Contracts in vogue

The latest RICS Contracts in Use Survey confirms some surprising trends in the documents being used and in procurement.

While smaller projects continue to be dominated by “plan and specification” procurement routes and lump sum contracts, larger projects are using construction management or a version of design and build.

However the middle market is much more interesting: this is dominated by design and build but, surprisingly, bills of quantities continue to be used regularly.

The key trends that emerge from this survey are as follows:

Design and build v bills of quantities

Design and build has been shown to be the single most prevalent approach since our survey began in 1995. Up until that point the surveys were dominated by bills of quantities. This was the time of major shifts in procurement strategies. This survey reinforces the dominance of design and build, but it also shows bills of quantities just refuse to die.

The middle market splits between clients who want a degree of risk transferred to the contractor and a significant rump who are happy with the majority of design and procurement risk being with the client.

Hidden in the survey returns, but not in the final document, is the suggestion that design and build dominates in London and the Southeast while there are more bills of quantities used outside these areas.

The survey also picks up on the use of the Design Portion Supplement. This reflects the design and build element where bills of quantities are used to procure projects. This survey shows that a Design Portion Supplement is only used on about a third of the available projects. It is interesting that there is not an almost automatic use of the Design Portion Supplement for elements such as mechanical and electrical installations, where the final design often relies on specialist input.

Surprisingly, there was little evidence of the use of two-stage tendering. This tends to be favoured in a buoyant market and falls away when there is a shortage of work.

It’s likely that the survey under-reports this area of procurement as it’s not a contractual issue, and organisations may not keep this data in their central records.

Guaranteed Maximum Price

There is little reported use of procurement based upon a Guaranteed Maximum Price. This is often a client-driven contractual amendment to standard forms.

Use of Guaranteed Maximum Price is a fundamental part of the UK Health Service Procure 21 system, but the survey picked up very few of these health projects and this area was considered to be under-reported.

Management Contracting – RIP?

Design and build dominates in London and the Southeast while there are more bills of quantities used outside these areas

Management Contracting has almost died as a procurement method. Management Contracting will be seen as a blip in the evolution of procurement methods. It should be a lesson for all of us who recall that in the 1980s this was said to be the panacea to everyone’s problems.

Electronic tendering

The survey reported little recorded usage of electronic tendering. It is believed that this will increase in use in the next few years as technology becomes more affordable and systems more reliable.

JCT v NEC

Once again the survey records the dominance of the JCT suite of contracts. This has dropped in comparison to previous years now that NEC contracts are used more widely and for the first time there is a strong showing for partnering, particularly in the form of PPC2000.

The most popular of the JCT suite of contracts is the Design and Build Form, followed by the Standard Form with Quantities Form. The Intermediate Form is solidly represented in lower value projects. The survey was conducted too early to gauge significant use of the JCT Major Projects Form.

The NEC was strongly supported in the Egan and Latham reports but the forms have taken a long time to make any real showing. There is a perception that the forms have a strong procedural base and this requires clients, consultants and contractors to hire staff to administer them correctly. The real test will come as a result of the announcement, current at the time of printing, that NEC is the preferred form for the 2012 Olympics.

Partnering

The emergence of partnering, particularly PPC2000, is an unusual step forward in the arena of commercial agreements. This is a multi-party, two-stage contract. Clients, consultants, contractors and specialists all sign it at an early stage and then work towards an agreed maximum price and a commencement agreement. This method is very strong in the public procurement of social housing.

PFI/PPP

The survey asked about PFI/PPP but received little information. Either the organisations that responded were not working in this field or, as is more likely, the contractual relationships were managed by lawyers.

Conclusion

The survey reinforces the dominance of design and build in the middle market, but bills of quantities are still being used regularly. The JCT dominates but the use of alternative standard forms is growing, particularly the NEC. The emergence of partnering and PPC2000 is a trend to watch.