1. 2014 Construction Law Conference:
Considerations in Procurement Strategy
Thursday, 6 February 2014
Francis Ho, Head of Construction
francis.ho@olswang.com | +44 20 7067 3505 | @fkyh

2. Procurement Strategy Issues
• Methods by which clients may be able to procure more competitively and
collaboratively
• In this talk we consider:
• Framework Agreements
• Two-stage tendering
• Construction Management
#olswangconstruction
www.constructiveblog.com

3. Framework Contracts #1
• Umbrella agreement under which terms agreed in advance for works and
services
• Works/services instructed each time via “call-offs”
• Each call-off becomes a separate contract
• Typically in place for several years
• No need to negotiate terms or tender prices each time
• Requires more upfront work; saves time and cost in the long-term
• No guarantee of work but economies of scale may reduce suppliers’ costs
#olswangconstruction
www.constructiveblog.com

4. Framework Contracts #2
• Create long term relationships with suppliers
• Can measure performance for continuous improvement
• May allow clients to gain advice from construction experts without taking on staff,
e.g. project management, cost management, legal advice
• Multi-supplier framework allows mini-competitions between suppliers
• Mainly bespoke but some standard forms exist:
#olswangconstruction
www.constructiveblog.com

5. Two-Stage Tendering #1
• Construction market heating up, especially in London
• Position for contractors healthier than any time since 2007
• Greater demand may mean return to two-stage tendering
• Single stage tendering = lowest cost (lump sum or prime cost)
#olswangconstruction
www.constructiveblog.com

6. Two-Stage Tendering #2
• Two stage tendering:
• First stage – select preferred Contractor
• Competitive tender with some information – preliminary costs,
programme, OHP, agree construction contract terms
• Collaborate with preferred Contractor on pre-construction services on
prime cost/lump sum basis
• Preferred Contractor tenders long-lead subcontracts, build up fixed price,
programme and cost plan
• Second stage – finalise contract terms, finalise fixed price
• Usually bespoke but some standard forms
#olswangconstruction
www.constructiveblog.com

7. Two-Stage Tendering #3
Advantages
Disadvantages
Can de-risk project by
second stage (advantages
for both Client and
Contractor)
Longer, costlier tendering
process
Better collaboration Contractor inputs into
design and buildability
Can be time-consuming/
costly to replace Contractor
before second stage
May achieve quicker
programme and more cost
and time certainty on more
complex projects
Needs a more sophisticated
client
Client can withdraw from
process before accepting
second stage bid
Client may achieve lower
cost on more
straightforward projects
#olswangconstruction
www.constructiveblog.com

8. Construction Management
• Popular in the 1980s (Broadgate, Canary Wharf)
• Declined rapidly due to poor publicity (Holyrood, Great Eastern) and continued
rise of design and build
• Client appoints Construction Manager and professional consultants
• CM manages construction, consultants design. CM may manage some specialist
design
• Client appoints trade contractors which are administered by CM
• CM responsible for its services but not for design and construction of project
• Should we reconsider the role of construction management?
#olswangconstruction
www.constructiveblog.com

9. Construction Management
Structure
Developer
Direct Contracts
#olswangconstruction
Construction
Manager
Cost
Consultant
CDM Coordinator
Design
Consultant
Design
Consultant
Design
Consultant
Trade
Contractor
Trade
Contractor
Trade
Contractor
www.constructiveblog.com

10. Alternative 1: Design-Build
Client
Direct Contracts
Sub-Contracts
#olswangconstruction
Contractor
SubContractor
SubContractor
SubContractor
Contract
Administrator
Design
Consultant
Cost
Consultant
Design
Consultant
CDM Coordinator
Design
Consultant
www.constructiveblog.com

11. Alternative 2: Traditional
Contracting
Client
Direct Contracts
Sub-Contracts
#olswangconstruction
Contractor
SubContractor
Contract
Administrator
SubContractor
Cost
Consultant
CDM Coordinator
Design
Consultant
Design
Consultant
Design
Consultant
SubContractor
www.constructiveblog.com

12. Construction Management
Suitability
May be suitable
Less likely to be suitable
Complex projects where
Contractors charge heavy
premium for turnkey risk
Straightforward, lower value
projects
Clients with experienced,
hands-on development
teams
Inexperienced or underresourced clients
Construction start needed
before design completed
Financing needed from
lenders (no cost/time
certainty)
Flexibility to change design
required
Clients unwilling to trade
risk for cost-effectiveness
Strong collaboration
between Client and
Contractor
#olswangconstruction
www.constructiveblog.com

13. Construction Management –
Getting it right
• Choose the right project
• Select the right Construction Manager and appoint early
• Achieve as much cost certainty as possible before start on site
• Strong administration and record-keeping processes
• Providing sufficient Client management
• Invest time in relationships with construction team
• Tender trade packages with as much information as possible
#olswangconstruction
www.constructiveblog.com