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Different procurement methods… how to choose the right contract?

I love when people come to me and ask for a SIMPLE building contract. Ideally free as well. Let me translate what they mean by that: “So last night I read through 10 quotes I received from random builders I found online.

I kind of know what I want so I matched it with the price that seemed closest to my expectations (or if none of those did I threw the papers up and picked the one that dropped on the desk). Now I want a simple contract that will protect me from everything that can go and ideally gives me exactly what I want”

Well. Before we talk about contracts we could probably talk about procurement methods that dictate forms of contract available. So we have different procurement methods. I know. Shocking news. That means there are different ways of contracting builders. That also means that different contracts will apply to those different methods. So where to start?

I’ll start by explaining the different procurement methods there are, what the key differences are, the pros and cons and how to actually choose the method that will be the best for you.

1. Traditional procurement. Probably the most popular method considering private clients and residential projects. Key differences include:

  • fixed design element (less Contractors Design Portion)

  • designers and consultants appointed by the client

  • best negotiating position as everyone is tendering against the same requirements

  • risks unforeseen stay on the clients side

  • it takes longer to tender and start works but the more advanced information the more of a cost and time certainty can be achieved. This is the most popular method within private clients for a reason. This type of clients want to have a say in the final design, choice of products and finishes even at the cost of extra time and money.

2. Design and Build. This method is much more popular with property developers or those who are looking to benefit from the property in the monetary sense. It’s also a popular method for private clients who phase their work in terms of shell and core vs fit out work. Key differences include:

  • design (including detailed design) responsibility stays on the contractors side so designers and consultants would be appointed by the builder.

  • fixed price and timeframe but the contractor gets the final say in what he has included for.

  • all the risk for unforeseen gets transferred to the contractor.

  • relatively good position for tendering however the comparison isn’t like for like due to design uncertainty. It’s ideal in two scenarios really. Someone investing a defined sum of money into a property and looking to sell or rent the property within a specific period of time where the final choice of finishes or detailed design solutions makes very little difference to them. Or someone looking to have a certain specific part of the work done such as basement, loft, wine cellar etc. specialist work limited to a certain element. Usually this would not include the fit out and finishes.

3. Management Building Contract It’s a relatively unpopular method in the residential environment but it happens. This basically relies on a Main Contractor managing all Subcontractors that are directly employed by the client. Key differences include:

  • final say in choosing the suppliers and subcontractors

  • flexibility in terms of design

  • little to no price or time certainty

  • all of the risk element stays with the client This method was designed for much larger multimillion projects mainly which are government funded. It sometimes can be used in residential application. For instance when the work is very very specialist. I did a home spa refurbishment some time ago where the client wanted to have a direct contact with the pool people, M&E people, sauna supplier etc.

4. Cost plus option (also called open book) This is basically where the contractor charges their fee plus a fixed percentage on top. Once again it’s not the most popular method out there in terms of residential projects but it’s an available one. Key differences include:

  • no cost certainty. The contractor bills for the expenses as they go along.

  • very little to no control on costs or programme.

  • allows projects to start as early as concept design.

  • VERY admin heavy This method allows a lot of the control over costs but it also requires loads of trust that the contractor will have your best interest in their mind. It’s in their interest for the cost to be as high as possible because the percentage of the higher fee is also greater. Something to keep in mind!

So is there a one answer that fits all people? No.

It all depends on priorities, risks you are willing to take vs the benefits offered. Once you have established this you can then look into contract options and how simple or comprehensive this needs to be.

If you need help with this you can book my Contract session here 👇

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