Wednesday, August 17, 2011

Managing construction procurement:

Here are a few tips on successfully managing construction procurement and contracts.
1. Make sure that you hire the right Architect/Engineer or Engineer/Architect for the work and make sure they commit to a design team that you know will be successful. Having the right expertise for the type of construction you want built goes a long way towards success. Hiring someone that doesn’t or will learn at your expense always causes problems and adds to your cost.

Spend as much time as you can pre-qualifying contractors to make sure that
the Contractor, Contractors Office that will support the work and team that will be managing the work have both the experience and tools needed for the work. Offices in different locations can have different expertise and you want one that has the type of expertise you need.

See blogs on supplier qualification (August 8, 2011) and Supplier Surveys (August 12, 2011)

With both Contractors and Architects or Engineers the people you meet in the
interview you may never see again. Make sure that you identify and interview the actual team. If they or an individual on the team will be key to success, require your approval for any changes to the team. I always recommend that any internal individuals that need to work with the design team be part of that interview and that the design team be part of the contractor interviews. As a team they need to be able to work together.

See blog on interviewing (April 8, 2011)

4. Make sure that you have approval over all subcontractors and equipment
suppliers and weed out any bad apples. Just like any supply chain is only as strong as its weakest link, the same applies to construction. If you have one subcontractor not perform, it will interrupt the natural flow of the construction process as other subcontractors are dependent upon them to complete so they can commence their work. To manage against potential problem, prior to providing their bid you can have the potential contractors provide a list of subcontractors they want to use and advise them in advance if there are any that you object to and don't want bids from. Once it gets to the point where a party has actually bid on the work is when problems can arise. Subcontractors can claim that it was their bid that was used and they should get the work. If the contractor never invites them to bid or if they receive an unsolicited bid and they don't open it, that will usually eliminate the problem.

5. Use the right contracting approach for both the schedule you have and the
resources you have available to manage the activity and the risk you are prepared to assume. Each approach / strategy has different advantages and disadvantages. You can mix or switch strategies during the term of the project especially if you want to fast track a program. Each approach has different risks and management efforts required.

See the blog Contracting approaches (July 2, 2011)

6. Include terms in the contract to both drive the desired performance and have the tools you need to manage performance.

See blog on Managing Supplier Performance (February 25, 2011)

7.Have a good changes provision to deal with all the changes that will incur. As
changes in construction are more frequent the approach to changes is different. Unlike other forms of procurement where changes require mutual agreement between the parties, in construction both parties may request changes, but only the Buyer may order changes to occur. To do that you need a changes provision that identifies both the scope of the changes that you may order and a pre-agreed method to determine both the cost and schedule impact of those ordered changes. Cost is usually managed by a simple formula where the buyer agrees to reimburse the contractor that actual costs of the change (that the Supplier must prove) along with pre-agreed percentage contributions for overhead and profit. Changes will also address how deducts from the work will be calculated.For some work the Buyer may also have the supplier bid per unit costs for a variety of common items that could be changed which could also be used in calculating the cost of changes.

See blog on Changes also posted today.

Perform contract administration through out the work either directly or by using
3rd parties to ensure the contractors are performing to the specification. Don't rely only on the A/E or E/A as they may want to cover up their errors.

8. Maintain an excellent contract file with all documentation on amendments, changes to the drawings and specifications and when they were effective. Make sure a record copy of the drawings and specifications is being updated. Include all correspondence from your people, contractors, subcontractors, architects and third parties hired by you so you know at each point in time what the agreement was, and who did in preparation for potential claims / counterclaims.

See the blog Contract Administration / Contract Management (April 6, 2011)

If you need to fast track a program which happens frequently you can't do
things serially and may need to do advance procurement of long lead items and later assign those contracts to the Contractor. If you do, assign and novate those contracts to the contractor when they are hired.

See the blog on Assignment and Novation (April 11, 2011)

If you need enforce terms in the future primarily with a subcontractor, require
the Contractor to name you as a third party beneficiary in their contract with the

See the blog on Third Party Beneficiary (December 19, 2010)

11. Avoid interfering with the contractor / subcontractor relationship. Once the contract is in place the contractor should have total control over the subcontractors.

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