When seeking new space for any business, many of the vital decisions made right at the start can have significant knock-on effects throughout the lifetime of a built asset. Choosing the most suitable route to procurement can be fraught with challenges, impacting a business’ brand, reputation and ultimately bottom line, if not managed correctly.

Procurement approach can make the difference between getting a project onsite, causing significant delays or even making it unviable.  Knowing the complexities of each option is essential in the creation of a cost-efficient space that best suits the needs of its developer, investors and occupiers in the long-term.

It is important to note that there is no ‘one size fits all’ route to procurement. Every office development is unique, the requirements and operating style of the developer must always to be considered. The markets also have a say when it comes to procurement. In today’s climate of Brexit uncertainty and fluctuating global financial markets - due in part to the US/China trade war – the question of who should carry the risk is currently the biggest factor impacting procurement decisions.

Two-Stage Design & Build or Construction Management? 

 

Design and Build

Construction Management

Cost certainty sooner  

Client has direct control of cost

Main contractor sole point of contact with the supply chain

The client has control and direct contact with supply chain

Main contractor carries risk

The client carries more risk, including liquidation of contractors

The most popular route to date, with known risks

A viable solution for experienced, informed businesses

Clearer picture of project costs, reassuring the funding market

Can involve unknown risks, such as the management of programme and trade packaging performance

 

Avoids excessive risk transfer costs

 

Cost certainty achieved at a later date

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

As the market has become busier, the cost of risk transfer has got more expensive and led many businesses to lose confidence and seek alternative approaches to previously popular two-stage design and build models. Construction management procurement models can make schemes viable where they otherwise would not be due to avoidance of excessive risk transfer costs. Changes in the contracting market have also meant that there has been a tendency for two-stage design and build to move from a competitive tendering environment to one of negotiation. This is a subtle but key shift and is the reason behind tenders exceeding cost plans.

Although the construction management route appears most favourable currently, there is still a place for the two-stage design and build route, and the answer must be keeping it as a competitive tender process and not allowing it to slide into negotiation. It is fundamental to formalise and address a vast range of considerations at the second stage of this process, when the contractor is appointed for construction works under a building contract. These include ensuring there is sufficient programme time for this part of the process, formalising package tenders and managing any associated risks straight away to avoid late cost surprises and impacts to the build programme.

Flexibility and hybrid procurement models solutions in an uncertain market 

Procurement approaches should be as flexible as the space that the client is developing, and in some cases, a hybrid could offer the best route to development. In commencing build under a construction management model, programme goals are more likely to be attainable because the client has more control. Once design is sufficiently developed and risks quantified, the construction manager for the project could continue through to a two-stage design and build model, allowing the client to pass management back to the contractor, with the risks mitigated and associated risk management costs avoided. 

Flexibility and adaptability in procurement approach is key to building offices cost and time efficiently. The building type, external market conditions and access to the supply chain are all vital considerations. Procurement models can be complex. Understanding their subtleties and fundamentally deciding who should carry the risk, can make all the difference between whether an office development succeeds or fails.

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Autor
Paul Sweeney

Paul Sweeney
Director, Commercial Offices