Construction Procurement

Procurement methods in the UK construction market work with an Employer issuing a Main Contract to one Main Contractor and thereafter, the Main Contractor issues multiple Subcontracts to various Subcontractors. [1]

Projects in the £25 million range can involve a main contractor with approximately 70 subcontractors. With this volume of moving cogs, the procurement process is a high-risk operation.

Two primary standard forms of Contract have been introduced through government and regulation to simplify the process (in theory). The two primary standard suites of Contract are:

1. The Joint Contracts Tribunal (JCT) standard forms of Contract; and
2. The New Engineering Contract (NEC) standard forms of Contract

The two suites of contract are used for differing project types. JCT Contracts are commonly used on privately funded construction projects and NEC Contracts on Public, Government funded, projects.

The JCT is an independent organisation formed with the sole purpose of creating standard form contracts for use in the Construction industry in England and Wales. Formed of seven industry bodies, representing differing contractual stakeholders, the JCT has set the standard for contracts in the industry since the early 1930’s.

The JCT has created a suite of contract forms to suit different types of project. Identifying the correct JCT Contract for use on any given development is critical to the success of a project.

Contractual complexities can be difficult to appreciate and standard forms of contract, such as the JCT and NEC, increase familiarity and long-term usability. Standard form construction contracts are advantageous for the industry because the more often contract documents are used, the better understood the contract terms are by the parties involved, which reduces misunderstanding and dispute.

Because the JCT Contracts have been used for several years, there is now a body of case law related to the terms and conditions which means that in many cases, the terms have been tried, tested and improved to create a better document. This process has a compounding effect so every new addition of the JCT is better and better. Every few years, the JCT updates its standard suite of Contracts to conform with changes in Legislation and it’s important that the most recent Contract update is used on any project.

Procurement Methods and Contracts

With the JCT suite of Contracts there are different Contract forms that can be selected by a Developer. However, there are perhaps four main procurement styles to be considered.

Traditional Construction Procurement

The client (developer) has a full design carried out and pricing documents prepared for tender. The design choices and risks of any errors are retained by the Client who will have engaged a design team to ‘fully’ detail the scheme. The Architect will fulfil the design submitted for planning, in conjunction with other designers (Structural; MEP; etc) and will be retained to supervise the construction.

The tenders returned will be on a lump sum basis and, subject to ensuring that they are fully compliant, will be the basis of the Contract Sum. Any changes post contract will be at the cost and programme risk of the Client. There will be a longer period required for preparation of the design and pricing documents than other construction procurement routes, but the tender period should be shorter since the tenderers will be responding to a defined design, scope and quality.

Design and Build Procurement

With Design and Build Procurement, standard form contracts require the Contractor be appointed to ‘complete’ the design prepared on behalf of the Client, responding to the Employer’s Requirements with Contractor’s Proposals which should complement each other to comprise the whole of the design for the Works.

Clients normally seek to transfer the responsibility for the whole of the design to the Contractor with design and build procurement. However, contractors are becoming resistant to this. Depending on the quality of the contract documentation, the Client should be able to define the standards and quality required. That said, the more choices retained by the Client, the less design responsibility passed to the Contractor.

In terms of time there is little difference between this and the traditional approach since the tenderers will require longer to prepare a properly considered a tender for design and build procurement routes.

Two-Stage Tendering

Under the two-stage tendering procurement route, the Contractor is tendering only a limited number of competitive elements – usually margin, preliminaries/common-user facilities and programme.

The Contractor is then on-board as part of the Client’s team to work with the Architect/design team on sub-contractor selection and procurement to work up the price to arrive at a lump sum for the Contract.

The Contractor is enabled to input on programming and logistics for the efficient delivery of the scheme. This type of construction procurement means that the skills of specialist designing sub-contractors can be harnessed. With an efficient programme of designing and procurement the project could be progressing whilst subsequent trades are being designed tendered and procured.

This route is one of the best procurement methods in construction if the developer is looking to secure the shortest possible timescale.

Construction Management

Similar to the two-stage approach in terms of having a shorter lead in period for engagement – the Construction Management route comes with the advantages of early engagement for logistics, project planning and procurement.

The primary difference is that the Construction Manager is effectively a consultant with responsibility for delivering a defined scope of services. The trade package contractors contract directly with the Client who has the full risk of price escalation and programme delays.

Under this type of procurement, the design can be procured through a design team or as a combination between the design team and the trade package contractors. Due to the shortened process to appoint the Construction Manager, a shorter overall duration for the project is achievable.

Irrespective of the procurement route, one aspect that should not be overlooked is the selection of the companies who deliver the project. This means the designers as well as the Contractor and sub-contractors.

Contractors and consultants should be experienced in the type of construction, the contracting risk allocation and have the capacity to do the job. Carry out interviews; visit previous projects; take references; ask difficult questions.

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[1] A Study by EC Harris called ‘Supply Chain Analysis into the UK Construction Sector’ gives a full breakdown on main contractor and subcontractor relationships

About Paul Heming

Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.