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POLITEKNIK TUANKU SULTANAH BAHIYAH JABATAN KEJURUTERAAN AWAM

CONSTRUCTION MANAGEMENT C 5011

ASSIGNMENT 2

NAME

: CHIA XUAN ANG

MATRIX NO.

: (16DKA 08 F1006)

CLASS

: DKA 6A

LECTURERS NAME : DR. KHALID GAZI BIN HJ. ALI

PROJECT PROCUREMENT SYSTEM

INTRODUCTION

In the last two decades, there have been significant changes in the technical and economic conditions prevailing in the construction industry. To overcome the shortcomings of the traditional procurement methods, the construction industry has developed a large number of different procurement systems. The Procurement System for Construction provides support for:
y y y y y y

Selection of appropriate procurement and contracting strategies, and nomination of an appropriate Principal in the contracts; Preparation of tender documents and contracts based on standard forms; Selection of contractors and consultants with proven performance records; Effective management of contracts, including clause commentaries, sample letters and checklists; Maintenance of an effective performance management system through monitoring and reporting; and Resolution of contractual claims and disputes.

Some examples of procurement system in construction are:1. Direct Award (< RM20K) 2. Request for Quotation (RM20K-RM200K) 3. Tender ( > RM200k)

1. Direct Award

Items less than RM 20,000 and not on contract are considered discretionary purchases and can be purchased directly by any City operating department without competitive bidding. Payment to vendors can be made using purchase order (PO), payment voucher (PV), cash, or purchasing card. It may be pay for immediately at the time of purchase, thereby providing a tangible asset shown on the Balance Sheet. Clearly, this option is only possible if cash available, and therefore presupposes that pro fits have been build up from previous trading or that funds are available from investors such as shareholders, bank loans, etc. Also, large or technically unusual contract sometimes include monies to permit the contractor to purchase the necessary plant at the start of a project. In same countries, tax legislation with respect to purchase allows capital allowances at a percentage of the purchase price to be set against the firms profit during the year of acquisition. This facility is a government-inspired policy acting as an investment inducement. Therefore, before the purchase decision is taken, consideration should be given to the level of return expected from the investment to ensure that using the capital in this way is the most profitable method of investing.

2. Request For Quotation (RFQ)

Request for Quotation (RFQ) is a competitive bidding process most frequently used to purchase commodities and items where price is the primary determining factor for vendor selection. An organization issues a RFQ when it is merely checking into the possibility of acquiring a product or service. A response to an RFQ by a prospective contractor is not considered an offer, and consequently, cannot be accepted by the organization to form a binding contract. The RFQ is basically their way of encouraging contractors to bid against each other. The company that issues an RFQ then selects one of the bidders to take the job. A small business owner or entrepreneur can also include an RFQ form on their website. This allows potential customers to contact them to request prices on services or products. An online RFQ form may help to encourage viewers to make a purchase, as it solicits action instead of passive Internet browsing.

The Request for Quotation (RFQ) is used where discussions aren't required with bidders (mainly when the specifications of a product or service are already known), and price is the main or only factor in selecting the successful bidder.

The Proper Way of Writing a RFQ

A RFQ is divided into several important sections. The first section of the RFQ may be called the "Organizational Overview," or a similar term, and contains background information on the company issuing the RFQ.

Another important section of the RFQ is often called "Required Deliverables." This section describes what the end product of the job must be.

A third section of the RFQ is the "Assumptions and Agreements" section. This section describes the terms of the job, such as a project budget, a bid limit, & the process used to approve the product or materials. By submitting a bid, the contractor is agreeing to these terms. An RFQ also provides information for contractors to use when putting together a bid. This information may include a bid submission deadline, information that the bid documentation or proposal must include to be considered, and the factors that will determine which bid the company chooses.

3. Tender

Tender process can be defined as a number of contestants (bidders), each submit to a client an offer (bid) in return for which they are willing to perform certain specified services. The winning price is determined by some prearranged judging procedure (usually the lowest price submitted) which is known to the client and to the bidders. The bidders do not know each others bid before the tender open. They may know them after. The measure of a successful tender is one whose price is low enough to win the contract and high enough to allow the contractor to discharge the responsibilities defined in the contract and still show some profit.

There are two kinds of bidding in general use in the construction industry: y Open competitive bidding, in which the competition is open to anyone who wishes to compete (through certain pre-qualification); and selective tendering where competition is restricted to a few chosen competitors. Open bidding being used for reasons of public accountability and selective tendering being recommended as conducive to improving the efficiency of the industry.

Competitive bidding is the normal method of contractor selection though it is not a sound process. All tenderers have to spend their resources on planning and pricing with uncertainty of getting the project. This expenditure, under the head office overhead, will be part of the tender price and the owner has to absorb it.

The Bidding Process

To obtain maximum value and provide reliable services, most City purchases are made through the competitive bidding process, with bids awarded to the lowest responsible bidder. When bidding, it is important for vendors to carefully complete and sign all forms. Incomplete or unsigned bids will be rejected. For informal telephone solicitations, bid deadlines will be given by the buyer during the telephone conversation. Bid deadlines are clearly printed on all written request forms. Completed bid forms may be mailed or delivered in person to the address on the printed bid request. Vendors must allow adequate time for delivery. No bid modifications are allowed after the deadline and bids received after the deadline will not be considered. Vendors may call the contact person listed in the bid information package to verify that their bid has been received.

Formal Processes: 1. Invitations to Bid

Public notice is published at least one time in the Anchorage Daily News a minimum of 14 days prior to bid opening.

A public bid opening is conducted and the results made available for public inspection.

Award is made to the low, responsive and responsible bidder, with some preference given to local bidders.

2. Requests for Proposals (Used when the invitation to bid method is not practicable.) y Public notice is published at least one time in the Anchorage Daily News a minimum of 14 days prior to the proposal due date. y Proposals are received, evaluated, scored, and ranked by a committee. Negotiations are conducted with the highest ranked proposer. y If negotiations are successful, award is made to the highest ranked proposer. If unsuccessful with the highest ranked proposer, negotiations are terminated. Then negotiations with the second highest ranked proposer may be conducted, and so on. y This is a negotiated process; therefore, all evaluations, scorings, and negotiations are kept confidential until after award of a contract. However, the recommended awardee's proposal may be reviewed by a competing proponent, after issuance of an intent to award by the purchasing department.

Bids can be either: 1. Negotiated Construction Bid 2. Limited competition or selective Construction Bid 3. Open competition Construction Bid

1. Negotiated Construction Bid

In this method the price to be paid in return of the work to be done is negotiated with a single contractor. This , obviously, does not provide the owner with a comparative prices. Though the cost of a work will be higher in this method, an owner may expect some advantages from employing a particular contractor whose policies and methods are known and who has in the past proved capable of fulfilling his obligations. The higher cost may be offset by better quality , early completion, and smooth administration.

The negotiated construction bid procedure can be adopted to the owner's advantage if the chosen contractor is one in which the Owner and the Engineer have confidence, and which is of known integrity and reliability. Moreover, the work to be carried out is within his special scope and experience. The procedure of the negotiated bid is as follows:
y

The Engineer. on behalf of the owner, invites a contractor to submit a bid. The initial invitation includes information regarding the proposed contract procedure, a brief description of the work, the approximate dates of commencement and completion of the works as well as other essential information.

The Engineer or the contractor prepares the priced bill of quantities. In many cases it would be more practical that the contractor do the original pricing, as he is in a better position to judge the correct price, which may depend on construction equipments and methods of execution to be adopted by him.

The priced bills are then handed over to the other party for consideration.

The rates are examined by the other party. Rates in dispute are compared with current rates for similar work, obtained in competitive tendering after allowing for the special features of the situation.

When the Engineer and the Contractor reach agreement, the agreed schedule of prices is sent to the Owner for his approval and assent.

2. Limited Competition Construction Bids

In this method the Owner calls for bids from a few contractors who are known to have specialized in the special type of work and from whom he has, in the past, experienced excellent results. This procedure is usually adopted for private works, where the owner has the right to negotiate directly and to enter into agreement with whomsoever he chooses. This procedure is recommended for the public sector when the work requires specialized knowledge such as industrial construction.

3. Open Competition Construction Bids

In this method bids are called by public advertisement. The method is usually adopted for public works, as the rules generally require that government and other public contracts be advertised publicly, to obtain the most advantageous terms. Any contractor who is willing to undertake a work and who has the requisite finance and construction equipments to complete it satisfactorily is allowed to submit a bid.

This open competition procedure has the following advantages:


y y y

It provides equal and just opportunities to all contractors. It protects the government from possible insinuations of favoritism. It open the way to having the work done at a minimum cost to the public.

The drawback is the possibility of having a lowest bid submitted by contractor who is unsuitable for carrying out the work and thereby resulting in waste of time and effort. Information to be given in a Call for Bids Notice

The notice must be as short as possible, but conveying an adequate idea of the nature and scope of the proposed work and all essential details. The text of a good advertisement should at least include the following information:

Mode of submitted bids: Bidders should be asked to submit bids in sealed covers, in order to maintain secrecy of quotations. Form of Bid: It is advisable to get all offers in the same form to facilitate scrutiny, and comparison Name of the inviting authority: This helps the bidder know the persons he will have to deal with and the co-operation he may receive, if his bid is accepted, and such may also affect his quotation. Nature of the work and its location: If the nature and location of work is within his operating area, the prospective contractor will want to learn more about the job; else he may not waste time in reading further details Estimated cost of the work: This most briefly indicates the magnitude of the work and enables him o see whether it is too small to interest him or perhaps too large for him to handle. Time Limit: The time limit within which the work is to be completed should be
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mentioned. This will be of great help to the bidder to work out a realistic price of the work.. The time limit may influence the type and number of construction equipments and workers to be employed, and will vitally affect the contractor's bid. The availability of Data and forms: where, from whom, at what cost and up to which date blank bid forms and specifications may be obtained and whether a refund will be made upon their return in satisfactory conditions. Earnest money required with the bid: The amount and form of security; whether the amount will be accepted i the form of cash, bank guarantee, check or others. Also the number of days within which the amount will be refunded to the unsuccessful bidder. Performance security: The amount, form, and procedure of recovering. Information regarding drawings: where and when drawings can be examined by bidders. Last date, place and time of receipt of sealed bid. The date, time and place and procedure of opening bids. Reservation to reject bids.

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Conclusion

Cost, time and quality are the three most important parameters of project performance. It has been stressed that in todays highly competitive and uncertain business environment, clients are demanding for better value from their investment. They want their project to be completed on time, within the estimated cost and with the right quality. The use of the various project procurement systems shows that the construction industry is now trying to meet the clients needs. This is because the different procurement method will have different effect on the cost, time and quality of the project. Each project procurement system has its own peculiarity in term of the pre-tender and post tender activities and processes, division of risks between client and contractors, and the effectiveness of project monitoring and control. It is very important at the very outset of the project to carefully consider all factors when selecting the most appropriate procurement approach for a construction project. This is because each system has its own feature and peculiarity that will have effect on the cost, time and quality of the project i.e. the project performance.

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Reference
Tenderzeal (2010). Definition of Request of Quotation. Retrieved 9 Jan 2011, from http://www.tenderszeal.com/rfq.html

NSW Government (2009). Procurement System for Construction. Who can use the system? Retrieved 9 Jan 2011, from http://www.nswprocurement.com.au/Procurement-System-for-Construction.aspx

Rosli Abdul Rashid (2006). Effect of Procurement Systems On The Performance Of Construction Projects. Songer, A. D. & Molenaar, K. R. (1996). Selecting Design and Build: Public and Private Sector Owner Attitudess. Journal of Management in Engineering. ASCE. Fredrik, A. (2009). Request For Quotation Template and Description. Retrieved 9 January 2011, from http://www.sourcing4oem.com/purchasing-related-articles/purchasingarticles/rfq-request-for-quotation-description-and-template.

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