BUILDING ORGANISATION 121

Structure of the built environment in South Africa

Chapter 1

Definitions• Architect• Building Industry• Quantity Surveyor (QS)• Main Contractor• Engineers ‐ Structural, Mechanical and Electrical• Client/Employer• Construction Industry• Construction Process• Subcontractor• Parties to the construction process• Civil Engineering Construction Industry

Building vs Civil Engineering Must be seen as two different industries within SA

The Cyclical Nature of the Economy

Production Process

Inputs– Capital– Human Resources– Materials– Entrepreneurship

Processing– Construction Process

Outputs– Completed Facility

INPUTCONVERSIONS/ PROCESSING OUTPUT

Construction Contracts & ConstructionProcesses

Construction Contract

• An agreement between:– the contractor, which agrees to:

• construct• built ‐ or civil engineering work

– for the client:• at a specified price

YOU BUILD I PAY

Requirements for a Legal Contract

• Consensus

• Legality – agreement to commit an offence is illegal

• Physical possibility

• Formalities

• Construction contracts can be verbal, but is notrecommended

• Competent parties (contractual capacity)

Concluding a Construction Contract

• A contract is entered into, when one person makesan offer and the other accept

• NBNB: Distinguish between an offer and aninvitation to negotiate

• In the construction industry, contractors are invitedto make an offer ‐ to tender

• Each tenderer’s tender is an offer

• On acceptance of the offer, a contract is concluded

Concluding a Construction Contract  (continued)

Different types of tenders

• Addressed to a limited group of tenderers

or

• An open invitation through the media 

The basis of acceptance of a tender

• The lowest or any tender (offer) will not necessarilybe accepted

Concluding a Construction Contract (continued)

• Written agreements are preferable to verbal contracts• The QS verifies the priced bill of quantities• The QS investigates the financial status of the contractor• He then makes a recommmendation to the principal agent 

(PA)• The PA scrutinises previous work done by the contractor, 

and makes a recommendation to the client• If the client is satisfied , an agreement between the parties

is concluded

Contract Documents

• Contract drawings• Specifications• Priced bills of quantities• Preliminaries• Agreement• Tender form (EC Data & CE Data)• Explanatory letters• Tender qualifications

Types of Construction Processes

• Traditional construction process• Design & Built• Cost re‐imbursable• Package‐type contracts• Turn‐key contracts• Construction management

A contractual agreement is compiled according tothe agreed construction process which will beused for the project

CONTRACTUAL ARRANGEMENTS: S.A. BUILDING INDUSTRY (JBCC)

1. Std agreement for Client/Principal Consultant/Principal Agent (PROCSA)

2. Std agreement between Client/Consultants (PROCSA)

3. MBSA domestic S/C agreement

4. JBCC N/S S/C agreement

5. No specific agreement. Client to decide.

Agents:• Arch• QS• Civ E• M/E Eetc

Dom S/C:• Bricklayer• Plasterer• Painteretc

Nom/Sel S/C:• Electr.• A/C• Lifts• Sprinklers• L/scapingetc

PA

DIRECT CONTRACTS

E C2

3

4

1 JBCC PBA

5

Traditional construction process

• Client appoints professional consultants and main contractor 

• Main contractor appoints his own subcontractorsafter the contract is awarded

• Main contractor appoints selected and/or nominated subcontractors after consultation with PA

• Each party to the process separately executes his part of the entire process.

Traditional construction process(continued)

• PA is responsible for the management of the process• A contract is signed between the PA and the client• The same with the main contractor and his sub‐contractors

• Process culminates in a contract with or without billsof quantities

Traditional construction process(continued)

• Standard agreements of the Joint Building ContractsCommittee (JBCC) are generally used for buildings

• General Conditions of Contract for Civil EngineeringConstruction (GCC 2010) is generally used for civilengineering projects

• Two other standard forms of contract used in thepublic and private sectors are the New EngineeringContract (NEC) and the Fédération Internationale des Ingénieurs‐Conseils (FIDIC) 

Traditional (Conventional) ProcurementProcess

The Traditional (Conventional) Procurement Process is a serial process by which the employer (client) obtains land for  development and usually appoints as required by the project an architect, a QS, consulting engineers and various other professionals to prepare documentation for tender purposes and the execution of the construction work by the successful main contractor and his subcontractors, with a PA acting on behalf of the employer. 

Traditional (Conventional) ProcurementProcess (continued)

• The client generates an idea, with or without theassistance of a QS and/or financial advisor, to assessthe scope of the idea

• In the design phase the idea is considered in more detail with the help of various specialists in order tohave a complete design before tenders are called for.  The more detailed the design, the more accurate thebills of quantities and therefore, the tender prices

• The tender documents are now compiled with theassistance of the QS, architect and engineers

Traditional (Conventional) ProcurementProcess (continued)

• Main contractor and subcontractors submit their tenders• QS, architect and engineers evaluate the tender documents

• Contract is concluded between the main contractor andthe client

• After site handover the construction work is completedby the main contractor, his subcontractors and otherdirect contractors, under the supervision of the architect, engineers, inspectors and (sometimes) a clerk of works

• QS compiles monthly payment certificates as the workprogresses, as well as a final account. The architect signsand issues the payment certificates for the client to paythe contractor

Flow diagram of the traditional (conventional) procurement process

Employer/client/developer Financial advisors (quantity surveyor)

Design

ArchitectStructural Engineer Civil Engineer Mechanical Engineer Electrical EngineerQuantity SurveyorLandscape ArchitectLand SurveyorOther 

Town and Regional Planner Municipal zoning regulations and other restrictions on design

Quantity SurveyorArchitectEngineers

Tender

SubcontractorsSuppliers

Adjudication of tender

Quantity SurveyorArchitectEngineers

EmployerMain Contractor

Building/Civil worksMain ContractorSubcontractorsSuppliers

Supervision:ArchitectEngineersClerk of WorksInspectors

Final account Quantity Surveyor

Completed building/civil works

Concluding contract 

Main Contractor

Tender Documents

Contractual commitments and lines of authority in the traditional (conventional) procurement process

Architect/Engineer/Principal Agent

Quantity Surveyor

Engineers

Suppliers to Main Contractor

Employees of Main Contractor

Employees and Suppliers of Subcontractors

Employees and Suppliers of Nominated/Selected Subcontractors

Nominated/Selected Subcontractors

Subcontractors

Lines of authority

Employer

Main contractor

Contractual commitments and lines of authority in the traditional (conventional) procurement process

Employer

Engineers

Quantity Surveyor

Architect

Main contractor Employees of Main Contractor

Suppliers to Main Contractor Employees and 

Suppliers of Subcontractors

Subcontractors

Contractual commitments

Nominated/Selected Subcontractors

Employees and Suppliers of Nominated/Selected Subcontractors

Advantages and disadvantages to thetraditional procurement process

Contracts with bills of quantities:

Bills of Quantities are documents in which all the labour andmaterials needed to construct a building, or other facility, are accurately given in prescribed units according to a standard methodand in which the circumstances under which the work is to beexecuted are fully described

Advantages:

• Working drawings and specifications are usually completedbefore bills of quantities are produced and tenders are called for

• Competitive tenders are based on identical information.  Differences in tender prices will indicate the efficiency of thevarious tenderers

Advantages and disadvantages to thetraditional procurement process

(continued)Advantages:• The correctness of the quantities in the bills of quantities is 

the client’s risk• Rates in the bills of quantities serve as reliable basis for cost

adjustments resulting from variations in the contract• Monthly payments are made to the contractor on the basis of 

the amount of work completed and the rates in the bills of quantities

• Final accounts are easy to settle as rates that are used tocalculate the cost of variations are already known in thetender stage

• Costs are saved because the bills of quantities are compiled by the QS only

• Contractors generally prefer to tender for projects with bills of quantities as this provides a sound basis for tender evaluation

Advantages and disadvantages to thetraditional procurement process

(continued)Advantages:• Projects with bills of quantities generally attract a

sufficient number of competitive tenderers due to thereduced amount of work involved for each individualtenderer

• Priced bills of quantities provide good information forfinancial analysis and cost control for all parties involved

Disadvantages:• It is not absolutely certain what the final costs will be.  

Quantities given in the bills of quantities as provisionalmay differ from the final measurement

• It takes time to prepare bills of quantities and involves“visible” QS costs

Construction contracts with ProvisionalBills of Quantities

Advantages: • All the advantages for the accurate bills of quantities are 

also applicable to provisional bills of quantitiesDisadvantages: • Tender information is based on incomplete working

drawings and specifications. The final quantities may differsubstancially from the quantities in the bills of quantities

• Projects based on provisional bills of quantities are characterised by numerous variations

• The client, professional consultants and tenderers are subject to time restraints, communication gaps and rapiddecision making, which increase risks to all and thepossibility to make mistakes

Construction Contracts with Schedule of Rates

Advantages:• Tenders can be called for at a very early stage and basic rates are 

available to determine the costs while the work is in progress.  Variations are also based on predetermined rates

• All other tender documentation can still be of a high standardDisadvantages: • Proper financial analysis and cost control are difficult due to the

lack of completed working drawings, specifications andquantities

• Numerous adjustments may occur with the preliminary bills of quantities as design isn’t thoroughly planned during tender stage

• Time limits, communication gaps and quick decision making causes mistakes to be made and the risk increases for all parties

Lump Sum Contracts – Contracts without bills of quantities

Advantages:• Working drawings and specifications are completed before

tenders are invited and the procurement process is basedon complete documentation, except for bills of quantities

• The employer is usually certain what the final cost will bebefore the building operations start as the successfultenderer is responsible for both the quantities and rates.  Monetary allowances, however, can influence the finalcost

• Tenderers prepare their own “contractors’ quantities” which may result in a time saving. The client also does nothave to appoint and pay for a QS

• Monetary allowances can be included in the specificationand consequently will be included in the tenders

Lump Sum Contracts – Contracts without bills of quantities (continued)

Disadvantages:• No contractual basis for the adjustment of costs if

variations occur• No simple basis for monthly payments or cost control• Tenderers must prepare their own builder’s quantities to

determine their tender price.  This cost is eventuallyreflected in tenderers’ overhead costs

• MBSA’s rule that members won’t tender in  competitionfor a project > R500 000 or for dwelling houses > 500 m2 irrespective of price without bills of quantities

Cost Plus Contracts (cost re‐imbursable)Advantages:• The quickest possible way of getting construction work startedDisadvantages:• Little incentive for the contractor to keep costs as low as possible, 

especially where the “plus” is coupled to the “cost” as a %• Defining and application of “cost” and “plus”  elements

problematic• Final costs are typically higher than that for other contracts• Difficult to separate the cost involved in correcting mistakes

incurred by the contractor from actual project costs• Final costs are not known before completion, which inhibits

decision making• Accurate financial analysis and control is almost impossible for

any of the parties• Contract documentation is seldom comprehensive and complete

Packaged, design‐and‐build and turnkeyprocurement processes

Package processes are offered by the coordinatorusually a main contractor to a potential client at aspecific price that includes all professional services anda construction contract and sometimes also the site, equipment and commissioning of the facility

Contract documentation is not necessarilycomprehensive and complete

BOT: Build Operate TransferBOOT: Build Own Operate TransferBOTT: Build Operate Train TransferROTT: Repair Operate Train Transfer

The package procurement processAdvantages:• A simple solution to meet the client’s requirements• Client is freed from the responsibility of appointing various

professional consultants and entering into numerous contracts• Process is very rapid.  Communication channels are short and

concentrate on management activities• Some packages, especially those producing housing and industrial

buildings, may be to the financial advantage of clients(guaranteed returns and/or collateral assistance)

• In cases such as individual housing, “packages” that offer a total service even including finance are sometimes the only possible solution for the employer’s problems, which he often cannot handle on a fragmented basis

• Where financing forms part of the “package” it is frequently the only and most effective way by which the client can obtain financing.  Contractors provide various types of guarantees to financial institutions which undertake to provide financing

The package procurement process(continued)

Disadvantages:• The disadvantages of contracts without bills of quantities

also apply here• The client stands contractually on his own.  He may find

himself in an unenviable position if problems do arise• Legal costs and expert advice in such cases are expensive• It is difficult to determine whether the client is getting the

best value for his money as there are no comparativeprices

• The contractual relationship between the client and thecontractor depends on good faith

Flow diagram of a package procurement processMain contractor/ Compiler of package

DesignProfessional services without executive powers

Employer Financing

Building or other facility

Main ContractorSubcontractorSuppliers

Completed building or other facility

Contractual commitments and lines of authority in the package procurement process

Employer

Main contractor

Contractual commitments

Architect 

Quantity Surveyor

Engineers

Private Consultants or Consultants employed by the Main Contractor

Employees of Main Contractor

Suppliers to Main Contractor

SubcontractorsEmployees and Suppliers of Subcontractors

Contractual commitments and lines of authority in the package procurement process

Architect / Engineer

Quantity Surveyor

Engineers

Employer

Main Contractor

Lines of authority

Private Consultants or Consultants employed by the Main Contractor 

Employees of Main Contractor

Suppliers to Main Contractor  Employees and 

Suppliers of SubcontractorsSubcontractors

Project Management and ConstructionManagement

Project Management• A procurement process for which the client appoints an

agent or employee at a professional fee or a salary tomanage the whole process for the erection of  a buildingor other facility in such a way the client’s requirementsregarding time, cost and quality are met

Construction management• A procurement process for which the client appoints a

manager at a professional fee or salary to manage theconstruction work on site from beginning to end by usingspecialist contractors

Contractual commitments and lines of authority in the project management procurement process

Architect

Quantity Surveyor

Project ManagerEngineers

Main contractor Employees of Main Contractor

Suppliers to Main Contractor Employees and 

Suppliers of Subcontractors

Subcontractors

Contractual commitments

Nominated/Selected Subcontractors

Employees and Suppliers of Nominated/Selected Subcontractors

Employer

Contractual commitments and lines of authority in the project management procurement process

Employer Architect

Project Manager/ Principal Agent

Quantity Surveyor

Engineers

Employees of Main Contractor

Employees and Suppliers of Subcontractors

Nominated/Selected Subcontractors

Employees andSuppliers ofNominated/Selected Subcontractors

Subcontractors

Suppliers of MainContractor 

Lines of authority

Main contractor

Contractual commitments and lines of authority in the construction management procurement process

Employer Architect

Quantity surveyorProject Manager/ Principal Agent

Construction Manager Engineers

Employees and Suppliers of Specialist Contractors

Specialist Contractors

Lines of authority

Contractual commitments and lines of authority in the construction management procurement process

Employer Architect

Project Manager Quantity surveyor

Construction Manager Engineers

Employees and Suppliers of Specialist Contractors

Specialist Contractors

Contractual commitments

Advantages of Project Management• Total development cost may be lower ‐ certain traditional

professional services or main contractor not required.  Centralmanagement with unity of authority increases efficiency andeffectiveness

• Technical, financial and programming skills of the projectmanager are utilised fully from the conceptual stage

• Client’s direct involvement is reduced to a minimum• Managed “fast track” construction where design, 

documentation and construction work take place concurrently, is possible

• Consultants have no dual responsibility• There is greater specialisation with less fragmentation• Efficient time, cost and quality control can be applied on a

formal basis• The advantages of good management are to the benefit of all

parties, especially to the client

Disadvantages of Project Management

• The client has an additional commitment with respect toprofessional fees, which is not necessarily compensatedfor by visible or proven savings

• The client enters into a greater number of contractualcommitments with potentially more problems

• The consultants have less direct contact with the client