ICE

guidance
note
Procurement, commercial
and contracting key
principles
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ICE guidance note Procurement, commercial and

contracting key principles
The commercial environment is established by
This procurement guidance clients and, therefore, programme or project success
requires clients to develop a clear vision, values,
note has been prepared by the strong leadership and an on-going focus on a range
of key principles. The ICE believes that the key
Institution of Civil Engineers strategic principles for procurement, commercial and
contracting arrangements are:
(ICE) Procurement Advisory • the client understands its capabilities, whether it
is a mature or developing construction client, and
Group (PAG). It is based the degree to which it will undertake the client
role itself;
on the practical experience • the client is clear from the outset about its key
objectives and required outcomes over the whole
gained from developing, life of the project, and builds these into the
procurement process, avoiding unnecessary change;
assuring and implementing • the client undertakes market consultation and
engagement to ensure good awareness of its
procurement strategies across requirements; to shape the procurement strategy
and plans; and to provide valuable intelligence on
a range of major infrastructure market capability, capacity and appetite;

programmes and projects. The • from the outset, the client considers the packaging
of the entire project into contracts (i.e., packaging
guidance primarily aims to is considered and optimised as a whole) taking
into account factors including design responsibility,
help public sector clients and management of interfaces and encouraging
innovation;
stakeholders to understand • for programmes of work that require multiple
packages, the client considers how to integrate
the key principles that support and incentivise contractors working on different
packages throughout the programme lifecycle;
successful procurement, • contracts are developed to respect the principle that
the client, its designers, lead contractors and the
although the principles are wider supply chain are partners in the success of
the project, which is much more likely if there is a
also likely to be helpful to fair balance of risk and reward; and
• the client designs, manages and assures the
private sector clients. procurement processes to uphold the principles of
equal treatment, transparency and proportionality
and should be able to expect an equivalent
approach by contractors in return.

The ICE believes these strategic principles are

underpinned by the following Good Practice
guidance. These are set out using the six pillars of
the Infrastructure and Projects Authority document:
‘Improving Infrastructure Delivery: Project Initiation
Routemap Procurement Module’1:

1 Improving Infrastructure Delivery: Project Initiation Routemap Procurement Module, The Infrastructure and Projects Authority, London, 2016.
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The pillars are used at various stages in the project lifecycle, illustrated generally as:

Project Initiation

Communicate Requirements
Understand and

}
Delivery & Procurement Strategic

The Market
Strategies Decisions

Packaging

Contracting Model

Route to Market
Preliminary Design
& Business Case

Communitae the Benefits

Planning & Statutory Detailed
Procedures Iterations

Procurement

Construction Planning
& Design Development

Construction

In-Service

1. Understand and Communicate 2. The Market

Requirements and Outcomes 2.1 Engagement with the market is crucial to
1.1 From the outset the desired project objectives, stimulate and maintain appetite and to test and
outcomes and outputs over the lifecycle of the refine plans to achieve the desired outputs.
project or programme (from inception to in-service 2.2 Market consultation is supported by the
operation) must be tangible and clear and used to procurement regulations.
motivate teams and inform decisions.
2.3 It is desirable for engagement to be undertaken
1.2 The project objectives, outcomes and must be at various points: before the design of the
understood and communicated widely within the procurement strategy; in the run-up to the
client body, programme team and throughout procurement; and, subject to tendering rules,
the supply chain. during the procurement itself.
1.3 The linkage between outcomes, key outputs and 2.4 Maintain intelligence on suppliers as the
inputs should be maintained by a single, simple programme / project proceeds, to understand how
balanced scorecard model. well the supply chain is functioning, risks (such as
1.4 Requirements should be captured in a capacity and insolvency) and opportunities.
comprehensive digital model from the outset.
1.5 The client must ensure a robust business case,
a bottom-up programme and a realistic budget
with a focus on out-turn (‘should cost’),
developed using risk-based estimating and
avoiding optimism.
1.6 Independent assurance of the procurement
strategy and tender processes adds considerable
value for minimal cost.
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3. Packaging
3.1 Ensure contract packaging decisions are
taken for the programme before commencing
procurement, to:
• optimise interfaces (such as finance, design,
construction, systems, insurance); and
• align with market appetite, capacity and
capabilities.
3.2 Use advanced Building Information Modelling
(BIM) technologies to create a virtual simulation
to support strategic decision-making, optimise
design, encourage collaboration and evidence
outcomes and key outputs, transforming into
a digital twin for use during operation and
maintenance.
3.3 Carefully package the design and construction
to avoid unnecessary interfaces - ensure there is
a design maturity strategy to plan the handover
between the employer’s outline design and the
contractor’s design development. If not properly
managed the result can be unnecessary design
constraints or design duplication and re-work.
3.4 Integrate the input of design, construction and
operational responsibilities to allow design and
construction planning to be considered together
and full advantage to be taken of new and
emerging technologies such as modularisation.
3.5 Packaging that allows the early involvement of
contractors and suppliers will often:
• facilitate the early establishment of an integrated
team (employer, advisers, designers, contractors
and supply chain);
• establish a longer-term relationship that supports
good performance;
• ensure common understanding of the
requirements, outcomes and key outputs;
• maximise the time available for construction
planning (phasing, resources, interfaces and
health and safety);
• enable contractor input to the design
development and facilitate collaborative design;
• allow time for the contractor, designer and
wider supply chain to develop innovative
and better value solutions, including off-site
construction opportunities;
• manage risks to accelerate delivery, reduce costs
and secure health and safety; and
• remove procurement from the critical path.
3.6 In complex programmes with distinct category
packages, and where the client will act as or
appoint an integrator, there may be a case for
the client to develop the design of some
packages to a greater level of maturity, with the
contractor’s role to complete the detailed design
(detail and build).
3.7 For major programmes with numerous
contractors, consider the use of Owner Controlled
Project Insurance to avoid duplication in
contractor-provided insurances.

4. Contracting Model
4.1 The contract structure should support
collaboration and bridge the interface between
suppliers, advisers, the owner and the integrator.
4.2 Commercial and procurement models should be
kept simple, ensuring a clear line of sight and
alignment with the project outcomes and key
outputs. Complex arrangements increase the risk
of misunderstanding, confusion, gaming and
disputes, all of which can undermine constructive
working arrangements between the parties.
4.3 Ensure an appropriate balance of risk and reward,
understanding that allocation of excessive risk
for a lump sum price increases the likelihood of
overruns or contract failure. Aim for an approach
that incentivises commercial risk planning and
management to minimise the out-turn cost.
4.4 For design and build contracts:
• use target contracts based on open book
accounting with pain and gain share
arrangements;
• consider using a two-stage contract where the
contractor is awarded a contract comprising a
first stage of design development and planning
followed by agreement of the target and a
second stage to complete the design and
construct the works.
5
4.5 incentivisation is vital:
• it should be aligned with project outcomes and
key outputs (budget, timescale, quality);
• positive incentivisation (the opportunity to win
reward) is much more effective than negative
incentivisation (withholding payment for poor
performance) since the latter leads to adversarial
relationships;
• some of the best incentivisation schemes involve
the creation of an incentive fund from savings
to the client’s budget achieved by collaboration
between the parties – rewards from the fund
can be won by achieving key outputs, which can
be defined using targets and key performance
indicators;
• a cap may be necessary to guard against windfall
profit, but it should not be so restrictive as to
disincentivise excellent levels of delivery;
• make allowance for ‘micro-dosing’ – the option
for the client to use part of the incentive fund to
incentivise the contractor proactively to address
emerging priorities as the project progresses.
4.6 Use standard forms of contract such as the NEC,
providing consistency across a programme.
4.7 Minimise the use of amendments to standard
contract terms, for example, by adding Z clauses
to NEC contracts, which can upset the balance of
risk and reward and lead to qualified tenders.
4.8 Select the type of contract to suit the selected
packaging: for example, an Option C target
contract may suit a design and build package or
an Option F management contract for a complex
package that requires an integrator.
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5. Choosing Route to Market
5.1 Clients should be mindful of the resources
required for the procurement process – both their
own and those of tenderers.
5.2 Develop a process that works with and maintains
market appetite, for example, open competitions
with long tender lists may erode appetite.
5.3 Carefully prequalify tenderers to ensure they have
the capability to fulfil the contract.
5.4 Evaluate tenders on the optimum blend of
technical / quality criteria and commercial aspects.
5.5 Avoid over-emphasis on tender price – this
can lead to unsustainably low bids which can
result in poorer performance, lower quality, cost
and time overruns, poor whole life value and
adversarial relationships. It is more important to
focus on award criteria and simple incentivisation
arrangements that, together, will have the
greatest impact on the delivery of the best value
final outturn cost.
5.6 Ensure that technical and quality promises
made and evaluated at time of tender are
contractualised to ensure delivery during the
contract.
5.7 The selection of the technical and commercial
tender criteria and the evaluation of tenders must
be carefully designed and managed to mitigate
the risk of legal challenge:
• focus on equal treatment, non-discrimination,
transparency and proportionality;
• avoid overcomplication, especially in commercial
criteria, which can lead to misunderstanding and
unintended consequences;
• make sure the technical / quality bids are
objectively evaluated using processes that are
robust, consistent and transparent;
• ensure that, for each technical criterion,
tenderers are given reasonable guidance as to
what is required;
• ensure there is a carefully designed and
transparent evaluation and moderation process,
including the methodology for evaluators to
translate a tenderer’s response into a score;
• ensure the availability of sufficient, well-trained
subject matter experts to act as evaluators;
• consider the use of independent assurance to
embed learning from other projects, and to
validate the design of the procurement strategy as
well as the prequalification and tender processes
and documentation.
5.8 Behavioural assessment (of bidders’ proposed
teams) has been used in some procurements
as part of the technical/quality evaluation.
Behavioural assessments can be seen as beneficial,
but they require substantial planning and
preparation to develop the transparency needed
for public procurement, which can be time
consuming and expensive in terms of client and
bidder resources. Behavioural assessments should
be kept simple until the value of more complex
models and techniques is properly established,
especially the impact on behaviours when issues
arise over the course of a lengthy contract.
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6. Communicating the Benefits 6.4 A pool of good practice should be developed

6.1 Following contract award, the outcomes, key
outputs and inputs established from the outset
should be monitored and reported on a regular
basis (see figure).
6.2 The contract(s) should include provisions for
on-going performance management and reward
contractors where higher levels of performance
are achieved (see contracting model).
6.3 Progress against the outcomes, outputs and inputs
should be widely reported within the team to
inform, motivate and create a delivery focus.
by examining high performing areas and
the effectiveness of improvement plans. Any
constraints to high performance established by
the procurement strategy should be considered
and noted for future strategy development.
6.5 The achievements and lessons learned should be
communicated widely, initially within the delivery
team and then to the broader industry to create a
learning legacy.

1. Understand the procurement requirements, outcomes, objectives and inputs

and develop the performance measurement framework (balanced scorecard)

2. Develop the procurement strategy

Form of Award
Market Packaging Contract Procedure

3. Award contract(s) and measure and report results

4. Identify areas for improvement 7. Identify high-performing areas

6. implement
improvement 5. Develop improvement plans 8. Develop pool of good practice
plans

9. Share
Learning
Legacy
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Published June 2018

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