The process of creating a comprehensive scope of works through design development for any given building project can be an extensive exercise that is carried out over a considerable period of time. On the other hand, the  interest charges arising from financing of building project compels property developers to find ways to complete their project in the shortest time possible. The urgency for completion is compounded by the fact that under certain jurisdiction such as Singapore, property developers are liable for stamp duties if they are unable to sell all their residential development units within five years of land purchase. Clearly there is a tug-of-war in terms of competition for time between design development and completion of sales. Where tender process can be accelerated in a sensible manner, this may cushion the competing demands for time. This article explores some ways in which tender process could be accelerated by having a proper understanding of the correlation between design development and tender process. The term ‘acceleration’ used in this article refers to reduction in overall time needed through overlapping of various activities.

The principal purpose of design development is to provide a comprehensive scope of works for the project in hand. This scope of works is used by tenderers as the basis of their pricing during the procurement process. In an ideal world, the tenderers should receive a fully developed scope of works at the inception of the procurement process to facilitate their pricing. However in reality, the scope of works could be produced in instalments or tranches based on planned sequence of execution of works. In other words, a staggered schedule approach may be used. To this end, there are various methods that can be considered such as the use of provisional sums, prime cost sums for nominated subcontracts, novation of contracts as well as issuance of addendum during tender.

Design Development and Production of Scope of Works

Construction projects that have complex and demanding design development process are typically large scale developments which are initiated by seasoned property developers. One of the reasons as to why the design development process can be time consuming is because large property developers have internal governance framework that provides check and balance. In other words, the internal departments are intentionally structured to have competing priorities. 

By way of example, facilities management department would favour a tried and tested design that eases maintenance but marketing and sales department may prefer avant-garde design that are iconic in the hope that it captivates potential buyers. Likewise, the cost and commercial management department would naturally be inclined to be budget conscious but the architectural department may view this as a constraint to its ability to explore the most luxurious and aesthetically appealing furnishing and finishes. Whilst these checks and balances ensure a well considered decision making process, it can be time consuming. The appointed team of external project consultants that comprises architects, engineers, interior designers, quantity surveyors, project managers etc would have to examine these competing demands and present various iterations of design options to facilitate decision making process. These iterations of design options then gets progressively approved through the multiple layers of executives and management within the property developer’s organisational structure. 

When everything is said and done, the final design then gets documented into a set of tender drawings that is now ready for issuance to the tenderers for their pricing. In an ideal world, the design approval process involving management and executives is carried strictly in accordance with planned schedule and that the approvers’ feet are held to the fire when decisions are not forthcoming. In reality, there is an understandable reluctance from a career longevity standpoint to refrain from exerting time pressure on the executives and management for decisions. That is why, it is not surprising that design development often takes longer than planned, sometimes for valid reasons and other times less so. In view of this, it will be wise to anticipate these issues and devise ways to work around the constraints. In order to do so, one should have a basic understanding of sequence of construction works for a typical project and how these are planned within a construction schedule.

Staggered Schedule Approach

As alluded to earlier, it is entirely possible for scope of works to be produced in tranches or instalments by segmenting the design development process. By doing so, it could facilitate the production of tender drawings in appropriate batches based on sequence of construction. The objective is to overlap activities where possible so as to reduce overall duration. When decision making process is broken down into bite sizes, one could focus only on key issues with less distractions. Decision making milestones are not foisted upon executives and management indiscriminately. This method is not an option without risk since it could prevent a holistic assessment of design. When design development is broken down in tranches, tender drawings are bundled in various packages and likewise the tender process will be organised accordingly. 

In a typical construction project, the scope of works can be broadly classified into the following four phases. Phase 1 relates to site clearance and building foundation such as piling works. After Phase 1 is completed, structural works will commence which entails the construction of columns, beams and slabs under Phase 2. Once the structural frame of the building is established, Phase 3 will follow which involves architectural and builders works such as cladding and facade, erection of internal walls, internal finishes, plumbing, mechanical and electrical works. Final phase i.e. Phase 4 pertains to ancillary works such as hardscaping and softscaping works around the development’s common areas. Whilst these four phases are executed sequentially, there are some areas of overlap whereby Phase 3 works could commence on the lower floors whilst Phase 2 are still in progress on the upper floors. 

Design development for Phase 3’s scope of works typically takes the longest time because decisions are made on critical ‘touch and feel’ items such as internal finishes, choice of colour palette, types of electrical appliances etc. These are areas where the right choices will potentially strike a chord with potential buyers or tenants. The buyers’ or tenants are relatively less concern about the choice of building foundation or piling systems as long as it is safe and works. Given these priorities, the tender process could be accelerated by allowing tender for Phase 1 works to proceed whilst the design development for Phase 3 are in progress. Where possible, Phase 3 should not be an impediment to the progress of preceding phases of works.  There are also certain scope of works typically found in Phase 3, such as the lift systems or standby power generators included in the building works that have long lead time. These systems are manufactured off site, usually overseas, in a manner that is bespoke to the unique requirements of the building. These works can be procured in advance

Given the reasons to bundle the project’s scope of works in various packages as a result of segmenting the design development process, the question is how can this specifically be done? What are the specific provisions within the standard form of contract that may facilitate such efforts?

Prime Cost Sums, Provisional Sums, Novation and Addendums

I) Prime Cost Sums

Prime cost sums are essentially various packages of scope of works under the main contract where the design details are outstanding at the point of procurement of main contract works. In view of the outstanding design details, the main contract tenderers are not expected to provide their pricing on these packages of works other than profit and attendance to manage, supervise and oversee these works in future. There is a sum of monies allowed for each prime cost sum and the tenderers for main contract would typically price its profit as a percentage of these budgetary allowances.

Under the general conditions of standard form of contract commonly used in the industry, there are provisions pertaining to nominated subcontractor and prime cost sum or ‘PC Sum’. These provisions include its contractual definitions, the mechanism to ‘instruct’ the main contractor to enter into nominated subcontract with nominated subcontractors and grounds that can be raised by the main contractor to object to any such nomination. These provisions stipulates the contractual mechanism to utilise prime cost sums which in turn can accelerate the tender process. This is because Phase 1 and Phase 2 works can proceed whilst pockets of Phase 3 works are still being developed. There is no hard and fast rule as regards the extent to which packages of prime cost sums should be allowed for under the main contract. However commercial common sense should prevail. Certain main contractors may be lukewarm in participating in tenders where they have limited opportunity to physically carry out the construction works other than administratively supervising a group of subcontractors that are to be nominated. This is because such limitation may impact its anticipated level of profitability. 

The nature and types of works that are typically bundled under prime cost sums are typically works found under Phase 3 as alluded to earlier in this article. This is due to the considerable design development duration that these works entail. It will be wise to select prime cost sums that comprises those scope of works that are deemed outside the core area of expertise of the main contractor. Some of the typical types of prime cost sums include mechanical and electrical works, marble and granite claddings to walls and floors, sanitary wares and fittings etc. 

The Employer may also decide to bundle certain works as prime cost sums to directly negotiate with the subcontractors to enhance commercial leverage. Upon agreeing to a deal, the main contractor is then instructed to execute a nominated subcontract with the chosen subcontractor. It can be tricky if the main contractor objects to such nomination. One of the common reasons for such objection may be the selected subcontractor’s inability to execute its works in accordance with the main contractor’s master program resulting in potential delay. Therefore, if not done correctly, the use of prime cost sums with the original intention of accelerating the tender process may back fire. There could be delays arising from the process of nomination when there are conflicts between the selected subcontractor’s schedule and main contractor’s schedule.

II) Provisional Sums

Provisional sums refers to an estimated sum of monies allowed for certain scope of works which lacks both certainty in being implemented and design details during the inception of the main contract. In other words, there is a possibility that the provisional sum in question may not be utilised at all by the end of the project and no design details ever get developed. This can be contrasted with prime cost sums whereby the Employer has every intention of implementing those scope of works and there is even a group of tenderers in mind that will be invited to bid for the prime cost sum related works.

The provisional sum is included in the main contract tender document so that the main contractor is alerted of the possibility for such element of work, and therefore should duly include any planning related activities in its master programme. There are also provisions in the standard form of contract that affirms the programme requirements so as to avoid any dispute over additional time or cost claims. 

By way of example, the Employer may consider expending more resources to upgrade the internal building furnishings or to install its company logo on the building facade for marketing purposes. These decisions and the necessity for any design development efforts can be contingent upon various external factors such as funding availability, level of sales of units developed or even the market trend. These are typically works included in Stage 3 or Stage 4 of the construction works where decisions are not that critical at the initial stage of the main contract. Therefore the usage of provisional sums enables the main contract procurement and construction process to proceed and defers certain decisions  which are not time sensitive.

Unlike prime cost sums works which are typically executed by nominated subcontractors, the provisional sums may well be carried out by the main contractor via the issuance of an instruction. Therefore the main contractor when tendering for its works may take a more favourable commercial assessment for provisional sums as compared to prime cost sums. In this regard, there are usually no allowances for the main contractor to price its profit and attendance on these provisional sums as the main contractor’s profit would be included in its quotation for the provisional sum works. The Employer therefore should be aware that works executed under provisional sums may cost a premium due to limited bidding competition where such works are not subject to a tender process. It is as if the provisional sum works is likely to be sole sourced to the main contractor. This is the commercial trade-off that the Employer grapples with when it decides to defer its decision making process to a later stage of the construction works. 

The provisional sums and prime cost sums are similar in that it allows the Employer to save time by proceeding to engage a main contractor whilst pockets of the main contract works are still being designed. Contract novation however is a different approach which will be discussed in further detail in the section below.

III) Novations

Novation allows the initial phases of works such as demolition of existing structures, site clearances or building foundation works which are typically not carried out by main contractor to proceed with its execution first. These initial works are carried out by contractors that are engaged directly by the Employer. Within the initial works contract between the contractor with the Employer, there are usually express provisions that allow the Employer to be substituted by the main contractor as a replacement contracting party at a later stage. The act of substituting one contracting party with a replacement party is called novation. Upon novation, the contractor will have a direct contractual relationship with the main contractor. In case of the novation of building foundation contract, it is important to ensure that the completed foundation works is integrated seamlessly with the building’s superstructure which consists of beams, columns and slabs. Therefore, the contract novation ensures that the main contractor that is responsible for constructing the superstructure continues to be contractually liable for the integrity of the structural system in its entirety. 

Novation is not exclusively used for building foundation works. There are other mechanical and electrical systems embedded within the building that involves long lead procurement time that are often subject to similar novation arrangement. This expedites the procurement process since those long lead items are procured first without being impeded by the typically time consuming design development process of other general building works in Phase 3. Examples of such long lead items of work include lift system, building standby power generator etc. These systems are often procured directly by the Employer before the main contractor is contracted with the express provision allowing similar novation arrangement. Therefore in the tender document procuring main contract works, all tenderers shall be notified in advance of such future novation intentions to allow those tenderers to provide their consent and to price any associated risks especially in regard to interfacing works. Likewise, these contractors carrying out the long lead items of work or any initial works should agree to such novation agreements in advance too. The template for novation agreement should therefore be included in the tender documents for the relevant initial works as well as main contract works. The inclusion of the novation agreement template is critical because every sentence in such agreement is expected to be scrutinise in detail as it entails assuming certain risks with long term ramification. This includes the provision of warranty or guarantee and possibly contracting with an unfamiliar party without any prior working relationship.

Whilst the use of novation, provisional sums or prime cost sums may provide a significant schedule benefit, there are also other ad-hoc tools such as tender addendums that could yield a more moderate time benefit. This will be examine in some detail in the next section of this article.

IV) Addendums

Tender addendums refer to issuance of new documents in the midst of tender process with the aim of either supplementing the existing tender information or superseding information previously issued. These new documents may appear in the form of parts of tender document or parts of tender drawings. Unlike the use of provisional sums, prime cost sums or novations with schedule savings often amounting to months in duration, tender addendum offers a relatively modest schedule benefit, which is often measured weeks.

Tender addendum accelerates tender process because not all information included in the bundle of tender document and tender drawings are equally critical. Some tender information can be issued later without holding up the launch of a proper tender. Upon receipt of such tender package, the primary objective of the tenderer is often to provide its pricing or costing to various scope of works. Certain scope of works such as regular ceramic tiles to the back of house of a hospitality establishment or regular concrete are deemed ‘commoditised’. These products are carried by most subcontractors and suppliers in the market and therefore the tenderers for main contract can get the quotations relatively quickly. Occasionally, these commoditised products are so commonly used that its prices are well established with very limited fluctuations. Therefore, main contract tenderers could even obtain the necessary pricing information from their in-house database without reaching out to any external parties. These result is quick pricing process. By contrast, other elements of works could be more bespoke to the specific design  requirements of the building and therefore require a longer pricing duration. In crafting the strategy of tender addendums, these pricing duration has to be taken into consideration. Drawings and specification related information for commoditised elements of work can be issued as tender addendum without must disruption as compared to other bespoke design works. By way of illustration, in the event that the layout of a particular floor level is changed resulting in corresponding change in volume of concrete required, these can be addressed via tender addendums so long as it does not necessarily lengthen the tender duration as a whole. 

In the issuance of any tender addendums, tenderers should be given advance notice where possible to avoid unnecessary pricing disruptions. Tenderers should also be given the option of requesting for additional time where it is necessary. This obviously should be exercised judiciously to avoid nullifying the original objective of accelerating the tender process. The tender document should also be structured wisely so that elements of work that are subject of addendums are well compartmentalised. Additional tender drawings issued via addendums should be clearly clouded to indicate the areas of design change and an explanatory narrative should be provided to enhance clarity. The consultant leading the tender process on behalf of the Employer should coordinate and manage any cross disciplinary spill over effect. For example, any change in structural layout could implicate the mechanical and electrical works in terms of structural penetration or layout of services.

Conclusion

It is quite clear from the above that whilst tender addendums, prime cost sums, provisional sums and novations could accelerate tender process by a varying degree of duration, it is not without cost. If not administered well, there could be grievances on the part of main contractors as well as relevant subcontractors. This ironically may necessitate more time for dispute resolution down the road. Therefore, these measures if taken should be well planned in advance and clearly communicated to all parties involved.

Koon Tak Hong Consulting Private Limited