Procurement and Contract Strategy in Malaysia

introduction to different procurement and contract strategy in malaysia construction industry

1. making the difference
By Sr Sing Ling LIM
May 2024
1
Procurement and Contract
Strategy

2. Turner & Townsend
What is procurement?
2Procurement & Contract Strategy
Procurement Strategy is…..
A strategic approach to managing
contracts with suppliers/vendors to
maximize value and minimize risk.
“
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3. Turner & Townsend
Factors Influencing Procurement
Strategy
1.External factors
(Economic, commercial, technological,
political, social and legal factors)
2.Client resources
(experienced staff to monitor, or
sufficient staffs to look into different
aspects)
3.Project characteristics
(size, complexity, location and
uniqueness)
4.Ability to make changes
5.Cost Issues
(requirement for price certainty)
6.Timing
Procurement & Contract Strategy 3
Attitude
Towards
Risk

4. Turner & Townsend
Different Types of Procurement Routes
Procurement & Contract Strategy 4
Traditional Method
Management Contracting
Construction Management
Design and Build
Public-Private Partnership (PPP)

5. Turner & Townsend
1. Traditional Procurement
Procurement & Contract Strategy 5
•The design process is separate from construction;
•Requires full documentation before tendering;
•Contractor is appointed by competitive tendering;
•The client has control over design, no design responsibility on the contractor;
•The duration of the project tends to be very long because of the separate sequential process of
design and construction;
•The construction cost is well known ahead of time.
Client
Main
Contractor
Subcon NSC
Quantity
Surveyor
Design
Team
Project
Manager

6. Turner & Townsend
1. Traditional Procurement (cont’d)
Procurement & Contract Strategy 6
CM’s key roles in this procurement method:
CM’s key skills & competencies in this procurement method:
•Prepare the Bill of Quantities
•Evaluating tenders
•Advising on contractual issues
•Monitor project cost
•Manage variations during the construction phase
•Accuracy and attention to detail in measuring and estimating quantities and costs
•Knowledge of standard methods of measurement
•Knowledge of forms of contract
•Communication and negotiation skills to liaise with the client, design team, contractor and
subcontractors and resolve any disputes or claims
•Analytical and problem-solving skills to monitor and control budget, cash flow, changes in scope,
identify risks or opportunities and mitigate them

7. Turner & Townsend
1. Traditional Procurement (cont’d)
•Competitive tendering, all
contractors bid on the same basis
•Client has direct control over design
•Price certainty at the award of the
contract
•Variations to the contract are
relatively easy to manage
•A tried and test method of
procurement which the market is
very familiar with
•Can be lengthy process to produce
full contract documentation
•Overall project duration may be
longer as the process is sequential
•No input into the design or planning
of the project by the contractor
during design stage
Procurement & Contract Strategy 7
Advantages Disadvantages

8. Turner & Townsend
2. Design and Construct
Procurement & Contract Strategy 8
•The contractor is responsible for both design and construction in return for a lump sum price;
•Initial concept prepared by Client’s consultant to certain level, contractor continue to develop, a
team of consultants will be needed to assess each contractor’s proposal;
•Design and construction may proceed in parallel, duration can be shortened;
•Client’s request changes after contract award can be expensive;
•Valuation and payment matters are solely in the hands of the contractor.
•The client can have a single point of contact.
Client
D&B
Contractor
Design
Consultants
Subcons
Project Manager incl
Design Review

9. Turner & Townsend
2. Design and Construct (cont’d)
Procurement & Contract Strategy 9
CM’s key roles in this procurement method:
CM’s key skills & competencies in this procurement method:
•Prepare the tender documents
•Evaluating tenders
•Advising on contractual issues
•Manage variations during the construction phase
•Creativity and innovation to find cost-effective solutions that meet the client’s needs
•Collaboration and coordination to work with all parties involved
•Flexibility and adaptability to handle changes
•Commercial awareness and risk management skills to understand contractual obligations and
liabilities

10. Turner & Townsend
2. Design and Construct (cont’d)
•Client only deals with one firm
•Price certainty is obtained before
construction commences
•Use of guaranteed maximum price
(GMP) with incentive (ie. savings
split) can stimulate innovation and
reduce time and cost
•Project time can be shortened
•Improve constructability
•Clients need to prepare an
adequate and sufficiently
comprehensive brief
•Client changes to project scope can
be expensive
•Difficult in comparing bids
•Client is required to commit to a
concept design at an early stage
Procurement & Contract Strategy 10
Advantages Disadvantages

11. Turner & Townsend
3. Management Contracting
Procurement & Contract Strategy 11
•The client appoints an independent consultant team, and also a management contractor (MC);
•MC is selected by a process of tender and interviews;
•MC acts as advisor to the team at pre-construction stages, and during construction they will be
responsible for executing the works using direct work contracts;
•Payment is made to the MC on the basis of cost of the work packages + agreed fee;
•Less price certainty at the outset because construction tends to start ahead of completion of all
design stages and at a point when many of the work packages are yet to be tendered for;
•Overall process of design and construction tends to be shorter than traditional method.
Client
Architect
Design
Consultants
Quantity
Surveyor
Management
Contractor
Trade
Contractors

12. Turner & Townsend
3. Management Contracting(cont’d)
Procurement & Contract Strategy 12
CM’s key roles in this procurement method:
CM’s key skills & competencies in this procurement method:
•Prepare the estimate for client
•Validate MC’s estimate or cost plan
•Review tender documents prepared by MC
•Review MC’s award recommendation for trade packages and provide recommendation to client
•Validate the post contract claims/variation orders from MC
•Leadership and management skills to plan and organise activities and resources, and build
relationships and foster trust among stakeholders
•Procurement and tendering skills to select trade contractors and negotiate contracts
•Performance measurement and evaluation skills to monitor progress, performance, and value of the
project
•Suggest corrective actions or improvements

13. Turner & Townsend
3. Management Contracting(cont’d)
•Client only deals with one contractor
•Potential for time savings, some trades
can kick start while the design for other
package is still ongoing
•Works packages can be let competitively
at prices that are current and to the
best-suited subcontractor
•Improved constructability through
constructor input into the design at
design stage
•Flexibility for changes in design
•Price certainty is not achieved until the
final works package has been awarded
•Experienced and proactive client is
required, lack of available specialists may
cause unproductive gaps in the work to
be undertaken.
•Close time and information control
required
•Good contract strategy is required to
encourage VE and cost saving
Procurement & Contract Strategy 13
Advantages Disadvantages

14. Turner & Townsend
4. Construction Management
Procurement & Contract Strategy 14
•One type of Early Contractor Involvement (‘ECI’) arrangement.
•The GC / multiple trade contractors are contracted directly to the client and the construction
manager, acts as an agent, manages the process for the client on a simple consultancy basis.
•The CM agent has no direct contract with the GC/multiple prime contractors.
•The CM is usually not accountable to the principal for the acts and omissions of the contractors
(such as defects or delays), their role is limited to managing and supervising trade contractors,
rather than taking on the risk of their non-performance.
•CM is usually required for complex projects with multiple stakeholders and higher levels of
coordination, numerous phases and when the client wants close involvement in selecting
subcontractors and suppliers.
Client
Architect
Design
Consultants
Quantity
Surveyor
General
Contractor
Trade
Contractors
CM Agentoversight

15. Turner & Townsend
4. Construction Management (cont’d)
•Well suited to fast track projects,
CM can be engaged before design
finalisation
•Client retains control over
contractor
•Client benefits from the expertise
of a construction manager whose
interests align with its own
•CM has less incentive to tightly
manage the cost of the works
•Price certainty is not achieved until
relatively late in the project
•Close time and information control
required
Procurement & Contract Strategy 15
Advantages Disadvantages

16. Turner & Townsend
5. Public-Private Partnership (PPP)
Procurement & Contract Strategy 16
•PPP is often regarded as a tool for infrastructure development, particularly in following sectors:
▪Transport
▪Public health
▪Education
▪Safety
▪Waste management
▪Water supply and energy.
▪PPP is not different from other procurement forms. It is the financing of the project that is different.

17. Turner & Townsend
5. Public-Private Partnership (cont’d)
Procurement & Contract Strategy 17
Private sector Public sector
•Responsible to provide the whole, or
part of the project financing
•Responsible for the risks that are
related to the construction or
operation of the project
•Has long term benefits from the
project
•Designs the project (or part of the
design)
•Manages and operates or maintains
the facility
•Returns the project to the public after
the completion of the contract period
•Determines the drawing, technical,
operational and financial
requirements of the project
•Assesses the proposal of the private
sector
•Supports the construction of the
project
•Monitors the project and makes sure
the private sector conforms with the
contract
•Proceeds with payment to the private
sector

18. Turner & Townsend
5. Public-Private Partnership (cont’d)
Models of PPP:
•Design-Build (DB) or Turnkey contract
•Management Contract
•Lease and Operate Contract
•Design-Build-Finance-Operate (DBFO)
•Build-Operate-Transfer (BOT)
•Buy-Build-Operate (BBO)
•Build-Own-Operate (BOO)
•Build-Own-Operate and Transfer (BOOT)
•Operating License
•Finance Only
Procurement & Contract Strategy 18

19. Turner & Townsend
5. Public-Private Partnership (cont’d)
•Public sector gains the advantages the
private sector offers (ie. Ability to design,
construct, manage and finance a project)
•Public money is better used
•Promote and help the innovation in the
public sectors with the transfer of
knowledge and techniques
•Better quality infrastructure and better
operation throughout the life of the
project
•More efficient and more economical
maintenance of the project
•In some cases, there may be in the contract
some clauses or provisions which do not
favour the public interest but aim at
increasing the profit of the private investor,
allow monopoly or allow private sector to
increase the price of a service/product
after completion of project
•Since much of funding the project is done
by the private investor, there is every
tendency to aim at reducing the cost of a
project which might lead to the use of
substandard materials and works
•Generally public sector can get cheaper
loans than private sector, but PPP mostly
funded by private sector
Procurement & Contract Strategy 19
Advantages Disadvantages

20. Turner & Townsend
Risk Level of Different Procurement
Method
20Procurement & Contract Strategy
EPCM /
Construction
Management
Traditional/
Employer
Design
EPC /
Design & Build
Employer’s Risk Ownership
Contractor Risk Ownership
Design Flexibility
Readiness of Design

21. Turner & Townsend
Which Procurement Method
Comparison of procurement methods
Traditional Design and build Management
Summary Benefits in COST and
QUALITY but at the expense
of TIME.
Benefits in COST and
TIME but at the expense of
QUALITY.
Benefits in TIME and
QUALITY but at the
expense of COST.

22. Turner & Townsend
Contract Strategy
Types of Building Contracts:
1.Lump Sum Contract
2.Unit Price Contract
3.Cost Plus Contract / Open Book Pricing
4.Time and Materials Contract
Procurement & Contract Strategy 22
Difference between Procurement Methods and Contract Types
•Procurement Methods : Ways in which goods, services, or works are acquired,
determine how suppliers are invited to submit their offers
and how the selection process is conducted
•Contract Types : Specific arrangements and terms that govern the relationship
between the buyer and supplier once a procurement method has
been chosen