CONSTRUCTION PROCUREMENT AND CONTRACT

1.0

ICP 824

Introduction

Project management consultations are a method used in the construction industry to delivers
project or development from the start to finish. Its considered to be one type to procure or to
deliver a project till the end. It has been known as an effective way to deliver a project with less
involvement from the client.
Widely used as in other industry such as accounting , real estate and also research now it has
been considered as one of the best procurement method to be used depending on the
suitability.
The project management consultant ensures the project achieves the highest standard of
compliance in environmental, social, resettlement and other similar safeguard activities.

2.0

History

The first management consulting firm was Arthur D. Little founded by Arthur D.Little himself in
Boston Massachusetts. He was a MIT Professor which has founded the first project
management consulting firm in 1886. During his time his consulting work merely focuses on
stock exchange and became a general management consultancy. Until present time their firm
has expanded to cover more scope such as Risk Management, Financial Management,
Information Management and Operation Management. In 1900s the management consultancy
became larger triggered by the Glass-Steagall Banking Act in the 1930s. People are demanding
financial advised to cover their strategy and organisation.
During that period there are three major management consultancy firm in the industry, There are
Arhtur D.Little , Booz Allen Hamilton and James O. Mckinsey. The three has been established
during 1886 to 1926. Their business has expand throughout the globe and and also opened
their branches in Europe ,Asia and South America Later. Today, PMC has been a major project
delivery method to be used in the field of construction. A glamour choice to the client in order to
seek advised and strategized their development one example are. Seri Setia Sdn. Bhd. was
formed on 5th April 1996 and they have cover the scope of project management consultancy
and facilities management. Several construction companies in Malaysia also have adapted this
skill and technique to become a project management company. One Example are Kajima
(Malaysia) Sdn.Bhd . They have take on several projects as a project management consultant.

CONSTRUCTION PROCUREMENT AND CONTRACT

ICP 824

They tend to manage the development for the abroad clients which lack experiences in the local
network. In order to abundant such risk the client shall appoint a project management consultant
to take on the risk and the operation of the project from the start till the end.

3.0

Concept

Project Management Consultant (PMC) is an organisation appointed by the client to handle a

development or construction. These are their vital work scope. Where their main work are to coordinate between client, consultant and contractor to ensure the construction throughout the
construction period. They have direct connection to the client, consultant and contractor. In other
terms they took over the client roles and responsibility to co-ordinate between consultant and
contractor. They commence their work in the pre-stage of construction and post-stage of the
construction. Their commences their duty by selecting the compatible consultant in order to
design the development according to the client needs. They must obtain the preliminaries
estimate which are within the client budget and select the best design in accordance to the client
desire. Meaning the client has released their responsibility towards the project and the project
management consultant shall bear the responsibility. The idea by the client shall be carried into
reality.

In order to become a project management consultant, one must gain knowledge and knowledge
to make the best business and operation decisions. Examples of skill one must acquire are
managing budget towards resources and relationship to achieve the client objective.
Communication between one parties to the other are also a crucial skill in project management
consultancy. They must be able to define the consultant and contractor roles and function.
Project management consultant must obtained a problem solving skill to abolish any problem
occurs during the development period.Project management consultant must monitor and
analyse each data that came out during the development period in order to forecast any
upcoming problem and also be able to create contingencies plan manage the risk involved.
Client with lack of experiences in the industry demanding a management team which can
operate their project. Such client rely more towards the advised and the skill of the project
management consultant.

CONSTRUCTION PROCUREMENT AND CONTRACT

3.1

ICP 824

Project Procurement System Selection Criteria

Identifying the best method to be adopted is the crucial aspect in the construction industry as
each project is unique and carries its own characteristic that differs from others. Thus different
procurement systems are used for different projects and the correct choice may help to avoid
problems and be the key to the attainment of project specific goals set up by the client. The
selection of suitable procurement methods for the development of high-end condominium above
is influenced by several factors which stern from its internal and external environments which is
comprises as shown in the Table 1 below.
Factors

Criteria

Sub-criteria

Time

Quality of Works

Internal

Clients
Requirements

Price Certainty

Price Competition

Accountability/ Roles
& Responsibility

Flexibility in changes

Components
Short project duration 4 years
Completion within stipulated time
and budget
Sell-able points attracting
current trend of buyers
Expecting
high
quality
of
products meeting the need to
deliver high end condominium
with full facilities
High quality of workmanship
minimizing liabilities and cost
during DLP period
Best design through competition
Required for price certainty
before construction stage start.
Price offered meeting up with
fulfilling all requirement until
completion date
Expected good value of ROI &
minimizing loss
Expected for a fair and
transparency competition
Best price and value for money
Minimizing tier of communication
Clients input and idea to be
incorporated
Involved in all construction
phases
In term of fulfilling clients idea
and needs as well as market
trend
To have controlling power over
the design

CONSTRUCTION PROCUREMENT AND CONTRACT

Factors

Criteria

Sub-criteria

Experience & Ability

Administrative &
Financial Burden

Clients
Characteristics

Project size &

complexity
Project Type
Project Duration
Project Location

Value/Project Specific
Needs

Environmental
Conditions
External

Law &
Regulations
Technology

Market competition for

the project

Economic condition
and the fiscal policy
Regulations and the
environmental
guidance
Pulling factors

Components
Middle east developer with no
experience in local construction
industry
Required good project advisor
and high standard contractor
Financially stable
High margin of profit expected
open for changes in any stages if
provide high return
Remote control and monitoring
Medium scale
Specific technicality required
Two tower high-end residential
with full facilities
Property/residential development
Four years
KL Sentral, Kuala Lumpur
Among busiest business district
in Kuala Lumpur
Green technology rainwater
harvesting
system,
passive
design, energy efficient and
smart building
Islamic features courtyard
design, water elements, qiblat
orientation
Current market trends GBI
building
High end condominium buyers
International
customers

nd
Malaysia 2 Home Initiative
Visitor trend tourism sector
Local economic stable
Compliance to
regulatory
EIA no need
GBI

Figure 1: Internal and External Comparison

ICP 824

the

act

and

CONSTRUCTION PROCUREMENT AND CONTRACT

ICP 824

Multi-decisive factor model for construction procurement figure 1 were used to find best suitable
procurement method for this project. The selection phases are shown in the Figure 2 below.

Project Brief
Clients Requirements &
needs
Clients objectives
Clients characteristics
Factors related to clients
brief that will affect the
process of procurement
selection will be studied
and identified

Clients Brief

Internal factors : Clients

requirements [time, quality &
cost factors] , Clients
characteristics & Project
Characteristics

Identifying
Suitable
Procurement
Methods

Traditional Method
Design & Build Method
Construction Management
Method

Analyze the
identified factors
with the suitable
methods

Analyzing the advantages and

disadvantages of each suitable
procurement methods against
the identified factors

Selected procurement method

further analyze by studying it
strength, weaknesses, threats &
opportunities to eliminate any
foreseen un-circumstances

Project Selection
Criteria

Shown in Table 1

Identifying
Available
Procurement
Methods

Shown in Table 2

SWOT Analysis

Select the most

appropriate
procurement
method

Figure 2: Procurement Selection Diagram

CONSTRUCTION PROCUREMENT AND CONTRACT

ICP 824

Upon identifying and analyzing all the factors related that will affect the selection of procurement
method as stipulated in the table above, current existing procurement methods are identify as
shown in the Figure 3 below.

Figure 3: Procurement Method

From the above figure, three suitable procurement methods have been identified based of the
selection criteria as below:i.

Traditional Method

Figure 4: Traditional Method

Under this method, the responsibilities of designing and construction of the project are
separated and carried out by different independent organizations namely the
designers/consultants and contractor. This method also called linear or sequential contracting
system or multiple responsibilities contracting approach.

CONSTRUCTION PROCUREMENT AND CONTRACT

ii.

ICP 824

Design and Build Method

Figure 5: Design and Build

D&B integrates or combines the responsibilities of design which both responsibilities are
contracted out to a single contracting organization. This method also known as parallel or single
responsibility system whereby the client will only need to deal with a single organization for both
designing and constructing the proposed project.

iii.

Management Contracting Method.

Figure 6: Management Contracting Method

It is a system that gives greater emphasis on the management and integration of the design and
construction of projects. Under this method the management of the design and construction of a
project is contracted out to a contractor or project management company who acts as a
management consultant on behalf of the client. The construction itself is commissioned to many
specialist or sub-contractors who enter into contract with either the management contractor or
the client.
In order to select best suitable procurement methods, study and analysis on advantages and
disadvantages of the three identify methods are further clarify in this step. Advantages and
disadvantages of the three suitable procurement methods are analyze against the project
external and internal factors which highlighted in Table 1.

CONSTRUCTION PROCUREMENT AND CONTRACT

3.2

Procurement Method Analysis

3.2.1

Advantages

Factors

a.

Time

Project
Characteristics /
Clients
Requirements

To be completed
within 4 years
fast track/early
completion

Analysis in relation to the project

b.

Quality

High end
condominium
client expecting
high standard of
product and quality
workmanship

Analysis in relation to the project

ICP 824

Suitable Procurement Methods

Management
Contracting (MC)

Traditional (T)

Design & Build (D&B)

Longer project duration

more time during pretender/contract stage
allowing client and the
project
team
to
scrutinize and review
the
tender
documentation.

Fast track or build-it-fast

project delivery system
due to the integration
between design and
construction matters.
Allows the process of
detail
design
and
construction
to
run
almost in parallel and
concurrent to each other.
Reduce
construction
time by rationalizing
between the design,
construction process and
site activities/matters.

Speed
delivery
period as early start
of construction
preparation
of
simple
or
basic
tender document &
the shift of the
process
of
schematic & detail
design
to
construction phase.
Close
communication
&
partnering working
within the project
reduces defects &
accident rates thus
contribute to early
finish of the project.

Shorter project duration is required. Thus D&B and MC method best suit to
the project needs in comparison with T which more time has to be spent
during project inception and preparing tender documentation.
Client requires certain Better work performance Client has the ability
standard
to
be and quality as it allows to
control
&
achieved. Thus any contractor
to
be supervise the quality
variations (changes) to innovative & improve the as responsibility falls
the contract during the between design and within the appointed
construction stage are construction.
Management
relatively
easy
to High
quality
and Contractor.
arrange and manage.
workmanship based on A long-term working
Quality
is
pre- the contractors vast relationship provides
determined as client experience, knowledge a continuity of works
and consultant already and
competency
in that
allows
stipulated
expected construction.
contractors
to
specifications in tender
understand
the
documentation/BQ.
clients needs &
standards.

High quality of project delivery and workmanship are expected. All three
methods addressed the issue of meeting clients need in delivering high
quality and product workmanship. However, client has more control power

CONSTRUCTION PROCUREMENT AND CONTRACT

Factors

c.

Price
Certainty

Project
Characteristics /
Clients
Requirements

Required for a
project price
certainty before
construction work
commence

Analysis in relation to the project

d.

Price
Competitio
n

Required for a fair

and transparency
competition. Best
price and value for
money

Analysis in relation to the project

e.

Accountabi
lity/ Roles
&
Responsibi
lity

Minimizing tier of
communication.
Clients input and
idea to be
incorporated and to
be involved in all
project phases

Analysis in relation to the project

ICP 824

Suitable Procurement Methods

Traditional (T)

Design & Build (D&B)

Management
Contracting (MC)

in-term of assuring quality of works as compared to D&B where quality lies

solely on the contractors design, experience and expertise.
Price certainty will be Price certainty as the Price certainty will
known once tender contractor
propose not be achievable as
documentation
comprehensive project price is based on
submitted by tenderer.
proposal inclusive of management
project estimation for contractor
evaluation.
estimation
and
subsequently
awarding to subcontractor
by
package works.

Price certainty important as a point of determination on viability of the

project development which can be done through T and D&B method
especially in term of budget allocation and ROI.
Tender documents are Difficult to evaluate price Competition
open for bidding and as contractors submitting retained
in
thus
receiving their own project design contractors
competitive
tenders. proposal thus different selection based on
Tender price evaluated price quotation.
work
package.
in comparison with
However, selection
consultants BQ.
also based upon
relational
contractual.

Price competition practice clearly within T and D&B methods where both in
return provide client with best price and project proposal development.
However, in D&B method client has the opportunity to reduced price upon
negotiation and redesign/resubmission before project development agreed
by both parties.
Clear
cut
where Clear design & build. Success
factors
responsibility
for Parallel
or
single depend
on
the
designing
and responsibility
Management
construct carries by procurement
system Contractor
skills
different parties.
where
client/project where the pain/gain
owner only dealing with formula encourages
a single organization for supply chains to be
both
designing
& innovative
&
constructing.
improve
performance. Mainly
with client & wholly
in
Construction
Management.

All three method has clear and definite define of roles of each parties
involved. However, client requires for an easy handling project and
requested for accountability during construction to bear fully by contractor
as remote monitoring will be done and supervision by appointed project
advisor. Organizational concept for each methods shown in Figure 4,5 and
6 above.

CONSTRUCTION PROCUREMENT AND CONTRACT

f.

Risk avoidance with

desire to transfer
complete risk

Risk

Analysis in relation to the project

g. Flexibility
changes

in

In term of fulfilling
clients idea and
needs as well as
market trend and to
have
controlling
power
over
the
design

Any changes will Risk will be bear Any changes

be bear by the solely by awarded will be bear by
client
and contractor provided the client and
complete risk.
changes are not complete risk.
upon clients request
and instruction.

Risk avoidance can be applied only using D&B method

where absolute risks under contractors responsibility
providing those changes are not upon clients request and
instruction. Thus, client will be able to transfer the said risk.
Client
has Client
prepare Client
may
complete control project
statement modify
over design and and
brief
or changes from
construction field schematic
design. designing and
changes.
Contractor
is construction
responsible
for with additional
developing
the cost incurred.
design and proposal
submission to client
for agreement. Any
changes
during
construction
will
bring heavy cost.
Flexibility
in
contractors
advantages.

Analysis in relation to the project

h. Complexity

SUMMARY

All method offers flexibility in changes. However, changes

during construction implicate additional and heavy cost to
client. Thus, all client needs and requirements should be
fully incorporated during project inception stage and avoid
fully during construction period.

Medium
scale. Straight forward.
Specific technicality
required. Two tower
high-end residential
with full facilities

Analysis in relation to the project

ICP 824

Efficient integrated
design
and
construction in one
accountable
organization.

Efficient
&
collaborative
close
partnering
working within
the
project
supply chains
appointed.

Since the project is relatively medium scale with specific

requirement on technical aspects, thus an efficient project
delivery is essential. This best requires the involvement of
contractor in the design matter to ensure build-ability
aspect and corresponding with green technology as well as
Islamic features are well emphasized and incorporated.
Benefits COST +
Benefits TIME
Benefits COST +
TIME at the
+ QUALITY at
QUALITY at the
expense of
the expense
expense of TIME
QUALITY
of COST
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CONSTRUCTION PROCUREMENT AND CONTRACT

3.2.2

i.

ICP 824

Disadvantages

Traditional Method

Time Speed

Traditional method is not the fastest way to appoint the contractor as

adequate time is needed to prepare the tender documents and design of
the building. The architect and the engineer will need sufficient time to
design the clients requirements into a set of drawings. While the quantity
surveyor will do the measurement to convert the drawings into a bill of
quantities. The design stage and tender documentation will be step-bystep which requires duration of time. Tenders documents from an
incomplete design can be produced but can lead to less cost and time
certainty, and may lead to disputes during the construction stage.
Moreover, the construction cannot be commenced prior to the completion
of the design.

No
collaboration
between
parties

No input into the design or planning of the project by the contractor as

they are not appointed during the design stage. The contractor may
know whether the design is buildability or not as they are the key players
during the construction. He also knows how to reduce cost by applying
the right construction method which can help the client to reduce project
cost.

Claims of
Variation
Order

There will be claims for V.O as if there are changes made by the client
during the construction stage. Moreover, if the design team failed to
prepare a complete design and tender document, claim will be made by
the contractor.

Tender Price

Competitive tender will make the contractor wants to beat the tender
price with other contractors. This will make the contractor reduce all the
price which might affect the important prices in the BQ. This will make
unhealthy situation where the contractors want to have the lowest tender
price which have disrupt the price of risky item. Therefore, the lowest
tender bid sometimes cannot be the best choice among the others.

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CONSTRUCTION PROCUREMENT AND CONTRACT

ii.

ICP 824

Design & Build Method

Cost

Quality

Flexibility
Competition

Risk
Lack in
clients brief

Conflict of
interest

iii.

Higher cost price proposal submitted higher to allow for any uncertainties
by the contractor.
Tender price is the final contract sum not subject to change and
additional cost as all the financial risks are taken by the contractor.
Client/project owner has no direct control
Limitation in design and expertise by the selected tenderer/contractor.
Quality of work tends to be questionable the contractor tends to cut
corners to maximize profit as they are controlling the design matters and
construction aspects.
None.
Tender are open to only selected contractor based on experience,
knowledge, competency, financial and resources.
Difficult to compare price and design of each therefore hard to evaluate
competitiveness [2].
Wholly within the contractors domain [2].
The contractors bidding solely based on the clients prepared project brief
any lacking or not detail enough will be subjected to a lot of
interpretations and understanding which could make the whole exercise
futile and not in the best interest of the client.
Contractor provides the design and executes construction works based on
his proposal.
Client wants to instill his idea and needs despite the accepted proposal.

Management Contracting

Openness &
Trusts

Equality

Mindset &
capability

Commitment

An inherent distrust as it is not an easy task to establish real trust between

the clients, Management Contractor as ass the supply chain.
Any mismanagement due to behavioral issues will lead project
management disaster.
Pain/gain sharing mechanism are not always equitable & risks allocation
remains a contentious issue.
To change clients mindset & mentality on lowest bidding price produce
cheapest construction cost.
Lack of capable & competent partnering champions who are truly
empowered to ensure that partnering could be implemented efficiently.
All partner/parties required to be committed & building teams. Inactive or
disassociated partner will lead inefficient & ineffective project deliverables.

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CONSTRUCTION PROCUREMENT AND CONTRACT

3.3

ICP 824

Swot Analysis on Design and Build Method

Detail analysis has been done towards the three most suitable procurement methods for the
high-end residential project and it concluded that D&B is the best method to be adopted. D&B
method fully response to all the client needs and requirements as well as the project
characteristic thus providing client satisfaction and guaranteed in term of high quality project
delivery within the stipulated time and cost estimation.
3.3.1

Strength

The most outstanding strength of using design and build as the procurement method for this
project is that

4.0

Organisation Diagram

Client

Project Management
Consultant

Consultant

Contractor

Diagram 1: Organization Diagram

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CONSTRUCTION PROCUREMENT AND CONTRACT

ICP 824

The diagram represent the hierarchy the project management consultant where it has a direct
connection to the client . The contractor and the consultant didnt not have a direct connection to
the client.
The contractor and the consultant cant communicate directly towards the client. They need to
received their order and direction by the project management consultant.

5.0

Theoretically project.
Arab City Malacca

Arab city in Malacca are one of the development that use the concept of joint ventures as their
main medium of delivery. The client are an abroad developer who has set up a joint venture
development company in Malaysia to take on this development .This project located on 1.62
hectares reclaimed on Pulau Melaka. Arab City on Pulau Melaka is expected to be completed by
the end of next year and the one in Klebang in 2012
These total costs of the project are RM 250,000,000.00 and this project will have three major
locations:-Pulau Melaka, Klebang and Malacca River (KampungJawa). Its development includes
a complex that homes to 200 bazaars, 15 authentic Middle East restaurants and cafes, Arabic
health and beauty spas, and an ancient Egyptian museum.and the project are located at Pulau
Melaka.

Picture 1: Progress picture.

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CONSTRUCTION PROCUREMENT AND CONTRACT

ICP 824

The developer of this project are Golden Corporate Heritage Sdn.Bhd and the director are
Hesham Eldin Fath Mohamed Khalil .Golden Corporate Heritage Sdn.Bhd (GCH) has appointed
Chief Minister Incorporated (CMI) as a joint partner to take on this project. Where the cost of the
project shall be bear by Golden Corporate Heritage Sdn.Bhd. The management of construction
shall be take on by (CMI) the project management consultant of the project are the state
government of Malacca.
It almost seem as a joint venture company but Chief Minister Incorporated mostly act as a local
project management company to aid GCH in developing the project. GCH are a company which
specialize in oil and gas trading. They lack the experience as a developer.
In order to commence thus project they need to approach the project management concept.
They have established a relationship between the Malacca state government who also has
interest and benefit in this project.
The states of Malacca merely rely on tourism industry as their main source of economy. In order
to achieved that they must welcome any abroad investor to invest in their tourism industry. CMI
a subsidiaries company form by the state government that ventured from various state
governments in Malaysia.
In 2012 the project has been stop due to incompetency of the selected contractor. CMI has
failed to progress the work. Until today the project has been abundant. This is due to the lack of
responsibility taken by CMI as the joint ventures acting as the project developer.
For a complex project like Arab City, the client must know the best way to deliver the project.
Joint venture is a method widely used

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CONSTRUCTION PROCUREMENT AND CONTRACT

6.0

ICP 824

References

S.Ratnasabapathy and R.Rameezdeen, A Multiple Desicive Factor Modek For Construction

System Selection, India.
Rosli Abdul Rashid, Ismail Mat Taib, Wan Basiron Wan Ahmad, MdAsrulNasid, Wan Nordiana
Wan Ali &ZainabMohdZainordin (2006), Effect of Procurement Systems On The Performance of
Construction Project, Malaysia.
Assoc. Prof. Sr. Dr. Hj. Mohammad Fadhil Mohammad (2012), Lecture Notes : IP824
Construction Procurement and ContractsUiTM, Malaysia.
Ashworth A. (2001), Contractual Procedures in the Construction Industry, New Zealand.

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