Construction Clients Need to Step up to Get a Better Deal 2

Tuesday, February 24th, 2015
liked this article
Dulux Exsulite Construction – 300 x 250 (expire Dec 31 2016)
FavoriteLoadingsave article

Construction procurement these days is more process driven than transaction focused.

It is the sum of the parts of a client’s brief, multiple designer and consultant inputs, mixed priorities and – in the end – a tender which then becomes the beginning of a new chain of sub-contractor and supplier bid shopping to drive lowest cost and maximise residual contractor margins. Few of these endeavours are focused on ensuring that clients get what they want, when they want it for the best value available.

The chain of transactions is mostly governed by self-interest and defences which compete with the client’s purpose for initiating a project. Early members of the procurement chain are often not sensitised to the likely terms of the intended contract and how the client’s and contractor’s interests may be better balanced. Few, if any, have an eye to the cross-over point of the key bargain where what forms the tender documents are quantified by a bidder and then risk wrapped by a contract.

In the end, the transaction between the client and the contractor is really the first occasion where a single point of accountability is established. At this point, they both have the main skin in the game.

There is little prospect that a consultant or designer will offer a single point of risk wrap of the type sought in the transaction between the client and contractor.

Achieving more effective alignment between the client and contractor is therefore a critical procurement success determinant. An open tender or indeed a selected tender with the traditional client stand-off will not produce this result. For many public clients, it is not possible to reinvent the wheel, so consideration could be given to interventions which are still able to satisfy the public process of transparency, fair dealing and accountability to secure better transaction outcomes.

In my view, the core objective of a productive tender process should be one which optimises early contractor project engagement so that when the successful contractor is appointed, he is able to demonstrate deep project knowledge and enthusiasm, and the award of the contract should be unsurprising. The contractor should be able to explain his tendered approach through detailed work methods and sub-contractors or supplier commitments which would see the project off to the best start.

Projects which start well tend to end well.

To underpin this prospect, the contractor’s bid effort should be met by an equally engaged client who has demonstrably gone out of his way to deliver tender documents that are both fit for tender and essentially fit for construction.

Post-award contract variations will be disruptive to transaction efficiency. These come with denials, discovery delay, stops and re-starts, pricing tensions and competing interests. Often, parts of the constructed works become compromised as these play out. So while project contingencies offer some cover to clients for these risks, over-reliance on contingency does not help for good workflows.

Resolving this time old conundrum requires clients to step up and become more engaged in the procurement process than they have in recent times. Clients will need to give greater consideration to the extent that project design and specifications achieve a position where client and contractor are both comfortable that the risks to scope are minimal. Such a position could only be achieved if the contractor’s belief in the project scope and engagement alignment were satisfactorily fulfilled.

One approach to achieving the contract award alignment sought here involves clients inviting proposals from contractors able to demonstrate commitment to performing the project and pre-aligning their mutual interests for success such that;

“the contract can be amended to provide for the contractor only being able to claim for the direct cost of any post award variations on the basis that those costs would be limited to what would have been priced in the tender had the variation been known at the time, and that the contractor will not be entitled to further time or compensation for any effects that may arise during the contract as a result of those variations.”

As a consideration to tenderers committing to this condition, the client will only select three contractors to bid on the project. The selection of the tenderers amongst other criteria will be evaluated on the contractor’s willingness and undertaking to tender on following terms:

  • The client will conduct a pre-tender process which will expose the selected tenderers to the proposed contract designs and specifications (scope),
  • Two exposures are envisaged – one at nominally 85 per cent complete documents and the other at 95 per cent completeness concurrent with the general design completion,
  • At both points, the selected bidders will be invited to review and comment on the client’s proposed contract documents for both their fitness for purpose for tendering and subsequently the construction (performance) of the contract,
  • The client will provide an informal briefing at the release of the pre-tender documents with the proposed tenderers together to ensure a level playing field,
  • The tenderers have seven to 10 days to review and comment on the pre-tender documents,
  • All comments received will be summarised and shared with the tenderers, but not the origin of those comments. The client will provide a response to those comments and of any intended action or inclusion,
  • Prior to the tender, the selected contractors will be required to attest that they have exercised their expertise in good faith to help identify and advise the client of any issues that may have potential to affect the scope or performance of the project,
  • The tenderers will be required to acknowledge that the intent of this process was a selected tender consideration by the client with conditions to assist the parties mitigate potential variations or disruptions to the contract after its award.

In addition to the pretender process, the client’s tender award procedure would be amended to provide for the client to include the following bid criteria:

  • The degree to which the contractors meaningfully contributed to the pre-tender process and demonstrated their bona-fides accordingly,
  • A re-affirmation of the pre-tender process by the contractor and of the client’s considerations to foster mutually aligned interests and risk sharing with the contractor,
  • The quality of the contractor’s work plan with particular emphasis on the degree to which the contractor can nominate key sub-contractors and suppliers to lock in their prior commitment to immediately getting on with the project, and
  • The track record of the contractors proposed project manager and site supervisor in undertaking projects of this nature and of their personally attested commitment to the project for its duration.

It is time for clients to step up in this way to get a better construction deal, but there is much more that can be done to deliver construction projects better, faster and cheaper. Too much is left to designers and consultants who in the end have far less skin in the game than the client or contractor. Ensuring that the construction documents mirror the tender documents is a worthy starting aspiration but one that seems to be discounted in the current process driven procurement model.

FavoriteLoadingsave article


 characters available
*Please refer to our comment policy before submitting
  1. Peter

    The better the Client's brief, the better the tender and built outcome will be. A carefully researched and presented User Requirements Brief will be worth much more than its cost, and can work well to avoid changes of mind leading to variations during construction. Clients need to be fully informed about their own needs and requirements before they embark on a building procurement campaign. The process of fully informing a Client can be helped enormously if the Client has knowledge of the construction industry's ability to satisfy the Client's brief. David Chandler's recommendation for limiting the number of Tenderers, together with Early Contractor Engagement has a lot to support it.

  2. Tony Fendt

    An excellent article and recommendations that I believe are already in place in various forms in capital works procurement … the only objection that I could imagine from the contractors (other than Tier 1) is that their commercial advantage to win work through the exploitation of weak procurement process is mitigated … and they are more exposed to the risk of their own errors in pricing. From the Client perspective there will be an increased investment of resources in money and time before bringing a project to procurement. Who remembers the "No Dispute" travelling circus?