The Most Common Form Of Procurement

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02 Nov 2017

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1.0 Introduction

For a project. Client(PETROXIMAX OIL COMPANY)always searching a reputable contractor that completes the building within agreed cost, time and quality. To start a project Client(PETROXIMAX OIL COMPANY) will choose the most suitable procurement method. There are three choices of procurement method. These divide to traditional and non-traditional method, non-traditional include two methods. They are design and build and turnkey. After that, the Client(PETROXIMAX OIL COMPANY) will select the best contractor base on tender process. There are three technologies provided to choose also. These are open tender, selective tender and negotiation tender. Client(PETROXIMAX OIL COMPANY)will choose the most suitable one of tender method base on real situation. After that, Client(PETROXIMAX OIL COMPANY)will select a better form of contract for this project from PAM and PWD.

2.0 Background of project

Employer&basic project information : Client(PETROXIMAX OIL COMPANY)wants to build a NEW COMMUNITY CENTRE for a fishing village. A three storey building with elevator.

Project type: private

Location: Near Bangting, Selangor.

Completed date: This subject should be completed before April 2014.

3.0 Facilities

Because PETROXIMAX OIL COMPANY aim to encourage teenagers and relevant partis in meaningful activities. They decided to act the community centre as a development and growth centre. Consequence facilities should be promote self-program base on recreation activities. Of cause, in this project this huge building every floor has different even particular functions.

Sport& security office banquet hall:

For ground floor, not only can provide sport and recreation in usual time but also can be easily converted to a banquet hall when necessary. And also security office should be linked to this facility. However, strictly entrance regulations are necessary. Cannot entrance without access card. And below 12 years old children must be accompanied with adult members.

Gym:

The first floor will be serious nice gym facility for adults with well equipment.

Opening library:

At top floor is a special hall- A opening library. Opening means accept any age group guys and wish use this way to promote knowledge and communicate reading experience.

Parking facility: promise enough parking facilities without compromise children safety, pedestrians and motorists.

Anyway, means this building will be clearly area separate by function and use. And PETROXIMAX OIL COMPANY wants to provide useful lessons to women during selected hours. PETROXIMAX OIL COMPANY serious tries to make a meaningful centre or not a just centre.

4.0 parties

Employer:

Pays architect for design.

Pay main contractor work.

Architect:

prepare design for employer.

Get approval from local authority.

Communicate with main contractor and employer.

Minor work for employer.

Issue instruction.

Main contractor:

Complete building for employer.

Pay sub work for domestic sub-contractors, domestic sub supplies, nominated sub-contractor, and nominated supplies.

Comply architects’ instruction.

Communicate with sub supplies.

Main contractor makes claim for work.

Domestic sub-contractor:

Complete work for main contractor.

Make claim from main contractor.

Nominated sub-contractor:

Complete work for main contractor.

Make claim from main contractor.

Domestic supplies:

Supply to main contractor.

Make claim from contractor.

Nominated supplies:

Supply to main contractor.

Make claim from contractor.

Design team:

Provide design for employer. (architect doesn’t prepare design for employer)

Tender

Before we start a project, we must choose a reputable contractor to complete the project, so how to choose a suitable contractor is very important. Thus we will use tendering technology to choose which one is the best for the project.

5.1 Open tendering

An open tendering process is an invitation to tender by public advertisement. There are no restrictions placed on who can submit a tender, however, suppliers are required to submit all required information and are evaluated against the stated selection criteria.

Advertised in newspaper- open to all register Print

100 tender documents

Sell with minimum price

Prepare long time

Cheap

Transparent

5.2 Select tendering

A select tender is only open to a select number of suppliers. The suppliers may be a short list sourced from an open tender or be a compilation of businesses that the organisation has worked with previously.

Usually 6-7 tenders invited

Based on previous record

6-7 tender documents

Suit for infrastructure project

5.3 Negotiated Tender

under this method normally one contractor is approached and such tender mainly used for specialist work such as lift system or airport project at big level, in such case there are limited number of contractor who do such work in the market .it is based on one-to-one discussion with contractors to negotiated the terms of contract

only one tender(the most suitable one)

specific project time, quality, and site

reliable and fast

high cost

conclusion

Because we have strict requirement about time and quality. The contractor must complete the project on time with good quality. And one to one communicate is good for project. So we decided use negotiation tendering for the project.

6.0 Procurement method

The term 'procurement method' is used to describe the often complex network of relationships which are formed between clients, consultants and construction companies, to enable a building project to be realised. It is important to distinguish the contractual relationships from managerial links, and in complex modern procurement systems this is sometimes far from easy.

In some instances the procurement method will have already been decided before an architect is appointed, either as the result of company or authority laid down policy, or because circumstances or constraints leave very limited options, or because the choice has already been made by the client advised by a lead consultant who is not the Architect.

Which procurement method is likely to prove the most appropriate in a given situation will depend upon the nature and scope of the work proposed, how the risks are to be apportioned, how and where responsibility for design is to be placed, how the work is to be coordinated, and on what price basis the contract is to be awarded. An important point to remember is that the choice of form (or forms) of contract cannot usually be settled until the procurement method and the type of contract have been established.

6.1 Traditional (figure 1.0)

Traditional method means contractor just complete the construction work without design work. And more slowly than other two methods, but is the cheapest. In the traditional approach, the client accepts that consultants are appointed for design, cost control, and contract administration, and that the contractor is responsible for carrying out the Works. The responsibility of the latter extends to all workmanship and materials, including work by sub-contractors and suppliers. The traditional method, but using two stage tendering or negotiated tendering, is sometimes referred to as the 'Accelerated Traditional Method'. By this variant, design and construction can run in parallel to a limited extent. Whilst this allows an early start on site, it also entails less certainty about cost.

Traditional procurement is still the most common form of procurement for small and medium size projects. The client, either the LEA or school, will normally commission consultants to prepare designs and specifications for works that are then constructed by a contractor engaged separately. The contractor is likely to engage sub-contractors for actual construction on site. Traditionally, the contractor offering the lowest bid for the work would be awarded the contract. Once the building contract is finished, the consultants and contractor have limited long-term responsibility for the subsequent performance of the building. Disadvantages of this method include: difficulty in utilising at the most appropriate time the full range of skills and experience of those involved; a focus on initial rather than lifetime costs; a potentially adversarial contractual relationship with greater risk of cost and time overruns.

Architect

NS

DS

NSC

DSC

Main contractor

Supplies

Sub-contractor

Employer

app:trans:AUTO

Contractual line

Communicate line

Figure 1.0

6.2 Design and build (figure 2.0)

Design and build method is faster than traditional method and responsible to provide design to employer. The cost also will be higher than traditional method. Its usually use for infrastructure project. Like (road, bridge, airport, court…) the contractor is responsible to a greater or lesser extent for design, as well as for carrying out the work and may appoint its own consultants. The arrangement may be for total design and construction, or for design development and production information based on scheme design supplied by the client's consultants. Where a design and build agreement is negotiated with just one contractor, it is sometimes referred to as 'Single Direct Design and Build'. It tends to take slightly longer, but it usually results in a more developed design and greater certainty of cost and timing

There are many variants on design and build contracts and in many instances initial design work will be undertaken by the client before transfer to the design and build contractor. Thereafter the contractor takes single-point responsibility for the design and construction. The contractor usually employs consultants for the design element and sub-contractors for the actual construction work. This form of procurement has particular application to fairly simple or standardised buildings, for example, sports halls. It may be possible for the Design and Build option to be extended to cover maintenance and operation of the facility. This offers the opportunity for adopting innovative solutions that provide greater value for money when considering lifetime costs.

Employer

Architect

Design team

Main contractor

Sub-contractor

Supplies

DSC

NS

NSC

DS

Contractual line

Figure 2.0 Communicate line

6.3 Turnkey (figure 3.0)

Firstly the turnkey procurement is the best choice for this project. In turnkey contract, the contractor is entrusted to design, construct, commission & handover the project to the employer. The employer will make the lump-sum payment to the contractor at the different stages of work as per the agreement. This type of contract is useful when the work has to be completed at a very short period. Here whole risk is borne by the contractor. The contractor will complete anything. Achieve employer can entrance build and use the facilities directly.

This type of arrangement is commonly used for construction projects ranging from single buildings to large-scale developments. Under a traditional lump-sum contract, the owner agrees to pay the developer to complete a project that is built to the owner's specifications. The owner is given many opportunities to make decisions throughout the project, and to make changes as needed. In a turnkey contract, the owner is generally left out of the building process entirely as the developer handles all decisions and problems related to construction.

A turnkey contract may also be used in the residential home building industry. With a turnkey agreement, a builder or developer completes both the construction and the finishes in the home before turning it over to the homeowner. The homeowner is often offered a chance to select finishes, including curtains, paint colours and carpeting.

Turnkey contracts offer many advantages over traditional building contracts. Because the developer still owns the building until the project is complete, he has financial motivation to complete the job as quickly and efficiently as possible. A turnkey contract also provides more time for an owner to seek financing and investors before he is required to pay for a completed project. These agreements also save inexperienced owners from making difficult construction decisions, leaving these decisions in the hands of the developer or builder.

Before choosing a turnkey contract for your project, it's important to understand the potential drawbacks of this type of agreement. The primary drawback is the lack of control the owner maintains over design and construction decisions. For some owners, this may mean the project is not perfectly suited to their needs once it is complete. For others, this drawback may be cancelled out by the potential for cost savings and shorter construction schedules.

Some owners may choose a turnkey-plus contract, which leaves the developer with some financial long-term interest in the project. For example, a builder will construct a retail establishment for an owner, and the builder will receive a percentage of the gross receipts for a specific period of time. This may encourage the builder or developer to make construction decisions based on the long-term needs of the project, rather than just the short-term decisions needed to get the job done.

Employer

Architect

Design team

Main contractor

Sub-contractor

Supplies

DSC

NS

NSC

DS

Contractual line

Communicate line

Figure 3.0

Conclusion

From above information, we can get that procurement of method divide to types, traditional and non-traditional. Traditional always the turnkey is the best choice for this project. The traditional usually use for small project or house project. Non-traditional method has two type of method. Design and build method and turnkey method, design and build method mostly for infrastructure project. For this project because of time, quality, numerous facilities and the massive project. The turnkey is the best way to the complete project.

7.0 Standard form of contract

A successful standard form of building contract would also lend itself to regulate the day-to-day relationship on site and provide a clear and definitive understanding to the parties, professionals and site personnel of their roles and responsibilities. Users and practitioners must be familiar with the particular standard form of building contract being used. It would therefore be useful in expressing the obligations of the parties and setting out with reasonable clarity the scope of the project. It is based on the perceived good sense of providing for the problems which experience has taught in the course of construction contracts. Precision in the drafting of a contract is critical to the avoidance of disputes

A standard-form contract is otherwise known as standardized contract. Standard-form contract is usually a pre-printed contract containing set clauses. Such contract is mostly used by a business or within a particular industry by making slight additions or modifications in order to meet the specific situation. Since a standard-form contract favors the drafting party, they can amount to adhesion contracts. Unforeseeable contingencies affecting performance, such as strikes, fire, and transportation difficulties can be taken care of with the help of standard-form contract.

There are four types of standard form of building contracts that are utilised in Malaysia which vary widely. Firstly, it is those prepared under the auspices of Malaysian institutions or industry groups such as the Pertubuhan Akitek Malaysia (‘PAM’), Institution of Engineers Malaysia (‘IEM’), Construction Industry Development Board (‘CIDB’) and Palm Oil Refiners Association of Malaysia (‘PORAM’). Secondly, it is those written or commissioned by a government public sector like the Jabatan Kerja Raya (‘JKR’) which is used in relation to public work. Thirdly, it is those drawn up by major employers like Putrajaya, TNB and Petronas for their own specialist need and use. Finally, it is those drawn up by international or foreign institutions like the Federation Intenationale des Ingenieurs Conseils (‘FIDIC’) and the Institution of Civil Engineers (‘ICE’), United Kingdom for use in other jurisdictions. This group of standard forms may be relevant in the Malaysian context if one or more of their clauses are borrowed to be included in an ad hoc contract, or if a Malaysian contractor tenders on a project elsewhere for example, in the Middle East or in India.

The PAM standard form of building contract falls into the first category of ‘institutional originated’. They are used extensively in the Malaysian building industry and are generally considered as the de facto Malaysian Standard Form of Building Contract. It is estimated that 90 per cent of the building contracts in the private sector are based on the PAM form. Many of the clauses in the earlier PAM standard form of building contract have their origin in the corresponding United Kingdom forms, some being identical. There seems, however, in recent times for the forms to diverge, no doubt because of increasing differences between the conditions prevailing in Malaysia.

Conclusion (fallow figure 4.0)

For this project. Because it’s a private project belong to Oil Company. The project is a community centre building where construct in Malaysia. From above information that the project is a private local building, so we can got that the PAM form is the best choice for the project.

New community centre

Malaysia

Petrolximax oil company(private)

PAM 2006

Agreed quality, cost, time

Turnkey procurement method

Fishing village

Figure 4.0

8.0 Conclusion and recommendation

Our report stopped here. From this report we can include we can distinguish that the project is a private project (NEW COMMUNITY CENTRE) belong to client (PETROXIMAX OIL COMPANY) firstly, NEW COMMUNITY CENTRE is a compositive facilities centre which include vehicle parking, entertainment, sport, study by interesting, gym, library, banquet hall even within qualitative security. And then we can get the project construct in Malaysia. According to these information we can continue our process. Usually client will choose a good contractor by tendering process. For this project, we consider from fix complete time and specific project so decided apply negotiation tendering method, it provide best quality and guaranteed complete time. And also we chose turnkey procurement method from three types of procurement method. We chose it just because the project specificity. The contractor will complete all of works for the project, include install chairs, table, light, gym equipment ect.. Any facilities needed provide in the project. To achieve client (PETROXIMAX OIL COMPANY) can save time and use the building directly. At last we used PAM standard contract form from lots of forms. All depend on the project’s situation and legislation elements.

Recommendations for this project are all of procedures of construction should be fair and legal. And the contractor should guarantee the agreed quality, cost, and time of the project. Whatever should offer the best work to client (PETROXIMAX OIL COMPANY). Of cause the client (PETROXIMAX OIL COMPANY) also need to pay the progress fee to the contractor.

The PAM 2006 Standard Form of Building Contract — A Change in Risk Allocation



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