AN

ASSIGNMENT ON
PROCUREMENT METHODS
COMPILED BY:
REV. SR LILIAN NWACHUKWU
SUBMITTED TO THE DEPARTMENT OF BUILDING
SCHOOL OF POSTGRADUATE PROGRAMME
NNAMDI AZIKIWE UNIVERSITY, AWKA.
LECTURER-IN-CHARGE:
DR OKOLIE K.C
JULY 2012.

PROCUREMENT METHODS.
Introduction.
According to Encarta dictionary 2009, to procure means to acquire
something: to obtain something especially by effort. In construction terms,
procurement refers to the process of acquiring something. This process of
acquiring something has different approaches or methods; hence in the
construction sense, procuring a building has different methods to it.
When a project is dreamt about by the client, he works towards actualizing it.
Apart from funding and providing land for development, the client does not
have the requisite skill to actualize his dream. He has to employ the services
of those who would do so. The task of designing his dream and its
subsequent construction are open to different methods; hence to choose the
most appropriate method for his project, he needs professional advice. The
method he chooses is dependent on some factors, which in the end should
satisfy his need.
What is procurement?
Procurement is a term used to describe all activities undertaken by the client
in seeking to bring about the construction of, or the refurbishment of a
building. It is also referred to as method or system which seeks to weigh the
pros and cons and the financial constraints which are likely to affect the
project so as to select an effective contractual arrangement. The simplest
definition, according to Nagy, Kiss and Hornyak (n.d) described Procurement
as the merging of activities undertaken by the client to obtain a building.
When a client wishes to choose any type of procurement method for realizing
his project, his major concerns are:
To finish the project on time
The cost of the project
Performance or quality in relation to both design and construction of
the building.
There are four main procurement options, they are as follows:

Traditional method

Design and Build method

Management Contracting method
Public-Private Partnership (PPP) method.

Traditional
This method is as old as the construction industry. The major feature is that
the design process is separate from construction. It also requires full
documentation before the contractor can be invited to tender for the work. In
summary, traditional method simply involves the steps- design, bid and
build.
Features of the Traditional System.
The traditional system is characterized by the following:
Contractor is appointed by competitive tendering
Designs should be fully prepared ahead of time before tendering
procedure and actual construction can begin.
The client has control over design. There is no design responsibility on
the contractor.
The duration of the project tends to be very long because of the
separate sequential process of design and construction.
The construction cost is well known ahead of time and there may be
need for adjustment as provided for in the contract.
The client appoints a professional consultant to administer the contract
on his behalf and to advice on aspects associated with design, progress
and stage payment which must be paid by the client.
The structure of the traditional system is shown below:

Source: Naggy et al. (n.d).

Analysis.
Although the traditional procurement method is very simple to understand
by all classes of client, the major problem it has, is that the contract period
tends to be more prolonged due to the fact that design process is separate,
and determines the commencement of the actual construction. Again the
early and vital input of the Builder is not tapped; hence, the product is likely
to be deficient in buildability and maintenability aspects.

Design and build.

In this method, the contractor is responsible for undertaking both the design
and construction of the work in return for a lump sum price.
To arrive at a choice of contractor, contractors are required to develop a
design (from an initial concept prepared by the consultant appointed to
advice the client) to a certain level, prepare a tender figure and submit the
whole package which is termed a proposal to be evaluated to meet the
satisfaction of the client. A team of consultants will be needed to assess each
contractors proposal. Evaluation of tenders in this case is usually difficult
because the contractors are not working with one design. Tenderers should
be informed of the criteria to be used, and whether price is likely to be a
prime factor. Features of this method include:
The contractor is often appointed by two-stage tendering i.e. the
competitive element and quality is preserved.
The client can introduce changes to the design at the design stage, but
once the contract has been awarded to the contractor, he has no direct
control over the development of the design detail by the contractor.
A major feature of this procurement method is that design and
construction may proceed in parallel, and so the project duration will
be shortened.
This procurement method makes no room for appointment of an
independent contract administrator. The client works directly with the
contractor, or he may appoint an agent to advice him, or act on his
behalf.
Valuation and payment matters are solely in the hands of the
contractor.
It is an obligation to complete the project within the contract period,
however, the client may accept a later date to account for delays
resulting from reasons listed in the contract.
Analysis.
The Design-Build approach gives the client a single point of contact.
However, the client commits to the cost of construction, as well as the cost

of design, much earlier than with the traditional approach. Whilst risk is
shifted to the contractor, it is important that design liability insurance is
maintained to cover that risk. Changes made by the client during design can
be expensive, because they affect the whole of the Design-Build contract,
rather than just the design team cost.
Secondly, although the contract period is shortened, the process of assessing
the tenders, and selecting a contractor can be difficult due to the fact that all
the tenderers are working with different designs.
Management Procurement.
This method of procurement is based upon the client appointing a consultant
who will prepare project drawings and project specifications. Consequent
upon this, a management contractor is then selected by a process of tender
and interviews. The management contractor will not carry out construction
work. This helps to preserve the management contractors independence
and reinforces a consultancy relationship with the client. Payment is made to
the management contractor on the basis of the cost of the works packages
plus the agreed fee. The success of this approach depends on the
contractors team. Unless the team is drawn from companies which are
experienced in this kind of team working, the benefits are not always
realized.
There is less price certainty at the outset, because construction tends to
start ahead of completion of all design stages and at a point when many of
the work packages are yet to be tendered for. This often means that
adjustments will be made to the design and specification of works packages
later in the programme to keep the project within budget. However, the
overall process of design and construction tends to be shorter than in either
the traditional or design and build methods. Another variant of management
contracting is construction management.
Construction Management

This is similar in concept to Management Contracting. The sub contractors or

specialists
are contracted directly to the client and the construction manager manages
the process
for the client on a simple consultancy basis. Construction Management
requires
constant involvement of the client, so it is really only suitable for
experienced clients.

Analysis.
This method is characterized by a high level of skillful input since the
subcontractors
engaged are experts in their various fields. The result is that the construction
process is
characterized by some level of precision synonymous with manufacturing
industry.
There is equally minimal supervision and the whole arrangement seem to
favour each
party. The major challenge in this method is organization, unless the team of
contractors are pulled from companies who are used to team working, the
whole
system may be frustrating.
Public-Private Partnership.
This procurement method refers to the collaboration between public and
private sector in order to achieve financing, management or maintenance of
a project or the provision of services. According to Obozuwa (2011), Public
private partnership (PPP) describes a government service or private business
venture which is funded and operated through a partnership of government

and one or more private sector companies. PPP is, therefore, regarded as a
tool for infrastructure development.
Public and Private sectors may co-operate in the following sectors:

transport,
public health,
education,
safety,
waste management,
water supply and energy

A PPP project is not different from the other procurement forms. It is the
financing of the project that is different.
The responsibility of each of the sectors in the realization of a project are as
follows:
The Private sector :

is responsible to provide the whole, or part of the project financing

is responsible for the risks that are related to the construction or
operation of the
project.

has long term benefits from the project

designs the project (or part of the design)
manages and operates or maintains the facility
returns the project to the public after the completion of the contract
period

The Public sector:

determines

requirements of the project

assesses the proposal of the private sector
supports the construction of the project
monitors the project and makes sure the private sector conforms with

the contract
proceeds with payments to the private sector.

the

drawing,

technical,

Models of Public-Private Partnership.

PPP agreement may take the following forms:

operational

and

financial

Design-Build (DB) or Turnkey contract: in this case, the private

sector designs and builds infrastructure according to public sector
performance specifications for a fixed price, thereby transferring the risk
of cost overruns to the private sector.

Management contract: Here, the private sector contracts to manage

a Government owned project and manages the marketing and provision
of a service.

Lease and operate contract: A private operator contracts to lease

and assume all management and operation of a government owned
facility and associated services, and may invest further in developing
the service and provide the service for a fixed term.

Design-Build-Finance-Operate (DBFO): The private sector designs,

finances and constructs a new facility. It is then required to operate the
within a lease period. The private partner then transfers the new facility
to the public sector at the end of the lease period.

Build-Operate-Transfer (BOT): A private entity receives the license to

finance, design, build and operate a facility for a specified period, after
which ownership is transferred back to the public sector. This has been
used in telecommunications service contracts.

Buy-Build-Operate (BBO): If there is need to revive a public asset,

the government can transfer it to a private or quasi-public entity usually
under contract that the assets are to be upgraded and operated for a
specified period of time. Public control is exercised through the contract
at the time of transfer.

Build-Own-Operate (BOO): In this case, the private sector finances,

builds, owns and operates a facility or service in perpetuity. The public

constraints are stated in the original agreement and through on-going

regulatory obligations.

Build-Own-Operate & Transfer (BOOT): The Private Sector builds,

owns, operates a facility for a specified period as agreed in the contract
and then transfers to the Public.

Operating License: A private operator receives a license or rights to

build and operate a public service, usually for a specified term. This is
similar to BBO arrangement and is often used in telecommunications
and ICT projects.

Finance Only: A private entity, usually a financial services company,

funds a project directly or uses various mechanisms such as a long-term
lease or bond issue.

Advantages.

The Public sector gains the advantages the private sector offers such

as: ability to design, construct, manage and finance a project.

Public money is better used and at difficult economic periods for a

government, this method is good.

They promote and help the innovation in the public sectors with the

transfer of knowledge and new techniques.

Better quality infrastructure and better operation throughout the life
of the project (maintenance of the project by the private sector) is

assured.
There is more efficient and more economical maintenance of the

project.
Reduction of the construction cost and maintenance of the project.
Use of private sector in areas where there are weaknesses in the
public sector such as: lack of expertise and qualified employees, no
ability to promote new technoeconomical solutions, lack of efficient

and effective use of human resources, lack of sensitivity and

knowledge and expertise in the use of available energy sources.
Disadvantanges.

The use of the project by the private sector is difficult for low income
people. However, it has the advantage that only the users pay and not

the tax payer.

In some cases, there may be in the contract some clauses or provisions
which do not favour the public interest but aim at increasing the profit
of the private investor, allow monopoly or even allow the private sector
to increase the price of a service or a product after completion of the

project.
Since much of funding the project is done by the private investor, there
is every tendency to aim at reducing the cost of a project which might

lead to the use of substandard materials and works

Generally, the public sector can get cheaper loans than the private
sector.

Analysis.
The system has been applauded as important tool for improving economic
effectiveness, and a mechanism to fill infrastructure deficit (Shwarka and
Anigbogu 2012). The system equally lends itself to the intervention of private
entity whose sole aim in development participation is more profit oriented
than of social growth, for this reason, it is necessary that government should
balance its profit motive with social growth. This can be achieved through
government monitoring and imposition of compliance with performance
standards as a pre-requisite in development participation.
Conclusion.
There is not just one method of procuring a building. The different methods
that are available provide a wide range of options for any promoter to realize

his dream. The choice of any method is dependent on the prime concerns of
the client, (which are cost, time and quality) and the type of project.
Whatever choice of option that is made, must not fail in any of these factors;
hence, the client needs guidance and direction so that he has cause to smile
when his dream has been actualized.
The majority of clients are ignorant and quickly embrace the traditional
method as the only procurement option. The quick recourse to this option is
due to its simplicity, age and familiarity with the process. The result is that
the wrong option is applied to wrong projects, which may lead to problems
ranging from waste of resources to dissatisfaction with the final product. The
need for professional advice is, therefore necessary to help the clients make
the right choice.

References.
Naggy, E. Kiss, L. and Hornyak, S. (n.d). Different procurement methods.
www.byggai.se/mats/cm1/procurementmethods.pptx
Obozuwa, D. (2011). PPP as a tool for infrastructure development in
Nigeria

(1).

www.businessdayonline.com/NG/index.php/law/cover/28768.
Shwarka, S and Anigbogu, (2012). The impact of public procurement
options on

building projects

performance in Nigeria. A

paper presented at the 42nd National

conference/General Meeting of the

Nigerian Institute of

Building