delivery Systems
2.2 Outsourced delivery systems
 The criteria for such category are based on:
segmentation, integration and financing.
 External Financing Methods
o Design-Build-Finance-Operate;
o Build-Own-Operate;
o Build-Own-Operate-Transfer;

15
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.1 Design-Bid-Build, DBB (Traditional Method)
 After Project Owners did prepare the Basic Planning
that identifies construction project programs, they call
upon the participation of Design and/or Supervision
Consultants.
 This Consultant will carry out the design together with
the necessary tender documents which will be the
basis for tendering to select Contractors.

16
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.1 Design-Bid-Build, DBB (Traditional Method)
 For many years, DBB has been the most common
method of project delivery for public projects, and for
many private projects as well.
 DBB is effective on projects
 Where the owner needs both professional design
services and construction services
 Where the designer does not require detailed
knowledge of the means and methods of
construction.
 DBB provides the owner with a high degree of control.

17
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.1 Design-Bid-Build, DBB (Traditional Method)
 Advantages:
 Applicable to a wide range of projects,
 Well established and easily understood,
 Clearly defined roles for all parties,
 Provides the lowest initial price that competitive
bidders can offer,
 Extensive litigation has resulted in well established
legal precedents,
 Insurance and bonding are well defined.

18
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.1 Design-Bid-Build, DBB (Traditional Method)
 Disadvantages:
 Innovation not optimized;
 Usually cost overruns;
 Disputes between parties;
 Client retains risks;
 Usually low bid-incentive for change orders;
 Owner responsible for errors and omissions.

19
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.2 Design-Build, DB (Turnkey)
 Design Build or Turnkey, in principle, reduces numbers
of procurement processes engaged in the fragmented
process and employ only one procurement process
and a single design-build contractor to provide the
entire Construction Implementation Process (design
and construction).
 The design-builder performs design and construction
according to design parameters, performance criteria
and other requirements established by the employer or
his representative.
 In this arrangement both the design and construction
liability rests with the Contractor.

20
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.2 Design-Build, DB (Turnkey)
 Advantages:
 Single source responsibility both for design and
construction;
 Integrating design and construction;
 Reduction in administration;
 Innovation;
 Cost savings;
 Constructability optimized;
 Most risks transferred to the design-builder;
 Usually GMP; and
 Design reflects.
21
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.2 Design-Build, DB (Turnkey)
 Disadvantages:
 Limiting competition;
 High tendering costs;
 New method and unfamiliarity;
 Client needs quicker decision making;
 Clients bringing design requirements (30%) (reduces
design innovation);
 Less Engineer control over final design.
 Elimination of traditional checks and balances so
that Quality may be subordinated by cost or
schedule considerations.
22
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.3 Construction Management, CM
 Under CM the Owner contracts separately, but
somewhat simultaneously, with a design consultant and
with a firm whose primary expertise is construction (the
Construction Manager).
 The owner procures the management services of the
Construction Manager (in most cases a general
contracting construction firm) early in the design phase.
 Types of CM delivery system:
 CM at Free: as agent,
 CM at Risk: as a constructor.

23
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.4 Design-Build-Operate, DBO
 According to FIDIC, the DBO approach to contracting
combines design, construction, and long term (ex. 20
years) operation (and maintenance) of a facility in to
one single contract awarded to a single contractor
(who will usually be a joint venture or consortium
representing all the skills for in a DBO arrangement).
 The advantages are categorized in terms of time,
finance and quality.

24
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.5 Build-Operate-Transfer, BOT
 BOT is a form of procurement and contract delivery
system that promotes Public Private Partnership (PPP) in
which a private company is contracted to finance,
design, construct, operate for a certain period (usually
10 years) and transfer the facility to the Project Owner.
 The typical BOT project contract is the process whereby
a government grants a concession to a project
development company to develop and operate what
would normally be a public sector project, for a given
period of time known as the concession period.
 BOT project involves a potentially complex contractual
structure.
25
 2. Project Delivery Systems
2.2 Outsourced delivery systems
2.2.6 Delivery systems based on Financing method
 Design-build-operate-transfer; DBOT
 Design-build-operate-maintain; DBOM
 Design-build-own-operate-transfer; DBOOT

26
 3. Stages of Civil Engineering Projects

 The major stages in construction projects encompass:

 Pre-design stage
 Design stage
 Processing construction bids stage
 Construction stage
 Completion and hand over (contract closeout)

27
 3. Stages of Civil Engineering Projects

3.1 Pre-design stage

 It encompasses the following major activities:
 Carryout feasibility study,
 Selection of suitable site,
 Preparation of tentative cost estimates,
 Making topography of the site,
 Preliminary sub-surface investigation.

28
 3. Stages of Civil Engineering Projects

3.2 Design stage

 It encompasses the preparation of:
 Concept design,
 Preliminary design,
 Final design,
 Engineer’s cost estimate,
 Bid documents,
 Drawings and design reports.

29
 3. Stages of Civil Engineering Projects

3.3 Tender/Bid stage

 The following activities need attention during processing
of construction bids.
A. Bid documents and related issues:
 Preparation of bid documents
 Clarity of bid documents,
 Validity of bid security,
 Amendment of bid document (if any),
 Site visit,
 Performance Security etc.

30
 3. Stages of Civil Engineering Projects
3.3 Tender/Bid stage
 The following activities need attention during processing
of construction bids.
B. Bid processing and award of contract:
 Determination of project category (possible
procurement method),
o Competitive bidding (ICB, NCB),
o Limited/restricted bidding (ICB, NCB),
o Direct contracting (appointment/negotiated
contract)
o Force account
 Announcement of invitation for pre-qualification,
 Public bid opening,
31
 3. Stages of Civil Engineering Projects
3.3 Tender/Bid stage
B. Bid processing and award of contract:
 Bid evaluation and award process,
o Preliminary examination of bids
o Evaluating bids
o Propose award
o Bid evaluation report
o Contract award
 Rejection of all bids,
 Preparation of contract document,
 Signing of contract.

32
 3. Stages of Civil Engineering Projects
3.4 Construction stage
 Construction stage is the critical phase since the result
of all prior planning, design and the total pre-
construction decisions are brought to fruition.
 The success of this stage mainly depends on the relation
and strength of the construction team (main
stakeholders).
 The main activities in construction phase are
construction supervision and contract administration.
i. Construction supervision:
 Site control,
 Quality control,
 Quantity control,
 Monthly and quarterly progress evaluation
meetings.
33
 3. Stages of Civil Engineering Projects
3.4 Construction stage
i. Construction supervision:
 Site control,
 Quality control,
 Quantity control,
 Monthly and quarterly progress evaluation
meetings.
ii. Contract administration:
 It covers the major activities of addressing changes,
payments, claims etc.

34
 3. Stages of Civil Engineering Projects
3.5 Contract closeout stage
 Transition from design and construction to the actual
use of the constructed facility.
 The management team must provide documentation,
shop drawings, as-built drawings, and operation
manuals to the owner organization.
 Assessment of the project team’s performance is
crucial in this stage for avoiding mistakes in the future.
 Actual activity costs and durations should be recorded
and compared with that was planned.

35
 4. Bid Preparation

4.1 Preparation of Bid Documents

 The Bidding document shall incorporate all information
necessary for prospective bidders to prepare their bids.
 The detail and complexity of bid documents may vary
with the size and nature of the proposed bid package
and contract.
 Bid documents for works include:
 Bidding information,
 Contractual information.
 Contractors are responsible for all duties, taxes and
other levies; hence, bidders shall take these factors into
consideration in preparing their bids.

36
 4. Bid Preparation
4.1 Preparation of Bid Documents
4.1.1 Bidding Information
 It’s part of a tender document, where bidders are
required to respond (provide their offer, data,
information) in accordance with the requirement of the
documents within the bidding period.
 Bidding Information Comprises:
 Invitation for bid (IFB),
 Instruction to bidders (ITB),
 Bid Data Sheet (BDS),
 Bid forms including BOQ,
 Addenda (Bid Amendment).

37
 4. Bid Preparation
4.1 Preparation of Bid Documents
4.1.2 Contractual Information
 Documents included in the tender document to furnish
bidders with full and detailed information of the project
for application after winning the contract.
 The bidder should utilize such information to provide a
fair and reasonable offer to the bidding document.
 Contractual Information Comprises:
 Agreement form (Contract Agreement),
 Standard (General) Conditions of contract,
 Particular or special conditions of contract,
 Technical specifications and Methods of
measurement,
 Drawings, and
 Appendix to Contract Agreement. 38
 4. Bid Preparation
4.2 Time for Preparation of Bids
 Time for preparation and submission of bids depend on
the particular circumstances of the project, magnitude and
complexity of the contract.
 The time to be allowed for the first call is 30 calendar
days to enable prospective bidders to conduct
investigations before submitting their bids.
 In some cases the employer is encouraged to convene
a pre-bid meeting and arrange site visits.
 Concise instructions as to the time, date and place for
submission of tenders should be given

39
 5. Bid Evaluation
5.1 Principles of bid evaluation
 The Engineer evaluate and compare the bids after the
public opening and submit recommendation to
contract award/purchase committee for its review or
approval.
 Information relating the examination, clarification and
evaluation of bids shall not be disclosed to bidders or
other persons not officially concerned with this process
until the successful bidder is notified of the award of
contract.
 The engineer may request in writing clarifications of
bidders concerning ambiguities or inconsistencies in the
bid, the response from bidders shall also be in writing.
 No change in the price or scope of the original offer is
accepted.
40
 5. Bid Evaluation
5.2 Preliminary examination of bids
 Prior to detail evaluation, preliminary examination shall
be undertaken.
 Its purpose is to identify and reject bids that are
incomplete, invalid or substantially non-responsive to
the bidding documents.
 The following points shall be examined:
 Check if each page is signed or initialed;
 Verify amount of bid security corresponds to the
requirement;
 Check if all requisite information has been filled in
the document; and
 Verify that all pages of the bid document are in
order. 41
 5. Bid Evaluation
5.3 Propose award
 The Engineer recommend the award of contract to the
bidder whose bid has been responsive to the bid
document and who has offered the lowest evaluated
bid price.
 The engineer may consider rejection of all bids if:
 None of the bids are found to be responsive,
 Bids are unreasonably high in price,
 None of the bidders are qualified.
 The engineer shall prepare a detailed report on the
evaluation and comparison of bids setting forth the
specific reasons on which the recommendation is
based for the award of contract

42
 6. Selection of Bidders
 It is a contract award procedure which involves the
selection of contractors to be invited to tender or
negotiate.
 The selection should be made on the basis of objective
criteria.
 Bid qualification procedures take the following forms:

 Negotiated bid,
 Competitive bid.
o Short listed,
o Open bid.
• Single stage, single envelope,
• Single stage, two envelope,
• Two stage, two envelope.
43
 6. Selection of Bidders
6.1 Negotiated Bid
 The client invites, negotiates and enters a contract
agreement with only a single contractor.
 A contractor is selected without competition. It is
sometimes referred to as "direct selection” or “Single
source procurement”.
 This method does not provide the owner with
comparative prices.
 The cost of a works will be higher in this method, but it
may be offset by better quality, early completion, and
smooth administration.

44
 6. Selection of Bidders
6.2 Competitive Bid
 Equi-potential and competent contractors are invited to
provide their best offer to the bid.
 Contract is awarded to the best/most responsive bidder
based on bid evaluation.
 It can be either International (ICB) or National (NCB)
competitive bidding.
A. Short listed bid
 The Owner calls for bids from a few contractors who are
known to have specialized in the special type of work.
 The bid evaluation under such cases is made only on
the submitted financial offer and the one with least price
will be awarded the contract.
 It is also named as “Restricted or Limited Tendering”
45
 6. Selection of Bidders
6.2 Competitive Bid
B. Open bid
 Is a procedure under which, all interested eligible
bidders, may submit their tender documents.
 It is the most competitive tender procedure and all the
rest procedures exhibit a decreasing level of
competition.
 Bids are called by public advertisement.
 It is usually adopted for public works, as the rules
generally require that government and other public
contracts be advertised publicly.

46
 6. Selection of Bidders
6.2 Competitive Bid
B. Open bid
 Open competition procedure has the following
advantages:
 It provides equal and just opportunities to all
contractors,
 It protects the government from possible
implications of favoritism,
 It open the way to having the work done at a
minimum cost to the public.
 The drawback is the possibility of having a lowest bid
submitted by contractor who is unsuitable for carrying
out the work and thereby resulting in waste of time and
effort.
47
THANK YOU!