Procurement methods in construction establish clear terms for project delivery, cost control, and risk allocation between clients and contractors. Selecting the right procurement strategy is one of the most important decisions a client makes — it shapes who carries the risk, how costs are controlled, and the nature of collaboration between parties.
The Statutory and Contractual Context
A land or building owner has various obligations simply by owning a piece of land or property — legal, statutory, and contractual. When construction is carried out, these obligations increase. Depending upon the procurement route chosen, some obligations and risks can be transferred in whole or part to others via contractual mechanisms. Key legislation covering construction works includes the Building Safety Act, the Town and Country Planning Act, CDM Regulations 2015, the Health and Safety at Work Act 1974, the Construction Act (payments), and public procurement rules.
Traditional Procurement
In traditional procurement, the client appoints an external design team who prepares the scheme and obtains necessary permissions. Once the design is sufficiently developed, a Bill of Quantities is prepared and tendered by main contractors, usually with the lowest price selected. The main contractor is then appointed to build the project, with any changes priced as variations. The appointment of designers and the main contract are separate. The main contractor carries the risks of price changes, supply chain performance, wastage, and weather, typically expecting a profit of 5–15% for a small project depending on complexity and market conditions.
Design and Build
Clients who have procured multiple projects often find that the variation account adds considerably more to their final bill than the tendered price. To reduce this, Design and Build contracts evolved. The client sets out what they want in “Employer’s Requirements” and the main contractor prices to complete the design and build it. There are no Bills of Quantities, and the main contractor takes on more risk, typically expecting 10–20% profit — but it provides early price certainty for the client.
Cost-Plus and Open Book
In a Cost-Plus contract, the contractor is reimbursed for all project costs plus an agreed fee or profit margin. This applies when the project scope isn’t fully defined, allowing flexibility. The risk of budget overruns sits with the client. Open Book contracting promotes transparency by allowing clients to see the contractor’s actual costs. It builds trust and enables collaboration on cost-saving, but requires extensive administration and can lead to disputes over budget increases.
Target Cost
In a Target Cost contract, client and contractor agree on a target budget, and savings or overruns are shared based on a pre-agreed formula. Both parties have a vested interest in managing costs, but the model requires effective collaboration and communication. If the target isn’t realistic, costs can quickly exceed expectations.
Construction Management and Management Contracting
A client might consider employing the supply chain directly and coordinating the trades themselves, using a “construction manager” to do the organising — saving the equivalent of the main contractor’s profit. However, the client accepts the risk that as packages are let, prices might not be as expected. Management Contracting is similar, but the client pays a single invoice to the management contractor who then pays the supply chain — essentially adding an accounts service.
Each procurement method offers unique advantages and challenges. Selecting the right one requires careful consideration of project complexity, risk tolerance, and collaborative goals.
