Design and Construct in Civil Engineering

CT5981
Design and Construct in Civil Engineering

Lecture Notes CT5981
May 2009
Prof. H.A.J. de Ridder BE MSc PhD
Section Design and Construction Management
Illustratie op de voorpagina uit: De Beijekorf des Gemoeds Jan Luijken (1709)
Lecture notes CT5981

May 2009
Editors
Prof. H.A.J. de Ridder BE MSc PhD
J.P. Noppen BE MSc
Delft University of Technology

Department of Civil Engineering and Geosciences
Section Design and Construction Management
These lecture notes are exclusively prepared for use at the Faculty of Civil Engineering and
Geosciences of the Delft University of Technology. No rights can be derived from the contents.
May 09
CT5981
Lecture notes CT5981

May 2009
Editors:
Prof. H.A.J. de Ridder BE BSc MSc PhD
J.P. Noppen BE BSc MSc
Contents
1 Introduction
1.1
1.2
1.3
1.4
Forms of contract and collaboration in the civil engineering industry

The place in the curriculum
Didactic mode
Form of education
2 Principles of collaboration
2.1 Sales agreement
2.2 Complicating factors
2.3 Collaboration agreement
2.3.1 Nature and degree
2.3.2 Environment and context
2.3.3 Process model
2.4 The essence of collaboration
2.4.1 Two problems
2.4.2 Risks and prices
3 Main Principles for control of a project
3.1
3.2
3.3
3.4
3.5
The desired course of progress

The influence of time
The role of uncertainties
Traditional control within normative thinking
Dynamic control model
4 Elements of collaboration and/or procurement

4.1 Tasks to be agreed upon
4.1.1 Stages and milestones
4.1.2 Tasks and contractors
4.1.3 The role of the consultant
4.1.4. Forward and backward integration
4.2 Systems of reimbursement

4.2.1 Common obligations
4.2.2 Cost plus systems
4.2.3 Fixed price systems
4.2.4 Variants
4.3 Reimbursement systems formulae
4.4 Procurement versus collaboration
5 Risks and choices for reimbursement
5.1 Uncertainties
5.2 Risk management
5.2.1 Controlling risks
5.2.2 Causal and conditional thinking
5.2.3 Distribution of risks (external risk management)
5.2 Characteristics of different systems of reimbursement
5.3 Choices for reimbursement
5.3.1 Criteria for control
5.3.2 Sensible combinations
6 Forms of procurement procedures
6.1 Bid-build
6.1.1 Characteristics
6.1.2 Advantages and disadvantages
6.1.3 Position in the building process
6.1.4 Liabilities
6.2 Design-Build (as usual)
6.2.4 Liabilities
6.3 Design-Build with repayable performance
6.3.3 Liabilities
6.3.4 The influence of complexity
6.4 Build Operate Transfer (BOT)
6.4.4 Liabilities
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7. Ways of (strategic) collaboration

7.1 Design Team structure
7.1.4 Liabilities
7.2 Public private partnership (PPP)
7.2.1 The problems with PPP infrastructure
7.2.2 Parties and their interests
7.2.3 Goals
7.2.4 Risk distribution
7.2.5 The PPP collaboration model
7.3 Partnering- and alliances
7.3.4 Liabilities
7.3.5 Experiences in the Netherlands
8 Internationally standardized contract forms
8.1 FIDIC conditions of contract
8.1.1 Construction (CONS)
8.1.2 Plant and Design-Build (P&DB)
8.1.3 EPC / Turnkey projects (EPC/T)
8.1.4 Short Form of Contract
8.2 Other standard forms of contract
8.3 Client / Consultant Model services Agreements
8.3.1 The Dutch DNR 2005 (ONRI/BNA)
8.3.2 The FIDIC White Book
8.3.3 World Bank
8.4 Other cultures, other practices
8.4.1 China
8.4.2 Denmark
8.4.3 Rwanda
8.4.4 Spain
8.4.5 Tanzania
8.4.6 Turkey
8.4.7 Zambia
9 Selection and award of contract
9.1 Specific requirements
9.2 The standard procedure for the common building process
9.3 The present procedure for a Design-Build, fixed price, contract
9.4 The choice for PPP (Public Private Partnership)
9.5 The procedure for combinations of contracts
9.6 Selection and employment of consultants
9.7 Intellectual property
9.8 Procedure of D-B acceptance by Dutch Public Works and Water
ii
Management
9.9 European procurement guidelines
10 Irregularities in the Dutch building industry

10.1 The initial cause
10.2 The ideal mechanism (mutual cost settlement system) from the
contractors viewpoint
10.3 The reality
10.4 How to settle rights and obligations
10.5 The formal conclusions of the Inquiry Committee
10.5.1 The kind and whereabouts of the irregularities
10.5.2 Structural characteristics of the construction industry
10.5.3 Tendering strategy of the public authorities
10.5.4 Integrity in tendering procedures
10.5.5 Irregularities and to control, uphold and trace
10.5.6 Recommendations of the Parliamentary Inquiry Committee
10.6 Legislation / Criminal law
Appendix A
Glossary of terms
Appendix B
Literature list
iii
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iv
Civil engineering outsourcing contracts
1.
Introduction
Parties in the construction industry can choose between different forms of

collaboration and the subsequent, legally enforceable procurement procedures.
In this course various ways of collaboration are discussed using the value-pricecost concept. This is done in a fundamental way, whereby the theory is clarified
by means of practical examples.
The following forms of collaboration and / or procurement procedures are
discussed: partnership, alliances, public private partnership (PPP), clientconsultant-agreement, risk-management, risk sharing, Bid-Build, Design & Build,
BOT etc. Also other things that deal with the organization of the construction
process, are mentioned.
Parts of the lectures are given by visiting lecturers.
1.1
Forms of contract and collaboration in the civil

engineering industry
Why is this specific course on collaboration in the Civil Engineering (CE) industry
drawn up, and is it not a general course on collaboration between various parties
in the construction industry? The reason is that the CE discipline distinguishes
itself from other technical disciplines in a number of essential ways and
consequently distinguishes itself in their forms of collaboration. One of the most
important aspects is that the CE sector aims at sustainable systems for use as
public services. With that characteristic, CE not only differs from those industries
that are engaged in mass-products (consumption articles), but also from the
house building and manufacturing industries. Those industries respond much
more to market-demand than the demand for public services.
Other important aspects, in which CE differs from other technical sectors, are:
it operates on the basis of technology and not on the basis of a product
group;
unique, one-of-a-kind structures are built, and not series of similar works;
the budget for both development and research is low as compared with the
cost of realization;
a product is made just for one specific customer. In other words: a specific
solution for a specific wish;
the product is mostly constructed on location; so one always has to deal with
local circumstances taking into account the problems with weather, water and
soil etc.;
there is a low added value per kilogram of product;
often one has to cope with the requirement for a long performance lifetime
(100 to 2000 years!);
the owner (and user) is in most cases not the Employer (Principal / Client);
there is often local opposition against the plans (NIMBY: Not In My Back
Yard attitude);
the projects have always a multi-disciplinary character.
Developments in the civil engineering industry are slow. Especially as regards
technology, the industry is not as turbulent as for example the aerospace
industry, the horticulture or the electronics sectors. For a long time this slow
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development also applied to forms of collaboration.

For many years the only system for awarding contracts for works was to issue
tender documents by the Employer to potential/selected bidders, the lowest
bidder (Contractor) to be awarded the contract, the structure being built and
delivered, and transferred to the Employer for use.
A number of decades ago however, a change was introduced and especially in
the U.K. a start was made with so-called Design & Build (DB) and EngineeringProcurement-Construction (EPC) forms of contract. Via the offshore construction
industry this change entered other countries such as The Netherlands. Nowadays
these types of contracts are very familiar and commonly used.
Another change is that the involvement of the construction contractor is extended
both towards the design stage (forward integration > earlier in the chain of
stages of a project) and / or the exploitation stage (backward integration > later
in the chain of stages of a project).
Having lagged behind for many years, all of a sudden the construction industry
now leads the way with regard to new forms of collaboration. This is still a
delicate situation though. Both construction companies and Employers need
to learn how to deal exactly with the great variety of possibilities which have
arisen with these new approaches. Because basic framework models or general
contractual arrangements are just being developed nowadays.
In most cases a certain form of contract is taken from some reference document,
with attention being paid only to the formal clauses. A fundamental approach to
why such a procedure should be applied is usually found to be lacking.
One thing is very certain: in the construction industry everything hinges on
collaboration. Therefore it is of the utmost importance that the civil engineer is
fully aware of a number of principal and fundamental matters with respect to
the subject of collaboration.
1.2
The place in the curriculum
The course Contract forms and collaboration in the civil engineering industry
concludes the integral-design approach of the faculty of Civil Engineering and
Geosciences.
The whole design approach consists of:
BSc-programme
1st year:
Introduction to Integral Design, project education 1, CT1061
In this course the elementary design cycle is applied to a civil engineering
problem. The principal approach is to learn how to deal with analyzing the
problem, finding solutions, applying knowledge of design methodology and
tools, terminology and visualization. Attention is paid to individual work as well
as teamwork and team spirit by forming project groups of 8 students, working
together to prepare a preliminary design in which the subject fields of Earth,
Water, Buildings, and Transport and Planning are important components. The
group learns how to define a system boundary and how to fit in a conceptual
form in a neighborhood. Keywords are: creativity, cyclic thinking, teamwork,
data processing and communication.
2nd year:
Integral Design in Civil Engineering, project education 2, CT2061
Prior to this course the student must have followed the course Introduction
to Integral Design, thus acquiring an understanding of the design process. In
this course emphasis is laid on designing at various design levels, following the
evolution from coarse to fine.
Having completed this course, the student can perform her/his role as
member of a design team applying an integral approach to the five design
aspects (environment, functionality, maintenance, engineering and realization),
taking into account the total life cycle of the built object. She/he will be able
to determine both the value and the cost of the design, based on the timedependent, changing value of money. Keywords are: inventiveness, forming
technical systems, balancing yield, technical system and costs.
3rd year:
System Engineering, project education 3, CT3061
Prior to this course the student must have followed the courses CT1061 and
CT32061.
On the basis of a feasible concept design, groups of students work this out in
further detail applying the process-knowledge and skills gathered in the previous
courses.
The students organize themselves and work together in dimensioning the
elements of a system, the verification and validation of that system and the
coordination during combining of those elements into a working system.
An important part of this course is that the students /designers learn how
to gather knowledge on subjects that they dont have but yet need at that
moment. To that purpose they should consult experts (scientific employees from
all sections).
MSc-programme
4th year:
Functional design in Civil Engineering, CT5910
Analysis of the formulation of the design task during the first three stages:
Initiative, feasibility analysis and conceptual design. Research and analysis of
general - problem solving - methods. (Re)Develop methods to stimulate creativity
in the design processes of a civil engineer. Single-case study of using a general
problem solving method on a civil engineering design and construct problem.
Comparison of different civil engineering - problem solving - methods.
5th year:
Methods of cooperation in Civil Engineering, CT5981
A review is given of the most common forms of collaboration in realizing a
project in civil engineering. The course discusses the state of the art. This is
done in a fundamental way but the theory is clarified by means of practical
examples illustrated by visiting lecturers. The course aims at preparing students
fundamentally for the various forms of collaboration he will engage during his
professional career. However it is emphasized that no attention will be paid to
the literal contents of the various contracts. It is a matter of insight so that later
on the correct choices can be made for the adequate form of contract for a
specific type of project.
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1.3
Didactic model
In this course a review of the most frequently used ways of collaboration is

given. The theoretical basis is clarified by means of various practical examples
presented by visiting lecturers. The course aims at the fundamental education
of civil engineers, whom will encounter these forms of collaboration in their
professional careers. Intentionally, i.e. on purpose, no attention will be paid to
the literal content of the various contract forms involved: this is pre-eminently
something that the (former) student should learn while practicing his or her
profession. In this course it is a matter of raising the student to the right level
of understanding, in order for him or her to make the right choices for forms of
collaboration later on in life.
In chapter 2 the principles of collaboration are explained, and the subjects that
play a role in collaboration are clarified. What the essence of collaboration is
really about will be discussed in this chapter as well.
Controlling a project is one of the most important subjects that come up when
discussing collaboration. The question is not only how to control (fixed goals
versus dynamic control), but especially who is managing what. This subject is
treated in chapter 3.
Chapter 4 deals with the formal elements of collaboration. Tasks to be agreed
upon, responsibilities, authorization, and ways of payment are discussed. Keywords are collaboration versus outsourcing.
Chapter 5 shows how one can deal with risks: so-called risk-management. For
each form of collaboration it is inevitable that risks are properly recognized,
named and fairly and equally distributed over the parties. Otherwise parties will
almost certainly have a lot of disputes at the end of the contract. Furthermore
the choice for a certain contract form also depends on the mode of payment to
be agreed upon. Fixed price versus cost plus agreements and how to choose
between those, are dealt with.
In chapter 6 forms of contract are given, ranging from standard ones such as
Bid-Build to more complex ones such as BOT (Built-Operate-Transfer).
After having learned about the fundamentals in the previous chapters, in chapter
7 a review is given of the ways of (strategic) collaboration discussing design
teams, partnerships and alliances.
In chapter 8 the international standard forms are presented. In addition to the
relation between an Employer and a Contractor there is often (at the same time)
a relation between an Employer (Client) and a Consultant. This type of relation
is clarified as well, for national and international conditions.
For each form of collaboration the Employer / Client needs to find a partner.
Otherwise his or her wishes will not be fulfilled. The process of (pre)selection of
tenderers / bidders (contractors / consultants) and the award of the contract is
discussed in chapter 9.
A final subject that demonstrates the struggling of Contractors to survive and to

manipulate the construction market is something we can learn from. In chapter
10 the former irregularities in the Dutch construction are discussed: the causes,
the mechanism, the conclusions of the Governmental Inquiry Committee and
the various reactions.
Finally a glossary of terms and a list of literature are attached to these notes.
1.4
Form of education
The subject matter is given by means of lectures. At the end of the tuition period
a test is carried out in the form of a written exam (open questions). Preferably
all design courses (CT1061, CT2061 and CT3061 ) and CT3980 will have been
attended with sufficient results.
These lecture notes discuss only the essentials. It is strongly recommended
to attend the lectures because many practical examples are presented there;
amongst others by visiting lecturers. It has been concluded from previous lectures
that the subject matter is not easy to understand without these examples.
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2.
Principles of collaboration
Each form of collaboration involves an agreement. Prior to entering the subject

of collaboration it is necessary to first examine the concept of agreement. The
simplest form of agreement is that of a sales agreement.
2.1
Sales agreement
A product is displayed for sale in a shop window. A potential demander (client)

passes by and he or she assigns a certain value to that particular product. A
price tag is attached to the product, and the client wonders if that price is
worth paying for. That very instant he (in the following he is meant to be
read as meaning either he or she) determines for himself what the value is
of that product. If this value is higher than the price, the client will buy the
product unless he expects to find a larger difference between price and value
somewhere else. In the latter case he will go around various shops to find out
where the greatest advantage can be obtained. This is the demand side of the
agreement.
The supply side is looked at in a different way. Let us assume that somewhere
there is a manufacturer who makes certain products, made at a certain cost.
The total costs are converted to costs per product. The manufacturer wants to
make a living out of this activity, so he adds a profit margin to each product.
Cost plus profit will then determine the selling price assigned to that product.
Upon settling an agreement in its most simple form, there will be three
characteristics to be considered:
value;
price;
cost.
These characteristics are shown in the figure below.
Benefit
Demander
Supplier
Profit
Value
Price
Costs
Figure 2.1 The sales agreement
The figure shows that the demander obtains an advantage (benefit) if there is
a positive difference between value and price. At the same time the supplier
makes a profit if there is a positive difference between price and cost. If both
conditions are met we shall see two satisfied parties that have entered into a
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sales agreement. In general such a situation will occur if there is a sufficiently

large difference between - on the one hand - value and - on the other hand
- price. However, if this difference is small it will be much harder to get both
parties to be satisfied with the deal. Usually it is the supplier who will not be
satisfied, because he will have failed to create enough value for the costs he
has incurred.
2.2
Complicating factors
Reality is by no means as simple as depicted in Figure 2.1. Both value and costs
are not fixed as easily or as straightforward as one is led to believe.
One of the most important ways to increase value is by offering a guarantee
during a certain period of time. In following this course of action, the supplier
implicitly points out that quality is present in the delivered product. A supplier
who sells junk will not be inclined to give all kinds of guarantees. Of importance
for value is also the preparedness and competence of the supplier to quickly
repair or make good any substandard products. Such willingness can not easily
be established just by looking at the suppliers blue eyes. Often reputation is
a key element. Another important value aspect is the network of service points
for the product - especially in the case of travel, when it is an advantage to have
many places available where the product may be repaired.
As far as price is concerned, the price tag is not automatically a fixed matter.
Discounts are often given without demanding something of value in return.
Sometimes discounts are offered when payments are made directly in cash.
Also many different forms of financing are offered, that all affect the final price.
Another variant is the trading-in of worthless articles, in order to obtain a discount
and even the advantage of not having to pay the cost of their disposal. These
days we notice furthermore that delayed payment is often agreed upon without
the client having to pay for any interest for the period of the delay. Finally, what
to think about coupons and air miles?
It is clear: the simple model using value, price and cost can be turned upside
down quite easily. Of course this is when seen from the suppliers viewpoint,
because he is the one who has to play the market. Market share is acquired by
direct or indirect increases in the difference between value and price.
2.3
Collaboration agreement
A collaboration agreement is more complicated than a sales agreement. The

reason being that this is not a ready-made case, placed in the shop window, but
rather a matter that is developed over time in the context of the collaboration.
In a collaboration agreement one therefore hardly ever refers to a consumerproducer relationship, but one looks at it as an assignor-assignee relationship
instead. One could also refer to this as a problem owner - problem solver
relationship, or alternatively as a value demander value supplier (Principal Contractor) one. The purpose of a collaboration agreement is:
The Contractor incurs costs in order to develop a concept, which has enough
value for the Principal to justify him paying the price asked for it.
2.3.1
Nature and degree
The nature of the collaboration takes place in between two extremes: either the
Principal (Employer, Client etc.) carries out all the work himself, or he puts it out
to tender. Within these extremes a number of stereotype forms of collaboration
can be distinguished, see figure 2.2.
Put everything out to
tender
Do everything yourself
Traditional
Figure 2.2
Innovative
Public/private
The nature of collaboration
The degree of collaboration depends on a number of factors such as the

complexity of a project, the changes / modifications that are to be expected, and
(to a lesser degree) the duration of a project. It is obvious that the more intense
forms of collaboration will place much greater demands on the organizations
and their management. In successful collaboration important aspects are both
the formal agreements (contracts) as well as the manner in which informal
matters are dealt with, such as dealing with trust.
Characteristics of a low degree of
collaboration
Temporary
Objectives have a low degree of
complexity
One-sidedness and low complexity

in points agreed upon, based on a
Employer-Contractor system
Activities are easily planned

Agreed points are relatively simple
No changes
Table 2.1
2.3.2
Characteristics of a high degree of

collaboration
Project duration is often long

Objectives are highly complex
Partners are equal
Uncertainty about the progress and
feasibility of the project
Points of agreement are difficult to lay

down in a contract
Changes are to be expected
Characteristics of a low and of a high degree of collaboration
Environment and context
The environment and context in which the construction industry finds itself lately
is subject to strong changes. Trodden paths that are familiar terrain are being
departed from and are replaced by quests for new forms of collaboration that
can deal with the ever-increasing complexity of civil engineering issues.
Collaboration becomes more important if the surrounding environment becomes
more complicated, if contract forms deviate from the standard versions, and
when the roles of the different parties become less equal and less traditional.
In this situation a much greater emphasis is placed on trust. With more intense
forms of collaboration this means that trust in the partner takes a more prominent
place. A lot of time and energy will have to be invested in gaining each others
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trust, and in maintaining it. Trust takes various forms, depending on the degree
in which the partners are already familiar with each other. We can distinguish:
Borrowed trust: someone can be trusted on the basis of recommendations
made by another party. A pre-requisite is that this other party should be
trustworthy.
Reliability: from past experience it is known that the other party will be able
to meet its obligations / expectations because of having enough knowledge,
ability and capacity to meet the requirements.
Trust: one has learned to trust the other party, as being loyal and honest.
Familiarity: parties have learned how to work together and working methods
/ procedures are synchronised.
The greater the number of forms of trust between potential partners, the greater
the support and basis will be for collaboration. Without this support quite some
effort has first to be put into building up a relationship of trust. The larger the
collaborating organisations are, the larger that the amount of effort will be to
gain the necessary support.
2.3.3
Process model
Collaboration will be most successful when the parties involved have tailored
their contract form and their objectives to fit together well. Collaboration has
its own momentum and can be considered as a process evolving in stages of
respectively becoming acquainted with each other, negotiation, agreement(s)
and implementation.
The process model in figure 2.3 illustrates the subject.
PAST
DESIRED FUTURE
NEGOTIATION
TRUST
IMPLEMENTATION
Figure 2.3
AGREEMENT
Process model
Past
The past is of major significance when entering into, and negotiating, a
collaboration arrangement. Working together will progress better if the parties
are already familiar with each other and have collaborated successfully in the
past before.
Negotiations will be easier when the negotiators already know and appreciate
10
each other personally. However, it is imperative to keep private and business

affairs separated.
Desired future
The existence of a certain desired future is important in a collaboration,
particularly if there are strategic reasons for joining forces. This can mean
expansion or termination of business activities, or acquiring a position in the
market. These objectives must be known to the collaborating parties.
Negotiation
In this phase the parties become better acquainted and trust is built up. In order
to be able to properly appreciate each others habits, culture and world view
calls for an understanding attitude. A companys mode of operation is influenced
by its culture. It can, for instance, be difficult for a contractor to accept that
government processes take a long time to mature, because of different interests
/ stakes and the sometimes political sensitivity of the process.
Agreement
After negotiation the parties reach an agreement. In it is sealed the recording
of points agreed upon but also the trust each party confesses in the other.
Different contract forms and sizes are possible.
In any event, the following items need to be part of the agreement:
Description of mutual obligations;
Description of the stated objectives, and the milestones during the process;
Agreements on costs and payments;
Agreement on how and when to terminate the contract;
Agreement on conflict management.
Implementation
This is when the collaboration really starts. What has been aimed at during the
negotiations, and laid down in the agreement, now has to be put into practice.
The trust gained in each other has now to be maintained and expanded. Efforts
will have to be made to let the organisations get used to each other. Procedures
and controls will also have to be arranged to suit the participants, all of this
requiring time. An old saying applies here: trust arrives on foot, but departs on
horseback. In other words: it is easier to ruin a relationship of trust than it is to
create and sustain it.
The role of trust
Trust is the essential element in collaboration. It can be said that without trust
no collaboration will be possible. Gaining trust can be considered a process:
giving ones trust to someone else will lead to more trust, faith and confidence,
whereas breaking someones trust will very often have negative and irreversible
consequences.
If a relationship is based upon trust, this will have a positive effect on matters
influencing the relationship. As a result, more opportunity arises for open and
constructive exchange of information and experience. Creativity and effectiveness
of the relationship can be strongly enhanced. The partners will find themselves
in an upward spiral of positive, constructive behavior. This joint effort can move
mountains.
On the other hand, when trust is absent, an inverse process will take place.
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Parties will become cautious by sitting on the fence, and will only put in an
effort if they are sure that the other has committed himself to do the same.
Because of this doubting attitude, working together will become strained. The
relationship incurs damage and becomes less fruitful. Heels are dug into the
sand, and so on.
In business terms, trust is composed of making clear agreements and applying
proper business practice, thus making sure the collaboration develops with real
commitment in place. In this sense, trust is as tough an assignment as is the
written contract behind it.
2.4
The essence of collaboration
In civil engineering, collaboration centres on the development of a (building)

concept. This work can be considered as the supply of a product (the desired
end result), for which a set of actions is required (the process).
The Employer / Principal / Owner is in the position of being the value demander,
who receives a value for which he must pay a certain price. The contractor is the
value supplier, who receives financial funds with which to create value.
In fact both collaborate to achieve the same aim, with each working according
to his own interests. That is the essence of collaboration. These are the forms
of collaboration that are the main content of this subject
2.4.1
Two problems
In order to arrive at a collaboration agreement two major problems need to be

overcome.
The first problem is: how does the Employer make sure that he gets what he
wants? A List of Requirements is drawn up to achieve this aim. These should
actually be seen as the translation of the idea of value to the idea of a concept.
To this LoR a price is attached, derived from known reference projects
LoR
value
price/budget
translation
Figure 2.4
reference projects
List of Requirements (LoR)
The second problem is how the Contractor should determine his price. For the
realisation of the concept the (construction) costs are first determined, following
which the price is arrived at by adding a margin for profit and risk to those
costs.
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Concept
price
costs
profit
risk
Figure 2.5
building costs
several costs
Concept
Both treatments of these problems can now be combined in one process

diagram.
value
price
LoR
Figure 2.6
costs
Concept
Process diagram of product
This diagram represents the whole process for the realisation of a product, in
which control can be applied to all elements and in which account can be taken
of each form of collaboration. In this process it should be pointed out that the
Employers main interest is to create as high a level of value as possible. The
Contractors main interest is to see to it that costs are as low as possible.
For both parties it is important to get the LoR converted into a concept at a
realistic price level.
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2.4.2
Risks and prices
Both problems indicated above are not solved that easily and constitute risks
for each of the collaborating parties. There are two kinds of risk. On the one
hand there are the risks in specifying the Employers demand, which can only be
controlled by continually questioning whether the LoR is correct. On the other
hand there are production risks for the Contractor, resulting from uncertainties
in the production process. These can be controlled by continually questioning if
the price is at the correct level. Both risks are shown in figure 3.4.
Risks
value
LoR
price
concept
risks in specify
demand
Figure 2.7
costs
production risk
Risks
When entering into an agreement, the chief objective is to arrive at a proper

price. By introducing competition an Employer can increase his influence on
price. This is done by putting the LoR on the market. The Contractor can
influence price formation by maintaining an optimum ratio for profit / risk. In
the following figure this is shown:
variables
value
LoR
competition
Figure 2.8
variables
price
concept
costs
ratio for
profit/risk
Influence factors
Analogous to paragraph 2.3.1 three types of collaboration can be distinguished,

represented in the following figure. The shaded areas are the contract
domains.
14
focus client
Contract domain
LoR
Value
Price
focus contractor
Concept
Costs
Traditional contracts
focus client
Value
Contract domain
LoR
Price
focus contractor
Concept
Costs
D&B contracts
focus client
Value
Contract domain
LoR
Price
focus contractor
Concept
Costs
Public Private Partner
Figure 2.9
Contract domains
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16
3.
Main principles for control of a project
One of the most important subjects to be dealt with in a collaboration relationship

is the control of a project. Not only is it a matter of what is under control and
how control at different levels is carried out, but of particular interest is whom
controls what. From the latter are derived the tasks, authorisations and
responsibilities in the relationship. In short, quite an important subject, which is
dealt with in this chapter.
3.1
The desired course of progress
As pointed out previously, the key parameters in project control are value and
cost. A project will show a benefit if the difference between value and cost is
large enough. It is important to ensure that this difference is maintained at a
sufficiently high level throughout the course of a project. Control of value and
cost can most simply be illustrated by looking at a typical commercial project.
The value of such a project can be equated to the sum of the revenues during a
certain period of time. Usually this period is 10 to 15 years. The yield can then
be established using this sum, including also the production cost and interest.
For investors the yield is a crucial criterion.
In the following diagram a project is set out on a time basis, showing three
specific stages with sharp turns at the stage changeovers. These stages are:
development and design;
realisation;
exploitation.
In this example no account is taken of demolition, renovation or possible
reuse.
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Benefits
bi
ki
development
realisation
exploitation
Costs
Figure 3.1
Cumulative cost and benefit of a commercial project, set against time.
For a viable commercial project the first requirement is that cumulative benefit
must be quite a lot larger than cumulative cost. During the exploitation stage
costs should include maintenance as well as running costs (servicing, cleaning,
etc.).
It is not a coincidence that traditionally the stage changeovers were used as
partition points in a project to subdivide it into several independent sections. At
those points contracts were often signed with other parties. However, this was
not only done because of the changes in financing (sources), but rather because
of the nature of the activities involved. Further on in these lecture notes we will
revert to this issue.
18
3.2
The influence of time
It will be clear that the benefit-cost curve shown in figure 3.1 is a very simplified
representation of reality. Not only are the curves a lot more random in reality
due to financial flows that do not follow regular patterns; it is the disjoint (out
of phase) occurrence of income and expenditures that causes reality to look so
very different. Figure 3.1 has been repeated in figure 3.2, but then with a nett
cash flow (against time) including the effects of interest paid. It can be seen that
a positive result for the project is reached only at a late stage in its life.
Benefits
Design
Realisation
Exploitation
Costs
Figure 3.2
Nett cash flow for a commercial project with interest included.
From figure 3.2 it can be seen that four variables are of major importance:
the size of the investment
the amount of revenue per unit of time
the duration of the exploitation stage
the rate of interest.
The difference between the design & development stage and the realisation
stage must be evident. In the design stage the costs are low, but the degree of
influence on the design is high. During construction (realisation) the opposite is
the case. This is represented in the following table.
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Contribution to costs
Influence on costs
Design
low
high
Construction
high
low
Table 3.1 Share in the costs
3.3
The role of uncertainties
It is obvious that the real progress of projects usually does not follow the
designated path. Most construction projects are unique (a once-off version) and
are characterized by an unrelenting series of disappointments. This is not such
a surprise, as the processes involved differ quite markedly from the processes
normally belonging to mass production systems. In those cases it is customary
to spend a lot of time beforehand thinking about the production process, which
then will be seen to perform reasonably. In construction however, projects are
always one-of-a-kind and the time and effort spent on proper thought beforehand
is often inadequate. This attitude can be explained by the underlying belief that
there will not be further identical contracts to follow, with which the once-off
effort can be earned back.
Whatever the case, in construction projects the costs usually work out to be
higher than anticipated, and the benefits lower. The reason for this can be
traced to the problem of how the future is perceived, i.e.:
Taking a subjective view instead of an objective one. This is
personality-related, causing just one view of the future to be considered.
Taking a partial view instead of a comprehensive one. This is related to
the goal one has in mind. The owner of a car demolition firm looks at
accidents in a very different way than a car driver who watches the
accident scene while passing by in a hurry.
Viewing reality in relative terms instead of in absolute terms. This relates to
the mental models we employ when looking around us. Our mental models
are usually insufficient to describe reality, let alone the future. The mode of
perception that we use invariably leads to underestimation of the costs (Cend
> Cstart) and overestimation of the revenues (Rend < Rstart).
20
Benefits
bi be
t
ki ke
Cost
s
prognosis of revenues and costs if no underestimation occurs
new prognoses as time develops
actual revenues and costs
Figure 3.3
Underestimation of costs and overestimation of revenues.
It can be seen that the yield of an investment is clearly put under pressure by
perception problems.
In the following, control is only dealt with in relation to the development and
realisation stages. Therefore it is implicitly assumed that during the exploitation
stage control will hardly be exercised. This is not entirely true, but it does simplify
the subject.
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3.4
Traditional control within normative thinking
In classical construction project management, matters are dealt with using

normative thinking. At the start of a project its value is converted into a required
level of performance, that subsequently must be attained. That required
performance level is supplemented with a budget and a time schedule. This is
the well-known Triple Constraint.
output
required performance /
results desired
duration schedule /
planning
time
budget /
costs
resources
Figure 3.4
The Triple Constraint
Due to uncertainty, and therefore underestimation, the strict adherence to a

required performance level in fact never works out satisfactorily for achieving
the desired result. In civil engineering it is usually not possible to modify the
governing parameter (for instance a safety limit, or the clearance height under
a bridge), so the required performance level must then be adjusted to suit
(variation orders).
Control within normative thinking always leads to the following results:
Required performance
Within time schedule
Within budget
yes
yes
no
yes
no
yes
yes
no
no
no
yes
yes
no
yes
no
no
no
yes
no
no
no
Table 3.2
22
In any case there is never a score of triple Yes!
3.5
Dynamic control
The knowledge that everything is always underestimated has led to the

development of a model that exercises dynamic control, using the difference
between value and cost. Such a model is demonstrated in the figure below.
Figure 3.5
Dynamic control model.
In the dynamic model control is carried out by examining a certain difference

between value and cost. This difference is not used in a normative fashion or
in an absolute sense. If more added value can be gained against relatively low
additional costs, the decision maker will not hesitate to invest. That will also be
the case when a lot of costs can be saved without a large drop in value.
This control model is frequently used in the process industry. In civil engineering
it is not used actively, or in a deliberate way. Its used passively and unconsciously,
but that does not mean it can be termed a proper control model. In the up and
coming modus of value thinking, this model will certainly become generally
adopted in civil engineering within a number of years.
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24
4.
Elements of collaboration and/or

procurement
One of the most important components of a collaboration agreement are the

tasks to be agreed on. The items that are explicitly contracted out by the
Employer to the Contractor are the main focus. The Employer always remains
responsible for the result he requires and he is the one who decides what shall
be done. Subsequently the Employer contracts out the construction process to
one or more parties, either in one complete package or in separate parts. Please
note that when considering the tasks to be carried out, one should not only look
at the activities but also at the obligations related to those tasks.
The second component of the agreement is the system of reimbursement. In
principle it is possible to deal with reimbursement systems separately from
their associated task descriptions. However, it is difficult to disassociate the
reimbursement system from the commitments made. In other words: the
reimbursement system is often coupled to a commitment based on an obliged
effort or an obliged result.
A reimbursement system is in fact nothing more than fixing a price for the task
to be fulfilled. We already were aware that such a task costs money. The aim
is therefore to translate cost into price. The subject matter dealt within this
chapter is mainly derived from: Peeters, W.A: The Appropriate Use Of Contract
Types in Development Contracts, European Space Research and Technology
Centre, Noordwijk, The Netherlands (1987).
4.1
Tasks to be agreed upon
Drawing up a task description can be best carried out by considering the total
lifetime of a civil engineering work. After all, in each stage of the structures
lifetime tasks are contracted out.
4.1.1
Stages and milestones
The description of the life cycle (stages, milestones etc.) links up best with the
standards and notions used in practice, see the table on the following page.
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Life cycle civil engineering systems

Stage
Milestone
Problem
Orientation
Goal
Feasibility
Function
Conceptual design
Shape
Preliminary design
Preliminary design
Detail design
Works preparation / Construction
Detail design
Components
7
Installation
Testing
System
Working system
9
Operation
10
Demolition
Depreciated system
Scrap
Table 4.1
Life cycle stages civil engineering systems
The various stages can be contracted out both in combined or separate

fashion. Combinations only make sense if the stages within the combination
are sequential. For that reason the combination of stages 1 + 4 + 8 is not a
sensible one. If a sequential order is imperative, then 55 different combinations
are possible in the series of stages 1 + 2 + 3 + ........ + 10.
26
4.1.2
Tasks and contractors
In traditional civil engineering a number of strict separations exist between the

stages. Sometimes each stage has a different Contractor/Consultant.
Sometimes even Employers change at a stage transition point. The latter occurs
e.g. with the Dutch Rijksgebouwendienst (Government Buildings Agency)
and the Dutch Rijkswaterstaat (a Directorate-General of the Dutch Ministry
of Transport, Public Works and Water Management). They order numerous
buildings and structures to be built, making the design and fulfilling the role of
Consultant/Resident Engineer themselves, but leaving the exploitation of the
buildings, respectively operational administration to third parties.
In the traditional situation we come across the following types of contractors
(and consultants):
1
Orientation
Feasibility
Government, consultant
Conceptual design
Preliminary design
Detail design
Construction
Government, sub-contractor
Installation
Contractor, sub-contractor
Testing
Contractor
Operation / Management
Operator / Administrator
10
Demolition
Consultant and contractor
Table 4.2
4.1.3
Contractors and consultants in the traditional situation
The role of the consultant
Certainly during the design stage, a frequent mode of operation is for one
consultant to take over the work of another one. In the previous chapter we
noted that apart from an Employer and a Contractor, as the main parties engaged
in a building industry project, in many cases there is a third party involved: the
Consultant. Consequently there can also be a relation between an Employer and
a Consultant, or a Contractor and another Consultant (even at the same time).
In the case of a third party being involved, one often uses the expression Client
instead of Employer or Contractor. In this type of collaboration the Consultant
renders services to the Client for assignments such as design, engineering and
supervision services, management services, etc. The next figure depicts these
relationships.
white book
Employer
as
Client
Consultant A
some contract
white book
Contractor
Figure 4.1
as
Client
Consultant B
Contractual relations between various parties
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In this figure the principal relation is the one between the Employer and the
Contractor, indicated by the description some contract. For that relation the
Employer acts as the only Client. However, it is also possible that in a different
relationship not only the Employer acts as a Client, but also the Contractor for
instance when he employs the services of a Consultant.
4.1.4
Forward and backward integration
You can imagine that it is not very efficient to frequently hand over the
involvement of participants in a projects lifetime. One can think of the following
disadvantages (see also CT3980 Preparation and execution of works in the civil
engineering industry):
There is a reasonably high chance of important information getting lost or
not being transferred correctly to the next stage;
Acquired knowledge and experience are not adequately used;
Having new value suppliers each time costs money (transaction costs);
In case of mistakes, the blame and responsibility are usually given to the
preceding party;
Less involvement and commitment from the side of the Contractors;
No integration of the stages and their corresponding expertise, causing suboptimal solutions to be developed.
For many years now, the above mentioned situation has led to the call for more
integration in the course of the process.
There are three types of integration:
Forward integration, in which a certain party (e.g. contractor) takes
responsibility for a part of the preceding process(es);
Backward integration, in which a certain party (e.g. contractor) takes
responsibility for a part of the following process(es);
A combination of these two.
Before we go into detail with respect to the merit and drawbacks of these forms
of process-integration, it is worthwhile to first analyse the contents of both the
various stages and their milestones. It may be interesting to find out which
aspects receive the most attention in each of these stages. This will give us
insight into the merit or drawback of possible combinations of tasks.
To do this, use is made of five basic design aspects that play a role in civil
engineering systems:
environment
functionality
sustainability
engineering
execution
The emphasis that is put on these aspects in the various stages of a projects
lifetime, is depicted schematically in table 4.3. The size of the bullet is an
indicator for the importance of the aspect as a variable!
28
environment
functionality
sustainability
engineering
execution
orientation
feasibility
conceptual design
final design
detail design
works preparation/
construction
installation/ execution
testing
operation
demolition
Table 4.3
Importance of an aspect in the various stages of a project
A number of typical blocks can now be distinguished:

Block 1: integral design: these are the stages no.1, 2 and 3 in which the emphasis
is on the aspects of environment, functionality and sustainability;
Block 2: civil engineering design: these are the stages no.4 and 5, in which the
emphasis is on the aspects of civil engineering and construction;
Block 3: realisation: these are the stages no.6 and 7 with the emphasis on the
aspect of construction;
Block 4: operation: these are the stages no.8 and 9 in which the emphasis is
again on the aspects of environment, functionality and sustainability.
If forward or backward integration is mentioned, it will mostly be when seen
from the viewpoint of the party constructing the works. Forward means than
earlier in time during the development of the construction! This is caused by the
old-fashioned idea that all we are concerned with is the building of a structure.
That again arises from the thought that all the risks involved are related to cost
only. Nowadays we know much better: risks are determined and dealt with in
the design stage, when design cost is negligible in comparison to total cost. As
we know, total project cost is composed of development cost, realization cost,
operational cost and demolition cost.
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Looking at above table it is questionable if it is wise to integrate backwards or

forwards with respect to the realization stage, because the realization process is
quite different from both the development and the operational stages. It can be
concluded that forward integration must not progress too far ahead (in time). At
most to, or including, the stage of final design.
As concerns backward integration (further in time), it seems sensible to make
a split between operational benefits and operational cost. The exploitation
of a building, though, is not really part of the core competence of builders.
Professional administrators do this job.
However, this does not apply to the cost of exploitation. That subject can be dealt
with properly by the building parties, because it includes a kind of guarantee.
Because if the construction company is responsible for the sustainability of the
structure it will surely strive to keep the cost of maintenance low. This implies
that the structure will in most cases be robust, not only needing a low level of
maintenance but also having a high reliability and availability. That knife cuts
both ways!
4.2
Systems of reimbursement
There are two types of systems of re-imbursement which are discussed in this
section:
cost plus systems
fixed price systems
When using a cost plus system, the Employer reimburses all acceptable and
reasonable costs of which the Contractor can demonstrate that he has incurred
those expenses.
Using a fixed price system, the Contractor (or Consultant) receives a fixed
amount of money concerning the services rendered or product delivered.
There is an important, principal difference between the two reimbursement
systems which govern the risks that parties bear in a collaboration. In the case
of a cost plus system the final price of the works is determined in retrospect
(e.g. remeasurement contract); but when a fixed price system is used the final
price is determined beforehand (e.g. lump sum contract). Even in the case of a
cost plus system it is common practice to use a kind of basic reimbursement:
the target.
4.2.1
Common obligations
The most common type of obligation in the construction industry is the resultbased obligation: there are drawings, a list of requirements, bills of quantities
and specifications and the construction firm has to build the structure according
to those instructions. In principle the result is fixed from the outset. Occasionally
the result can also be determined in a looser fashion: the desired result is
expressed in terms of a certain performance.
Often, a result-based obligation is entered into with respect to meeting the
requirements of a LoR. In all such cases the result is clearly defined. If this result
is not attained, there is a problem.
30
A second type of obligation is the so-named effort obligation: often used in the
first stages of a project. For example in the feasibility stage or in the preliminary
design stage. In those stages a lot of things that have to be done are agreed
upon, but the result is by no means clearly defined. In many other disciplines
one often encounters effort obligations. What to think of soccer players, music
teachers, artists and hotel managers?
In very general terms one could say:
result-based obligations are agreed upon if one has to deliver a well defined
product;
effort-based obligations are agreed upon if a certain process is considered.
4.2.2
Cost-plus systems
With cost plus systems it is mostly a matter of effort-based obligation. This

is logical because efforts are directly related to cost. With these systems of
reimbursement, it is the size of the incentive (= the plus in cost plus) on top
of the cost that counts. This incentive is needed for covering:
the general costs (overhead) that have to be made on top of the direct
costs;
the risks involved;
contractors profit.
This suggests that an incentive is fully determined by the Contractor, but that is
not the case entirely. The Employer can also dictate the size of the incentive.
He can, for instance, show his appreciation for a smooth process by means of
paying an incentive.
Cost + percentage reward
From the viewpoint of the Contractor this is the most attractive system of
reimbursement. All duly justified costs are paid for, and the reward is paid
according to a fixed percentage agreed beforehand. It does mean that the
higher the cost, the higher the reward. The target reward is paid if the actual
cost is equal to the target cost. This form of contract is shown in the figure on
the next page.
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16
14
Reward (%)
12
10
8
6
Target cost
4
2
60
70
80
90
100
110
120
130
140
150
Actual cost (indexed)

Figure 4.2
Reimbursement system based on Cost + percentage reward
Cost + fixed reward

With this type of system the costs are fully reimbursed, but the reward itself
remains constant. This is shown in the next figure.
16
14
Reward (%)
12
10
8
6
Target cost
4
2
60
70
80
90
100
110
120
130
140
150

Figure 4.3
32
Reimbursement system based on Cost + fixed reward
It is obvious that in case the cost increases, the reward percentage will decrease
(relatively). For the Employer this is a comfortable situation, whilst for the
Contractor it urges him to keep the costs under control.
Cost + incentive reward
With this type of reimbursement system the incentive varies between certain
limits established beforehand. These limits are a function of the actual costs.
This type is depicted in figure 4.4.
One can distinguish two important elements:
the distribution ratio with which the parties arrange deviations
the limits that are established for maximum and minimum rewards.
Maximum reward
16
14
Reward (%)
12
10
8
6
Minimum reward
Target cost
4
2
60
70
80
90
variable
100
110
120
130
140
150

Figure 4.4
Reimbursement system based on Cost + incentive reward
It is noted that:
the reward curve can have any shape (also non-linear);
in most cases different formulas are used when costs are exceeded,
respectively when they are less than expected;
to avoid lengthy discussions a neutral zone is often incorporated into the part
of the curve for cost overruns.
4.2.3
Fixed price systems
For fixed price reimbursement a price is fixed beforehand for the result (product)
to be achieved. It is obvious that in such a system the risk for a Contractor is high
and profit by no means always certain. Cost overruns will only be reimbursed
if it can be proven that the content of the work has changed from the target
33
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result.
Fixed price
With reimbursement systems for fixed prices everything is fixed, except in the case
mentioned earlier that the work content changes. This type of reimbursement
system is shown in figure 4.5. It should be noted that the reward (reimbursement
minus cost) can take a negative value (in % and absolute).
16
14
Reward (%)
12
10
8
6
Target cost
4
2
60
70
80
90
100
110
120
130
140
150

Figure 4.5
Reimbursement system based on Fixed price
Fixed price plus incentive

With this type of reimbursement system a target price is established and the
reward is made to depend on actual cost. The lower the cost, the higher the
reward and visa versa.
Two arrangements can be distinguished:
the reward is bound to a maximum;
a maximum price is agreed upon.
Such a reimbursement system is sketched in figure 4.6. Often a sharp turn is
required in the variable part of the reward curve in order to reach the maximum
price.
34
Maximum reward
16
14
Reward (%)
12
10
8
Variable part
6
Target cost
4
2
60
70
80
90
100
110
120
130
140
150

Figure 4.6
4.2.4
Reimbursement system based on Fixed price plus incentive
Variants
There are some variants possible that are based on these two systems of
reimbursement. They can be considered as intermediate forms of coping with
efforts and results.
Reimbursement for inflation
Most collaboration agreements with a limited time span (which is often the case
in the civil engineering industry) have a correction clause for inflation. These
corrections relate to the costs of materials, equipment and personnel.
Performance incentive
With this type of reimbursement system the reward is a function of a certain
performance that has to be achieved. It is imperative that this performance shall
be measurable e.g. via mass or velocity. In that case the Contractor can focus
all his attention on the optimization of his performance. This type of system is
shown in figure 4.7.
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Maximum reward
16
14
Reward (%)
12
10
8
Target weight
6
4
2
32
34
36
38
40
42
44
46
48
50
Actual weight (KN)

Figure 4.7
Reimbursement system based on Performance incentive
Supply incentive
This type of reimbursement system is agreed upon when the time of delivery is
critical. This type is sketched in figure 4.8. The stepped line originates because
time is discrete (mostly expressed in weeks or months).
36
16
14
Maximum reward
10
8
Target delivery time
Reward (%)
12
6
4
2
27
28
29
30
31
32
33
34
35
36
Working days / weeks / months

Figure 4.8
Reimbursement system based on Supply incentive
Plain Incentives
With this type the reimbursement consists partly of rewards that are related to
the results of evaluations carried out at certain time intervals.
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4.3
Reimbursement systems formulae
All systems mentioned in this chapter can be expressed in a formula:

R = BR + ER + VA (TC AC) + SI + PI
In which:
R
= Reward
BR = Basic reward
ER = Evaluation reward
VA = Variable award
TC
AC
SI
PI
=
=
=
=
Target costs
Actual costs
Supply incentive
Performance incentive
For the different systems of reimbursement we find:

For the different systems of reimbursement we find:
Cost-Plus-Incentive-Fee for: 0<VA<1, ER = 0, SI = 0, PI = 0
R= BR + VA (TC - AC)
Cost-Plus-Fixed-Fee for: VA = 0, ER = 0, SI = 0, PI = 0
R= BR
Firm-Fixed-Price for: VA = 1, ER = 0, SI = 0, PI = 0
R = BR + (TC - AC)
Cost-Plus-Award-Fee for: VA = 0, SI = 0, PI = 0
R= BR + ER
Cost-Plus-Mulitiple-Incentive for: 0< VA <1, ER = 0
R= BR + VA (TC - AC) + SI+ PI
4.4
Procurement versus collaboration
The relation between Employer and Contractor in the construction industry

is dominated for many years by a traditional form of procurement procedure
(e.g. the Bid-Build model). The Employer provides (most of) the design details
(perhaps not construction details) and the Contractor builds the permanent
works in accordance with the Employers design.
In this model the responsibilities are clearly defined. The responsibility for
design lies with the Employer and the responsibility for construction lies with
the Contractor. The fact that the design is provided by (or on behalf of) the
Employer and that he shall supervise the Contractor, implies that he is actively
involved in the realisation of the structure.
This involvement of the Employer uses up quite a lot of staff capacity, which
is sometimes not desirable. Back to core business is nowadays the ambition
of a lot of Employers, meaning those staff tasks will be reduced / relocated
elsewhere.
38
This process of retraction has as a consequence that the traditional models of

procurement do not meet the new requirements anymore because the Employer,
by taking a step back in the building process, will take less responsibility.
Especially with respect to design activities these will pass on from the Employer
to the Contractor. In such a way more integrated forms of contracts will develop,
in which the majority of the design (and the construction) is done by one party
only (the Contractor). Because in many projects the Employer still wants to have
some say in those activities, and therefore has some responsibility, one speaks
of a sliding scale of involvement / responsibility.
The traditional model (Bid-Build) is the starting point for this scale. At the end of
the scale one finds the procurement options in which the Employer only indicates
his wishes / requirements and the Contractor is fully responsible for both the
provision of the works and (most of) the design (the Design-Build model; in
Dutch: Design & Construct). Sometimes these models go even further and
exploitation and financing are also part of the contract (Build-Operate-Transfer:
BOT).
Still we have projects going on carried out by parties sitting on both sides of
the table. Working together in e.g. a design team (organisational) structure, a
temporary form of collaboration, based on equal terms, is nowadays often set
up between representatives of the building process: taking initiative, making
a design and executing the construction works. The parties carry out, in a
coordinated form, those activities that follow from their own functions in this
process.
At this moment the most elaborate form of collaboration in the construction
industry is the partnering- or alliance model. This form enables the various
parties - with their own individual interests to still work for a common goal.
These forms of collaboration are not really in use yet in the Dutch construction
industry although some projects have been succesfully completed by now. They
originate from the petrochemical industry, specifically in the USA and UK, and
they are used in those countries for more than 10 years already.
In the next chapters the various procurement options and collaboration models
are discussed along above metioned scale. Attention is paid to the characteristics,
the advantages and disadvantages and their position in the building process. Last
but not least it is indicated how tasks, responsibilities and risks are distributed.
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40
5.
Risks and choices for reimbursement
The distribution of risks (liabilities!) is always a difficult element of the contract,

and is still very much a subject of debate. The discussion focuses, among others,
on the question:
Is the Contractor fully responsible for all damages caused by incorrect design
activities?
The manner in which people treat risks of undesirable events and the
consequences thereof in terms of damage, is however complicated.
For risk control the most effective result can be obtained by subdividing and
distributing the risks.
The best known general rule with respect to the distribution of risks is that a
certain risk shall be borne by that party which is capable of both estimating
and controlling that risk in the best possible way. We know by now that
estimating risks involves probabilities and damage, whereby the general rule
holds that processes are always underestimated and therefore always result in
disappointments. We also know that the control of processes that fall short of
expectations is possible through the use of the three variables performance,
time and budget; see also section 3.4.
So a contract form is determined by means of a combination of a certain tasks;
but also by a certain reimbursement system, and including risk clauses. Although
a number of tasks could be combined, it is obvious that a very large number
of contract forms are imaginable. These will not all be discussed here. Here
the characteristics of the different systems of reimbursement will be discussed,
followed by a kind of choice matrix. The principle is adhered to that the risks
will be adequately distributed between the parties.
5.1
Uncertainties
As may be known, risks are mostly defined as the chance of occurrence of

a certain event times the (financial) consequences when that event occurs.
The annoying thing about risks is that there is uncertainty regarding several
points: the event itself (kind, number), the chance of occurrence (probability
and predictability) of that event, and the consequences (level of damage).
These uncertainties play a major role in how risks are handled. Mankinds
continuous effort is to aim at transferring uncertainties into certainties. One
often distinguishes four types of uncertainties:
1. Full uncertainty: in this case you dont know if it will happen and if it happens,
what to encounter.
2. Conditional uncertainty: in this case one presumes what is to be expected,
but one does not really know what will materialise. This kind of uncertainty is
mostly described by means of probability distributions.
3. Perceptual uncertainty: in this case one could have known what was
to be expected, but one simply was not aware of the risk. It arises from
underestimation, which is a consequence of looking at the case from a different
angle or professional viewpoint.
4. No uncertainty, i.e. certainty: in this case one knows exactly that the event
will happen and what will happen when it does.
In this respect the difference between unknown and uncertain is interesting.
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One could say: unknown is considered as not foreseeable, and uncertain

is unforeseen. On the basis of this approach risks in can be categorised /
distributed.
The optimal distribution then is as follows:
the risks with respect to unknowns belong to the Employer, because it is
this party that wants something done. The Employer takes care of everything
that is not foreseeable.
the risks with respect to uncertainties belong to the Contractor. This party
must be capable, using its professional competence, of estimating what can
be expected and of determining the adequate measures to be taken in case
it happens.
This implies that before a procurement procedure is formalized into a contract,
parties shall make estimates of the risks as best they can. On the basis of those
estimates a risk distribution is worked out. The contract conditions shall contain
a procedure that enables the parties to change this distribution, if necessary. It
shall also be agreed upon on beforehand what shall be done if time and/or costs
are exceeded.
5.2
Risk management
The manner in which people treat risks of undesirable events and the
consequences thereof in terms of damage, are dealt with in different ways.
The first school of thought concentrates on the elimination of causes of
undesirable events (causal approach). The many ways in which something
can go wrong are studied in minute detail. Usually more attention is paid to
the reduction of risk probability than to the reduction of risk consequences
(damage). One can consider this as a slightly pessimistic approach.
The second school of thought concentrates on robustness against risks
(conditional approach). The fact that normally a lot of things can go wrong is
accepted as a given condition and subsequently one searches for alternative
ways to avoid these risks and make something work correctly. Usually most
attention is paid here to reducing the risk consequences, i.e. damage. One
can consider this as a more optimistic approach.
Both approaches are applied in sound risk management. Therefore it is important
to analyze in which cases a causal approach, and in which cases a conditional
approach is the most appropriate way to reduce risks. It is proposed to first
examine the risks of a project with regard to the dominance of either risk
probability or damage consequences, before starting a detailed analysis or a
control strategy.
5.2.1
Controlling risks
The most important conclusion, however, is that controlling risks is not a matter
of elimination of their origins (causes). Consequently, for controlling risks one
does not seek to place all the emphasis on the party that causes the risks.
With each collaboration arrangement these risks shall be adequately shared by
42
the parties involved. That seems like kicking in an open door, but all too often
it becomes clear that dealing with risks is not a very well organized matter. An
example that occurs frequently: the moment something unexpected happens,
one first tries to find out who can be made responsible for it. Only then is
specific action taken to counter the risk. Often this will not be in favor of the
project result or the collaboration effort.
It is much better to make best possible estimates of the risks beforehand, while
at the same time thinking of measures to deal with possible damage. In any
case it is necessary to properly distribute the risks among the partners.
5.2.2
The causal and conditional thinking
It is quite logical for risk management to be based upon causal thinking, i.e. in
terms of causes and consequences. How things can go wrong is studied in detail,
and subsequently adequate measures will be organised to avoid failures.
Theoretically, there are usually many ways in which things can go wrong. A risk
analysis drawn up on that basis is very comprehensive and voluminous, and will
lead to an excessive number of measures to stave off all the threats identified. A
good example is the fault tree (event tree) of an apple pie in the next figure.
Cake not tasty
Stuffing not
good
Recipe not
read
Crust not good
History
Figure 5.1
Did not
wash hands
Recipe not
accurately
used
Ingredients
not good
Fat spot on
cook book
Taste spoiled
Wrong
processing
Dough not
kneaded
Dirty cakemould
Metric units
Not well
done
Too much
sugar
Just brushed
teeth
Quantities
estimated
Too much
flour
Weak
stomach
Consumer is
sick
Eaten bad
cake
Did not
say: no
Too much
butter
Fault tree apple pie
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In practice, the reasons projects fail are often due to phenomena that were not
foreseen; in other words, they were not included in the analysis and plans for
control measures. Nonetheless, in most cases management succeeds although
against much higher cost - in bringing the project to a good end. These higher
costs can be avoided by applying this type of risk management already in the
earliest stages of the project. Risk management is then not only based on causal
thinking, but also on conditional thinking. With conditional thinking one does not
look at the many different ways in which something can fail, but the search is
rather aimed at seeking the particular way in which one will likely succeed. This
type of thinking can often be seen with designers.
5.2.3
Distribution of risks (external risk management)
(in Chapter 6 we will go into detail as regards the different procurement

procedures and ways of collaboration)
Traditional procurement procedures

With the standard contract based on specifications and drawings, an ideal
distribution of risks is achieved. In the design phase the perception risks are the
Employers full responsibility. In case a design turns out to be too expensive (for
instance brought about by all kinds of unexpected items) resulting from either
the cost estimate or the tenders it can be easily adapted against reasonable,
acceptable cost.
During tendering a detailed design, drawings and specifications are available.
Everything is tightly fixed. The contractor can establish the construction
cost, adding the corresponding amounts for profit and risk. With respect to
unforeseen items, a system for variation orders is agreed upon on the basis of
quantities and unit prices. This works well because a detailed reference design
and tender package is available. So all variations can be described easily and
settled financially. This mode of risk distribution is in principle also valid for the
design team form of collaboration.
Innovative procurement procedures (Design & Build, BOT etc.)
Different approaches for the distribution of risks can be adopted in case of
innovative (integrated) contract forms.
All risks are borne by the Contractor
In this form of risk allocation, clarity takes precedence over reason. Whatever
the kind of event that occurs, the risk is always borne by the Contractor. This
type of contract is not recommended and is often used by Employers whom only
take an interest in cost. Adhering to such a contract philosophy, tenders are
often on the basis of fixed price. The risk is then quite high that the job
will be awarded to a contractor who hasnt recognized the risks involved and
consequently hasnt priced these risks either. In the first instance the contractor
will get all the misery of unseen risks suddenly materializing, but in second
instance these killer-contracts do offer the contractor a good position to lodge
claims from. Certainly in The Netherlands the judge will rule that allocation
of all the risks to one party is not a reasonable thing to do, so he will declare
the contract null and void. The damage for the Employer can then be very
considerable. Not only will he be confronted with a claim he shall have to pay,
but he will also be stuck with a bad contractor on the site.
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Sharing the risks on a 50/50 % basis

In this simple form of risk allocation, clarity still takes precedence over reason.
Though simple, the advantage is that the chance of awarding the contract to
a botcher will be much less. In principle a contingency fund is created, with
financial contributions from both the Employer and the Contractor. If at the end
of the project some funds are left, half of these are refunded to either party. So
during construction, both parties will have a direct interest in avoiding the use
of this contingency fund. However, this only works if both parties put in an effort
to perform well and if no major mistakes are made. Moreover, the consequences
of unexpected and unwanted events may not be too large.
The principle is in fact not entirely correct because slacking is also rewarded.
Still, in some cases a positive view of this type of risk distribution is taken (total
alliance).
Sharing of residual risks on the basis of a 50/50 % arrangement
With this type of risk allocation a distribution of risks is first made, based on risk
control. The Employer often gets the perception risks and the risks of obtaining
permits as his share; the other share going towards the Contractor for process
risks (his own primary process). The latter concerns procurement, the use of
equipment and personnel.
The remaining risk items (residual risks), basically all unforeseen, are covered
by a 50/50 % contingency fund as described above. This way of allocating
(residual) risk is much more attractive than an overall 50/50 % distribution of all
the risks, because the risk amounts are much smaller. Risk allocation on the basis
of the ability to control a risk, is basically a good working principle and clear to
each party. However, this only works well if design has already progressed a lot
at the time of tendering. In any case a final design must be ready (i.e. the
shape or form of components must be determined), so that the design freedom
(i.e. freedom to change the design) is fairly limited.
Sharing risks on the basis of performance
With this form of risk allocation a link is made between performance and price. For
each undesired event that occurs the consequences for damage are investigated,
and the (final) goals adjusted to suit. Subsequently a new performance target is
established and the corresponding imbursement as well.
It is imperative in this case that the performance be measurable and that both
parties are very competent in their field. This type of performance contract is
discussed in section 6.4.
5.3
Choices for reimbursement
As said above, a contract form is determined by means of a combination of a

certain task and a certain reimbursement system, including a risk clause. This
implies that having e.g. 10 tasks and e.g. 6 systems of reimbursement one
would get 60 possible forms of contract!
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5.3.1
Criteria for control
Reimbursement systems are first and foremost defined by the Employer. His
choice will be based on the principal difference between pre- and postcalculation
of costs. This choice will more or less determine which party will bear the main
share of the risks. The distribution of risk is not the only criterion for selecting a
reimbursement system. There are three additional criteria:
the amount of effort the Employer has to put into control;
information available at the start of the collaboration;
information that the Employer needs for control purposes.
An overview is given in the next table.
Reimbursement
Employers
Contractors
system
risk
risk
Fixed price
Control
Information
effort by
available at
employer
start
Information
required for
control by
employer
Minimal
Maximum
Minimal
Much
Little
Maximum
Minimal
Maximum
Little
Much
Fixed price +
incentive
Cost + incentive
Cost + fixed
reward
Cost + %
reward
Table 5.1
Characteristics of Employers reimbursement systems
From this table can be deducted what the risks and control possibilities are for
the Employer, see table 5.2.
Risk
Table 5.2
5.3.2
Control
Reimbursement system
Low
Low
Fixed price
Low
High
Fixed price + incentive
High
Low
Cost + incentive
High
Average
Cost + fixed reward
High
High
Cost + % reward
Criteria for employers reimbursement systems
Sensible combinations
Following the previous paragraphs line of reasoning, the conclusion is that in

principle all reimbursement systems can be used for all of the individual tasks. It
boils down to a principal choice between pre- and post-calculation of costs, with
a few variants in between. Such indifference can be explained by not allowing
the risks and control possibilities to dominate the individual tasks. This is due
to the fact that an alteration in the information about an individual task, and
46
especially the consequences of the alteration, will not be of great significance

for one of the parties involved.
In practice, though, certain preferences exist for combining specific tasks with
specific reimbursement systems. Two criteria are of prime importance in making a
system selection. These are the complexity and the alterations to be expected.
If both are high, it makes sense to go for a cost + system. If both are low, then
a fixed price system is to be preferred. Occasionally guidelines are given for
recommending sensible combinations.
Fixed price:
production, construction or installation activities with clear specifications
(drawings and TOR) and a fairly short project duration;
training programme.
Fixed price + incentive:
development programme based on state of the art techniques.
Cost + incentive reward:
development of prototype;
development of new machines or plant.
Cost + fixed reward:
research or study programmes.
It would be interesting to check out what these guidelines mean for the civil
engineering industry. Several important characteristics of civil engineering are:
unique / once-off, so therefore similar to prototyping;
development and construction take a long time;
application of existing technology.
It will be clear that a fully systematic approach can not be established on the
basis of the general considerations presented above. A more fundamental
approach will be needed to achieve this.
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48
6.
Forms of procurement procedures
6.1 Bid-Build
The Bid-Build model is still the most-used option. Due to its long history it is the
most refined and detailed model, based on a wealth of experience. This model
is analysed more closely here in order to assess and compare it with the other
models. Attention is paid to the shortcomings and pitfalls that can still occur with
this type of contract.
As stated above, this model has a long history. Even before World War II (19401945) rules for this type of model were already laid down in the form of contract
conditions. In the civil engineering industry it is still the most-used form of
procurement.
The principal characteristic of a Bid-Build contract is the uniform and
unambiguous way in which this model is drawn up and the clearly separated
functions of the parties. The Employer is responsible for the design and for the
provision of the tender package. The specifications are written with the aid of a
standard system, e.g. RAW or STABU (see also CT3980 Preparation
and execution of works in the building industry), on the basis of descriptions of
the works detailing output performances.
The Employer (or his engineer) supervises the works during construction. The
contractor designs the method of construction (works preparation), makes a
planning schedule for the works and executes the works in accordance with the
contractual obligations, i.e. the technical and administrative conditions. These
administrative conditions can be derived, in The Netherlands, from the so-called
UAV model (Uniforme Administratieve Voorwaarden). Or in the international
context, from one of the FIDIC standard contracts, see also Chapter 8.
The Bid-Build procurement procedure is based on the traditional model of the
building process. In this model the well-defined and legally separated tasks
ensure that a sound process is followed, in which the participants first finalise all
tasks in each stage before moving on to the next one. Unfortunately this causes
a rather static process. This process is depicted in figure 6.1.
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Bid-Build
Employer
Contractor
Orientation
Feasibility
Concept design
Preliminary design
Detail design
Tender package
Contract
Works preparation
Supervision
Construction
Maintenance
Figure 6.1 The process of a bid-Build procurement procedure
6.1.2
Advantages and disadvantages
The application of a Bid-Build procurement procedure has a number of

advantages:
the detailed and standard clauses hardly give any reasons for discussion;
the parties clearly know their position, tasks, authorities and responsibilities;
it offers good checking possibilities.
However, a number of disadvantages can also be found:
as a consequence of the sequential character of the activities, the strict
separation of design and construction stages causes a slowdown effect on the
building process;
the expertise of the contractor can only be used in the construction / execution
stage;
there is a high chance of additional works arising as a result of the inadequate
tuning of design and construction.
This procurement model can lead, in the case of complex projects, to unacceptably
high costs of additional work that can lead to serious conflicts between Employer
and Contractor.
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6.1.3
Position in the building process
The main characteristics of the Bid-Build model are the strict separation between
design and construction, and the involvement of the Employer in the total process.
This means that the level of collaboration between the contractualparties is
actually low and restricted to the conditions of contract during the construction
period. The involvement of the various parties in relation to the
construction process is shown in figure 6.2.
Involvement
Employer
Advisor
Orientation
Contractor
Design
Construction
Operation
Time
Figure 6.2 Bid-Build model
It is clearly visible that the involvement of all parties is high during the
constructionstage.
If - for this type of procurement model one compares the estimated and real
cost, against time, then it is imaginable that real cost may exceed estimated
cost as the result of insufficient tuning between design and construction. Under
the most favourite circumstances sufficient unforeseen (= contingency funds)is
reserved beforehand.
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Cost
Estimated
cost
Real cost
Orientation
Design
Construction
Time
Figure 6.3 Estimated and actual cost in a Bid-Build model
6.1.4 Liabilities
In the Netherlands the responsibilities in a Bid-Build contract are clearly defined
in the so-named UAV (Uniform Administrative Conditions). Abroad, similar
rules are applied. In general the Employer is responsible for the design and
the Contractor is responsible for the execution of the works. In particular the
Employer can be responsible for prescribed construction methods and materials.
The Employer can never make the Contractor responsible for the soil conditions
and/or the projects relation to the surrounding environment.
However, until a certain number of years after completion of the works the
Contractor remains liable for damages in case of complete or partial collapse
of the structure as a consequence of some deficiency. If hidden defects are
found and reported within a reasonable period of time after their discovery,
the Contractor also remains liable for these, whether they are due to his own
(non)performance or that of his subcontractors or suppliers.
As regards the design it is pointed out that there is a warning obligation for
the Contractor. If the Contractor observes errors in the directives, drawings,
specifications etc. that he has received, and if those errors are of such a nature
that he would not act in good faith if he did not mention them, he is obliged to
inform the (Resident) Engineer / Employer. If he disregards this, he becomes
liable for the consequences.
Does this mean that the Contractor has to re-calculate everything? Of course
not; the only thing that he is required to do is check matters out in accordance
with his professional position.
Also from another point of view there is a shared responsibility. The Contractor
has of course to work along the lines of the contract. If he doesnt do that he
will be liable for his shortcomings. However, if the Employer (or his engineer)
can be blamed for poor supervision, this can lead to a decrease in liability of the
Contractor.
52
6.2
Design-Build (as usual)
In a Design-Build procurement (in the Netherlands one speaks of Design &

Construct), the Contractor both designs and provides the Works. In this case one
speaks of forward integration (see also section 4.1.4). This form of procurement
does however produce some headaches with regard to the establishment of
both the correct contractual relationships and the distribution of risks and
responsibilities.
6.2.1
Characteristics
Design and construction are in one hand. In most cases this is the construction
company, but not necessarily always. For the moment we assume that the
Contractor is the construction company.
The question How shall the result be reached? is to be answered by the
Contractor. The Employers involvement will therefore mainly concern the
definition of his requirements and the possible quality assurance system.
With this type of procurement there is no traditional form of supervision from
the side of the Employer, although the Contractor shall allow him a general
authorisation for inspection to make sure of compliance with the contract.
This building process is a more dynamic affair than the traditional one. Time
and quality can be gained by integrating detailed design and construction. This
is shown in the next figure.
Figure 6.4 The process of a Design-Build procurement procedure
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6.2.2
Advantages for the Employer:

The Employer has to deal with only one party, which makes the relations much
simpler between the parties involved in design and construction;
There will be fewer discussions about responsibilities and liabilities. The
design partner cannot say any more that construction is badly done, and the
construction partner cannot say any more that the design is poor;
Execution of the works is improved. This is often defined as the introduction
of specific construction knowledge into the design process. This improvement in
construction appears as follows:
- Design and works preparation are fully defined by the construction process,
which means that:
Time is gained;
Less delays are encountered;
Better priorities are put forward;
More adequate planning is done;
People understand better in which stage of the building process they
are.
- Design is aimed at efficient methods of construction, which means that:
A minimum number of components and elements is involved, enabling
faster assembly;
Materials are easier to come by as they are selected from a range of
readily available types;
Connections are designed to be simpler to construct.
Standardisation can be pursued so that:
1. Use is made of the learning curve;
2. Discounts are received by buying in larger quantities;
3. Procurement and materials management generally is simplified.
In the design, use of modular components and elements is maximised because
they simplify production, transport and assembly;
In the designs a better account is taken of the construction conditions on
site;
Unnecessary complexity is avoided
Construction time can be shortened considerably if the final stages of design
overlap with the early stages of construction
Consultancy costs can be reduced
Cost and time estimates are more reliable
Finally it is noted that in professional literature an important advantage is seen
in transferring the risks to the Employer. This is incorrect!
A Design-Build procurement procedure is only a form of task distribution and
does not give an answer to the question how risks are, or shall be, distributed
between the parties involved. The distribution of risks depends on the choice
of a certain reimbursement system. It is important to realise that many options
exist here, ranging from DB-cost-plus to DB-fixed-price contracts, and everything
in between.
Disadvantages for the Employer:

The number of companies capable of performing DB tasks is not that large. It
54
implies that the number of competing companies is also not as large as in the
traditional construction industry. This could have price consequences.
The Employer is, already in an early stage, legally bound to adhere to
contractual conditions (including financial regulations). This is in contradiction
with the desire, in the early stages of a project, to have a certain freedom of
action because a number of aspects still are vague in nature.
In general it is difficult to attain the desired balance between construction cost
and running cost.
Advantages for the Contractor:

For the construction company, accepting a Design-Build contract could be
a help to profile itself for a strategic market position, because the number of
companies that are competent in this field is restricted;
The Contractor can increase his technical ability to deal with problem solving;
Project harmony is improved. First of all because there are only two players;
and secondly, it becomes possible to bring together in one organisation
design culture and construction culture. The latter is not easy though. This is
demonstrated in the following table.
Design culture
Construction culture
Cluster criterion
Relations and
requirements
Location and materials
Number of people
As few as possible
As many as possible
Time pressure
Hampers creativeness
The more the better
Competition between Doesnt work

employees
Is stimulated
Working method
Everything perfect in
one single go
Trial and error
Table 6.1 Differences in culture
Disadvantages for the Contractor

The most fundamental difference between Design-Build and the traditional
procurement model Bid-Build concerns responsibilities. Traditionally the
Contractor is only responsible for the costs actually made; whereas in DesignBuild the Contractor also becomes responsible for the (estimated) cost. However,
this is not yet clear to everyone. In most cases the design stage, preceding
the construction stage, is not considered to be very important, fortunately not
costing a great deal of money and which must be finalised as soon as possible.
What is not commonly realised is that the largest uncertainties actually arise
during this stage. Subsequently, most of the risks can be found here.
6.2.3
The traditional relations in the building process change considerably when a

Design-Build procurement is applied. Especially the Employers role is different
and much less distinct. His attitude towards the Works needs to be a different
one and he shall act more like a Client. It simply means that the involvement
of the Employer in the total building process is much less. On the contrary, the
Contractor becomes much more involved, and sooner, in the whole process.
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Therefore he shall also need to change his attitude. These changes in involvement
are shown in the figure below.
Involvement
Employer
Contractor
Advisor
Orientation
Design
Construction
Operation
Time
Figure 6.5 Parties involvement in a Design-Build contract
It still often happens that both Employer and Contractor consider the DesignBuild procedure as a traditional building task, whereby the design stage is only
seen as an optimisation effort in the total project.
This happened with the project Storm Surge Barrier in the New Waterway,
Rotterdam. During the design period the opinion was held that realistic
reductions in the construction costs could be obtained through optimisation.
This is depicted in figure 6.6.
Cost
Estimated cost
Real cost
Design
Construction
Time
Figure 6.6 Anticipated benefit of Design - Build: reduction in construction costs by

tuning design to construction (optimisation).
In reality the cost graph is different since we know for sure that cost is always
underestimated. This is shown in the next figure.
56
Cost
Real cost
Estimated cost
Orientation
Design
Construction
Time
Figure 6.7 The real progression of the different cost curves and the cost curve estimated
on beforehand
Because the construction culture dominates their thinking, both with the
Employer and the Contractor, the latter tends to neglect the expected cost graph
(composed by the design department), which shows a budget exceedance. The
construction partner only looks at the budget and follows a regime of spending
money on items perceived to be right. This will go quite smoothly until almost
the end of the construction stage is reached, because nothing will have been
done to solve the real problems. These often occur at the interfaces between
the different disciplines e.g. steel, concrete, foundations, earth works.
This is shown in figure 6.8.
Cost
Orientation
Moment until
when things
are alright
Design
Construction
Time
Figure 6.8 Actual (real) cost development until late in the construction stage
In most cases a moment arrives at which the different disciplines are unable to
proceed further. Very high costs have to be made to accomplish the project in a
reasonable way. These costs are far beyond the originally established cost in the
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design stage. This phenomenon is shown in figure 6.9.
Cost
Orientation
Design
Construction
Time
Figure 6.9 Actual cost during a traditional Design -Build task structure
This picture can be avoided by always assigning the highest priority to design in
each of the Design-Build tasks. This priority is of the utmost importance because
the real risks are usually identified during the design stage and subsequently
need to be controlled during that stage.
6.2.4
Liabilities
With a traditional Bid-Build contract the responsibility of the designer is restricted

to a certain amount of money as agreed upon beforehand. In practice one tends
to incorporate this same restriction into a Design-Build contract as well. In such
a situation of restricted liability, the distribution of risks is an important issue.
The risks in an ideal Design-Build contract can be categorised / distributed as
follows:
the risks with respect to unknowns belong to the Employer, because it is this
party that wants something done. The Employer takes care of everything that
is not foreseeable.
the risks with respect to uncertainties belong to the Contractor. This party
must be capable, using its professional competence, of estimating what can
be expected and of determining the adequate measures to be taken in case it
happens.
This implies that before a Design-Build procurement procedure is formalized into
a contract, parties shall make estimates of the risks as best they can. On the
basis of those estimates a risk distribution is worked out. The contract conditions
shall contain a procedure that enables the parties to change this distribution, if
necessary. It shall also be agreed upon on beforehand what shall be done if time
58
and/or costs are exceeded.
UAV GC2000
As said in section 6.1.1, in the Netherlands the responsibilities in a Bid-Build
contract are clearly defined in the so-named UAV (Uniform Administrative
Conditions). These conditions are insufficient for the more innovative type of
procurement procedures. In those cases specific conditions were established
and described for each project; still on the basis of the UAV.
There was clearly a need to establish some additional UAV conditions for these
new contracts.
In the year 2000 a first edition was presented, named: Uniforme Administratieve
Voorwaarden voor Gentegreerde Contracten (UAV-GC. In English: Uniform
Administrative Conditions for Integrated Contracts).
During development of the UAV-GC a distinction was made between items that
are typical for integrated models of contract, and between items that are valid
for all contract models. For the latter, use has been made of the UAV 1989. In
this way it is assured that the contract blends in with the existing tradition of the
relevant Dutch law.
Next to this, use is made of the Dutch Civil Law and the Dutch Client-Consultant
Model Services Agreement (Dutch RVOI; see also Chapter 8).
6.3
Design-Build (with repayable performance)
In the previous section the traditional Design-Build procurement procedure was

discussed. One of the characteristics of that option is that most risks are assigned
to one party. The result could be that those risks are covered by high pricing and
subsequently the final product turns out to be too costly. To prevent this from
happening, one needs to look for a method whereby the risk is allocated in such
a way that it can be controlled in the best possible way. The only option
that meets such a requirement is the Design-Build procedure + repayable
performance.
6.3.1
Characteristics
The fundamental idea behind this model is that beforehand a fixed price is
agreed upon, based on an initial concept. At the same time a repayment
method is defined at a high level of abstraction, concerning the not foreseeable
(unknown) items. The risks with respect to uncertainties (unforeseen) belong
to the Contractor.
This principle is shown in figure 6.10 where three possibilities are given.
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Performance
C
B
A
3
2
standard
performance
Cost
Area 1
Contractor A is the most attractive for the Employer
Area 2
Contractor B is the most attractive for the Employer
Area 3
Contractor C is the most attractive for the Employer
Figure 6.10 Principle of Design-Build + repayable performance
It is of great importance that the Employer manages his risk by exerting control
on the final performance target for what he wants to receive.
The Design-Build model with repayable performance uses an initial design
concept of the Employer in combination with an associated performance target
(Specifications). The Employer draws up a cost estimate for this initial concept.
Contractors are then invited to offer a fixed price, without taking into account
the not foreseeable matters (sub-surface condition, procedures, permits, bombs
etc.), but including normal process uncertainties. In principle the parties agree
upon a reference point = the working-point on the performance-cost line. They
each know that both performance and cost will finally reach a higher level. But
they do not know how much and because they cannot estimate that increase,
they will not try. It would be a waste of time and money!
However, an area is defined within which one has to stay in order to comply with
the contractual obligations. This area is shown in figure 6.11.
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Performance
Cost
Figure 6.11 Performance-cost as contract basis
The Employer also prescribes the way in which the performance shall be
measured. The programme of requirements shall be roughly translated into a
set of main performance requirements representative of the whole system.
This is done by means of aspect systems such as capacity, strength, mass,
stability, geometry etc. and their corresponding dimensions. These aspects are
specific, independent, of equal importance, of equal size, linear and quantifiable.
Requirements with respect to probabilities of failure, as is sometimes the case, fail
to meet these aspect characteristics and cannot be used to measure performance
since they cannot be coupled linearly to cost. The representativeness of the
aspects is shown in figure 6.12. The aspect systems illustrate the performance
requirements at a high level. Altogether they express the total performance.
Specifications
top value
requirements
aspect systems
aspects
subsystems
relation diagram
Figure 6.12 Representativeness of the aspects
As an example we look at the foundations of the High Speed Line (HSL) project.
We can distinguish the following aspects:
strength/stiffness of subsoil layers is expressed in the bedding-constant
(smaller is higher performance)
location of adequate (sufficient loading capacity) layers are expressed in
metres w.r.t. NAP (deeper is more performance)
acceptable dynamic load caused by trains (greater is more performance)
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maintenance-free period(longer is more performance)

The repayment for the performance to be delivered shall be agreed upon
beforehand. As we know, the coupling of performance to payment is made at
a high level. That link is agreed upon and is not open to discussion. It forms
an agreement stating how to deal with matters that are not foreseeable and is
very strong from a legal viewpoint. The moaning of hair-splitters whom cannot
distinguish between important and non-important matters with respect to the
precise relation between performance and cost, can easily be invalidated.
Because you cannot add together apples and pears, the only way to compare
the actual performance with the original, contractual performance requirement
is by means of a vector-addition (dimensionless). The value of each aspect is
compared with the contractually required value of that aspect. After that the
aspects are added together vectorially. The beauty of this method is that one
does not pay beforehand for risks that do not occur. Moreover, if something
occurs that was not predicted (which always happens), there is no need for
endless deliberations about what shall happen and who shall pay for it (e.g.
projects such as the Ramspol barrier, storm surge barrier in the New Waterway,
tram tunnel in The Hague). Once there is agreement on this principle there is no
need any more to check each and every receipt.
There are two conditions:
a performance that drops during the building process is not considered (because
this will never occur due to everything always being underestimated);
the Employer decides and may try to reduce the increase in performance, even
via other aspects.
So we conclude that this model of reimbursement prevents both parties from
trying to cover all unexpected events contractually at the beginning of the project,
when they know the least, and/or from bending over backwards when something
unexpected happens. The model relies on performance measurements made
during the building process and after completion. The extra work is subsequently
paid for by applying a formula defined and agreed upon beforehand.
6.3.2
The Design-Build procurement option with repayable performance has important

advantages for both the Employer and the Contractor. In other words a classical
win-win situation:
For the Employer it means that:
he can influence the output that is being built;
he does not have to pay for risks that do not occur;
it is possible to introduce innovative concepts into the project;
there is competition on a value-price basis, instead of solely on price;
there is no open-ended contract;
there will be no chain of endless claims;
there is a possibility to create more value.
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For the Contractor it means that:

there is competition on a higher level (elimination of bunglers);
there are less risks;
work can be done more professionally;
it is possible to distinguish oneself by coming up with specific, innovative
inputs.
Is everybody happy now? Of course not. But it covers at least 60-80% of the
issues, that otherwise would lead to endless discussions. A real entrepreneur
can live with that sort of coverage because itgives room to deal with changes
with respect to an initial concept. Changes for which one did not get paid at all
in former times.
6.3.3
Liabilities
This model allows the collaborating parties to play their proper roles, without
overlaps, the room for innovation is at a maximum, a clear and natural separation
of tasks, authority, responsibilities and risks. Finally, the work is done jointly
under the important motto: each one chips in and gets his share of the pie.
So if something is produced it has to be paid for, and if something is paid for
then something has to be delivered in return. This simple principle is sometimes
forgotten in the heat of the battle of trying to push risks onto the other party.
Another important principle, often overlooked, that is excluded entirely with this
type of contract is the idea that if you contract out a risk you will have to pay for
it, and if the party bearing the risk is not capable of handling that risk, you will
have paid too much for that.
6.3.4
The influence of complexity
Because the design and construction processes overlap, it is impossible in a

complex project to isolate certain parts by setting them aside. This means that
a design document must indicate how relations between the part that is offered
for acceptance and the other parts, that are still to be designed, are dealt with.
These are so-called interfaces (see also course CT3061).
The control of interfaces appears to be difficult to put into practice. Designers
have problems in maintaining matters once they are fixed, and have even more
difficulties in accepting extra strength instead of extra room or buffers in
complex areas: they like to design as economically as possible. But this is not
the case! A smooth acceptance procedure can lead to a much better overall
result than just an economical design.
6.4
Build Operate Transfer (BOT)
BOT is a procurement procedure in which a public party concedes to a private

party (the concessionaire) the design and provision of a completely equipped
works, ready for operation, and the exploitation and maintenance of those works
during a certain period: the concession period. The works are then taken over
by the (public) party: the project owner. No public money is involved.
Both forward and backward integration is observed here. BOT can be considered
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as a much extended form of Design-Build because of the integrated character

of contract commitments.
6.4.1
Characteristics
The BOT procurement procedure is characterized by extensive integration of

the building processes. In principle this model covers almost the total projects
lifetime; from development until and including operation.
The development of the project consists of the design and building of the
structure (Build). The maintenance and exploitation of the facility (Operate)
is done for an agreed period of time during which the concessionaire can earn
back the invested money. The works are taken over at the end of the concession
period, mostly without extra cost for the project owner (Transfer).
The financing method is a particularly significant aspect of the BOT model
because an Employer - mostly a public party - grants a (financial) concession to
another party. The concessionaire will in most cases be a consortium, taking in
consideration the magnitude of the risks. Such a consortium can be composed
of:
a Contractor;
an Investor;
an Operator
the Financier and/or Project Developer.
When is a BOT procurement procedure desired?

A condition is that a project is suitable for integration of all the processes from
the start (orientation) until and including operation. Well-known examples are
toll roads and the Chunnel (Channel tunnel) project. A BOT model is an option
if there is a financing problem for the owner. An Owner/ Employer/ Client wants
something done but has no money. By granting a concession he can still achieve
his purpose.
The construction process can be best compared with an EPC (EngineeringProcurement-Construction) model (see also section 8.1.3), extended with the
maintenance and exploitation stages of the structure. This process is shown in
figure 6.13.
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Figure 6.13 The process of a BOT procurement procedure
6.4.2
Advantage and disadvantages
The following advantages are mentioned:

New public facilities can be realised without money drawn from the Public
Authoritys budget. The user pays;
The Government can provide for a social need without carrying the financial
burden for it. This implies that the Public Authority can provide welfare without
a lack of finances and/or specific knowledge;
Through integration of tasks, traditional interface problems between the
different stages and participants in the building process will disappear; especially
in the last stages;
At the end of the concession period the Works are taken over by the project
owner without additional cost or, in any case, for a low price. After all, he
receives a public facility without having invested any funds in it.
Disadvantages can be:
The success of a BOT procedure is also dependent on other factors such as the
economy, politics, the environment and the social context;
Both the determination and the distribution of risks can sometimes lead to
delays or financial problems.
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6.4.3
The Employer assumes a secondary role. Almost the entire building process is
in the hands of a single party. It is the task of the concessionaire to shape the
rest of the building process. An operator and some financiers will complement
the parties already present in this building process. Two variants are possible
within this collaboration, mainly related to financing possibilities.
Exploitation Company
An exploitation company can be established which will take care of the operation
of the facility on the basis of the granted concession. It provides the financing
for this facility and awards a contract for its realisation.
Developer/Contractor
The developer/contractor takes care of the development and construction of
the facility also designed by himself, and also takes care of the financing. The
involvement of the various parties is shown in figure 6.14.
Figure 6.14 BOT contract
In granting a concession to a consortium the Employer/Owner passes the risks

Involvement
Concessionaire
Employer
Orientation
Design
Construction
Operation
Time
the concessionaire. These risks concern:

design;
financing;
realisation;
management/control;
maintenance.
These risks will all be in the hands of the Contractor. The risks are high and it is
common practice that they are not borne by a single party, but by a consortium
of companies instead. In that case the risks can be diminished by sharing.
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6.4.4
Liabilities
The commonly used contract conditions are not applicable here. These conditions
presume an active presence on the side of the Employer and assign to him certain
tasks and responsibilities. The characteristics of a BOT model are fundamentally
different. The Employer gives the execution of the project to some other party
because he is not capable or willing to do that himself. The very moment he
indicates for which problem a solution is being sought, the role of the Employer
is over. He will be in the picture again at the end of the concession period, when
the works are taken over by him.
Consequently all risks and related responsibilities become part and parcel of
the contracting party. One comment needs to be made. The works for which a
BOT model is used, are principally projects of great importance to the public.
The public interest will not always run parallel to the private interests of the
BOT contractor. The latter will operate in an economical way and earn back the
cost within a certain (concession) time. For that purpose he will demand certain
tariffs (toll) for the use of the facility (road). However, the interest of the public
may be to see as many people as possible making use of the facility. In that case
it may be important to set the tariffs at a lower level.
Therefore, for this type of procurement procedure agreements are made early
on concerning the tariffs to be used. These arrangements shall be as detailed as
possible to allow possible risk situations to be foreseen and to prepare suitable
solutions. In this way one can prevent the concessionaire from going to court
in order to change the contract, or even to partly or completely adjourn the
contract on the basis of an unforeseen circumstance.
This circumstance may be of such a nature that the Employer may not expect
in accordance with the criteria of reason and fairness - the agreement to be
maintained unchanged.
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7.
Ways of (strategic) collaboration
7.1
Design team structure
The relation between Employer and Contractor in the construction industry is

dominated for many years by traditional forms of procurement procedures.
At this moment more elaborate forms of collaboration in the construction industry
are used. E.g. working together in a design team (organisational) structure,
a temporary form of collaboration, based on equal terms, is set up between
representatives of the building process: taking initiative, making a design and
executing the construction works. The parties carry out, in a coordinated form,
those activities that follow from their own functions in this process.
7.1.1
Characteristics
The purpose of a Design Team structure is to break down the walls between
subsequent building stages such as tender preparation and construction, in
order to make it possible to use everyones skills and experiences as soon as
possible. The independence and own responsibility of each member remains
guaranteed.
The Employer first composes the Design Team and enters into separate contracts
with each party. The parties then jointly enter into a design team contract. In
this contract the members of the team commit / legally bind themselves to
prepare the works via this form of collaboration.
The Employer enters into a separate contract with some contractor for the
execution of the works. This contractor does not necessarily have to be a member
of the Design Team. The basic role of the Design Teams own contractor is an
advisory one during the stages of orientation and design. However, it is very rare
for the Design Team contractor not to be given the job of executing the works
because after all, he has brought in his specific contracting expertise.
The Design Team structure improves the synergy between the preparation and
construction stages: the building processes become more efficient and the time
for preparation and construction can be shortened. The process is shown in
figure 7.1.
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Figure 7.1 The process of a Design Team form of collaboration
7.1.2
Advantages:
In the design stage advantage is taken of the expertise of the professional
contractor with respect to methods of execution, construction cost and
products;
The designing party transfers its knowledge to the party executing the
works;
Design and execution are better tuned so that the chance of additional work
is less and a better control of the construction process is reached. In this way
construction time will be less and the result will have more quality.
Disadvantages:
The distribution of responsibilities can become very complex because the
Employer has several contracts with different parties;
Full competition is lacking. In most cases the Design Teams contractor will
build the project. In this way there will be no lowest achievable price.
7.1.3
The Design Team form of collaboration is characterized by the integration of

the construction expertise into the design stage. In this way the team can hope
to gain better control of the construction processes, yielding both a saving in
time during the design stage and a better quality during the construction stage.
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In this way the collaboration between the various building partners is more
intensive and it stretches out over a longer period of the building processes, see
figure below.
Involvement
Employer
Contractor
Advisor
Orientation
Design
Construction
Time
Operation
Figure 7.2 Design Team model
The estimated cost and the ultimate building cost will not differ much in this
case. The intense exchange of data in the design stage decreases considerably
the chance of additional work in the construction stage. However, the final cost
does not necessarily have to be the lowest cost! This is illustrated in figure 7.3.
Cost
Estimated
cost
Real cost
Orientation
Design
Construction
Time
Figure 7.3 The estimated and real cost for a Design Team
7.1.4 Liabilities
Each partner in the Design Team is, in principle, responsible for his own
contribution to the total activities. Consequently each partner is responsible
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for the quality of his own work. However, this individual responsibility does not
exclude a partner from becoming engaged in the activities of other partner(s).
Under certain circumstances this individual responsibility can even become part
of a joint responsibility for the shortcomings of other partners in the Design
Team. One may expect that the work of each partner is judged by the other
members of the team and warnings are given if possible risks arise. In fact a
certain duty to warn the Employer rests on the shoulders of each partner of
the team.
All these aspects have consequences for the responsibilities of the various
partners involved; especially the design responsibility needs to be well organised.
As set out above, it is possible that parties will be jointly responsible for possible
mistakes in the design. Apart from the Design Team structure, the responsibilities
and liabilities of the Bid-Build contract of course remain
unchanged in accordance with the contractual obligations.
7.2
Public Private Partnership (PPP)
The last few years there was much discussion about the use of PPP in infrastructure
projects. Symposia and congresses were held and even a Centre of Knowledge
was founded. The possible success was doubted because it was thought that
using PPP one would mainly focus on the financing aspects of the project!
Paradoxically, at the same time one was actually moving in the right direction,
as almost everyone realized that the cause of the difficulties in developing new
infrastructure in The Netherlands was not so much a result of financial aspects,
but more a function of the way in which parties collaborate.
7.2.1
Problems with PPP infrastructure
With respect to PPP anybody can point out that value has to be added to the
project and that there is scope for working more efficiently. However, a few
people yet knows the way how to get this to work in practice. In principle it
means that a link must be made between market forces and the provision of
public services, see figure 7.4.
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Employer
Government (public authorities)
Public circuit (services)
Value
Cost
Individual Employers
(stakeholders)
Value
Private circuit (market)
Value
Cost
Cost
Contractor (private party)
Figure 7.4 PPP for large projects
From the figure it can be observed that in PPP three value-cost relations can be
distinguished:
The first relation is between the citizens (individual employers or clients as
stakeholders) and the government. This is depicted in the uppermost, internal
circle and characterized by public services. It is a simple loop in which the direct
and indirect taxes define the cost, and in which the public services and tasks
produce the value. One not only has to deal with one client, but with a lot of
clients: e.g. citizens (with all their pleasures and problems);
The second loop represents the relation between the individual clients and the
private parties (contractors). This shows the common market in action,where
products and / or services are offered against payment;
The third (largest) loop indicates the relation between the government as
employer (acting with prudence, legislation, safety, justice, security) and the
private parties. In this loop the government acts as the party who takes the
lead.
Creating public infrastructure means that certain conditions are generated for
others to adhere to, and by itself this type of infrastructure cannot be exploited
on a commercial basis. PPP can therefore not be applied to infrastructure in
simple terms.
There are two possibilities:
1. In the first possibility a substantial contribution is provided by the government,
in order to make the commercial exploitation a feasible undertaking;
2. The second possibility is to get the whole area above, under or next to the
infrastructure developed in an integral fashion.
These two options will be illustrated next. Starting point for the PPP concept is
the value-cost model, see figure 7.5, which includes a transaction between two
parties: the consumer, seeking benefits, and the producer, seeking a profit.
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Consumer
benefits
Profit
producer
Value
Price
Cost
Figure 7.5 Market forces in the private domain
The producer produces something of value and incurs costs to do this. The
consumer buys the product, expects a certain value, and pays a price for it. The
difference between value and cost is described as benefit or gain. The price
divides this gain into two parts, one for the producer (profit) and one for the
consumer (termed as benefit hereafter).
This principle we can also apply to new infrastructure.
Figure 7.6 illustrates the economic proportions as regards new infrastructure.
Social
benefit
Profit
producer
Value for
transport
Price
Cost
Negative
value
Figure 7.6 Initial economic proportions for new infrastructure in the public domain
A high transport-value can convince politicians to make money available from

the current government budget, in such a way that no more than the bare cost
of construction is covered and the producers still can earn some money.
As such the construction of a lot of new infrastructure could be made possible
in this way. However, not everyone is in favour of new infrastructure projects
(think especially of the NIMBYs!). Subsequently a negative value arises in the
project environment. In order to continue the project considerable costs have
to be made to reduce this negative environmental value to an acceptable level.
Nevertheless, there will always remains a high residue of negative value.
Therefore the actual economical proportions for new infrastructure turn out
quite differently, see figure 7.7.
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Cost
?
Price
Value for
transport
Figure 7.7 Total economic proportions for new infrastructure in the public domain
One can see that it is not easy to realize new infrastructure just like that. The
value is lower than the price and the price that can be afforded is lower than
the cost.
In that situation PPP can be the key to success. By means of a smart combination
of public value and commercial value, the project becomes under certain
circumstances feasible. This is demonstrated in figure 7.8.
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Public
contribution
Public value
Commercial
value
Public costs
Public
revenues
Commercial
revenues
Commercial
costs
Extra value
Public value
Public
contribution
Public
revenues
Commercial
value
Total costs
Commercial
revenues
Figure 7.8 PPP concept
In this figure values, costs and benefits are simply added together. However, the
intention is to let the total value be greater than the sum of its partial values,
and the total costs less than the sum of its partial costs.
7.2.2 Parties and their interests
Apparently there are consumers and producers involved in PPP. The problem is
that these parties are large and powerful groups that have strong interlinkages.
For instance producers can be project developers, contractors, operators,
subcontractors, consultancy firms, suppliers etc. Consumers can be owners,
users, inhabitants, municipalities, action groups and the society as a whole.
It is impossible to enter into a single PPP contract which ties all these parties
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together. This has to be organized in a stratified way. On the side of the producers
this will not give many problems: a project developer can be the contractual
party, or a D&C contractor, or an operator who also engages a project developer
to assist him.
On the side of the consumer this is much more difficult. Is business to be
conducted at or with the national (state) level, the province, the municipality,
the city council and / or with the citizens themselves? It is obvious that some
entity from the ranks of the consumers should take the role of leading agent.
That entity will become party to the contract as the Employer (Client). For the
remainder the stakeholders are divided into a group of value demanders (a better
typification thanconsumers) and value suppliers (better than producers).
7.2.3 Goals
In a PPP setup all parties, each from their own different angles of interest, strive
to reach one and the same goal: to maximise the benefit (value minus cost).
This will be based on the principle that benefit will be divided between the
parties in a manner agreed upon beforehand.
It is not true that this is some kind of allocation-model based on public and
private benefits. An overall benefit is anticipated, that will be divided in the most
adequate and acceptable way.
Applying PPP, one has to make sure that three kinds of support are created:
social / cultural support;
political / managerial support;
technical / financial support.
A PPP contract is therefore a lot harder to arrive at than the traditional way of
tendering contracts. It can only work if all parties are involved from the earliest
stages of the project. The latter immediately leads to conflicts with European
legislation, competition, the principles of open-plan-processes, etc.
7.2.4 Risk distribution
An important aspect is the distribution of risks between the parties. It is not
sufficient to stipulate that:
the risks have to be taken by those who can best evaluate and control them;
the public risks should be dealt with by the leading agent in the partnership,
and the commercial risks by the value supplier.
Especially since there is a rather close contractual relationship between the PPP
parties, risk distribution shall be carried out carefully. In the selection stage,
it is proposed to ask several value suppliers (in competition) to complete the
following diagram, see figure 7.9.
The value supplier who creates the most benefit and requires the least
contribution from the leading agent, becomes the final choice. It is obvious that
such a selection procedure is not easy.
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Benefit value supplier
Indirect
public value
Direct value
for value
demanders
Public
contribution
Profit and
risk
Costs
c
Revenues
a - c = benefit value demander

b - d = public benefit (leading agent)
Figure 7.9 Risk distribution
7.2.5
The PPP collaboration model
The basis for the PPP model is formed by the Fipper D&B contract (Fixed price,
performance reimbursable) which has been developed some years ago.
This model has been adapted, modified and made operational for contracting
out public / private projects that cover the whole life span of a project. The basic
principle is VALUE FOR (your) MONEY.
A continuous process of price determination takes place, in which the value
demander establishes the value and pays the price for it. The principle is very
simple. At the beginning of the projects contract period both the public value
and the stakeholders value are determined, and so is the public price (the
commercial value is completely ignored because that value (incl. the risks) is the
private partys affair). The public value and the public price are linked at a
high level. All public risks revert to the leading agent because that is by far the
cheapest way to do this. During the course of the project when of course all
kinds of things happen the public value is continuously monitored and linked to
the price. It is important that for each modification the leading agent determines
which direction is followed, as he is the one who pays for the public value!
In this way risks are managed on a continuous basis and goals are adapted
in case unexpected events occur. It is necessary though, when applying this
model, that an extra financial reservation is made on top of the concept-price.
It is not difficult to realize that this working method gives a substantial reduction
in the final price. This way of working is based on the principle that the public
price at the end of a project is more important than the public price at the
beginning of the project.
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7.3
Partnering and Alliances
At this moment the most elaborate form of collaboration in the construction

industry is the partnering- or alliance model. This form enables the various
parties - with their own individual interests to still work for a common goal.
These forms of collaboration are not really in use yet in the Dutch construction
industry. They originate from the petrochemical industry, specifically in the USA
and UK, and they are used in those countries for more than 10 years already.
The two different titles suggest that we are dealing with two different options.
In practice however, both forms settle the same issues and aim at the same
purpose. In the notion of alliance the distribution of risks and advantages is
emphasised; whereas in partnering more attention is paid to collaboration. In
this section we will only use the phrase alliance.
7.3.1
Characteristics
The purpose of an alliance collaboration model is that parties work together

on the basis of equality, in order to reach a single, common result. This is done
in a context of mutual trust and the intention to share both the risks and the
profits to be gained, bearing in mind that the alliance will be of equal benefit to
both parties. The idea that one partys gain will be the loss of the other, is out
of the question.
The essence of this collaboration is that detailed procedures are agreed upon with
respect to mutual consultations, about for instance the exchange of personnel
and databases, and the distribution of risks. This distribution shall be done in
such a way that all allied parties consider it to be fair. Also agreements are made
about possible profits or gains arising from, for instance, delivering the works
sooner than planned.
Another important aspect is the open book determination of costs. This allows
the Employer to gain insight into the way the Contractor has built up his price(s).
The basis for pricing shall be transparent, so that the Employer will rest assured
that the Contractor uses realistic price figures. On the other hand, the open
book prices will also be a guarantee to the Contractor that he can be sure to
receive what is due to him.
A typical characteristic of this model is that parties formulate a detailed
declaration of intention. In this declaration the philosophy, the general and the
specific objectives of the parties are worded. Besides this the alliance contract
must settle at least the subjects listed below:
1. management and coordination
2. distribution of risks
3. financial conditions
4. incentives
5. modifications
6. certainties / securities
7. handling of disputes
Typical for this collaboration model is that parties communicate with each other in
a different manner. Especially in projects of long duration this creates benefits in
time, quality and cost. In figure 7.10 a sketch is given of the alliance model.
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Figure 7.10 The proces of an alliance collaboration
7.3.2
Advantages:
conflicts diminish in importance as a consequence of detailed and open
communication;
costs decrease because there are less conflicts and less duplications;
the atmosphere on the floor improves. Employees experience the cooperation
with personnel of the other partner as pleasant, because there is no feeling that
opposing roles are fulfilled.
Disadvantages:
much time has to be invested in consultations, in motivating the employees
and getting them involved in the project;
due to European legislation it is a less accepted and acceptable form of
collaboration for public authorities;
in the case of projects with a long life span, the stimulus for competitiveness
might disappear;
the degree of price detailing, exposed by an open book approach, may
sometimes be way beyond the Contractors liking.
7.3.3
The Employer becomes heavily engaged in the realisation of the works. However,
this interference is not in the traditional sense of the word by giving orders,
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directives and imposing supervision, but is characterised by collaboration with

the Contractor to achieve the best possible result.
Although not clearly pointed out yet, an alliance model can consist of more
than two parties. There can be more than one Contractor. Traditional parties
other than the Contractor only can join the alliance, such as a consultant or
an architect. In preparing the contract a fair distribution of all the risks and
profits among all these parties should be taken into account. Fig. 7.11 shows the
involvement of the different parties.
Involvement
Employer
Advisor
Contractor
Orientation
Design
Construction
Operation
Time
Figure 7.11 Involvement of the different parties
The specific character of the alliance model does not always allow the use of
standard, well known contract conditions.
7.3.4
Liabilities
Two liability relations are to be considered: the liability of each party with respect
to third parties, and either partys liability to the other. Being liable to third
parties raises two questions: what is the external liability situation, and how is
the distribution of liability among the allied partners? In other words: what is the
internal distribution of external liability?
The mutual liability of parties is arranged in a totally different way than is
customary in a traditional model. With a traditional model the Employer is
responsible for the design and the Contractor for the provision of the works.
With an alliance model parties (have to) agree on a certain distribution formula
since a form of collaboration is in operation. If a mistake, caused during design
or construction, leads to the budget, time or performance limit being exceeded
(see also section 3.4 Triple constraint) this will often be traceable to an origin
caused by both parties.
Parties shall decide how their liabilities shall be distributed and accepted. It
is of great importance that responsibilities shall be clearly and unambiguously
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divided, bearing in mind that parties both want the building structure to be
realised. Each party must have the feeling that it has a fair and bearable burden
to carry.
The distribution of liabilities may cause an increase of mutual inspection. Each
party that fears possible, negative consequences of activities carried out by the
other party shall try to prevent such results by doing inspections and giving
advises.
There is no readymade solution for the distribution of liabilities. This subject
shall be studied in detail for each procurement to be entered into, and this
distribution shall reflect the spirit of the collaboration in mind.
7.3.5
Alliances in The Netherlands
The first project in The Netherlands where an alliance form of collaboration

was used, was named de Waardse Alliantie. It was part of the project
Betuweroute which involved the construction of a railway between Germany
and Europort, Rotterdam;. The project was finalized in november 2003 and
was declared to be a success.
In the following table a comparison is given between a number of ungoing
alliancies. They concern the following projects:
upgrading of the road between Hoofddorp and Vinkeveen which is
one of the main, local bottlenecks in the provincial highway N201
that forms an important link between airport Schiphol Amsterdam
and the Flora and Plant Auction facility in Aalsmeer
upgrading of the A2 state highway Holendrecht Oudenrijn, Utrecht,
inclding a.o. traffic junction Hooggelegen at the Western side of
Utrecht along the state highway A2
cleaning of the site of the Oostergasfabriek, Amsterdam. Since 2003
heavily polluted soil (150.000 m3) is being removed from the area of
the eastern gas factory. In December 2007 the contract was changed
to an alliance form of cooperation
construction of a parking garage with three floors combined with
an underground water storage (Museumparkgarage). Total capacity
1150 places.
Basis of
Idea of an alliance
Moment of start
Contract
from the start?
of alliance
Experiment
D&B
Yes
Experiment
D&B
Yes
Project
Motive
N201
A2 Hooggelegen
Ooster-
Dependence
Traditional
gasfabriek
Organization
(specifications)
Museum-
Dependence
Traditional
parkgarage
Neccessity
(specifications)
Figuur 7.12 Comparison of recent alliances
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No
No
After award of
contract
Before award of
contract
After award of
contract
After award of
contract
For all projects counts that risks and forms of organization - with the emphasis
on cost control - is a matter of optimization which shall be carefully done by
partners involved in the specific project.
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8.
Internationally standardised contract forms
Standardisation, both in technical and administrative areas, is desirable for the

satisfactory execution of many types of commercial projects. Major projects,
whether they are designated for use in building, civil engineering, chemical
engineering, electrical engineering, mechanical engineering, or any combination
of these, are frequently complex. With the resulting increased complexity of
contract conditions, it is also becoming increasingly important for these to be
based upon a standardised form of contract with which the contracting parties
and financial institutions are familiar.
8.1
FIDIC conditions of contract
For many years now, the Fdration Internationale des Ingnieurs-Conseils

(FIDIC) publishes a number of standard forms of contract, commonly referred
to as the Red Book, Yellow Book, Orange Book, etc.
FIDIC was founded in Europe in 1913 by three national associations of consulting
engineers. The objectives of forming the federation were to promote in general
the professional interests of the member associations and to disseminate
information of interest to members of its component national associations.
Today (augustus 2007) FIDIC membership numbers 74 countries.
In 1999, FIDIC published a series of four new Standard Forms of Contract.
In this chapter these forms are further elaborated. All are recommended for
specific activities and processes:
Conditions of Contract for Construction (the Red Book)
Conditions of Contract for Plant and Design-Build (the Yellow Book)
Conditions of Contract for EPC1/Turnkey Projects (the Silver Book)
For relatively simple or repetitive work, a so-called Short Form of Contract (the
Green Book) is available.
Each of the three major forms is subdivided in three parts:
General Conditions.
Particular Conditions; to be prepared separately for each individual contract.
Forms of Letter of Tender, Contract Agreement and Dispute Adjudication
Agreement.
Because the legal interpretation of a contract will depend on such matters as
the precise wording in various documents comprising the particular contract, as
well as on governing law, FIDIC cannot assist in the interpretation of individual
contracts and no translations are provided any more, as has been the case in
the past. The version in English is considered as the official and authentic text
for the purpose of translation.
All these contracts refer to the cooperation between an Employer and a Contractor.
However, FIDIC also recommends using a Model Services Agreement between
a Client and a Consultant for the purposes of pre-investment and feasibility
studies, designs and administration of construction and project management
(the White Book). This will be dealt with in section 8.3.2.
1. Engineering, Procurement and Construction
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Finally, some remarks will be made concerning other contracts in use with
institutions such as the World Bank.
Terminology
Note that the following terms (in Dutch in brackets) will be used throughout this
document:
Employer (opdrachtgever) versus Contractor (aannemer) in case of the works
to be executed (het te realiseren werk) under a Contract Agreement;
Client
(opdrachtgever) versus Consultant (adviseur / adviserend
ingenieursbureau) in case of the services to be rendered (de te verlenen
diensten) under a Consultancy Agreement.
Employer
works under a Contract Agreement
Contractor
Client
(Employer, Contractor)
services under a Consultancy Agreement
Consultant
Figure 8.1
8.1.1
Employer versus contractor and Client versus consultant
Conditions of Contract for Construction (CONS; The Red Book)
This form of contract is recommended for building or engineering works

designed by the Employer or by his representative, the Engineer. Under the usual
arrangements for this type of contract, the Contractor constructs the works in
accordance with a design provided by the Employer. However, the works may
include some elements of Contractor-designed civil, mechanical, electrical and /
or construction works.
Design by (or on behalf of) the Employer
The design is the responsibility of the Employer, except in the case when
some Contractor-design is specified in the Contract. The Specification(s) must
therefore clearly state which (if any) parts of the Works shall be designed by the
Contractor, and should also specify the appropriate criteria with which these parts
shall comply. It is obvious that if most of the Works are to be designed by the
Contractor, this form of contract would usually be considered inappropriate.
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8.1.2
Conditions of Contract for Plant and Design-Build (P&DB; The

Yellow Book)
This form of contract is recommended for the provision of electrical and /or
mechanical plant, and for the design and execution of building or engineering
works. Under the usual arrangements for this type of contract, the Contractor
designs and provides plant and / or other works, in accordance with the
Employers requirements; which may include any combination of civil,
mechanical, electrical and / or construction works.
(NB: the word Plant could cause some confusion in interpretation; it means
the machinery and apparatus which the contractor is required to provide and
hand over to the Employer, as specified in the Contract. Equivalent meanings
are facilities, installations such as in for instance nuclear plant / facility /
installation).
Design by (or on behalf of) the Contractor (the constructor)
In this case the design is the responsibility of the Contractor. He may show
an inclination to economise the design, in terms of costs, but this may be at
the expense of quality! Therefore, it is considered essential that the Employer
has available (or procures) expert technical advice in order to ensure that his
requirements are properly described in the tender documents, and are achieved
in practice during construction. If such expertise is unavailable, problems may
arise - particularly when substantial variation orders occur.
8.1.3
Conditions of Contract for EPC / Turnkey projects (EPC /T;

The Silver Book)The Silver Book
This form of contract is recommended for the provision of a process or power

plant on a turnkey basis, and which may also be used where one entity takes
total responsibility for the design and execution of a privately financed project
or an infrastructure project which involves little or no work underground. Under
the usual arrangement for this type of contract, this entity carries out all the
Engineering, Procurement and Construction (EPC) activities: providing a
fullyequipped facility, ready for operation, i.e. it will start to function at the turn
of the key.
(NB: the phrase EPC is more widely used in Europe; and turnkey in the USA)
This form also includes the Build-Operate-Transfer (BOT), or similar type
of contract, where the Concessionaire (operator or developer) takes total
responsibility for the financing, construction and operation of the Project. An
alternative is possible when the Employer (who then provides the finance)
wishes to implement the Project on a Fixed-Price Turnkey Basis.
Although it can not be prevented to use this type of contract in circumstances
for which it is inappropriate, the FIDIC organisation recommends that EPC /
Turnkey should not be used in cases such as the following, e.g.:
if there is insufficient time, or insufficient information, for tenderers to reliably
scrutinise and check the Employers requirements; or if there is insufficient
time / information for them to carry out their designs, risk assessment studies
and cost-estimating;
if construction will involve substantial work underground, or work in other
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areas which tenderers cannot inspect to assess the risks involved;

if the Employer intends to maintain a high level of control, i.e. to supervise
closely or control the Contractors work in detail, or to review most of the
construction drawings;
where parts of the work are to be designed by the Employer himself.
For such circumstances P&DB should be used instead.

8.1.4
Short Form of Contract (The Green Book)
This form of contract is recommended for relatively simple or repetitive work

(dredging work may be a good example), or for work of short duration (say
less than 6 months), or of small capital value (say less than 500,000). This is
irrespective of whether the design is provided by the Employer or the Contractor,
and whether the project involves construction, electrical, mechanical, or other
engineering work.
The World Bank (see next section) has also shown interest in this form of
contract for smaller projects, some of which could currently be covered by their
Standard Bidding Documents for Smaller Contracts.
8.2
Other standard forms of contract
Consultants and contractors working abroad will often encounter other forms of
contract than the ones outlined above. This is mostly due to different legislation
in the countries where the works shall take place. Another phenomenon is that
large, private organisations such as oil companies and banks, mostly prescribe
their own type of contracts. Also, financial institutions with a global
or continental influence such as the World Bank (WB), Asian Development
Bank (ADB) and European Investment bank (EIB), i.e. those concerned with
development assistance, aim at working with standard forms.
Because Dutch consultants and contractors often are in contact with these
organisations, a short review is given hereafter.
The World Bank, Washington, D.C.

The World Bank is the worlds largest source of development assistance, providing
huge loans annually to its client countries. It uses its financial resources, highly
trained staff and extensive knowledge base to help each developing country
onto a path of stable, sustainable, and equitable growth in the fight against
poverty.
Standard Bidding Documents for Works (SBDW) have been prepared by the World
Bank for use by borrowers in the procurement of admeasurement (unit price or
rate) type of works contracts through international competitive bidding. The
procedures and practices presented in these documents have been developed
through broad international experience. They are mandatory for use in works
contracts financed in whole or in part by the World Bank which are estimated
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to cost more than US$10 million (including contingency allowance), unless the
Bank agrees to the use of other Bank Standard Bidding Documents on a caseby-case basis.
Most SBDWs are nowadays based on the FIDIC Standard Forms of Contract;
although changes resulting from the Banks experience are still made and
explained in different sections.
The Short Form of Contract is accepted by the World Bank for tendering in a trial
edition named: Procurement of Simple Works (of Small Value, Short Duration
and Low Risk).
Asian Development Bank

The Asian Development Bank is a multilateral, development finance institution
dedicated to reducing poverty in Asia and the Pacific. Established in 1966, they
are now owned by 59 members, mostly from the region. Their headquarters are
in Manila. They have 22 other offices around the world.
ADB uses Standard Bidding Documents (SBDs) which are based on Master Bidding
Documents prepared by a Working Group established under the Procurement Cooperation Group of Multilateral Development Banks and International Financing
Institutions. They reflect what the ADB considers best practices in regard to
bidding and contracting for the procurement of goods and works.
Most sections may not be changed. Where no relevant SBDs have been issued
by the ADB, the borrower shall use other internationally recognised bidding
documents acceptable to the ADB, conforming to the maximum extent possible
to the ADBs SBDs.
The task of this bank, the European Unions financing institution, is to contribute
towards the integration, balanced development and economic and social
cohesion of the Member Countries.
To this end it raises substantial volumes of funds on the financial markets,
which it directs on the most favourable terms towards financing capital projects
meeting the objectives of the Union.
Promoters are fully responsible for implementing projects financed by the Bank,
in particular for all aspects of the procurement process: from drafting of the
tender specifications through to award of contracts, as well as administration
of the contracts themselves. The involvement of the Bank is confined solely to
verifying whether or not the conditions attached to its financing operation are
met.
8.3
Client-consultant model service agreements
In the previous sections we noted that parties which initiate a building project,
increasingly make use of standard forms of contract. These contracts describe
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the relation between two committed parties: an Employer and a Contractor.

However, in many cases there is a third party involved: the Consultant. Apart
from an Employer and a Contractor, as the main parties engaged in a building
industry project, there can also be a relation between an Employer and a
Consultant, or a Contractor and another Consultant (even at the same time).
Those parties also make use of standard forms of contract.
In the case of a third party being involved, one uses the expression Client
instead of Employer or Contractor. In this type of contract the Consultant
renders services to the Client for assignments such as design, engineering and
supervision services, management services, etc.
The next figure depicts these relationships.
white book
as
Employer
Client
Consultant A
some contract
white book
Contractor
as
Figure 8.2
Client
Consultant B
Contractual relations between various parties
In this figure the principal relation is the one between the Employer and the
Contractor, indicated by the description some contract, since we have already
noted that a variety of contract forms can be adopted here. For that relation the
Employer acts as the only Client. However, it is also possible that in a different
relationship not only the Employer acts as a Client, but also the Contractor for
instance when he employs the services of a Consultant. This situation is shown
in the figure above. The relation between a Client and a Consultant is governed
by standard forms as well.
8.3.1
The Dutch DNR 2005 (ONRI/BNA)
Originally, in The Netherlands two main standard forms of contract were used
for consultancy agreements:
the RVOI 2001 (Regeling van de Verhouding tussen Opdrachtgever en
Adviserend Ingenieursbureau Arrangement of the Relation between Client
and Consultant ), and
the SR 1999 (Standaard Rechtsverhouding Opdrachtgever <> Architect
Standard Legal Relation Client <> Architect; in conformance with the Bond
Nederlandse Architecten
On the 1st January 2005 ONRI and BNA presented together the De Nieuwe
Regeling 2005 (Rechtsverhouding opdrachtgever-architect, ingenieur en
adviseur - The New Arrangement 2005).
Anyone may apply this standard form of contract, whose regulations have been
laid down in a booklet containing 13 chapters and 59 articles.
As a general rule, the DNR 2005 emphasizes that under the agreement between
Client and Consultant, the Consultant shall always exercise reasonable skill, care
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and diligence in the performance of his obligations under the Agreement.

As an example, payment to the consultant is in principle possible in three
ways:
fees on the basis of time spent;
fees as a percentage of the building cost;
fees as a fixed sum.
In most cases a combination of these possibilities is made. In The Netherlands
the DNR 2005 is broadly accepted and commonly used; internationally we see
another standard form of contract: the FIDIC White Book.
8.3.2
The FIDIC White Book
Abroad one finds once more a FIDIC (Fderation International des Ingenieurs
Conseils) document: the Client-Consultant Model Services Agreement, often
referred to as the White Book.
The White Book is (historically) based on UK law. This difference indicates
that one should be very careful in choosing the right contract for works in the
particular country considered.
The terms of the services agreement are explicitly recommended by FIDIC for the
purposes of pre-investment and feasibility studies, designs and administration of
construction and project management.
As is the case with other FIDIC documents, the version in English is recommended
by FIDIC as the official and authentic text for the purpose of translation. It is
possible to present a contract in two languages whereby it is explicitly stated
that in case of misunderstanding between parties the English text will be
governing.
8.3.3
World Bank
The World Bank (WB) prepares her own Standard Contract for Consultants
Services for use by its borrowers and their implementing agencies (referred
to as Clients) when they hire consulting firms (referred to as Consultants) for
complex assignments (such as design, engineering and supervision services,
management services, etc.). Its use is mandatory in those cases.
This is remarkable because the World Bank reviewed draft versions of the
FIDIC White Book and their comments were incorporated in the final document.
Obviously they did not accept it after all (the same holds for the Asian
Development Bank).
The Standard WB Contract consists of four parts:
the Form of Contract to be signed by the Client and the Consultants;
the General Conditions of Contract;
the Special Conditions of Contract
the Appendices.
Parties using this Standard Contract for services financed by The World Bank
should note that the General Conditions must be retained unchanged. Clauses in
the Special Conditions should be used for deviations from the General Conditions
and are dealt with as specified in the notes to individual clauses.
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Unfortunately, other financial institutions also offer their own - different standard
contracts in this field. Examples are the Asian Development Bank (ADB) and the
International Bank for Reconstruction and Development (IBRD). It would be
preferable if at some point they all referred to the same FIDIC standard, which
is by now broadly accepted and understood.
8.4 Other cultures, other practices

Since the 2007-2008 courses, students are given the chance to earn credits by
writing an essay over a specific subject. The most striking results are presented in
this chapter. Pls. note that texts are dated; in future the meaning may change!
8.4.1
China (November 2007; Tan Li)
The diversion tunnel project of Lubuge hydraulic power station was the first
time China applied FIDIC Conditions of Contract to a project and was granted
loans by the World Bank. Lateron the Conditions were applied many times in
many projects with loans by the World Bank, Asian Development Bank, and also
foreign investment projects.
Meanwhile Chinese Ministries (Ministry of Construction, Ministry of Water
Conservancy, and the National Electric Power Corporation) were compiling their
own construction project contract models, for which the FIDIC Red Book was
a main reference. In addition FIDIC Conditions of Contract have been studied
in the training program for supervising engineers and construction project
managers. The Red Book has been regarded as required teaching material.
At the beginning of 2003, the Ministry of Construction issued a guideline
named Instructive Opinions on the Engineering General Contracting and Project
Management Corporations Cultivation and Development which discussed the
importance of carrying out general contracting.
It has been more than ten years since Design/Build and EPC Turnkey were
carried out in China, but its scale is very small while the management of such
work is not standard. There has been no officially issued contract model of
such of general contracting mode until now.
A construction supervising system has been introduced and carried out in
China for 15 years, and there has been a fairly strong workgroup in China. The
Construction Supervising work is so important that it will play a great role in
the engineering construction in the future. Construction Supervising belongs
to Engineering Consulting so it is led by the Consulting Engineer/Architect on
site. The Construction Supervising Engineer is neither decision maker, nor the
agent of the Employer. The Construction Supervising Engineer is the project
management company (or personnel) employed by the Employer, and now does
the supervising work mainly in construction stage in China.
One of the main problems in China is the attitude of the Employer (Government
agencies included) towards Contractors as regards payments. It is recorded
that presently (2007) money not paid yet amounts to 280 billion (RMB) and
weakens enomeously the economic strengths of construction corporations. Also
the markets asks for ea legal system to provide for a free and fair competition.
It is suggested to modify or adapt the standard contracts and clausules available
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accordingly.
8.4.2
Denmark (November 2007; Pernille Iversen and Agnethe

Glud)
In Denmark the most common practice as regards civil engineering projects, is

the traditional model (bid-build) as in the Netherlands. Denmark is going towards
the collaboration form called partnering. Whether to use the traditional model or
to use partnering depends of the size of the project. If your project is small the
traditional building process seems often to be the best. If your project is larg,e
partnering seems to give the most satisfied clients and suppliers. Partnering
is used more and more in Denmark. The reason why this still isnt the most
common used collaboration form is that there still is a lack of experience in this
field.
Partnering is defiantly a collaboration form that is worth considering in the future
when the lack of experience decreases. Partnering is especially worth considering
if the client has a big project with a large number of different solutions and a
wish upon adding the most value to it. A way to force partnering to be more
used is to share good experiences and to prove good results regarding time,
quality and economy.
8.4.3
Rwanda (November 2008; Leopold Uwimana)
In Rwanda the procurement of large public, governmental projects is prepared

and monitored by the Rwanda Public Procurement Authority (RPPA) according
to standard procedures as fixed in Law N 12/2007 of 27/03/2007 ON PUBLIC
PROCUREMENT, Year 46 n 8, 15 April 2007. Because of the decentralization
system in local government, small job are procured at provincial or district
levels.
RPPA is independent from other government institutions but of course they
collaborate. It has the standard way of procurement that fits both national and
foreign bidders.
For large infrastructure which requires huge budget, usually money comes from
donors (EU, WB, ADB etc). Sometimes these donors impose their own way in
procurement because of fear about corruption and other types of irregularities.
They provide a kind of clause to reinforce the existing method which is actually
suitable and meets all the requirements of international bidding system.
According to the Rwandan policy, all large public works bidding are open
worldwide to anyone who is capable. Furthermore Rwanda is in the East
African Community (EAC) free trade zone which impose the country to accept
international bidders.
The foreign companies, once they win a market, are obliged to subcontract
the local companies for minor works. Only the major company is responsible
and accountable for the work quality. Therefore the control of the local subcontractors is done by the major company staff.
The Bidding Process

There are two standard procedures as well as documents used for bidding /
tendering:
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(i) Bidding following prequalification:

This procedure is to be used when bidding is preceded by a prequalification
exercise. Prequalification of bidders is required for large or complex contracts or
turnkey contracts in advance of bidding. Those invitations to bid are confined to
capable firms.
Prequalification is followed by a competitive bidding procedure in which only
those firms meeting specified prequalification criteria are invited to submit a bid.
Prequalification should not be used for limiting competition to a predetermined
number of potential bidders. All applicants meeting the specified criteria shall
be allowed to bid.
(ii) Bidding without prequalification:
For the procurement of simple works contracts, the procuring entity may apply
post qualification by requiring bidders to submit the information pertaining to
their qualification together with their bids. In this event, it will be necessary to
ensure that a bidders risk of having its bid rejected on grounds of qualification
is remote if due diligence is exercised by the bidder during bid preparation. For
that purpose, clear-cut, fail-pass qualification criteria need to be specified by the
Procuring entity in the Bidding Document in order to enable bidders to make an
informed decision whether to pursue a specific contract and, if so, either as a
single entity or in joint venture.
The International Competitive Bidding (ICB) process used in Rwanda includes
five main stages:
1. Publicity (Advertising or Notice)
2. Preparation and Issuing of Bidding Documents
3. Submission and opening of bids
4. Evaluation and bids comparison
5. Award of contract.
Ad 1. Publicity (Advertising or Notice) and Instructions to Bidders
The Procuring entity must announce an upcoming bidding process in the
international and national media and give enough time for potential bidders
to respond with well prepared offers. The Instructions to Bidders provides
relevant information to help the bidders to prepare their bids. Information is
also provided on the submission, opening, and evaluation of bids as well as the
contract award. The scope of the bids is shown clearly by indicating Bid Data
Sheets (BDS).
Sources of funds, payments under the contract(s) and how to deal with fraud
and corruption are also mentioned in the Instructions to Bidders.
The Rwandan Public Procurement Authority Regulations (RPPA) requires that its
officials, as well as bidders, suppliers, and contractors and their subcontractors,
observe the highest standard of ethics during the procurement and execution
of such contracts. The RPPA provides sanctions for those who are embedded in
fraud as well as corruption in the bidding procedures.
The eligible materials, equipment, and services to be supplied under the contract
may have their origin in any country, and all expenditures under the contract
will not contravene such restrictions. At the Procuring entity request, bidders
may be required to provide evidence of the origin of materials, equipment and
services.
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Ad 2. Preparing and Issuing a Bidding Document

The Bidder shall bear all costs associated with the preparation and submission of
its bid, and the Procuring entity shall not be responsible or liable for those costs,
regardless of the conduct or outcome of the bidding process.
The bidder shall furnish a bid security which shall be a demand guarantee in any
of the following forms at the Bidders option:
(a) An unconditional bank guarantee issued by a bank or surety;
(b) An irrevocable letter of credit;
(c) Another security (indicated in the BDS), from a reputable source, such as
insurance company.
When the bids are well prepared, they are ready for submission. In that case the
bidder is responsible for the preparation and submission of its bid. During this
stage, the Procuring Entity shall promptly respond to requests for clarifications
from bidders and amend, as needed, the bidding documents.
Ad 3. Submission and Opening of Bids
After preparation, the bidder shall enclose the original and all copies of the
bid, including alternative bids (if permitted), in separate sealed envelopes. A
bidder may withdraw, substitute, or modify its bid after it has been submitted by
sending a written notice, duly signed by an authorized representative.
The Procuring entity shall open the bids in public, in the presence of willing
bidders, designated representatives and anyone who choose to attend.
The Procuring entity shall verify at Bid Opening the validity of the documentation
confirming the validity of a bid modification, bid withdrawal, or bid substitution as
the case may be, because a withdrawn or substituted bid shall not opened and
in consequence not read out and, therefore, they shall not be further considered
by the Procuring entity. Similarly, a bid modification shall be opened and read
out to modify a bid that was received on time.
Ad 4. Evaluation and Comparison of Bids
The bids are checked for confidentiality, clarification of bids, deviations,
reservations, and omissions. During the evaluation, the comparison of bids is
done where by the Procuring entity shall compare all substantially responsive
bids in accordance with instruction to bidders. The Procuring entity, in observance
of best practices, shall:
- maintain the bid evaluation process strictly confidential;
- reject any attempts or pressures to distort the outcome of the evaluation,
including fraud and corruption;
- always comply with the prior-review requirements of the funding entity;
and
- strictly apply only and all of the evaluation and qualification criteria specified
in the Bidding Documents.
Ad 5. Award of Contract
The final step in the bidding process is the award of the contract to the bidder
who meets all the requirements as specified in the Terms of Reference. The
Procuring entity shall award the contract to the bidder whose bid has been
determined to be the lowest evaluated bid and which is substantially responsive
to the requirements included in the Bidding Document provided further that the
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Bidder is determined to be qualified to perform the contract satisfactorily.

The award of contract is followed by the notification of the award made by the
Procuring entity. It shall notify the successful bidder, in writing, that bid has
been accepted. The next step is to sign the contract. The successful bidder shall
provide the performance security in accordance with the General Conditions
of Contract. The way to carry out the works is specified in the contract. The
contract shows the way of collaboration among parties from the start until the
commissioning of the project.
8.4.4
Spain (November 2008; Juan Manuel Jorques Rosell and

Beatriz Nacher Rodriguez)
Labor safety policy for construction activities

Labor safety has become a very important issue in Spain. Last year one million
accidents causing sick leave, happened. One thousand of them resulted in death.
27 % of these accidents took place during construction activities. This data can
help us to realize how important safety is in construction industry.

Figure 8.3 Labor accidents, distributed for sectors (year 2006).
Spanish laws include several items with reference to labor accidents. In the
Spanish Constitution we find articles that deal with that:
- Article 40.2 The public authority will follow a policy that guarantees safety
and hygiene at the works and will guarantee the necessary rest, by means
of the limitation of the labor day, the periodical - paid - vacations and the
promotion of suitable work centers.
- Article 43.1 Health protection rights are recognized by the State.
- Article 43.2 Public authority will organize and protect the public health
through preventive measures. Laws will establish all rights and obligations of
each one in this regard.
There are laws related to work safety, such as:
- Law 8/1980 Workers statute
- Law 14/1986 Public Health law
- RDL 1/1994 Social Security System
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Law 31/1995 Labor Risks Prevention Law (and the most important one)
Law 31/1995 includes all International Labor Organization requirements. This law
also encloses Council Directive 92/57/EEC of 24 June 1992 on the implementation
of minimum safety and health requirements at temporary or mobile construction
sites. This law is developed (explained) by the Royal Decree 1627/1997 Minimal
dispositions in Safety and Health in the works of Construction.
Under this Decree there has been made a distinction between two stages: design
and building. In both stages we find the Safety and Health Coordinator and the
Safety and Health Plan.
Design stage
As the Royal Decree says: In construction works belonging to the area of
application of this Royal Decree, if more than one consultant takes part during
the work design activities, the employer will designate a Safety and Health
Coordinator during the elaboration of the work design.
If theres only one consultant, then the consultant designates the Safety and
Health Coordinator. Anyway, the Coordinator cant be the consultant, should be
independent from the consultant and cannot depend on the consultant. The law
requires the Coordinator to be a competent technician, in practice it means that
the Coordinator should be an engineer or architect.
The Safety and Health Plan shall be developed when:
- The budget for the works is more than Euro 450.759 (75 millions of
pesetas)
- The amount of work hours planned is more than 500
- The project consists of a tunnel, a gallery, an underground conduction or a
dam.
The technician in charge of the draft of the Safety and Health Plan should know
the location of the work, the number of workers and their qualification, and
should analyze the works that has to be done. Then the risks associated to
those works should be analyzed, and finally depending on the risks, preventing
measures are designed. All these measures should be noted in the Plan.
Building Stage
As the Royal Decree says: When in the execution of the works more than one
contractor is involved, or one contractor and a private worker, or more than
one private worker, then the employer, before the works begin, will designate a
Safety and Health Coordinator during the works execution.
If theres only one contractor, a joint venture or only one private worker carrying
out the construction works, then it is not necessary to designate a Safety and
Health Coordinator. In this case the contractor will designate a Safety and Health
officer who can be one of the contractors personnel.
Like during the design stage, the Coordinator shall be a competent technician
(architect or engineer).
Nowadays, the increasing demand on specialization has given a boost to consulting
companies specialized in safety in general and coordination in particular.
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The contractor (each contractor if there is more than one) has to elaborate
a Safety and Health Plan based on the study and taking into account its own
system for the execution of the works. This plan consists on the adaption of the
study to the real conditions that will be developed at the workplace. In public
works the plan should be approved by the competent administration. In private
works, the coordinator should approve it. The plan should be modified during the
duration of the works. Its necessary to do it in order to correct deviations from
what had been initially planned, such as new materials applied, new building
techniques etc. The main function of the Safety and Health Coordinator during
the work is to verify the appropriateness of the plan.
Environmental impact policy for construction activities

The Spanish Constitution defines the right to live in an environment free
from contamination, to protect the environment and preserve the nature.
Construction activities are a potential source of contamination, not only in the
pollution aspect, but also in terms of noise contamination, protection of cultural
patrimony, etcetera. To prevent the damage that these activities produce, a lot
of laws and regulations have been developed. Each project has to contain in
its contract one section dedicated to environmental aspects, as it was exposed
in the first law about assessment of the impact upon the environment, the
Legislative Royal Decree 1302/1986 of 28th June. Since then, there were a lot of
modifications, extensions and updates. The latest one was the Legislative Royal
Decree 1/2008 of 11 January.
Mainly, this Royal Decree deals with:
- Legal and judicial framework of assessment of the impact upon the
environment in construction works
- Integration of environmental aspects in the projects by making them an
indispensable part of the project approval
- Description of the procedures
- List of the projects which have to enter the evaluation system
An assessment of the impact upon the environment (EIA) is the collection of
studies and technical analysis that allows one to dimension the effects on the
environment that one certain project can cause. The Public Administration
is the one who decides which projects are able to submit an evaluation of
environmental impact, and the Environmental Department is the one which
decides which projects pass the evaluation and which not.
Although the procedures are a little bit different depending on the autonomous
region, the basic lines are the following:
- The promoter of the project has to request an assessment of the impact upon
the environment for his project, and to deliver an initial, relevant document
- The extent of the study of environmental impact has to be determined, with
the help of the respective Public Administrations concerned
- The promoter has to prepare an impact study on the environment
- The Environmental Authority will evaluate the study, and decide whether is
possible to construct or not, in terms of environmental issues
- The promoter has to develop an environmental impact declaration, with the
measures taken in order to prevent or reduce the environmental damage
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Once the project has started, the Administration has a duty to follow and
supervise the fulfilling of the environmental impact declaration. The promoter
can be sanctioned if:
- The construction starts before the endorsement of its environmental impact
declaration
- Information or data is hidden in the evaluation process
- The requirements contained in the declaration are not fulfilled
The fine can vary between 2.404.048 to 24.040 Euros.
For the projects that are obliged to make an EIA, a distinction has been made
in groups. Below as an example - theres a description of the group, and the
corresponding characteristics that are relevant for deciding whether there must
be an EIA made or not.
Group
When should a EIA to be carried out?
1. Agriculture and Cattle
If the project exceeds a certain size

(measured in ha). Some examples of
activities included in this group are tree
felling, reforestation, water management
projects for agriculture or cattle
installations, etc.
2. Mining Industry
If the project has, for instance, land

movements more than 200.000 m3 /
year, if one is working in areas near or in
rivers and protected open spaces, if you
are extracting radioactive minerals, or oil
and natural gas for commercial purpose
3. Power Industry
If you are projecting (for instance)

a thermal power central (more than
300 MW), a nuclear power central, or
installations for the transport of electricity
4. Iron and Steel Industry
For works like installations for asbestos

extraction, production of sheet metals,
application of protection layers of melted
steel; installations for glass or ceramics
production
5. Chemistry, Textile and Paper Industry
For installations where materials are

produced with chemical transformations,
for pipes that are going to transport
chemical products or storekeepers for
these products. You have to do it also for
paper production factories
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Group
When should a EIA to be carried out?
6. Infrastructure Projects
If youre projecting highways, motorways
or new roads, or airports, or railway
roads, or coast protection works
7. Hydraulic Projects Industry and Water
For the construction of dams, if the
Management
volume of water stored is higher than

10.000.000 m3; for groundwater
extraction projects; for transfer of water
resources between different river basins;
and for wastewater treatment plants
8. Waste Treatment and Management
For the construction of installations for
Projects
the incineration of hazardous waste, or

for waste that is going to be treated with
chemical products. You have to do it if
the garbage dump gets more than 10
tons of waste per day
9. Other Projects
Theres another long list of projects that

arent provided in any of the previous
groups, but also require an EIA. Some
examples of these are:
-Land uses transformations with the
removing of the vegetation cover
-Marine dredging for salt obtaining
-Wind farms with more than 10 wind
turbines
-Ski installations
If the characteristics of the project to be undertaken are such that you dont
have to make an EIA, you also have to make an application, in order to get a
certificate that allows you to start your construction works. Starting the works
without that certificate, even if you comply with the conditions for no-study
needed, is totally forbidden.
8.4.5
Tanzania (November 2008: Ally K. Mwinchande)
Participation of Foreign Companies and/or Experts in Procurement

Tanzania, like many other developing countries, gets the funds for its budget
through its own sources of revenues as well as contributions from development
partners, either bilaterally or multilaterally. In order to ensure that there is
an effective spending of the public funds through public procurement, the
Parliament of the United Republic of Tanzania enacted the Public Procurement
Act Number 21 of 2004 (PPA-2004). The Act applies to all procurement and
disposal by tender undertaken by a procuring entity except where it is provided
otherwise in the Act. This has been done following the recommendations given
by the Country Procurement Review Assessment carried out in 2002 to review
the implementations of the then Public Procurement Act Number 3 of 2001
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(PPA-2001).
In order to ensure that all Public Procurement entities adhere to the provisions
of the PPA-2004, the Public Procurement Regulatory Authority (PPRA) was
established under the Ministry of Finance and Economic Affairs (MoFEA). The
authority was established under Section 5 of the PPA-2004 as a body corporate
with all the legal personalities.
Since there are different sources of funds as explained in the paragraph above,
the provision of section 4(1) of the PPA-2004 states that To the extent that the
Act conflicts with an obligation of the United Republic under or arising out of any
treaty or other form of agreement to which the United Republic is a party with
one or more other states or political sub-divisions of such states; or any grant
agreement entered into by the United Republic with an inter-governmental or
international financing institution in which the United Republic is the beneficiary,
the requirement of such treaty or agreement shall prevail, but in all other
respects, the procurement shall be governed by the Act.
Qualifications
Two bidding methods, National Competitive Bidding (NCB) method and
International Competitive Bidding (ICB) can be distinguished. While under NCB
Tender Notice is advertised in the United Republic of Tanzania only, the Tender
Notice under the ICB is supposed to be advertised within and outside the United
Republic of Tanzania.
Foreign firms and Experts are both allowed to participate in tender in both
methods. Section 46(2) of the Act stipulates the qualification criteria for the local
firms to qualify for participating in procurement proceedings. The local firms
shall satisfy all relevant requirements for registration with appropriate current
professional statutory bodies in Tanzania.
The section 46(3) of the Act stipulates the criteria for the foreign firms. The
foreign firms are exempted from the requirements under section 46(2) above,
but where as a result of the procurement proceedings, any foreign firm is
selected as having submitted the lowest evaluated responsive tender or the
best ranked proposal, such a firm or expert shall be required to register with
appropriate professional statutory body and shall be required to submit evidence
as approved supplier, consultant or contractor in Tanzania.
All qualification criteria shall be made known to, and shall apply equally to all
firms and experts and a procuring entity shall impose no discrimination criteria
requirement or procedure with respect to the qualifications of any firm or
expert.
National Preferences and Exclusive Preferences

As a way of increasing participation of local firms in public procurement, section
49 of PPA-2004 allows for a margin of preference to be given for the benefit of
tenders for certain goods manufactured, mined, extracted or grown in Tanzania,
for works by Tanzanian Contractors or services by Tanzanian Consultants or
Service Providers. Section 50 of the same Act allows procurement not exceeding
a certain limit to be set to exclusively to local persons or firms where such
procurements are fully funded by a Tanzanian public body.
In line with section 49 of the Act, the Minister for Finance and Economic Affairs
through Public Procurement Regulations has approved a margin of preference
based on the input of local firms in the association with the foreign firms. The
table below shows the margin of preference for National and International
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competitive and domestic and service providers.
Margin of Preference
Input of National Firm in Association
Preference (%)
20 40%
40 60%
60 80%
80 100%
10
Suppliers supplying goods mined or manufactured in Tanzania are granted a

margin of preference of up to 15%.
Also in line with section 50 of the Act, the Minister for Finance and Economic
Affairs through the Public Procurement Regulations has approved the following
limits for exclusive preference to local persons or firms.
Exclusive Preference
Procurement Type
Value in Tanzania Shillings (Tshs)
Works
1,000,000,000.00
Goods
200,000,000.00
Non consultant services
250,000,000.00
Disposal by tender
Not applicable
Exchange rate as September 2008: 1EUR = 1700Tshs.

In order to monitor and prevent the abuse in the use of the above proposed
preference schemes, the Regulations provides for the registration of consultants,
contractors, suppliers and other service providers who wish to benefit from the
scheme. The approved registration list shall be used by the procuring entities to
provide preferences ad appropriate. It shall not be used to limit participation of
any firm in public tenders. However, it is only the firms under the register who
will qualify for the preference scheme.
How does it work?

With regard to the margin of preferences, the input of the national firm in the
association is mainly on the basis of the percentage of the share in the association
and which is filled in the provided registration form and is to be scrutinized by
the Authority. Section I of the form is concerning with the company profile
whereby the companies also stipulate their share capital.
The table below shows an example of what the companies are to fill in the
forms for the determination of the input of the national firm. It shows name and
nationality of the share holders or partners.
Name and Nationality of Shareholders or Partners
S/No.
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Name
Nationality
% Share
After getting the percentage of shares/ stake by the national firm in the
association, the subsequent preference is read from the regulations, i.e. for the
80 100% stake by the national firm, a margin of preference of 10% is applied
to the association, and depending on the awarding criteria, i.e. lowest price, this
means that the submitted price of the association will be reduced by 10% (for
comparison purposes), before comparing with the other prices.
It has been recently observed an increase of collaboration/ association of foreign
firms with the local firms in order to take full advantages of the preferences and
it has resulted to positive capacity building of the local firms. Below are the few
examples of few road projects whereby the foreign firms took advantages of the
association to win the tenders.
BKS Group (Pty) of South Africa associated with the local company CoArchitecture Ltd and won the tender for the pre-contract consultancy services
for the Mwemkuru Lindi Mingoyo Design and Build road project (32 km).
The supervision consultancy services for the project were won by M/s Tecsult
International of Quebec Canada in association of Ambicon Engineering Ltd
(Local Company).
Roughton International of U.K associated with Data Consult (local company) for
the consultancy services of the Dodoma Manyoni road project (127km).
The same case applied to M/s BCEOM of France which associated with the local
company M-Konsult ltd for the supervision works of the Sekenke diversion
Shelui road project (33.32km).
Conclusions
- It can be concluded from the above explanations that in Tanzania the foreign
companies are allowed to bid on local projects. However, there are minor
value projects and which are fully funded by the Tanzania public body with a
limit value below which, only local firms can bid
- It can also be concluded that foreign firms are not forced to seek collaboration
with local partners. However, there are preferences given to foreign local
firms collaborations. The extent of preferences depends on the percentage
input of the local firm in the association
- The preferences are only given to those firms who wish to benefit from it
- When the project is donor funded, the procurement rules and regulations of
the donor prevail.
References:
1. Public Procurement Act Number 21 of 2004 (PPA-2004) - Tanzania
2. www.ppra.go.tz
3. Technical Audit of Construction Projects National Construction Council of
Tanzania.
8.4.6
Turkey (November 2007; Hatice idem Demirel and Burak

Szgen)
In Turkey a new law has been issued: the Turkish Public Procurement Law
(PPL no.4734) and Public Procurement Contracts Law. According to that law,
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the contracting entities are liable for ensuring transparency, competition and
equal treatment. Unless there is a natural and justifiable relation between
them, purchase of goods, services and works cannot be combined in the same
procurement.
To qualify for a tender, bidders may be asked to submit detailed information or
documents in order to be evaluated as regards technical, financial, economical
and professional means.
Joint ventures
Joint ventures may be established by more than one natural or legal person
either in the form of a business partnership or as a consortium. Members of a
business partnership have equal rights and responsibilities while members of
consortium have separate rights and responsibilities according to their expertise
for performing relevant parts of the project.
At the tender stage, the joint venture shall be asked to submit an agreement
indicating the mutual agreement of the parties to form a business partnership
or a consortium. In case the contract is awarded to a business partnership or
consortium, a notary-certified business partnership or consortium contract shall
be submitted prior to signing of the contract.
Public Procurement Authority
In order to carry out the duties assigned with this Law, a Public Procurement
Authority with public legal entity, which is administratively and financially
autonomous, has been established. Public Procurement Authority is assigned
and authorized for the accurate implementation of the principles, procedures
and proceedings specified in this Law. The Authority is related to the Ministry
of Finance. The centre of the Authority is in Ankara. The Authority shall be
independent in fulfillment of its duties. No organization, office, entity or person
can issue orders or instructions for the purpose of influencing the decisions of
the Authority.
The duties and authorities of the Public Procurement Authority with respect to
the tender procedures carried out in accordance with this Law are:
1) to evaluate and conclude any complaints claiming that the proceedings carried
out by the contracting entity within the period from the commencement of
the tender proceedings until the signing of the contract, are in violation of
this Law and the related legislative provisions,
2) to prepare, develop and guide the implementation of all the legislation
concerning this law and Public Procurement Contracts Law and the standard
tender documents and contracts,
3) to provide training on procurement legislation, to provide national and
international coordination,
4) to gather information relating to the contracts and tender proceedings carried
out as specified by the Authority, to compile and publish statistics relating to
quantity, price and other issues,
5) to keep the records of those who are prohibited from participating in
tenders,
6 to carry out research and development activities,
7) to regulate the principles and procedures with regard to tender notices, to
publish Public Procurement Bulletin in printed or electronic media.
8) In cases where it is established that domestic tenderers are prevented due
to unfair reasons from participating in tender proceedings taking place in
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foreign countries, to take relevant measures in order to ensure that the

tenderers of those countries are prevented from participating in the tenders
held under the scope of this Law, and to furnish proposals to the Council of
Ministers in order to ensure that the necessary arrangements are made.
Foreign companies tendering in Turkey

Foreign companies willing to bid for local projects in Turkey have to deal with
strict limits. It is stated in article 63 of the Law that foreign companies cannot
bid for the tenders which have lower values than threshold values specified
in the law where these threshold values change each year according to the
decision of Public Procurement Authority. However, local contractors willing to
have a tender below the threshold values, can also allow foreign companies to
take part in the tender by putting a special item in the tender document.
In cases where the estimated costs are above those threshold values, local
contractors are still having preferences. A price advantage would apply to all
those tenderers of up to 15%.
Local contractors who offer products which are accepted as domestic products
by the Authority by taking into account the opinions of Ministry of Industry
and Trade and of other relevant organizations and institutions are also allowed
a price advantage of 15 %. However, local contractors who participate in the
tender proceedings by forming joint ventures with foreign tenderers, cannot
enjoy this right.
For the tenders having values higher than the threshold values specified, there is
no limit for either local or foreign companies. Still it is described as discrimination
by a part of the Turkish society to allow only local companies to take part in the
tenders having values below the mentioned limits , whereas another part of the
society arguments that these threshold values should even be higher.
When we look at the standards of the World Trade Organization about public
procurement and the model public procurement law prepared by United Nations
Commision related with the International Trade Law-which is also part of
United Nations- it is admitted that every country has a right to establish new
regulations to protect its own domestic product and producers. In the light of
this clarification, many countries have protection regulations.
Treshold values (2008)
According to the Law, as a function of the estimated cost, the threshold values
are defined as:
a) 563.858 Yeni (New) Turkish Lira for procurement of goods and services by
the contracting entities operating under the general or the annexed budget.
b) 934.858 YTL for procurement of goods and services by other contracting
entities within the scope of the Law
c) 21.564.840 YTL for the work contracts.
(see also: http://www.oecd.org/dataoecd/7/4/40424879.ppt)
8.4.7
Zambia (November 2008; Godfrey Chamululu)
The role of The Ministry of Works and Supply (Public Works)

The Ministry of Works and Supply - with its specialist departments - was originally
established to provide an in-house capability for carrying out governmental civil
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engineering and building construction works including the provision of all related
technical services. The Ministry, therefore, combines the roles of being Employer,
Project Manager, Engineer/Architect and Contractor for all public works.
In order to cope with an increase in one work load, the Ministry contracts out
the construction of works to private contractors and consultants.
Controlling Officers/Chief Executives, as custodians of public funds, ensure the
use of the Ministry of Works and Supply facilities on sound commercial basis.
The Controlling Officer and Chief Executive have adequate access and obtain
free informed advice from the Ministry at the project plan or proposal stage.
However, where the client wishes to employ the Ministry as Project Managers,
Engineers/Architects or Contractors, these services are properly costed and
paid for from project funds. The decision by the Ministry to engage private
contractors or consultants is originated by the client institution and approved by
the relevant tender committee.
The environmental impacts of construction works

The Environmental Council of Zambia (ECZ) is a statutory body created under
an Act of Parliament: the Environmental Protection and Pollution Control Act
of 1990, Cap 204 of the Laws of Zambia. The Council, established in 1992, is
mandated to protect the environment and control pollution so as to provide for
the health and welfare of persons, and the environment.
The Environmental Impact Assessment (EIA) predicts the impacts of a proposed
project on net environmental quality and recommends mitigation measures to
assure that the environment is not degraded beyond acceptable limits. The
long-term objective is to ensure sustainable economic development in the power
generation sector while protecting the needs of future generations.
The EIA is the basis for decision-making by the relevant authorities involved
in the project. The EIA identifies and analyses the environmental impacts that
the project will cause. It suggests viable alternatives and suitable mitigation
measures, and gives a detailed description of the project development, local
environment, and baseline conditions.
Foreign companies
The countries in southern Africa have a well-established construction and
engineering sector. The potential for further trade in these services is positive
and a number of contractors and engineering consultants are already exporting
these services both directly and indirectly through sub-contracting to foreign
companies undertaking work in the local market.
Zambia has a little over 600 registered building contractors. Of this, only six
companies are large multi-discipline firms capable of undertaking larger projects.
The smaller companies in the sector do however benefit from sub-contracts
to foreign construction firms working in the country. Zambia has consulting
expertise and architectural services; quantity surveying and engineering services
are all available from local operators.
Reasons for having foreign companies
In the procurement of infrastructure projects, foreign contractors may be eligible
to participate in the bidding if they form a joint venture with local contractors;
provided that their interest in or ownership of the joint venture shall not
exceed a certain percentage. However, where the structure to be built requires
the application of techniques and/or technologies which are not adequately
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possessed by a person/entity which meets a certain percentage they may be

eligible to participate in the bidding. In the procurement of consulting services,
foreign consultants may be hired if local consultants do not have the sufficient
expertise, capability, and capacity to render the services required under the
project, as determined by the head of the procuring entity.
Local construction firms have unfortunately no funds or expertise to participate
in the sponsorship of privatized projects, so instead they have to enhance their
expertise/capacity so that they could be in a good strategic position to be part
of joint ventures with international firms. Also the fact that local construction
companies lack the technical and managerial capability to undertake most of the
foreign-funded projects deprives them an opportunity to be considered in any
possible sound partnership arrangement with international/foreign firms.
The National Council for Construction (NCC)

The NCC is a newly reconstituted statutory body, affiliating and representing all
trade organizations and professional bodies within the Zambian Construction
Industry. The National Policy on Construction Industry (NPCI), a Government
policy document, initiated and approved by cabinet in 1995, prompted the initial
formation of the NCC. The NCC formally commenced operations in October
1998, when the Executive Council was elected. It is important to note, however,
that the NCC has somewhat been in operation since 1968, when it operated
under the Joint Liaison Council for the Construction Industry (JLC).
The aim of the National Council for Construction is to promote and build the
capacity of the Zambian construction industry. It is engaged in several other
activities apart from those of regulating the construction industry in Zambia.
These activities center on the achievement of its aims and objectives. Therefore
in order to effectively promote the construction industry in Zambia, the activities
of NCC include: implementing policies; regulating the construction industry;
monitoring construction related activities; facilitating an enabling environment
for the construction industry and its constituents.
The World Bank and other donor funding agencies agree with Zambias economic
policy.
Ostensibly, the World Bank procurement policy is focused on the most efficient
use of its funding without favoring the citizens of Zambia as a country. World
Bank officials have to ensure that the borrower country is not misusing the
funds, and they have to prevent corrupt practices amongst the officials dealing
with the project. This means that the borrower countrys officials have to answer
to World Bank officials at certain key points in the tender process, as well as
later while the contract is being carried out.
In the adjudication of World Bank-funded projects, the two systems known as
Quality & Cost Based Selection and International Competitive Bidding are seen
to be the most desirable systems of deciding which bid should win the tender.
Although the World Bank does try to encourage the Zambian local consultants
and contractors, its focus is on getting the best, most experienced experts to do
the job. This is not to say that World Bank procurement does not permit any form
of preference, but the limits of the preference for domestically manufactured
goods are described under their appendix.
Other international aid agencies (e.g. EU, USAID, DANIDA, SIDA, DFID et al)
have their own procurement policies governing the adjudication of tenders, but
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generally they favor International Competitive Bidding as well. However, some

aid agencies require that the tendering consortium link up with a company
based in the donor country.
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9.
Selection and award of contract
For each form of collaboration the Employer / Client needs to find a partner.
Otherwise his or her wishes will not be fulfilled. The process of searching for and
finding a partner is discussed in this chapter. In principle this process consists
of two sub-processes: selection, and the award of the contract. Although the
process described is typically Dutch, the same procedure is generally followed
abroad.
9.1
Specific requirements
In a tendering procedure a choice is made between all (previously selected)

tenderers, sometimes referred to as bidders (USA practice). This will be done
using objective criteria, which shall be the same for all interested parties and
shall be applied in the same way.
These criteria can have the effect of exclusion (when for example the tenderer
has not paid his due taxes) or of a qualitative character (relevant experiences
have to be demonstrated). Using these criteria the Employer / Engineer is able to
judge if a tenderer is able to execute the works in a proper way. It is emphasized
that in most cases it is better to look for capable candidates than to aim for the
very best.
The following minimum requirements are often required to be met by a
tenderer:
Proof of being registered with the Chamber of Commerce;
Information about turnover and balance-accounts during the past three
years;
Bank statements concerning the solvability and liquidity of the company;
List of current valid insurances, incl. conditions and maximum amounts;
Certificate showing that the company has paid its taxes and levies;
Certificate showing that the company has paid its social premiums;
List of comparable projects executed in the past, both in size and in cost;
Organization diagram of the company.
Besides these requirements, a number of more specific ones can be asked for:
Proof of active contributions to innovative developments with respect to both
product and process;
Active support of the principle of free competition;
Guarantees of intellectual property;
Compliance with European legislation.
These four specific requirements are depicted in the next figure. The figure
presents a sliding scale as regards selection: from left what is desirable to right
what is imperative.
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Selection
Competition
Figure 9.1
Innovation
Intellectual
property
European
procurement
guidelines
Requirements to be met by a tenderer
Of course there are links between these criteria. For example: European legislation
is based on the principles of pure competition; a guarantee for intellectual
property is a pre-condition for the introduction of innovative elements.
And competition shall be combined with the ability to think along the lines of
innovation.
9.2
The standard procedure for the common building

process
The standard procedure for the selection of tenderers (on the basis of
specifications; in Dutch: besteksoplossing) consists roughly of the following
steps:
1. Invitation to pre-qualify by means of e.g. advertising in relevant newspapers
such as COBOUW;
2. Analysis of received pre-qualification data based on: company / joint-venture
structure, experience, resources, financial position, general suitability etc.
Normally ca. 6 tenderers (short list) will be selected for further application;
3. Submission of tender documents and receipt of tenders (formal offer): the
selected contractors (or consultants) each (or in a joint venture) having
tendered on the basis of the Clients specifications, as prescribed in the
tender documents. They describe their working method(s) and clarify their
cost structure, which for example consists of construction cost, site cost,
general cost, profit and risk;
4. Adjudication of all tenders. The client assesses the tenders in accordance with
the evaluation criteria and raises further points requiring clarification, if any.
He rejects non-conforming tenders and advises the tenderers concerned;
5. Decision on contract award. Because it is a question of specificationbased tender documents in which in principle all project requirements are
prescribed, the evaluation of tenders is based on price: normally the lowest
price will win the award;
6. Acceptance and awarding of the contract. After contract agreement, the
contract will be signed.
The major part of this procedure is for also valid for the international situation;
see also Chapter 8.
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9.3
The present procedure for a Design-Build, fixed

price, contract
The standard procedure for selection of tenderers consists roughly of the

following steps whereby the first two steps (invitation and analysis) are identical
to the steps as discussed in section 9.2
1. [See above]
2. [See above]
3. Submission of tender documents and receipt of tenders (formal offer). The
selected contractors (or consultants) each (or in a joint venture) tender on
the basis of the Clients project concept. This concept is worked out by the
tenderer to such a level that he is able to offer a price including construction
cost, site cost, general cost, profit and risk, and if applicable the
capitalized maintenance cost;
4. Adjudication of all tenders. The client assesses the tenders in accordance
with the evaluation criteria and raises further points requiring clarification, if
any. He rejects non-conforming tenders and advises tenderers concerned.
Because proposed design concepts are a fundamental part of the offer, both
the assumptions and the anticipated performance shall be checked. Obviously
the lowest price is of course still the most attractive, though not the only,
governing criterion;
5. Declaration of intention. The assessment results in a ranking of tenderers in
which the price-quality ratio of the various offers is the main criterion. The
tenderer with the most favourable price-quality ratio receives a letter of intent
for (planned) collaboration. This offers both parties the opportunity to settle
any matters on which they disagree. Especially the required performance is
an important issue;
6. Negotiation. By means of negotiation both parties have to come to an
agreement. Main subject is of course an acceptable performance of the
project concept. Another aspect is the cost-consequence in case of possible
design variations;
Decision on contract award. After all items have been positively negotiated
and tasks, responsibilities, obligations, modes of payment, distribution of risks
etc. have been decided upon, the final offer can be accepted and the contract
awarded.
9.4
The choice for PPP (Public Private Partnership)
It is obvious that if a public entity, as leading party / agent, has to select a (private)
partner to enter into a joint development process in order to respectively create
value, to follow an open plan-process (participative decision making) with all
stakeholders, and to continuously discuss the cost involved, this partner has to
be fully competent to meet this task since public entities / employers usually
demand a higher standard of quality than private employers do.
This means that in the case of PPP the selection procedure has to be carried
out very carefully. Also the selection criteria are aimed more at awarding
creativity, originality and inventiveness than plain calculation and drawing ability.
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Thisapproach requires a wholly different selection procedure, still based on clear

project requirements, but NOT on a fixed price. For, as we know, a fixed price can
only be connected to a fixed value, previously agreed upon, whereas the whole
purpose of PPS is to add value to the project during the project development.
The only way in which this can be organised is by applying a step-by-step
selection process. After each step the different tenderers (private parties) have
to continue their fulfilment of promises made earlier. In this way the competition
will be transparent for all parties.
Such a competition typically consists of three rounds, preceded by a normal
pre-qualification phase that yields a maximum of 5 participating tenderers. It
is important that during selection the principles of open plan processing are
applied, because the selection period itself is used to allow the development
of a concept. The invited tenderers will get an adequate reimbursement
for their efforts, and their input will remain their intellectual property.
1st round in PPP-selection: the initiative
The invited tenderers are asked to make a design concept with corresponding
goal(s). This shall be done in a relatively short period of time whereby the
expected value of the total benefits (value minus cost) is indicated, itemized in
respectively public welfare, stakeholders benefit and commercial profit for the
tenderers.
A noteworthy aspect is that a risk analysis is not requested; this is: a) not of much
use due to the high uncertainties in this stage; and b) not necessary due to the
continuous fluctuation of prices. The design concept shall be accompanied by a
statement of the underlying viewpoints and corresponding strategy, in order to
demonstrate the feasibility of the project. Originality plays an important role in
this 1st round of the process.
A representative of the relevant stakeholders will assess the stakeholders benefit.
Both the value for public welfare and the (indication of the) price is judged on
their merit by the responsible public entity (government). The commercial value
(profit) is the tenderers affair and is not examined.
This 1st round typically yields 3 candidates.
2nd round in PPP-selection: the feasibility
In this second round the candidates are asked to present a feasible concept
in which primary, secondary and environmental functions are described. Once
more this shall be done in a relatively short period of time. The result shall be
such that a political / managerial, social and technical / financial insight can be
obtained. Again an indication of the expected value of the total benefits (value
minus cost) is given, itemized in the same way as in round 1.
The price to be paid may at most deviate 10% of the price-indication given in
the previous round. This is done to guarantee a correct and fair competition.
Furthermore, insight shall be given into both the dominating factors that
influence the project, and the way in which it is proposed to deal with these
factors. Creativity is now the most important factor. The assessment is done in
the same way as in the previous round.
This 2nd round produces 2 candidates for the final round.
3rd round in PPP-selection: the preliminary design
In this third round the candidates are asked to present, again in a relativelyshort
period of time, a preliminary design. This design shall not only present the
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projects outline at system-level (based on the systems functions), such as

a proposed route or junction for a motorway, but shall also present a clear
overview of the functions (and performance requirements) of the various
systems components at a lower level. In this way the feasibility-question is
expanded to gain insight and understanding of the various components at lower
levels.
Again an indication of the expected value of the total benefits (value minus
cost) is given, itemized in the same way as in round 2; and the price to be paid
should again remain within the bandwidth of 10% of the price-indication given
in the previous round. Inventiveness is now the most important factor. The
assessment is done as in the previous round.
Finally all parties will have worked out (and accepted) the concept(s). The
private candidates have shown what they can deliver and the most important
stakeholders have made their assessments. The concept that yields the most
benefit and is also financially the most attractive, wins the contest.
This 3rd round produces the private partner with whom the public entity will
enter into an agreement.
Because these rounds have been used to produce a (preliminary) design, the
result can be used as input for the obligatory procedures that will follow such
as EIA (Environmental Impact Assessment; in Dutch: MER = Milieu Effect
Rapportage), and under Dutch circumstances: a PKB (Key Planological Decision,
in Dutch: Planologische Kern Beslissing) etc.
9.5
The procedure for combinations of contracts
This procedure is characterized by the fact that tenderers participate in making

the design. Every round of selection is used for that purpose. The tenderers are
stimulated to develop both ideas and concepts. The lesser ideas are skipped, and
eventually the tenderer with the best proposal gets the job. Such a procedure is
schematically depicted in table 9.1.
Governing
Number of
organizational
remaining
aspect
parties
Strategic
Communication
with environment
Creativity
Tactical
Participation with
environment
Skill in design
Inventiveness
Operational
Decomposition
Knowledge
Analytical
capability
Institutional
Coordination
Knowledge
Source of
Managerial
component
inspiration
aspect
Orientation
(goal)
Vision
Originality
Feasibility
(functions)
Judgement
and view
Prel. design
(form)
Detail
design
(specs)
Stage
Table 9.1 Scheme of competition, selection and contracting
The development of ideas is not without commitment, because it concerns a

selection procedure. Especially with respect to pricing, parties could be inclined
to create a lot of expectations that, however, may not be fulfilled in following
rounds. Other parties that were excluded in earlier rounds due to high prices
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could quite rightly object to that. It only works if the offered prices in the various
selection rounds are more or less at stable levels.
In practice it means that in each round a price is given with a certain margin.
Usually such margins have a maximum and a minimum around a certain
expected value. However, for projects it is well known that due to perception
problems (everyone looks at the same thing in a different way) estimated cost
only increases with time. Therefore it is sufficient to give only a bandwidth in
cost-increases:
Phase
Bandwidth
Orientation
+ 40%
Feasibility
+ 30%
Preliminary design
+ 20%
Detail design
+ 10 %
Working design
+ 5%
Table 9.2 Bandwidth in cost-increases per phase
It is remarked that these percentages do not have any formal status. The
percentages have to be agreed upon for each selection procedure and are
dependent of the type of project. Unfamiliarity and uncertainty of both process
and product are often main factors in determining these bandwidths.
9.6 Selection and employment of consultants

An Employer likes to deal with a highly qualified consultant. Main considerations
for his attitude are e.g.:
(a) The need for high-quality services,
(b) The need for economy and efficiency,
(c) To give all qualified consultants an opportunity to compete in providing the
services financed by him,
(d) The need for transparency in the selection process.
Especially for financial institutes this approach takes place in a standardized way
as well.
The evaluation of the proposals can be carried out in two stages: first the quality,
and then the cost are studied. Evaluators of technical proposals shall not have
access to the financial proposals until the technical evaluation, including any
reviews and no objection, is concluded.
Financial proposals shall be opened only thereafter. If for instance the financial
offer of the best qualified consultant is within the budget of the Employer/
borrower, than that Consultant gets the job.
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Example World Bank Typical Evaluation Methodology

Consultants specific experience:
0 to 10 points
Technical Methodology:
20 to 50 points
Qualification of key staff personnel:
30 to 60 points
Transfer of knowledge, training:
0 to 10 points
Participation by nationals:
0 to 10 points
Total: 100 points
Example Evaluation of proposals, project: Night Safari at Greater
Noida, India
Parameter
Points
1. Specific experience related to the assignment
20
2. Adequacy of work plan and methodology in responding to the TOR
30
3. Qualifications and competence of the key staff
50
Total: 100
Sub-criteria for point 3 above:
- General qualifications
- Adequacy for the project
- Experience in region & language
20
20
10
Example Selection of consultants concerning some Hongkong tender

Criteria
Weighting
(1) Approach to the assignment and appreciation of the
20 %
requirements
(2) Previous relevant experience both in Hong Kong and
25 %
elsewhere
(3) Knowledge, experience, capability of key staff
40 %
(4) Past performance of the consultant
10 %
(5) Past performance of sub-consultants
5%
Total: 100 %
Example Proposal & Selection Criteria of Consultants by Inter American
Devlopment Bank
1. Data to be used is appropriate to the proposed evaluation. When new data
needs to be collected, a detailed budget should be presented for the datagathering
component of the evaluation, and alternative scenarios spelling out what is
possible with and without primary data collection should be included.
2. Outcome variables to be examined are adequate.
3. The Methodology includes a careful definition of the counterfactuals of
interest and an appropriate methodology for estimating these counterfactuals
and assessing impacts. The Methodology includes a strategy for the institutional
analysis.
4. The timetable and work plan are realistic and conform to the needs of the
work plan.
5. The cost of the proposal, given the availability of data, proposed methods,
analytical rigor, and other aspects, should be reasonable and feasible.
6. The level of training and experience of the consultant(s) in impact evaluations,
and in primary data collection where proposed, is adequate. Consultants with
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significant experience working in the country of the project to be evaluated are

preferred.
Finally, the process of selection of consultants will be the following:
i. Short list determined by the Employers Evaluation Group;
ii. Short list sent to external reviewers, who make a recommendation to the
Employer;
iii. Final decision made by Employers management.
Note: if no proposal meets the standard of a quality evaluation the project
evaluation may be declared void.
9.7
Intellectual property
Definitions
Intellectual Property refers to patents, trademarks, copyrights, knowhow, and trade secrets. Generally, this term covers something conceived of
by a creator and later corrected by either filing for legal protection, or for
maintaining it as a trade secret.
[Ref. Science & Technology Corporation]
An intellectual property is any product of the human intellect that is
unique, novel, and unobvious (and has some value in the marketplace).
[Ref. University of Texas]
Intellectual property is a property that can be protected under federal
law, including copyrightable works, ideas, discoveries, and inventions. Such
property would include for instance novels, sound recordings, a new type of
mousetrap, or a cure for a disease.
[Ref. Lectric Law Librarys Lexicon On Intellectual Property]
An entrepreneur is confronted daily with intellectual properties. For example, a
new shape for a certain product is designed (model rights and authors right), or
something new is invented (patent or know how). All these activities demand
investments and offer a possible head start ahead of their competitors. Obviously
it could be advantageous to protect oneself legally. Intellectual property rights
are the obvious means to achieve this protection.
On the other hand, some other party might claim that you are infringing on his
intellectual property rights, which can then lead to suppression of your idea /
product, or even to financial compensation payable to that party!
As a rule, techniques and knowledge are free. When certain knowledge is secret
and shall be kept secret, that person or party holds more or less the monopoly of
that knowledge or technique. If it is necessary that others personnel, suppliers,
advisors - shall take note of the secret knowledge they must sign a declaration
of secrecy (in Dutch: geheimhoudings-verklaring).
9.8
Procedure of D-B acceptance by Dutch Public Works

and Water-Management
The Dutch Rijkswaterstaat (RWS) (Directorate-General for Public Works and

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Water-Management) still pursues the policy that design responsibility is its

responsibility in the case of projects of great national importance, such as the
safety of primary sea defences.
For most D-B projects this introduces an extra difficulty because the design and
construction stages will partly overlap. There will not be any single instant when
the Employer can accept the entire design as one complete product. Besides
that it is questionable if there is a real need for the Employer to take over
the design responsibility. If the Contractor uses a certified quality management
system, he can carry the design responsibility without any risk to the Employer.
A good acceptance procedure prevents shortage of time from becoming an
issue, and prevents a tug-of-war between the parties which one is the most
competent to do the job(s).
The procedure followed by RWS is shown in figure 9.2. One can observe that
quite a number of steps can and must be taken in order to get a design document
approved (because this is what it is all about) for constructing the building
segment under consideration.
1. Preparation of design-document for acceptance
a
2. Issue of design-document for acceptance to Employer incl.
required information
b
3. Employer audits design-document
c
4. Employer accepts design-document or not
d
5. Notification of non-acceptance incl. comments
e
6. Contractor accepts comments or not.
f
7. Contractor makes modifications in case comments accepted
g
8. Consultation in case non-acceptance of comments.
h
9. Agreement after modifications or consultation once again.
i
10. Submission of revised document for acceptance. The procedure
resumes.
Figure 9.2 Acceptance procedure Dutch RWS
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Since acceptance is done step-by-step, it is important that the procedure for

each building component or element is started at an early stage. The planning
schedule is sacred and it is not a good thing to modify it or deviate from it. The
building process is easily disturbed, and if one of the parties does not agree
with the remarks or comments of the other party, costly time (and money) will
be waisted.
The procedure itself has an undesired side effect. Often the agreement is
that a building segment may not be constructed if the Employer has not first
accepted (approved) the design. Because time pressure always plays a role, the
acceptance procedure can be (mis-) used by the Employer to push through a
certain number of his wishes. D-B contractors may therefore encounter a lot of
problems, as payments are often a function of (approved) progress.
These problems can become enormously inflated. With the project Storm
surge barrier New Waterway it led to a major crisis. To solve the problems the
following points were agreed:
Each party shall play its own, seperate role;
Parties shall have informal discussions prior to design documents being
offered formally;
There shall be a mediation team that makes binding decisions on points of
disagreement.
Although the procedure became much better, the project still did not progress
smoothly. This is caused by the fact that the Employer - in a fixed price DesignBuild contract does not tend to restrain himself from asking too many additional
questions.
In certain parts of the works (the water-related activities) progress was
remarkably better due to part of the tasks being organized by means of a cost +
reimbursement system. In such a way emotional decisions could be avoided.
The acceptance procedure shown in figure 9.2 is very useful if certain conditions
are fulfilled.
First of all the procedure shall clearly be described in the contract documents and
preferably be placed under the chapter Communication because this procedure
is a form of communication between Employer and Contractor. At the same time
both parties shall make sure they have the same expectations of its use. For this
a checklist can be used which contains:
the criteria for checking;
the extent of the checking activities;
the level at which there will be checks;
the time span;
the planning and document flow.
The procedure shall show no open ends to prevent stretching of time spans.
Secondly, the acceptance procedure shall include mutual consultation; i.e. before
submission, during checking and when (non-) acceptance is dealt with.
These consultations shall be both formal and informal. It is worthwhile to have
designers and auditors (checkers) working under the same roof.
118
Thirdly, the project-organisations of both Employer and Contractor shall be

synchronized to ensure communication lines are short.
Fourthly, it is sometimes better to ask a third party for the role of auditor when
personal or emotional objections exist against the Employer carrying out this
task.
Last but not least, designer and auditor shall strive for the same goal. The feeling
will then develop that both parties, although each has its own responsibility, are
working jointly to reach the same performance objective.
9.9
European procurement guidelines
If for example the Dutch government (as public entity) wants to procure services
or goods, and the total value shall exceed a certain threshold amount, it becomes
mandatory to apply the European procurement guidelines stipulated by the EU.
In that case non-discriminating criteria will be formulated, followed by a choice
between the different tendering procedures. The invitation to tender is placed
in the EU publications.
Three different procurement guidelines in the public sector exist:
for the rendering of services: Services (in Dutch: Diensten);
for the supply of goods: Supplies (in Dutch: Leveringen);
for the execution of works: Works (in Dutch: Werken).
A separate guideline exists for other public sectors: Water, Energy, Transport
and Telecommunications (in Dutch: Nutsbedrijven).
References
http://simap.eu.int/EN/pub/docs/gspuben.htm (services)
http://simap.eu.int/EN/pub/docs/gsuplen.htm (supplies)
http://simap.eu.int/EN/pub/docs/gwpuben.htm (works)
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10. Irregularities in the Dutch building industry

On November 9th, 2001, in a Dutch television program Zembla of VARA / NPS,
a former executive director of a construction company, accused his previous
employer of making cartel agreements with other construction companies and
bribing officials.
The clamor that followed eventually culminated in a temporary Committee
Research Fraud Construction Industry which advised the government to set up
a full Parliamentary Inquiry Committee to investigate the construction industry.
The results of the inquiry were presented on December 12, 2002 (ref.KST64442,
ISSN 0921-7371, SDU Uitgevers, s-Gravenhage 2003).
The report sketches an extensive picture of the procurement practices in the
construction industry. In the context of this course a number of subjects will be
presented such as the cause of this fraud, the pay-off system and the followup of the inquiry.
10.1 The initial cause

The report-title Fiddling with millions (in Dutch: Sjoemelen met miljoenen)
summarized perfectly the subject of the program: the presumed, large
malpractices in tendering of construction projects. Companies would seem to
be making forbidden price agreements and have a system of sharing tendering
costs amongst them. Within the construction industry an extensive black
money circuit was presumed to exist, at the expense of the employer who is
systematically overcharged.
The committee started on February 5th, 2002 and used the following subjects
as starting points for their activities:
The determination of the kind and whereabouts of the irregularities, as well
as finding out if their nature was occasional or structural;
The mapping out of the structural characteristics of the construction sector,
and the establishment of possible correlations with the irregularities, also
taking into account the behaviour and modes of action of the parties
involved;
Examination of the manner in which the government, in both her role and
behaviour, takes into account these specific structural characteristics of the
construction industry;
A further analysis concerning the government in her role as supervisor, issuer
of permits, and legislator.
Initially the Committee had to produce its report by September 16th, 2002. This
deadline was later shifted by three months.
In the framework of this course we cannot go into much detail with respect to
the findings of the Parliamentary Inquiry Committee. For the interested reader
we refer to the final reports. Nevertheless, in the following sections some
interesting parts will be discussed.
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10.2 The ideal mechanism (mutual cost settlement

system) from the contractors viewpoint
In this section a theoretical model is discussed of the system that is used by
contractors in the construction industry for settling tender costs (and for dividing
market shares). At first glance this concerns an ideal concept, in which mutual
settlements among tenderers are absent. In reality however, there seem to be
a lot of disturbances that upset this concept, meaning one simply had to switch
to a system of mutual payments.
How does it work? Part 1: the tender (in Dutch: aanbesteding)
The functioning of the system shall be explained by means of a simple case. The
following data are of importance:
Let us assume a private tender (in Dutch: onderhandse aanbesteding) takes
place for the construction of a road in some municipality;
The employer has invited five contractors (A, B, C, D and E)
The contractors have taken note, from publicly available documents, that the
employer has made a cost estimate of the works amounting to 5 million;
During the Tenderers queries conference (in Dutch: dag van inlichtingen)
the employer gives additional information concerning the specifications, and
replies to queries by the contractors;
All five contractors are present;
The tenders are submitted on January 24th, at 11.00 hours (formal deadline
for submission of tenders).
Because at the tenderers queries conference all contractors are present, each
tenderer is aware of whom the competitors are. These parties know each other
very well because they operate in the same area. They work together regularly
in joint ventures etc. Contractor B for instance often acts as a sub-contractor for
contractor A, and contractor C occasionally helps contractor D in case his job
cannot be carried out in the required time. Contractor E is specialized in rush
jobs and is for that reason sometimes hired in by the other contractors. To
make a long story short: these parties are not only competitors but also good
colleagues!
Shortly after the tenderers queries conference contractor A, who wants to carry
out the works, contacts the other four parties. They meet at 09:30 hours in the
lobby of the hotel next to the place where tenders will be submitted. We can
describe this meeting as a pre-consultation session (in Dutch: vooroverleg).
During this pre-consultation party A clarifies that he wants - for various reasons
- to carry out the works. Party B is not that interested but likes to claim the next
opportunity for a job. Party C is in the same position as party A. Party D is only
interested in a part of the works, but party E is eager to get the job in his own
municipality.
The parties cannot come to an agreement in a fruitful way. Party B suggests that
everyone takes a slip of paper to note a figure indicating his price for the works.
The idea is that the lowest bidder will get the job. After a coffee break the notes
are compared and the following picture emerges:
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Party
Millions
4,70
5,00
4,75
4,90
4,80
Table 10.1 Bidding figures during pre-consultation
All parties have written down an amount equal to, or less than, the employers
estimate of 5 million. Party A, as lowest bidder, gets the job. In conformance
with the purpose of the meeting the figures actually reflect the level of interest
of each party: after party A, party C and E are the most eager to get the job.
Subsequently it is decided that for the official tender all parties will raise their
bid with a quarter of a million. The following tender prices will be handed in at
11:00 hours:
Party
Millions
4,95
5,25
5,00
5,15
5,05
Table 10.2 Tender prices submitted
With his tender submission of 4,95 million the lowest tenderer makes sure
he stays below the estimate of the employer. Consequently, the employer will
not immediately think of any pre-consultation having taken place. Also, the
contracting parties are of the opinion that the employer does not suffer in any
way, as the lowest bid (by party A) is below the employers estimate.
It is obvious that contractor A will cash the whole 250.000 increase put into
the bidding amount. Therefore the other parties will claim some compensation
for their background role. It is therefore decided that each party has a right
to receive 250.000/5 = 50.000. These earned rights (agreed mutually) can
be represented as follows:
Party
Earned rights in
- 200.000 (settlement for B, C, D and E; each receives a

50.000 credit from A)
+ 50.000 (credit A)
+ 50.000 (credit A)
+ 50.000 (credit A)
+ 50.000 (credit A)
Balance
Table 10.3 Mutual credits
This concludes the pre-consultation meeting.

Nobody is surprised when one hour later party A turns out to be the lowest
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tenderer. Everyone is happy, even the employer because his impression is: one
contractor has even submitted a price below the estimated figure!
How does it work? Part 2: the following tender
Suppose that the contractors price figures for the next tender are more or less
equal. However, party A is now not interested any more, and this time party C
wants to arrange a pre-consultation. In the end party E proves to be the lowest
bidder during the pre-consultation and was allowed to get the job.
Once more the bidding figures are increased with 250.000, again resulting in
an individual right of 50.000. The mutual rights after two tenders can be
depicted as follows:
Party
Earned rights in
- 150.000 (earlier settlement for B, C, D and E (each

having received a 50.000 credit from A) plus a
new credit from E of 50.000)
+ 100.000 (same credit from A and E)
- 150.000 (earlier credit from A, plus new settlement by E

for A, B, C and D)
Balance
So far, so good! If each party were to get the same kind of project same size,
same difficulties, and the same profit! then the system would run smoothly.
In other words, the market is divided fairly, each party gets its piece of the cake
Collaboration and procurement procedures in the civil engineering industry and
is able to keep its employees at work. In brief: there is stability and there is
continuity in the market. This system could be seen as an ideal system.
How does it work? Part 3: the kind of irregularities
An important question of ethics and legality is: What exactly is, within the
system described above, not in accordance with the rules? What is irregular? The
preconsultation meeting, and subsequently the making of mutual arrangements
concerning both project assignment and tender prices, can be seen as irregular
in the light of competition law and tender rules. Other irregularities such as
forgery, fraud, bribery, corruption etc. are seen as derivatives of the settlement
system. We will come to that later.
Finally it is noted that the described system can also be applied without mutual
credits, by simply adding up the subsequent tender sums awarded. In this way
parties can see which party has the highest turnover. If one party is ahead
of the others, he has to give way to the others in the next round. When, after
a certain period of time, each party has reached the same turnover we can
(theoretically) consider this as an ideal system.
In everyday life the contractors use a mix of the two systems.
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10.3 The reality

In the previous text the term ideal system for the contractors was
introduced.
This is only the case when each time the same contracting parties are involved,
all projects are of the same size and all parties get equal chances to win the
job(s). However, this ideal is literally impossible - which will be demonstrated by
the following example.
We will start with the situation as sketched in table 10.3. Suppose that only
parties B, D and E are invited for the next tender (disturbance factor no.1). The
works concern a project being estimated at 2,4 million (from public data).
During the pre-consultation meeting the lowest bidder turns out to be party B,
for an amount of 2,1 million. It is decided that all parties will increase their bid
with 300.000 (disturbance no.2: the amount differs from the previous projects
tender increase). In other words: party B will tender with a bid of 2,4 million,
being the employers estimate. The increase of 300.000 will benefit parties B,
D and E. They get credits for 100.000 each.
The mutual rights will be as follows:
Party
Earned rights in
- 200.000 no change (settlement for B, C, D and E; each

receives a 50.000 credit from A)
- 150.000 (50.000 credit from A; 200.000 settlement for D

and E)
+ 50.000 no change (50.000 credit from A)
+ 150.000 (50.000 credit from A; 100.000 credit from B)
Balance
This already looks rather complicated.

Now suppose that new players join the circuit. For some project in the region
parties A, C, F (new) and G (new) are invited. During the pre-consultation
meeting it is decided that C gets the job and the tender increase is 100.000,
which will be divided between the four parties. In other words, parties A, F and
G build up rights for 25.000 each with respect to party C.
The mutual rights will be:
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Party
Earned rights in
- 175.000 (settlement for B, C, D and E; each has a 50.000

credit from A; settlement for C: 25.000)
- 150.000 (50.000 credit from A; 200.000 settlement for D

and E)
- 25.000 (50.000 credit from A and 25.000 settlement for

A makes 25.000; plus 2 times 25.000 settlement
for F and G)
+ 25.000 (credit from C)
+ 25.000 (credit from C)
Balance
The table shows that the situation becomes even more complicated now. The
mutual rights and obligations start to diverge. One can no longer speak of an
ideal model. In order to keep the system transparent, one could decide to
periodically settle those rights and obligations on a regular basis, thus creating
a shadow bookkeeping system to keep track of all the settlements.
10.4 How to settle rights and obligations

During the inquiry the terms used by the contractors for those debts and credits
as described in the previous section were: Mickey Mouse money, Monopoly
money or even ginger nuts (in Dutch: pepernoten). These names just served
to indicate that it was not real money that was involved. The construction
industry contractors are still arguing among themselves now that parties should
follow a strategy whereby they never will have to pay real money to each
other, but always will try to level things out. This is the working rule. But as
explained before, the system seems to have become too complicated to work
on the basis of virtual money. The Inquiry Committee presumes that a number
of ways are used to solve this dilemma:
1.
2.
3.
4.
5.
6.
7.
Exchange of rights and obligations;

Exchange of personnel;
Exchange of goods and supplies;
Use of fictitious invoices, being paid for with real money;
Use of black money;
Exchange of works within a joint venture;
Exchange of rights and / or obligations via sub-contracting.
These methods go beyond being a mere irregularity in the light of competition

law and tender rules. In that case one can speak of:
Forgery (in Dutch: valsheid in geschrifte). Methods no. 2 and 3 lead to
incorrect registration of administrative data. By using method no. 4 it is
evident that this is a case of forgery;
Fiscal fraud (in Dutch: fiscale fraude). Methods no. 3 and 4 could lead to a box
of black money being administered by the receiving party. For example: the
126
use of personnel made available for a black job; or to sell received goods,
putting the money aside for later use.
The conclusion of the Inquiry Committee was that if the ideal system of
exchanging rights and obligations on the basis of pepernoten cannot be
kept simple (or transparent), parties will sooner or later decide to use other
methods.
Consequently, irregularities will tend to move in the direction of forgery and
fiscal fraud.
Source: Cobouw May 13, 2003

Smaller contractors victim of stopping pepernoten circuit
Smaller construction companies are mostly the victims of stopping the so-called
pepernoten circuit. They desperately try, time and again, to contact the medium
sized and big contractors to claim money that is owed to them. Those who are
obliged to pay pepernoten have, since half a year, suddenly forgotten to do so.
It is estimated that an amount of ca. 80 million is at stake.
10.5 The formal conclusions of the Inquiry Committee

The four research-questions that were investigated by both the members of
the Parliamentary Inquiry Committee and external advisors were answered in
their report. Also a number of specific conclusions were drawn in relation to
these questions. In this reader not all conclusions are given (for this we refer to
the original report), but only those that are of interest in the framework of this
course.
10.5.1 The kind and whereabouts of the irregularities
The Inquiry Committee has tried to indicate the size and spread of the
irregularities. This has not been done in absolute terms by means of indicating
exact amounts of money. Rather, a number of remarks (15 in total) were given
in mostly a qualitative way.
We repeat the most interesting ones:
The system used by the construction industry has a threefold effect:
unacceptable restriction of competition (by price- and market arrangements),
and subsequently damages incurred by the employers (and the tax-payers!),
as well as the increased chance of collusion and corruption taking place
(Collusion = to act together secretly or illegally in order to deceive or cheat
someone);
On the basis of 211 public tenders that failed, the committee calculated
a percentage for the tender increases (in Dutch: ophogings-percentage),
amounting to 8,8%. This 8,8% is remarkably higher than the previous
percentage that was used in the past when tender costs were officially
reimbursed by the Employer. Other (international) research indicates that the
8,8% is not illusory. In cartels one found on average an increase of 10% was
applied.
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10.5.2 Structural characteristics of the construction industry

With respect to cultural aspects the Inquiry Committee reached 6 conclusions.
One of the most interesting is:
Functional, business-like contacts between government bodies and industry
are normal; but to use grease (in Dutch: smeren) and to entertain clients
personnel (in Dutch: fteren) are not. Each party should take its own
responsibility.
10.5.3 Tendering strategy of the public authorities
The committee formulated 18 conclusions with respect to legislation, rules and
dispute adjudication. We refer to two:
The tender procedures in the form of government policy rules, outside
tender law and with a formally restricted use, offer inadequate assurances
for correctly meeting tender obligations;
Classical tendering in most cases offers the best assurance for a balanced
price-quality ratio. This is only true however if the tendering authority is a
professional organization itself or hires the required expertise to carry out
this task.
10.5.4 Integrity in tendering procedures
The committee formulated 17 conclusions with respect to legislation, rules and
dispute adjudication. We refer to four conclusions:
There are no indications that construction industry-related corruption of
public servants (in Dutch: ambtenaren) is a structural phenomenon;
It appears from a number of proven cases of violation of integrity that this is
often a matter of collusion between contractors and civil servants;
Integrity policy seldom is part of organizational and personnel policy.
Nowadays, in too many cases there is a discrepancy between policy on
paper and the experience and follow-up thereof in practice;
The recent law BIBOB is only restrictively applicable, in order to just exclude
companies from competing. (BIBOB = Bevordering Integriteits Beoordelingen
door het Openbaar Bestuur; in English: Promotion of Integrity Assessments
by Public Administration)
The essence of the law BIBOB lies in clause no.3: grounds for refusal.
This law enables government bodies to include extra conditions with respect
to the integrity of applicants for permits, concessions or subsidies. In case
of serious misuse, a government body can refuse or withdraw a permit or
subsidy.
10.5.5 Irregularities and to control, uphold and trace
Especially with respect to the legal framework and the functioning of the
so-called NMa (National Authority on Competition, In Dutch: Nederlandse
Mededingingsautoriteit), the role of the Public Prosecutor (representing the
State), and the role of the Taxation Office, the Inquiry Committee reached 16
conclusions.
The most interesting are:
In practice it has been demonstrated that the legal competence of the NMa
128
hampers effective control on three points:

1. Permission to enter private property (residents and offices) to search for
evidence;
2. The requirement that the NMa has to make clear which specific documents
it is looking for;
3. The low ceilings of the maximum penalties the NMa may impose.
The Public Prosecutor clearly gives a low priority to the prosecution of
financial-economic malpractices;
The Public Prosecutor is so understaffed in a quantitative and qualitative
sense, that his office is unable to adequately prosecute financial-economic
irregularities;
In reducing the extent of research of relevant documents for countering
irregularities in the construction industry, the Taxation Office demonstrates
the wrong attitude;
Tax reduction on bribes paid must become a thing of the past.
The mission of the NMa is to regulate markets to make sure they function fairly
for all participants. In that way new products and new services enter a market
where consumers do not have to pay unnecessarily high prices.
NMa actively controls competition and economic regulation by judging mergers,
acting against cartels and by specifying conditions for entering networks in the
areas of energy and transport.
10.5.6 The recommendations of the Parliamentary Inquiry
Committee
At the end of their final report The Committee summed up 22 so-called important
recommendations. A selection of these recommendations will be briefly repeated
in the following list:
1. The relations between the public authorities and the construction industry
must be characterized in future by the key words Nieuwe Zakelijkheid (in
English: New Business Culture / Approach);
2. The construction policy of the public authorities has to be revitalized.
The Ministry of Spatial Planning, Housing and the Environment (in Dutch:
VROM) shall have prime responsibility for that policy;
3. The new, modernized European guideline for tendering of public assignments
shall be implemented in Dutch law;
4. The construction industry should itself set up its own code of conduct (see
also section 13.7);
5. Tightening of the basic rules for corruption of public servants and governors
/ principals;
6. Integrity must not only be recognized as a requirement, but must also be
experienced;
7. Public authorities must be further professionalised with respect to
tendering;
8. Public authorities must become more aware of market operation;
9. Projects whereby requirements can be formulated accurately shall be
contracted out on the basis of the lowest bid;
10. In case of more complicated or innovative projects other criteria shall be
applied as well such as the economically most advantageous offer;
11. Costs made by the tenderer for calculations and bid preparation are not
compensated by the public authority (in Dutch: rekenvergoeding); but in
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case of complex or innovative projects one should be able to compensate the

cost made for (conceptual) designs;
12.Risks involved in the works under consideration shall be shared by both
parties in such a way that each party deals with that risk he can control or
mitigate at best;
13.Companies that have committed irregularities shall be put on a (black) list
that shall be available for all public authorities;
14. The obligation to present tender disputes to the Board of Adjudication shall
be skipped.
10.6 Legislation / Criminal law

The Korps Landelijke Politiediensten (KLPD; in English: National Police Force)
and the National Bureau of Investigation, both carried out investigations into
the construction fraud, expecting to be ready with the collection of evidence by
the 1st of October 2003. Subsequently the Public Prosecutors office was faced
with wrestling through a huge pile of information and deciding in which cases it
made sense to take the matter to court.
Their investigation concentrated on eight construction projects and four large
construction companies. It is emphasized that the view was taken that, apart
from organizations, also individual, representative personnel of companies could
be considered as suspects and subsequently could face prosecution by law. The
suspicions concerned defrauding, forgery, breach of Competition Law, tax fraud
and bribery of public servants. Also a number of public servants were on the
suspect list.
Only eight projects were investigated because there was no capacity available
to investigate all 600 (!) known cases. These eight were selected on the basis
of feasibility, size, being typical (instead of a-typical) of the situation, and age
of project.
130
Appendix A
It is necessary to define some of the terminology used in these lecture notes.
Various documents will use different terminology or definitions. The section
Building processes adopted the following terminology and it may be different
from the one used by others such as RVOI, SR, UAV, FIDIC, etc.
Glossary of terms
Words in italic in the right column appear in same list; words in italic in the left
column are comparable expressions in Dutch.
Advance Payment
voorschot
The payment which the Employer makes to the

Contractor soon after the Effective Date, in order to
finance the Contractors mobilisation and other early
expenditures
As-built Drawings
zoals gebouwd
Drawings prepared after construction that reflect

changes made during the construction process,
recording differences between the original design and
the actual, completed structure
Banked Award
gereserveerde betaling
An incentive payment that has been earned by the

Contractor or Consultant but is banked by the Client/
Employer until the end of the project
Bid-Build
bestekscontract
The procurement procedure under which the

Employer provides most (or all) of the design details.
The Contractor provides the Permanent Works in
accordance with the Employers design, and carries out
the design of the Temporary Works
Bill of Quantities
staat van hoeveelheden
Document that contains, for each of the items of the

work, the physical quantity, unit rate and amount (or
price) for the Works
Build-Operate-Transfer
(BOT)
bouwen-gebruikenoverdragen

Concessionaire designs and provides completely
equipped Works ready for operation, and then operates
and maintains the Works during the Concession Period.
The Works are then taken over by the project owner
Build-Operate-TrainTransfer (BOTT)
bouwen-gebruikenopleiden-overdragen

equipped Works ready for operation, and then operates
and maintains the Works during the Concession Period.
The Works are then taken over by the project owner,
whose operators will have been previously trained by
the Concessionaire
Build-Own-OperateTransfer (BOOT)
bouwen-bezittengebruiken-overdragen

equipped Works ready for operation, and then
owns, operates and maintains the Works during the
Concession Period. The Works then reverts to the
project owner
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132
Client
klant
The party for whom the Consultant carries out the

Services under a Consultancy Agreement
Concessionaire
concessiehouder
Under BOT and similar procedures, the party whose

Tender has been accepted, and who is responsible for
providing the Works and for operation and maintenance
during the Concession Period
Concession Period
concessie periode
Under BOT and similar procedures, the period during

which the Concessionaire operates and maintains the
Works, and receives the monies which are typically
intended to cover the capital cost of providing the
Works and also the cost of operation and maintenance
Conditions of Contract
contractvoorwaarden
The document which specifies the fundamental

stipulations of the Contract, the Parties overall
obligations under the Contract, and the allocation and
consequences of risks
Construction cost
bouwkosten
The expenditure properly incurred by the Contractor,

whether on or off the Site, including overhead and
similar charges, but excluding profit and VAT
Consultant
adviseur
A consulting engineer or other independent

professional, who may be a person, an engineering firm
or a consortium of such firms, and who carries out the
Services for a Client under a Consultancy Agreement
Consultancy Agreement
Regeling van de
verhouding tussen
opdrachtgever
en adviserend
ingenieursbureau
The services agreement under which the Consultant

carries out the Services for the Client, who may be the
Employer or a Design-Build Contractor
Contract or Contract
Documents
The documents which together constitute the legally

enforceable agreement between the Parties, and which
are usually named in Conditions of Contract, Tender
and Letter of Acceptance and/or Contract Agreement
Contract Agreement
overeenkomst
The formal agreement between the Parties which

confirm or establishes the Contract
Contract Drawings
(Technical drawings,
engineering drawings)
The formal drawings that represent schematically

a building, object, or component made according
to precise conventions and intended to aid in the
construction or fabrication of the thing depicted.
Contract price
Prijs voor het werk
The amount which is due and payable to the Contractor

for providing the Works
Contractor
Aannemer
The Party whose Tender has been accepted by the

Employer, and who is responsible for providing the
Works
Design-& Build
Design & construct
The procurement procedure under which the Contractor

designs and provides the Works
Design-Build-FinanceOperate
Ontwerpen-bouwenfinancieren-gebruiken

Concessionaire obtains finance, designs and provides
completely equipped Works ready for operation, and
then operates and maintains the Works during the
Concession Period, receiving payment in respect of the
outcome of operation. The Works are then taken over
by the project owner
Detail Design
Detail ontwerp
The process in which the precise shape, dimensions

and tolerances are specified, the material is confirmed
and the method of manufacture is considered for every
part of the product
Detail Drawings (working

drawings)
Werktekeningen
Result of elaboration of Contract Drawings in aid of

construction purposes
Effective Date
Startdatum
The calendar date on which the Contract comes into

full force and effect
Employer
opdrachtgever
The Party who receives and accepts the Tender, who

is responsible for providing the Site and paying the
Contractor, and for whom the Works are provided by
the Contractor; and the legal successors in title to such
Party
Engineer
Raadgevend ingenieur
A consulting engineer or other professional, whom the

Contract requires the Employer to appoint, and who
may be a person, an engineering firm or a consortium
of such firms
Engineer, Procure &

Construct contract (EPC)
USA: Turnkey
Ontwerpen, plannen,
inkopen, bouwen

or supplier designs and provides the Works, which
are fully, complete and ready for operation by the
Employer.
Incentive
Prikkel/aanmoediging
An inducement to motivate an organization or individual

to place greater emphasis on achieving an objective or
to act in a certain way; is usually based around money.
Letter of Acceptance
Opdrachtbrief
The Employers letter to the Tenderer, formally

accepting the offer contained in the Tender
List of Requirements
(LoR)
Programma van Eisen
(In bouwwereld)
The document which is typically prepared bij the

Client and sent to a prospective Contractor, and which
describes the proposed scope of Works
Lump Sum Contract

vast bedrag
The form of Contract under which the Tenderer offers

lump sum prices for providing the Works, thereby
taking the risk that the physical quantities of the Works
may differ from those which he calculated in order to
finalize his Tender Sum
Partnering
The concept of collaborative working in the

construction and heavy engineering industries, which
has many definitions and ways of being implemented.
It is not a procurement method
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134
Party
Partij
One of the two parties who enter into a Contract with

the other, and who typically the Employer and the
Contractor
Permanent Works
The Works which the Contractor is required to provide

and hand over to the Employer
Plant
Installaties
The machinery and apparatus which the Contractor is

required to provide and hand over to the Employer
Preliminary design
Voorontwerp (VO)
Conceptual studies and sketches required, based

on wishes and starting conditions, to develop
sufficient information of the kind, size, realization and
exploitation cost and construction time of the Works
Project alliance
Project alliantie
An alliance formed for a specific project. Although the

various consultants, contractors and suppliers may have
individual contracts with the Employer there is usually
an overarching incentive mechanism that ties the
fortunes of the participants to the overall success of the
project rather than to just their individual contracts
Project cost estimate

kostenschatting
A cost estimate prepared by a consulting engineer

firm for the main purpose of defining the scope and
establishing the Target Budget for the Works
Remeasurement Contract
verrekenbare
hoeveelheden
The form of Contract under which the Tenderer prices a

Bill of Quantities, and under which the payment due to
the Contractor is based on the actual physical quantities
of the completed Works
Schematic drawings
Schetsmatige tekeningen
Drawings of possible design solution in outline or first

order terms
Services
diensten
The services which a Consultant is required to provide,

as stated in its Consultancy Agreement
Site
bouwplaats
The places provided by the Employer, where the Works

are to be executed and to which Plant and materials
are to be delivered
Specifications
technische omschrijvng
Detailed description of the technical requirements for

the Works
Stakeholder
belanghebbende
An individual or group of individuals which are

interested in the performance of an organization and
the environment in which it operates
Strategic alliance
Stratechische alliantie
An agreement between Employer and Contractor to

carry out projects of a similar type over a number of
years.
Target budget
streefbedrag
The eventual final cost of a project as established for

cost control purposes and within which engineering,
detail design procurement and construction activities
should aim to achieve optimum balance of quality/
cost/time in fulfilling scope requirements during the
execution of the project
Temporary Works
hulpconstructies
All temporary works of every kind required for the

execution and completion of the Works
Tender
aanbieding / offerte
The set of documents which the Tenderer has

completed and submitted to the Employer
Tender Documents
- bestek
- aanbieding/offerte
The set of documents which:

- the Employer issues to a Tenderer or
- the Tenderer submits to the Employer
Tender design
Definitief Ontwerp (DO)
Final phase of the design process during which a

final plan and Tender Package is prepared. This
package, also known as a bid package, is used by the
Contractor to price and build the project
Tender drawings
Drawings of the Tender Design
Tender package
bestek
A set of documents comprised of General Conditions,

Special Conditions, Instructions to Bidders, Tender
Form, Form of Agreement, Drawings and Specifications
sent to tenderers for the purpose of obtaining a price
for the execution of the works defined therein
Tender Sum
inschrijfsom
The sum offered by the Tenderer for providing the

Works in accordance with the Contract
Tenderer
aanbieder
The person who receives the Tender Documents and

subsequently submits the Tender for acceptance by the
Employer
Terms of References
TOR
programma van eisen (in
advieswereld)
The document which is typically prepared by the

Client and sent to a prospective Consultant, and which
describes the proposed scope of Services: collection of
wishes, boundary conditions, starting points
Turnkey (see EPC)

Turnkey

or supplier designs and provides Works, which are
ready for operation by the Employer
Value demander
waarde-vrager
That Party that asks something that is wanted or

needed from a producer; comparable with a customer
or client
Value supplier
waarde-gever
That Party that provides something that is wanted or

needed by its clients or customers; comparable with a
producer
Working Design
Het totaal aan
werktekeningen en
omschrijvingen
Construction documents consisting of Specifications

and Working drawings setting forth in detail the
requirements for the construction
Working drawings
werktekeningen
Drawings that include all of the necessary detail for

a design to be created. All views required to clearly
communicate the shape of the design must be
included. Working drawings would include the required
materials with quantities, all dimensions, as well as any
other important fabrication details.
Works
het werk
The Permanent Works and the Temporary Works,

which the Contract requires the Contractor to provide;
possibly including design and supplies
References
BSI, Glossary of terms used in design management, BS 7000: Part 10: 1995
FIDIC, Glossary of Contract Terminology, The FIDIC Contracts Guide, pp.339346, First Edition 2000
FIDIC, Guidelines and terms reference for the preparation opf project cost
estimates, 1980
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ACEC, The Design-Build process

Broome, Dr Jon, Procurement Routes for Partnering, A practical guide, 2002
136
Appendix B
List of literature
AKRO Consult; PPS 2000, Terugblik en toekomstperspectief; AKRO Consult,
Den Haag, 1999
AVBB, BNA, ONRI; Leidraad en checklist, CAR- en aansprakelijkheidsverzeke
ringen; Vlaardingen, 1996
Berg M.A.M.C. van den, Jansen C.E.C.; De ontwerpende bouwer; Tjeenk
Willink, Deventer, 1996
BNA; Een architect kiezen; De Jong, Den Haag, 1990
Collier, Keith; Construction Contracts 3rd edition; Merril Prentice Hall, New
Jersey, 2001
Cox A., Townsend M.; Strategic Procurement in Construction: Towards better
practice in the management of construction supply chains; Thomas Telfort,
Lonodon, 1998
EG; Uniform aanbestedingsreglement; Sdu Uitgevers, Den Haag, 1992
Enqutecommissie
Bouwnijverheid;
Eindrapport
parlementaire
enqutecommissie Bouwnijverheid De bouw uit de schaduw; Sdu Uitgevers,
Den Haag, 2003
FIDIC; Client / Consultant Model Services Agreement 2nd Edition; Lausanne,
1991
FIDIC; Conditions of contract for works of civil engineering construction 4th
edition; Lausanne, 1987
FIDIC; Guide to the use of FIDICs sub-consultancy and joint venture
(consortium) agreements; Lausanne, 1994
FIDIC; Guidelines and terms of reference for the preparation of project cost
estimates; Lausanne, 1980
FIDIC; Guidelines for ad hoc collaboration agreements between consulting
firms; Lausanne, 1977
FIDIC; Joint venture (consortium) agreement; Lausanne, 1992
FIDIC; Sub-consultancy agreement; Lausanne, 1992
FIDIC; Tendering Procedure 2nd Edition; Lausanne, 1994
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st
FIDIC; The FIDIC Contracts guide, 1 Edition; Lausanne, 2000

FIDIC; The White book guide; Lausanne, 1991
Hinze, Jimmie; Construction Contracts, 2nd edition; McGraw Hill, New York,
2001
IBC UK Conferences Ltd.; FIDIC Conditions of Contract and the Dispute
Adjudication Procedure; Brussels, 2001
Jansen C.E.C.; Totstandkoming en inhoud van design & construct-contracten
voor complexe infrastructurele projecten; Kluwer, Deventer, 2001
Koning H. de, Sproncken W.; Contractering bij bouwprojecten; Elsevier BV,
Amsterdam, 2001
Menheere S.C.M., Pollalis S.N.; Case studies on Build Operate Transfer; Delft,
1996
Nooteboom B.; Management
Schoonhoven, 1994
van
partnerships;
Academic
Service,
ONRI; Handreiking bij het opstellen van een opdrachtbrief op basis van de
RVOI 1987. Voorbeeldbrief; Den Haag, 1992
Peeters, W.A: The Appropriate Use Of Contract Types in Development
Contracts, European Space Research and Technology Centre, Noordwijk,
The Netherlands (1987).
Projectgroep
Overheidsopdrachten;
De
Europese
overheidsopdrachten: Diensten; Den Haag, 1993
richtlijn
voor
Ridder, H.A.J. de; Design & construct of complex civil engineering systems;
1994
RVOI 2001; Regeling van de verhouding tussen opdrachtgever en adviserend
ingenieursbureau
VNG, afdeling volkshuisvesting en bouwzaken; Als beste uit de bus.
Gemeentelijk aanbestedingsbeleid, Europese regels en contractvormen in de
bouw; s-Gravenhage, 1994
Walker C., Smith A.J.; Privatized infrastructure the BOT approach; Thomas
Telford, London, 1995
Werner dr.U., Pastor dr. W.; Verdingungsordnung fr Bauleistungen,
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Design and Construct in Civil Engineering

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