The procurement methodology you choose for any project has far-reaching implications for quality, time and working relationships. Methodologies have evolved considerably over the last two decades. As Impact Group enters its 20th year, we look back at a number of these changes, discuss methodology pros and cons, examine current trends, and consider what might be ahead.
The pros and cons of traditional procurement methods.
Procurement strategy has always been influenced by a number of criteria: time certainty, cost certainty, a competitive price return, flexibility of design, risk mitigation, quality of finishes, etc. Twenty years ago, most clients chose a lump sum fixed price against a set of 100% design drawings and a bill of quantities. The early part of the process was undertaken almost exclusively between the client and architect with input from the other consultants as required. This method depended heavily on the completeness of the design, with an acknowledgement that any design changes or updates occurring after the works had been tendered can lead to variations.
Over time, the industry started experimenting with less traditional, more integrated methods of procurement that included greater communication between the client and the builder. One of these was Design & Construct (D&C). In this procurement method, the design is developed to a pre-agreed point and the responsibility is then passed over to a builder.
Design & Construct can mitigate and transfer risk and speed up construction.
Under a D&C arrangement, the builder manages the construction and chooses the subcontractors. It’s a more collaborative style of procurement wherein clients develop a closer relationship with the builder. Additionally, the design doesn’t have to be 100% completed before work begins, meaning you can be designing internal walls at the same time as other parts of the structure are built. This can streamline the overall process and reduce project time.
Another benefit of D&C is that, by transferring the design responsibility to the builder, this also transfers the risk of the design over to the builder. In return, the client assumes an additional cost.
A drawback of D&C is that there might be a process breakdown in the use of the PPR (Principal’s Project Requirements) whereby the builder varies the requirements and/or specifications. This breakdown can become a particular risk if the client does not utilise the services of a peer review team.
Construction Management encourages positive client/builder collaboration.
Additional to the D&C form of contract, clients began pursuing another, similarly collaborative style of procurement, known as the Construction Management approach. This method allowed the contractor to be engaged earlier in the design process, against a set and fixed profit and overhead recovery and preliminaries. The builder (or management team) and client collectively selected the subcontractors, and the trade works were, generally, done on a Cost Plus basis.
Construction Management continues to be a preferred method of procurement among clients, depending on the complexity of the job and, often, the potential for unpredictable variations, e.g. a heritage restoration where the exact scope of works is uncertain until building actually begins. The issue with this form of procurement is that the client is not certain of the final costs. To provide the client with an indication of cost outlay, these works can be done against a Not To Exceed project cost, or against a Guaranteed Maximum Price.
Following on from Construction Management has been a rise of the latest form of procurement methodology: Early Contractor Involvement.
ECI delivers fewer variations, more client options and greater trust.
Early Contractor Involvement, or ECI, is a collaborative approach that invites the builder to be involved in the project design from a very early stage. People realised that early collaboration with the builder was much better for several reasons. For example, under previous methodologies, it wasn’t uncommon for variations to occur, usually because the builder identified problems in converting design into construction. These problems could be with unsuitable or outdated materials choices, buildability issues, or unreasonable scheduling stipulations. It would be fair to say that these eventualities sometimes caused an adversarial relationship to grow between the builder and client.
ECI is a two-stage process whereby developers tender for a builder’s services, and make a choice based on the builder’s ability to deliver profit margins and contribute to effective methodology. The chosen builder then becomes part of the Stage 1 project team, sits in on design meetings, and has an equal voice within the project team. The builder will look at the design from a buildability and materials selection perspective, offering up alternatives. They will then generate cost estimates at predetermined points in the design process. In parallel with those cost estimates, a quality surveyor who is empowered by the client will do the same. These estimates are then consolidated into a Guaranteed Maximum Price (GMP). This GMP advises the client of the maximum cost that the contractor is prepared to do the works for. It can only change through variations to the contract. Any saving against the GMP may be shared between the client and contractor (depending on agreed terms). If the cost goes over the GMP, and there are no variations adjusting this, then the risk for this cost increase remains with the contractor.
Guaranteed Maximum Price ensures peace of mind for clients and builders alike.
When the client has signed off on design and price, they can either enter into a contract with the Stage 1 builder or go out into market to get a lump sum or D&C contract from another builder. That said, it’s rare that the Stage 1 builder is not asked to continue. The ECI process actually helps nurture more trust between the builder and the client than ever before, largely because of the inclusion of the contractor as part of the design team and the transparent formulation of a GMP.
The future of procurement methodology.
Looking ahead, Impact Group believes the next step in the procurement evolution might be that collaboration occurs even earlier in the process. During the development management stages, Project Managers might start bringing in a builder to support and critique cost data. Impact Group is very excited to see what the next 20 years will bring.
Got questions?
If you’d like to know more, get in touch with the Impact Group team, today.