Sonali Patel, associate, Berwin Leighton Paisner:
Traditional procurement has come under scrutiny recently and has acquired a poor reputation in some quarters. It is accused of being adversarial, inefficient and fragmented. It is even suggested that lawyers recommending a traditional procurement route may be negligent! Some would have us believe that the grass is greener elsewhere, but I am sceptical.
Simplistically, under a traditional procurement strategy, the main contractor takes single-point responsibility for construction under a lump sum contract, but the design risk remains with the client. In theory, the full design is prepared by the professional team prior to tenders being invited. In reality, much of the detailed design is carried out by sub-contractors, so the main contractor often takes partial design responsibility through a contractor’s designed portion.
Perceived problems with traditional procurement
Traditional procurement, particularly when used with lowest price tendering, has become associated with creating adversarial relationships and encouraging contractors to manufacture claims. This is potentially a risk, but not one that is unique to traditional contracting. In the economic downturn, very low lump sum “prices only” tenders are also being seen in design and build projects, which may ultimately invite a claims culture approach. The key is to employ a more robust tendering process based on a properly defined scope of work.
A lack of early contractor and supply chain involvement is also cited as a disadvantage of traditional procurement. It is argued that the opportunity for contractor innovation is limited because of engagement at a late stage and a reluctance on the part of the designers to accept alternative design solutions for which they are expected to take responsibility. Again, this can be a problem, but it is not insurmountable. Clients can adopt a two stage tendering process whereby contractors tender on the basis of a partially developed design (stage 1) and subsequently assist with developing the design and tender documents, against which tenders for the construction works are prepared (stage 2). In this way, tenders are more likely to establish a realistic price and completion date, and to mitigate the risk of claims being brought during the construction phase. Admittedly, two stage tendering is not as common as it once was. This may be because clients are able to obtain extremely competitive prices from single stage tendering at the moment, which tends to outweigh the perceived benefits of early contractor involvement.
Pitfalls of design and build
Traditional procurement is not perfect, but nor are the alternatives. I can understand the appeal for clients (and funders) of transferring both construction and design risk to a main contractor, but this often comes with a hefty price tag. For clients who don’t want to pay through the nose for a main contractor who takes full design and build responsibility, traditional contracting can provide another option.
More than that, traditional contracting can provide a better option where the client wants to retain design control because they are building a high-end, luxury product. For example, on a hotel project, the client can delay the design of certain interior elements to ensure they reflect the requirements of the selected hotel operator. Under a design and build route, there is always a risk that the contractor will not be incentivised (or rewarded) to provide anything other than the minimum quality required to meet the client’s brief.
The bespoke nature of building projects means that there is no place for a one-size-fits-all approach. Construction projects inherently carry risk and no procurement strategy will eliminate that risk entirely. Traditional contracting may not be perfect, but nor is it the social outcast it is sometimes made out to be. In any event, it is here to stay.