1.1 Procuring Design and Construction Services for the
Repair Works

In
the UK construction industry several types of procurement methods are being
used such as design-and-build, traditional procurement and prime contracting.
However, the recommended procurement method for this project would be
design-and-build since this is one of the most popular procurement approaches
with clients (Chartered Institute of Building, 2010). In this approach,
the risks mainly lie with the contractor since the project is usually designed
and built by the same contractor (Chartered Institute of Building, 2010). It is common that
client decides to hire consultants to carry out some parts in the design phase,
in which case the contractor should be informed about any changes made to the
design. The key advantages of this procurement approach which makes it suitable
for this particular project are speed and cost control. As one entity is
responsible for the whole project, miscommunications and associated delays and
cost overruns are minimised significantly. As mentioned, since project risks
lie with one person, the contractor, it makes it easier for the client to hold
them accountable if anything goes wrong (Akintan & Morledge, 2013). Hence, the small
size of this particular project lends itself readily to the design-and-build
procurement method.

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Unlike design-and-build procurement method, in traditional
procurement method, the design and construction phases of a project are handled
by different people. The design stage is usually undertaken by a consultant
hired by the client (Chartered Institute of
Building, 2010).
The actual building of the project is done by a contractor hired either by the
client or his/her consultant. Where sub-contractors are envisioned, they may be
hired either by the contractor or the consultant (Thomas & Flynn, 2011). A variant of
traditional procurement is known as prime contracting. Prime contracting is
similar to the traditional procurement method in many ways except that in the
former, there is a prime or main contractor who is responsible for the whole project,
including all the necessary subcontractors and supervising them (Thomas & Flynn, 2011).

Traditional procurement is the oldest procurement
method. It is also the most popular with clients for several reasons (Smith, et al., 2011). This method is
easily understood and each party is assumed to know their responsibilities in
relation to the project better (Akintan & Morledge,
2013).
However, this approach to procuring design and construction services has its limitations
that make it unsuitable to the project at hand. As the design and building
stages are performed by different people, disputes and communication breakdowns
are common. These setbacks can delay project completion and drive up costs
significantly. Moreover, the method goes against calls for greater integration
in the industry (Chartered Institute of
Building, 2010).

1.2 Proposed Tendering Arrangements and Key
Considerations

Tendering is an important component of the procurement
process. During this stage, the client will solicit and evaluate, using
predefined criteria, bids from eligible civil engineering contractors. It is
recommended that the client uses a prequalified shortlist of contractors as
opposed to advertising an open tender. This move will help prevent the problem
of too many bidders (CECA, 2016). Having too many contractors
on the shortlist may drive away good companies and increase the time and costs
of assessing the bids (Sanderson, et al., 2015). Meanwhile, having too
few may cause the client to spend more on the project than required.

In developing the shortlist (if none already exists),
the client must satisfy himself that the shortlisted contractors have the
capacity to undertake a design-and-build project (Cunningham, 2015). Indicators of
capacity include the presence of in-house project designers and managers (Construction Industry
Training Board, 2015). The contractors’ supply chains, including
their pools of specialist sub-contractors, should also be examined.

When choosing a contractor, the client must be aware
of two prevalent malpractices in the UK construction industry such as cover
pricing and ‘suicide bidding’. Cover pricing is a form of anti-competitive
practice and bid rigging whereby a number of contractors collude in a bidding
process (Brodies LLP, 2009). One of the bidders
submits an inflated price with the goal of losing the contract. The other
bidders then submit slightly lower but still over-priced bids. According to
some companies, they submit over-priced tenders not to make abnormal profits but
to price themselves out of a project they do not wish to undertake while
remaining eligible for more desirable projects in the future.

‘Suicide bidding’ is the industry’s term for the
practice of quoting unusual lower prices than competitors in order to secure
work (Chartered Institute of
Building, 2010).
Companies engage in this practice to keep their staff busy even if it means
only breaking even or making a loss on a project. Suicide bidding is bad for the
contractor, the client, the project, the contractor’s subcontractors and the
industry (Constructing Excellence,
2011).
When the contractor runs into the inevitable financial trouble, the project
could stall or be completed to substandard quality. The subs are likely to go
unpaid. To a large extent, responsibility lies with the contractor who bid too
low though the client is also to blame for settling for the lowest bid.

Finally, it is important that the client upholds
transparency in the tendering process, which includes opening the received
tenders in the presence of all bidders. In the tender document it is important
that the client states clearly that it demands integrity on the part of
bidders. Bidders who appeal or otherwise try to influence the process should be
disqualified. Any indicators of a rigged tender process could repel good contractors
who value honesty (Fazekas & Dávid-Barrett,
2015).

1.3 Proposed Contractual Arrangement

Having identified a contractor, the next step will be
for the client to enter into an agreement with them. There are many types of
contracts to choose from, including the conventional fixed-price lump-sum and
target cost contracts. While most procurers are familiar with and prefer the
former for its simplicity (Society of Chief Architects
of Local Authorities, 2003), fixed-price
lump-sum contracts have several limitations and have been blamed for the
construction industry’s poor performance (Trefor, et al., 2013; Egan, 1998).

The use of lump-sum contracts encourages mistrust
between clients and contractors. They are responsible for the conflicting
objectives and adversarial relationships among the project team (Olanrewaju & Anahve,
2015).
Risk is often allocated unevenly and there are no encouragements to improve
performance. The results are delays, cost overruns and finger-pointing (Chan, et al., 2011). Also, in a
fixed-price lump-sum arrangement, which almost always goes hand-in-hand with
traditional procurement, there are limited opportunities for early contractor
involvement (Latham, 1994). Usually, the
contractor arrives on the scene long after the designs have been completed. The
contractor must then work with those designs, some of which may be difficult or
costly to build.

In general, the lump-sum contract consists of many
limitations, so the target cost contract (TCC) will be recommended for this
project. A TCC is a motivation based contractual framework which rewards
savings but penalises cost overruns based on a target cost and share ratio
agreed on in advance between the client and the contractor (Trefor et al., 2013). TCCs
were introduced as a cost management tool, in order to cut the costs of
construction projects and to encourage collaboration among project team members
(Pennanen, et al., 2011). They are unique
because they motivate both the contractor and the client to reduce costs (Hughes, et al., 2012).

Taking
the client’s £1.00 million budget as an example, the client and contractor
could agree on a maximum cost target of £0.70 million which would lead to a
cost saving of £0.30 million. They could further agree that if target is
reached, the contractor will pocket 64% of the saving that is £0.192 million.
This arrangement would bring the total cost of this project to £0.892 million
which is lower than the initial budget. So this would result in both parties
winning in the end.

1.4 Conclusion

For
a smoother project that will be completed on budget, on time and to a high
quality, the client is advised to choose the design-and-build procurement
method and to enter into a target cost contract (TCC) with the contractor.
Meanwhile, to save time and money during the tendering process, the client
should use a shortlist of prequalified vendors as opposed to advertising an
open tender while keeping an eye out for contractor malpractices of cover
pricing and ‘suicide bidding’. Other approaches are possible, however they will
result in a less satisfied project, delays and runaway costs.