PROCUREMENT METHODS OR STRATEGIES

PROCUREMENT METHODS OR STRATEGIES

There are various procurement methods in use in construction for project delivery in Nigeria. Such strategies include Traditional, Design and Build, Project Management, Direct Labour and Labour-only.

According to (Ashwort and Hogg, 2007), different variants of procurement are available for meeting different clients’ needs and projects specifics. Researchers, however, often differ in these classifications of procurement methods. (Ramus, J., 1996), showed that classification commonly used, in practice, often combine the characteristics of two or more types.

Nonetheless, studies including (Seeley, I.H., 1997, Turner, A., 1997), classified construction procurement methods into two broad categories as: traditional procurement method, and non-conventional procurement method.

This study focuses on the following procurement methods used in Nigeria construction industry:

TRADITIONAL PROCUREMENT METHOD

Construction management literature has confirmed the dominancy of the Traditional procurement method for housing delivery. When this method is used by a client who desires a building or a facility he appoints consultants for design and cost control functions. These consultants assist the client to select a contractor who executes the project. The contractor works for a contract price. Importantly, design and construction responsibilities are separated and this results in drawbacks of Traditional procurement for which time and cost overruns and conflicts between parties are predominant. Traditional procurement types in use include sequential and accelerated methods (Ogunsanmi, et al, 2003).

Most projects in Nigeria, Great Britain, and other Commonwealth countries all over the World are procured using Traditional procurement. The main variants of traditional procurement method as identified by (Seeley, I.H., 1997) are:

1. Bills of firm quantities
2. Bills of approximate quantities
3. Drawings and specification
4. Schedule of rates
5. Cost reimbursement and
6. Labour only.

1. Bills Of Firm Quantities: A bill of quantities (BoQ) is a document prepared by a cost consultant that provides project-specific measured quantities of the items of work identified by the drawings and specifications in the tender documentation. The quantities may be measured in number, length, area, volume, weight or time. A bill of quantities is issued to tenderers for them to prepare a price for carrying out the works. The more precisely the work in a bill of quantities can be measured and described (ie the ‘firmer’ it is) the more accurate tenderers’ prices should be, the easier it will be to control costs and the fewer variations will be necessary. The process of identifying elements of construction works that can be measured and priced is known as ‘taking off’ (Seeley, I.H., 1997).

A firm bill of quantities can prepared when the design is complete, a detailed specification has been prepared and quantities can be accurately calculated. If there were no changes to the project requirements following the preparation of a firm bill of quantities, then the tenderer’s priced bill of quantities would be the same as the final cost of the contract. In practice of course there are always changes (Seeley, I.H., 1997).

2. Bills of approximate quantities: Bills of Approximate Quantities are an alternative form of Bills of Quantities and are prepared early in the design process before a firm design is available. The contractor is selected, normally by competition from a pre-selected or pre-qualified list. Contractors prepare their tender bid based on pricing a Bill of Approximate Quantities. This is essentially a traditional Bill of Quantities but with the quantities assessed from professional experience by the Quantity Surveyor or Engineer rather than firmly measured, as would be the case with Bills of Quantities (Seeley, I.H., 1997).

The advantages with the use of Bills of Approximate Quantities are:

1. Enables an earlier start on site to be made than with Traditional Bills of Quantities.
2. Allows early appointment of a contractor and access to experience in terms of his programming and buildability skills

• Can incorporate Design and Build and Performance Specified works if required

The disadvantages with the use of Bills of Approximate Quantities are:

Approximate Bills of Quantities do not establish a firm cost for the work at the time the contractor is appointed, thus there is less price certainty. This is because the actual cost of the works is calculated only when the design is available and detailed re-measurements have been made.

The client proceeds to the construction stage at greater risk, despite a check being made at the tender stage by means of bids being submitted by the tendering contractors.

3. Drawings and specification: Construction drawings are the main basis for defining   required   construction   activities   and   for measuring quantities of material. Accurate estimating requires a thorough examination of the drawings and specification.  Dimensions shown on drawings or computed figures shown from those drawings should be used in preference to those obtained by scaling distances.

The estimator must first study the specifications and then use them with the drawings when preparing quantity estimates.  The estimator should become thoroughly familiar with all the requirements stated in the specifications. Most estimators will have to read the specifications more than once to fix these requirements in their minds.

4. Schedule of rates: A schedule of rates in its lesser form in a standard contract can be a list of staff, types of labour and plant hire rates upon which a contractor has listed hourly rates for the purposes of pricing work carried out under cost reimbursable instructed daywork.

However on a much larger scale there is a Schedule of Rates Term Contract. Such a contract is normally used when the nature of work is known but cannot be quantified, or if continuity of programme cannot be determined. In the absence of an estimate, tenderers quote unit rates against a document that is intended to cover all likely activities that might form part of the works. Indicative quantities may or may not be given to tenderers but do not form part of the contract.

General preliminaries such as scaffolding, temporary power, supervision and temporary accommodation will also have its own rates. On projects longer than say 18 months there might be escalation provisions based on annual percentage increases based on a stipulated indices.

The advantages of Schedule of Rates Term Contracts

• Variations are easy to estimate and normally cheaper than on fixed price traditional contracts.
• The client can stop and start work at a pace that might be determined by cash flow or funding.
• A large pool of contractors can be asked to tender as the process is inexpensive and quick.
• It is infinitely flexible in relation to scope and contractual commitment.
• As a fully detailed design is not required the client can obtain tenders at the early stages of a project and begin construction activity before completion of the design. So to this extent it is ‘fast track’.

The disadvantages of Schedule of Rates Term Contracts

• Additional resources are required to measure work and certifying
• The client does not have a final price when committing to starting work.
• It is difficult for contractors to plan long-term resources and so might mean changes to personnel with loss of continuity.
• Contractors may be tempted to load front end costs in case later work does not materialise.
• There is no real incentive for contractors to treat such work with any sense of urgency and its best staff will be placed on the projects where the contractor is carrying more risk.

The tender documents will be a substantial package looking like a Bill of Quantities with numerous options and discount opportunities based on quantity.

5. Cost Reimbursement: a cost reimbursement contract, is a contract where a contractor is paid for all of its allowed expenses to a set limit plus additional payment to allow for a profit.^[1] Cost-reimbursement contracts contrast with fixed-price contract, in which the contractor is paid a negotiated amount regardless of incurred expenses.

A cost-reimbursement contract is appropriate when it is desirable to shift some risk of successful contract performance from the contractor to the buyer. It is most commonly used when the item purchased cannot be explicitly defined, as in research and development, or in cases where there is not enough data to accurately estimate the final cost.

Advantages of Cost Reimbursement

• A cost-plus contract is often used when long-term quality is a much higher concern than cost, (Ramus, J., 1996) such as in the United States space program.
• Final cost may be less than a fixed price contract because contractors do not have to inflate the price to cover their risk. (Ramus, J., 1996).

Disadvantages of Cost Reimbursement

• There is limited certainty as to what the final cost will be.
• Requires additional oversight and administration to ensure that only permissible costs are paid and that the contractor is exercising adequate overall cost controls.
• Properly designing award or incentive fees also requires additional oversight and administration.
• There is less incentive to be efficient compared to a fixed-price contract.

6. Labour-Only Procurement Method: In Nigeria because of the recent downturn in the economy of the country most practitioners prefer to use Labour-only method for project delivery than Traditional method that has stood the test of time. This method has found more patronage not only in Nigeria but also in some sub-Saharan countries of Uganda, Zimbabwe, Botswana, Kenya and South Africa where the method has been used for delivering several community based projects. Studies of Ogunsanmi, Iyagba and Omirin, (2003); Babatunde, Opawole and Ujaddugbe, (2010); Samatania Consult Limited, (2012); and Dada (2012) all confirm the use of this method in Nigeria.