Procurement Strategy 採購策略

Procurement Strategy 採購策略 KCTang

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19/2/2023: Revised.

20/12/2014: Moved from wiki.



  • Quantity Surveyors need to have knowledge to advise on the procurement strategy and contractual arrangement.

(added, 19/2/2023)

Why contract out? Why call for tenders?

  1. Find someone to do it for you.
  2. Someone:
    • More capable
    • Statutorily qualified
    • Less costly.
  3. Accountability in case of joint venture.

When to decide?

  • As early as when the first project programme is developed.

Which types of contractual arrangement?

  • Traditional or special?

Choices of contract types based on

Contract scope

  1. Design.
  2. Build.
  3. Design and build:
    • 優點:
      • 工程太簡單不必請建築或工程師。
      • 取得承包方特有而一般的建築或工程師沒有的特殊設計優點。
      • 取得承包方特有的建造方法或產品。
      • 設計及施工時間可重疊,相應縮短了工期。
      • 總的來說可省一些設計費。
      • 由承包方單一負責,而減少多方參與責任不清的程度。有時這個好處被視為最大優點,使到根本不存在上述2及3點的工程都採用。
      • 總造價較有保証。
      • 可規定成品能滿足意向功能,此乃高於一般只需行使合理技能的標準。
      • 在全包的情況下,承包方的索賠機會較少。
    • 缺點:
      • 發包方的要求寫得太死,承包方沒有自由設計的空間。
      • 發包方的要求寫得太鬆,不能表達到預期的成果,或有空間給承包方索賠。
      • 發包方不能隨意改動要求。
      • 發包方對設計的改動要求,是屬於原要求範圍內還是超出範圍,往往會有爭議。
      • 真的超出範圍而需計算增加費用時,因可能要與一個尚未設計好便改動了的方案比較,難度比較大。減內容亦有類似的問題。
      • 鑑於總造價是基本封頂的,發包方會傾向在具體設計時增加內容及取最高的標準,令承包方吃虧。
      • 鑑於總造價是基本封頂的,承包方會傾向在具體設計時盡量省料及取最低的標準,令發包方吃虧。
      • 雙方合作不愉快時,爭議反為多了。
  4. Design, build and operate.
  5. Management contracting.
  6. Construction manager.

Pricing basis

  1. Based on firm bills of quantities, with reference to drawings and specification.
  2. Based on provisional bills of quantities, with reference to drawings and specification.
  3. Based on drawings and specification, without bills of quantities.
  4. Based on pre-priced schedule of rates, competing on adjustment percentage.

Pricing nature

  1. Lump sum total, with unit rates.
  2. Rates only, without total.
  3. Percentage.

Degree of risks

  1. Fixed price.
  2. Price with fluctuation.
  3. Cost plus fee (lump sum fee, fixed percentage fee, scaled percentage fee, sharing).
  4. Ceiling price / guaranteed maximum price.

Funding arrangement

  1. All funded by the employer.
  2. Private finance initiative – public-private partnerships.

Contract relationship diagrams


How to package contracts?

  1. Optimum balance between the time required to complete every design and the time required to construct.
  2. Optimum balance between single line responsibility and more control over choosing sub-contractors and suppliers.
  3. Specialist works by specialist contractors/sub-contractors.
  4. Responsibility for delivery time and wastage to be watched out if nominated supply contracts are used.

Usual contract packaging

  1. Site Survey Contract.
  2. Ground Investigation Contract.
  3. Demolition Contract.
  4. Piling Contract.
  5. Main Contract.
  6. Sub-Contract.
  7. Supply Contract.
  8. Other Direct Contracts.

Which form of contract?

  1. Private or public?
  2. Domestic or international?
  3. Standard form or specially drafted?
  4. Old or new versions?
  5. With how much amendments?
  6. How harsh?
  7. See Form of Contract.

Risks sharing

  1. Soil conditions.
  2. Underground obstructions.
  3. Phased possession of site and completion.
  4. Time for completion.
  5. Liquidated damages.
  6. Grounds for extension of time.
  7. Grounds for monetary claims.
  8. Insurances and bonds.
  9. Defects liability period / defects rectification period.
  10. Payment terms.

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Guaranteed Maximum Price 封頂價

Guaranteed Maximum Price 封頂價 KCTang

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20 Dec 2014: Moved from wiki.

  1. What does “guaranteed maximum price” mean?

    • It means the maximum price payable to the Contract after completion of the Works and defects rectification.
  2. Who is to bear when the final price is more than the guaranteed maximum price?
    • The Contractor.
    • From the Contractor’s point of view, Individual cost overruns must be allowed to be balanced by individual cost savings.
  3. Who is to gain when the final price is more than the guaranteed maximum price?
    • The Employer. The Contractor may have a share.
  4. Why a guaranteed maximum price is required?
    • The Employer wants certainty in budgetary control.
  5. When would a guaranteed maximum price arrangement be feasible?
    • The design is not fixed yet such that the Contractor can design to within the guaranteed maximum price
    • The design is complete but the Contractor can provide better alternatives.
  6. What kinds of employers would prefer a guaranteed maximum price contract?
    • Non-professional developers and owners.
    • Those who want certainty in budgetary control.
    • Those who want to seek excellence in design and construction management.
  7. What types of contractors are qualified for a guaranteed maximum price contract?
    • Those who have design expertise.
    • Those who have site management team understanding the risks of guaranteed maximum price contract.
  8. Why are guaranteed maximum price contracts used more in the United States?
    • The Contractor is on-board upon the inception of early design stage.
    • The Contractor is responsible for the design or the development of design.
    • The Architect only provides schematic design or design intent.
  9. When can the guaranteed maximum price be varied?
  10. What should constitute a Variation?
    • “A material change in the nature, type, quality or quantity of any goods, materials or workmanship specified in the GMP Works Contract. A change to any work including advance preparation and procurement works which has been commenced or completed at the time the variation is issued. A change to any specified sequence, timing (including acceleration measures) or method of construction. Every case excludes Design Development” ???
  11. What is design development?
    • Development of the brief or design intent into working details for construction.
    • “Any development or progress of the design of the Works from the state of the design set out in the Contract towards finalization in a form suitable for construction and includes the clarification, elaboration, supplementing and/or augmenting of any method statement, drawing, specification or any other document or thing pertaining to such design.” ???
  12. What is design development instruction?
    • “Any Instruction issued by the Management Contractor to the GMP Works Contractor in relation to Design Development including the provision of drawings, details, or information necessary for the GMP Works Contractor to carry out and complete the Works which instruction shall not initiate an adjustment to the GMWP and shall not constitute a Variation.” ???
    • “The Design Development process shall not include the introduction of Variations as defined, such Variations shall only be ordered by GMWP Instructions.” ???
  13. How should the Contractor tender and price for guaranteed maximum price contracts?
    • Make sure that there is room for cost saving from the tendered design.
  14. How can the Contractor survive after tender award?
    • Make sure that there is room for cost saving from the tendered design.
  15. Why is design development important to the Contractor?
    • Put the design under the Contractor’s control to ensure that the final design, materials, workmanship and method would not exceed the guaranteed maximum price.
  16. Should the Contractor want for the design details to be provided by the Architect?
    • No, the chances are the Architect will want to perfect and upgrade the design such that the costs will become higher.
  17. How should the difference between a prime cost sum and its initial awarded sum or its final expenditure be treated?
  18. How should the guaranteed maximum price be adjusted for direct loss and/or expense, liquidated damages, acceleration, costs of defects rectification, and the Contractor’s alternative design proposals, provisional quantities, p.c. rates?

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Demarcation between Costs and Fee

Demarcation between Costs and Fee KCTang

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22 Aug 2005

For cost plus contracts, arguments can easily arise as to whether an expenditure should be treated as part of the reimbursable costs or part of the fees. Essentially those items which can be carried out by the head office of the Contractor rather than on site may be regarded as part of the office overheads and therefore as part of the fee rather than costs. Contractors would try to argue in reverse. Items which need careful descriptions in the cost plus contracts to avoid arguments include:

  1. Types and extent of design responsibilities.

  2. Types and number of head office supervisory, technical and clerical staff to be employed and deemed to be part of the fee.

  3. Types and number of supervisory, technical and clerical staff to be specifically provided for the Contract and chargeable as costs.

  4. Expenses in connection with sub-letting which can be done by the tendering and purchasing department of the Contractor at the head office or alternatively by a dedicated team, such as sourcing tenderers, preparing tender documents, inviting tenders, analysing tenders, preparing contracts.

  5. Types and extent of attendance of head office administrative nature rather than physical work upon sub-contractors and suppliers.

  6. Effects of fluctuations in the costs of labour, materials or plant, exchange rates of currencies, or Government taxes, fees and charges.

  7. Interests on money, finance charges, patent right and royalty.

  8. Entertainment expenses for customers and visitors, customary mid-year and year end gift expenses, expenses in connection with ceremonies at commencement of works, completion of works or part thereof, celebration and obituary offering expenses.

  9. Types and extent of taxes, fees or charges.

  10. Costs in connection with the obtaining of permits, approvals, consents from Government, local authorities and statutory undertakers.

  11. Import duties, custom clearance, administrative handling charges.

  12. Types and extent of usual preliminaries to be deemed to be part of the fee.

  13. Extent of Contractor's site office expenses including costs of stationery, paper, accounts, printing, fuels, office equipment.

  14. Site transportation vehicles including fuel charges, insurances and license fees.

  15. Extent of Contractor's communication expenses such as postal charges, telex, telegram, long distance calls, etc.

  16. Contra-charges imposed by the Builder for loading and unloading of materials, use of lifts and hoists, removal of rubbish, use of water and electricity, damage by one trade upon the other

  17. Acceleration and overtime to catch up programmes.

  18. Preparation of periodic reports and programmes.

  19. Taking of progress photographs.

  20. Provision of portable safety measures, first-aid kits.

  21. Accidental damage to utilities, roads and footpaths.

  22. Types and extent of protection, cleaning, rubbish removal and maintenance work during construction.

  23. Watchmen.

  24. Setting out team and responsibility.

  25. Types and extent of insurances. Deductibles under insurance policies.

  26. Types and extent of common plant, tools, etc.

  27. Extent of scaffolding, working platform at high levels, temporary supports, etc.

  28. Extent of hoardings, screens, protective covering to be provided.

  29. Establishment, operation and removal of storage sheds, workshops, offices, latrines.

  30. Off-site storage.

  31. Use of telephone, water and electricity. Provision of temporary plumbing, electrical installation, etc.

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