Contractual Options for Procuring Major Projects in the UK
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Transcript of Contractual Options for Procuring Major Projects in the UK
Contractual Options for Procuring Major Projects in the UK Thursday, 4 June 2015
Francis Ho, Head of Construction [email protected] | +44 20 7067 3505 | @fkyh
“INNOVATION, NEW TECHNOLOGY & PROCESSES IN CONSTRUCTION” A CONFERENCE PRESENTED BY:
THE CHARTERED INSTITUTE OF BUILDING | CONSTRUCTION MANAGER | OLSWANG
Where does the UK market stand?
• Market remains strong after buoyant 2014 despite recent
declines
• Private housing still strong, public housing performing well
• Industrial sector up 17% in output in 2014
• Commercial sector flat
• 21% of new contracts in April 2015 in London (25.9% by
value) - CPA Barbour ABI Index
• Skills shortage remains
www.constructiveblog.com Twitter: @fkyh
What’s next?
• Housing Market
• Housing Bill
• Starter Homes
• “Right to Buy” scheme
• Planning policies
• Cities and Local Government Devolution Bill
• Infrastructure projects/Northern Powerhouse/Crossrail 2
• EU Referendum
www.constructiveblog.com Twitter: @fkyh
How are major projects funded?
• Project finance or other loans
• Equity/investment
• Sovereign wealth
• Forward funding
• PF2/concession arrangements www.constructiveblog.com Twitter: @fkyh
An overheated market
• Have a clear development masterplan and procurement strategy
• Be flexible in dealing with unexpected project issues
• How many tenderers will you get? Major contractors busy
• Key trades in short supply, e.g. cladding, curtain walling, vertical transport
• Precedent documents – construction contracts, sub-contracts, supply agreements and
appointments
www.constructiveblog.com Twitter: @fkyh
An overheated market
• Consider realistic negotiating positions
• Consider overseas suppliers
• Framework agreements
• Two-stage tendering
www.constructiveblog.com Twitter: @fkyh
Framework Agreements
• 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
www.constructiveblog.com Twitter: @fkyh
Framework Agreements
www.constructiveblog.com Twitter: @fkyh
• 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:
Two-Stage Tendering
• Construction market heating up, especially in London
• Position for contractors healthier than any time since 2007 but wariness
of risky projects
• Greater demand means return to two-stage tendering
• Single stage tendering = lowest cost (lump sum or prime cost)
www.constructiveblog.com Twitter: @fkyh
Two-Stage Tendering
• 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
• At what stage do you appoint on a pre-construction services agreement?
www.constructiveblog.com Twitter: @fkyh
Two-Stage Tendering
www.constructiveblog.com Twitter: @fkyh
Advantages Disadvantages
Can de-risk project by
second stage (advantages
for both Client and
Contractor) including on
cost
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
Closing thoughts
• Frameworks and two-stage tendering are facts of life on major projects.
Use them sensibly
• Think ahead but also whether to hedge bets
• Employer can key sub-contractors early to deal with supply issues
• Remember that these arrangements are frequently complex and require
strong organisation
www.constructiveblog.com Twitter: @fkyh
Questions?