Describe the different types of contractual relationship found in projects

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  • #15261

    Paul Naybour
    Moderator

    This is a easy question, but it should not be confused with payment types. Most contracts include fixed and firm price elements along with time and materials. This question is asking about general forms of contract approach including prime, parallel (framework), single supplier, sequential (traditional) and Turnkey (EPC) contracts. The names in brackets are my terms not the ones used by the APM. The question requires one paragraph of three sentences on each. Have a go and I will give you feedback. 

    #15266

    Paul Uttley
    Participant

    Another one with possibly too much BS to explain the answer?:

    There are five main models for procuring contractors: Single Supplier, Prime, Sequential, Parallel and Turnkey. Their use depends on the context that the project is taking place and the type of industry involved.
    Single Supplier is the easiest model to understand as it involves only two organisations, the Client and the Contractor. Much the same as buying a newspaper: you, the Client, want a newspaper, there are several newsagents (Contrators) out there but you go to one newsagent and buy from him. This enables simple management techniques to be utilised with a straightforwards relationship between the two parties.
    Prime contractor is very common in most industries, particularly where the Client is buying something where he has no real knowledge of the process or systems used to deliver the required outcome. This could be likened to buying a car. When one needs to buy a car one simply goes to the showroom, chooses the car (make/model/colour/specification), places the order and eventually it arrives, complete and ready to be used. The dealer, as an agent for the manufacturer, has acted as the Prime contractor by delivering the car, including the components within the car which have come from a variety of different manufacturers. The car manufacturers do not make tyres, computers, in car entertainment systems or headlights etc they subcontract the provision of these to other companies, but retain overall responsibility for those items.
    Sequential contracting is very much what it says on the tin: Different contracts one after the other to deliver a particular outcome that one without the other would be incapable of delivering. For example when one is intending to buiild an extension on the side of a house one rarely goes to one builder to produce the design, build and furnish. As the Client, one would use the services of an Architect to carry out the design works, then employ a Builder to build the shell (roof/walls/plastering/electrics/plumbing) and possibly use an interior designer to do the decoration and furnishing of the interior of the extension.
    Parallel contracting requires a fair degree of management on the part of the Client as they would normally be responsible for the co-ordination of the works that are carried out simultaneously by different contractors working on different aspects of the same job. Lets go back to the example of the house extension, in this example the Builder (let us presume he is the Client) may have subcontracted the plumbing and electrics to two seperate subcontractors who will need to work on site at the same time, it is up to the Builder to manage/co-ordinate the activities of the two subcontractors such that they are both able to carry out their works without causing hindrance to each other.
    In all of the above examples the Client has had a fair degree of input to the works being carried out by the Contractor, however the final model, a Turnkey project, is very different. For a Turnkey project the Client issues a specification for what he requires to be delivered. The Contractor then proceeds to carry out the project without any further involvement of the Client. When he is finished he notifies the Client who then takes ownership of the deliverables and starts using it.

    Cheers, Paul U

    #15265

    Paul Carter
    Participant

    Hi Paul,

    Here’s my attempt. I tried to answer this with a definition + example + advantage/disadvantage for each of the 5 types. Is this the kind of format you would suggest, as i thought by listing more adv/disadv, it would easily go over the 15 mins? Any feedback much appreciated.

    The 5 types of Contractual relationship listed below are typically used in the procurement of suppliers :

    1. Single – this type of contract is where a client has a single contract with a single supplier. An example of this type of contract is where the design & build work on a project is tendered out to a single supplier, after which the completed work is returned for testing and evaluation. The benefit of this type of contract is that the PM can run the contract with a ‘hands-off’ approach if the work is defined in a detailed manner, however, the disadvantage would be the reliance on a single supplier could be a risk if they were unable to fulfil the contract.

    2. Parallel – this type of contract is where a client has a number of contracts with different suppliers, all undertaking the work at the same time. The work being undertaken may be complementary, or could be standalone. An example of this type of contract is where an IT department contracts IT specialists who have more up-to-date skills than the existing employees. The benefits of this type of contract are that the PM is able to pick and choose suppliers which match his exact requirements, however the disadvantage would be the overhead of managing a large number of concurrent suppliers.

    3. Prime / Subprime –this type of contract is where the client has a single contract with a supplier, but the supplier is then responsible for sub contracting some or all of the work to other suppliers. An example of this could be where a builder is contracted to construct a house extension but sub contracts certain elements of the work to plasterers, electricians & roofers. The benefits of this type of contract is that the client only has one point of contact with the main supplier, however, the downside is that the contract will likely be more expensive as the prime contractor will factor in all the work required to manage the sub-contracts.

    4. Sequential – this type of contract is where one supplier is used to undertake one element of the work, which is then followed by another supplier doing the next element. An example of this type of contract would be where the house extension is being managed directly by the client, and they contract a supplier to perform groundwork preparation, followed by a different supplier contract to lay the foundations etc. The benefits of this type of contract are that the costs should be less, as the PM can choose the specific services when required, however, the major disadvantage would be the extra effort of controlling the flow of work, making allowances and considerations for a slippage in one contract impacting the following contract.

    5. Turnkey – this type of contract is where a single supplier is used to provide a total solution to meet the clients requirements. The theory is that the client signs the contracts and everything else is taken care of by the supplier. An example of this contract is where an IT department has been outsourced, and the supplier is responsible for all elements of IT, from running the helpdesk, to supplying PCs. The benefits of this type of contract to the client is that the supplier is liable for all extra costs entailed in providing the service, however, the downside is that the final service may not be exactly as required.

    Thanks
    Paul

    #15264

    Paul Naybour
    Moderator

    Paul, almost perfect, I think you have go a good idea of what is required. Ten more like this and you should have it in the bag.

    #15263

    STEVE
    Participant

    Single Type Contract – This method of contracting is a basic engagement between a client and a supplier. The client will directly purchase goods or service directly with the supplier in a solitary manner. You could simply compare this type of contract to day to day dealings, for e.g. buying a product from your local shop and paying the supplier/ operator in return.
    Sequential Type Contract – Is a method which generally has a client and two or more separate suppliers each delivering to the other in a consecutive manner. An example could be the client purchases service from a supplier, who designs a product, which is later delivered by a specialist contractor for the client. This is sometimes called traditional contracting and is very common in the construction industry.
    Prime Contract – A prime contract is basically the client employing a Principe supplier for a sum of money to undertake works using various suppliers at the expense of the principle supplier. The principle supplier is employed to deliver goods or service using one or more (sub) suppliers. Also known as a management contracting which again is common in the construction industry.
    Parallel Contract – This method is similar to the prime contract however there is no prime contractor overseeing the delivery of works. This contract sees the client directly employ multiple suppliers whom all deliver the same group of work but through different packages. An example could be in a new build house, the client employes a brick layer, joiner, roofer and plumber through individual parallel contracts to complete the new build. Also known as a construction management contract in the construction industry.
    D+B Contract – Also known as a turnkey contract involves packages of design, management and building contracts all rolled into one supplier so everything is included in the price. All the above is amalgamated into one price the client pays to the D+B supplier.
    Partnering – This option allows more than one supplier to embark upon a joint venture where each specialist supplier involved has expertise necessary to contribute, (only when together) towards a common goal which is not achievable individually . An example could be the amalgamation of three separate companies of bricklayers, joiners and roofers whom start a business venture to build garages in their local area.

    #15262

    Martin Short
    Participant

    Paul

    better late than never would it possible to ask me a few i guess i need the practice

    Martin

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