1.

Understanding System of Procurement in Malaysia

Over the years, the construction industry in our country Malaysia had been developed well from
one phase to other phases with a lot of improvement especially in the system used to obtain the
successful completed construction project. First of all, what is the system of procurement? From
the article review from the department of Quantity Surveying, Universiti Teknologi Malaysia:

Procurement comes the word procure which literally means “to obtain by care or effort”;
“to bring about” and “to acquire”. System is about “organized method, approach,
technique, process or procedure”. In this context, project procurement is very much
concerned with the organized methods or process and procedure of obtaining or acquiring
a construction product such as a house, shopping complex or road and jetty. (pg.1)

Then, according to the article written by J.W.E Masterman, the system of construction
procurement refers to the flow of activities undertaken by a client to obtain a building. Next, the
system of procurement in construction industry also defined as ‘The framework within which
construction is brought about, acquired or obtained’ (CIB, 1991). In short, the system of
construction procurement can be understood as the organized process in the construction to obtain
or to have a completed and successful construction project such as a house, airport, shopping mall,
road and many more. In enhance, the function of this system of procurement is for the allocation
of risk in the construction contract.

On the other hand, the systems of construction procurement also comprise the relationship of
parties involved in the procurement process. Different system of construction procurement
approach may have different relationship between a client and the contractor, sub-contractor and
the consultant. The relationship can be either direct contractual relationship or no direct contractual
relationship. The contractual relationship indicates the types of risk for which each party will be
responsible and the reward for doing so in the processes of construction procurement. (Khairuddin,
2002). If the involved parties have a direct contractual relationship with the client, then the risk on
the which agreed work is under the responsible of that party and the also the reward.

2. Categorization of Procurement Systems

Nowadays, the systems of construction procurement had been variated and used widely in the
construction industry in Malaysia. The variations of construction procurement system were to have
a more efficient, speedier and better construction project depend on a quality required with the
cost, and time that the client allocated for the project. Different system of construction procurement
used for a project will affect the changes to the process, procedure, management and the
organization. Each of construction procurement system also have their advantages and
disadvantages. According to the book by Khairuddin (2002): -

The following listed in of order of importance has been identified as the dominant procurement
system in Malaysia:
1. Tradition lump sum system
2. Design and Build or Turnkey System
3. Management contracting

2.1 Traditional System

As ranked above, the traditional system of procurement is the most common system used in
Malaysia construction industry. According to Masterman (1996), this system also called as
separated and cooperative procurement systems. Then, this system of procurement also known as
design-bid-build system and design-tender-construct system. This is because the traditional system
separated the task of designing and construction of the project by different organization which is
designers and contractors. One of the characteristics of this traditional system is sequential which
mean in sequence or the step of procurement process taken one by one.

Figure 1Traditional system Contractual Relationship

In addition, in this traditional system of construction procurement, the contractual relationship is

as the picture above. In this system, the owner who is the client of the project will have a direct
contractual relationship with the designers and main contractor. Under this system, the design and
construction were separated between two organization as figure. Both designers and main
contractor will work on behalf of the client. If the main contractor needs an extra sub-contractor
for specialized work or any suppliers, the contract will be between the main contractor and that
party. There is no any direct contractual relationship between the client other than the designers
and the main contractor.

Figure 2 Traditional System Operations

=On the other hand, under this type of system, the operations are different with the other system
which it is sequential as explain above. The traditional system of procurement will be started with
the appointment of the consultant for the design stage. Then, the client will present the project
brief and followed by the feasibility study before producing the concept and detail design. After
the design stages completed by the appointed consultant, there will be a tendering stage where the
contractor will bid for a tender of a project. After the valuation and award of the contract by the
client, then the selected contractor will start the construction and followed by the commission and
handover of the project to the client.

As referred to book written by Khairuddin (2002), just like other procurement system, this
traditional system also has its own advantages. The first advantages are through this system, it
allows the price to be fixed in advance of construction which mean the price is certain or determine
before the construction work start on the site. The price will be finalized after the tendering process
which is the award of tender by the client to the selected contractor. Other advantages are the
designers under the control of the client which mean the design of construction project will under
the monitor of client side and the designers work on behalf of the client. The design required by
the client will be easily matched and the cost normally will be lower since the design is under the
control.
In contrast, this traditional system of procurement also has some disadvantages which is the
procurement of a construction project will take a longer period if to be compared with other system.
This is because of this system will go through step by step of all 7 procurement processes in
construction. Then, the other disadvantages of this traditional system where it promotes adversary
which also mean a dispute. Due to the longer period taken in order to complete the project,
involved parties in the project may tend to dispute in a project.

Last but not least, there are a few factors of selection of this tradition system of procurement. One
of the factors is the aesthetic value where normally, the client who have a high aesthetic value in
the project requirement will use this type of system. This is because of the higher aesthetic value
required longer construction period. Then, the other factors for the selection of this system of
procurement is the budget constraint. If the client capability on the financial is not really, they will
choose this system of procurement as this system incurred lower cost of project compared to other
system of procurement.

2.2 Design and Build Procurement System

A part from that, the second familiar system of construction procurement is the design and build
system or Turnkey system. This system was introduced in 1983 in Malaysia by the Public Work
Department (JKR). Under this type of procurement system, the design and construction process
are over-laps and the appointed contractor is responsible for both design and construction process.
If the contractor may not have designers for the design process, he or she may employ the designers
himself.

Figure 3 Design and Build Contractual Relationship

On the other hand, the contractual relationship under this system design and build is as figure
above. The owner who is the client of the project will have a direct contractual relationship with
the main contrcator of the project. The client will appoints the main contrctor to done both design
and constuction process. The main contrcator may employ his designers himself for the design
process. There is no any direct contractual relationship between the client and the designers of the
project. But, if necessary, the client can appoint any consultant to assist in preparing all document
needed before the contractor appointment process.

Figure 4Design and Build Operations

For the operations under this system of procurement, this design and build system might not follow
step by step of procurement process as figure above. At the beginning, the client may employ any
consultant to assist in preparing the project brief and feasibility study before the issuance of the
need’s statement by the client. Then, there will be process of tender documentation. The contractor
or tenderers will submit completed proposal for the tender during this stage before the evaluation
and selection made by the client with the advisors from the consultant. Then, the client will award
the tender. After that, the selected contractor will produce a concept design before the
determination and agreement on the cost of the project. After the cost of the project been fixed and
finalized, the main contractor will employ the designers if they not own in-house designers for the
producing of detail design. During the detail design producing, the contractor will start the
construction process. After the construction completed, there will be a commission and handover
of the project from the contractor to the client.
According to book written by Khairuddin (2002), just like the first system of procurement, this
design and build system of construction procurement also have its own advantages. The first
advantage is the design and construction process of the project responsibility just laid on one
person only who is the contractor. Since the client just have a direct contractual relationship with
the contractor, all of the responsibilities on the design and construction of the project is only laid
on the contractor who agreed the terms with the client. If anything happens to a project, the client
only needs to deal with the contractor appointed for the construction project. Next, the other
advantage of this system is the price fixed in advance of construction. In short, its mean that the
total cost of the project is certain before the construction started for the project because the amount
of the project will be finalized after the design stage completed by the contractor. On the other
hand, shorter period of development also the advantages of this system of procurement. This is
due to the overlapping of the design and construction process that apply in this system of
procurement. Last but not least, the other advantage of this system is the construction is buildable.
Since the design is made by the same contractor construct the building, they will know what is the
best way to completed their design as agreed with the client within the period.

In contrast, there are also some disadvantages of this design and build system such as the cost of
project will be higher if compared to the traditional system. This is because of this system of
procurement normally applied for a shorter construction period which tend the contractor to hires
more workers for a more workload. The cost also will be higher because of the cost and fee of the
designer appoint by the contractor. Next, the other disadvantage of this system is the construction
project is less of aesthetic value due to a shorter contractor period. Last but not least, the
disadvantage is the system is not very welcome to any changes. This is because of the design and
construction process is in the same time.

In enhance, there are a few factors of the selection of this design and build system of construction
procurement. Normally, this system used by the client that have a high level of financial, technical
and management capabilities. This is because of the application of this system in the construction
tend a higher cost of project compared to the traditional system. The other factors of selection of
this system is the time. Since this system of construction procurement have a shorter period
development compared to the traditional system, the client who have a time constraint will choose
this system of procurement.

2.3 Management Contracting Procurement System

Last but not least, the dominant system of construction procurement is the management
contracting. According to Masterman (1996): -

It is a system that gives greater emphasis on the management and integration of the design
and construction of projects. Under this system, the management of the design and
construction a project is contracted out to a contractor who acts as a management consultant
on behalf of the client. (pg.3)

Generally, this system applied in the very big project or megaproject such as airport and many
more. In this system, the client or developer or owner will appoint the management consultant who
is a very experience contractor in the construction industry. Under this system, the management
consultant will manage and coordinate the construction project on behalf of the client and have a
direct contractual relationship with the client. The management contractor will get the fees for the
services. In this system of procurement, the appointed management contractor will not carry out
the design and construction work of the project by himself but just manages it. The management
contractor will employ the design consultant as well as the specialist contractor to complete the
construction project.
 Figure 5 Management Contracting Contractual Relationship

On the other hand, the contractual relationship under this system of procurement is as in the figure
above. As in the figure, there is no direct contractual relationship between the client and the work
packages contractor who is a design team and many more. The client only has a direct contractual
with the management contractor. The work packages contractor will only have a direct contractual
relationship with the management contractor which they work on behalf for. So, if there any
problems arise in the construction project, all of the issue will be between the management
contractor and the packages contractor. Almost all of the risk is on the management contractor.

Figure 6 Management Contracting Operations

A part from that, the operations or sequences of the construction project under this system starting
with the appointment of the consultant by the client. The consultant will assist the client in order
to prepare the project brief and feasibility study for the project. Then, the process will be followed
by the tender documentation and client’s requirement which then will appoint the management
contractor for the project. After the appointment of the management contractor, the management
contractor will produce the concept design. Next, there will be a bidding and contracting process
between the management contractor and the packages contractor employed. After that, the
employed professional or workers or contractor will start the detail design and shop drawing
process together with the construction of the design of the project. Last but not least, there will be
a commission and hand over of the project to the client.

In enhance, this management contracting system of construction procurement also have its own
advantages and disadvantages. One of the advantages of this system is shorter development period
of construction project. Why shorter? This is because of the design process and the construction
process may overlapped. Next, as refer to books written by Khairuddin (2002), the other
advantages of this management contracting system of procurement is: -
The system is adaptive to design changes during the construction production process,
promotes buildability. (pg.124)
Last but not least, the other advantages of this management contracting system is there is potential
savings in costs as the works are being divided into packages and let out separately on competitive
tenders. (Khairuddin, 2002).

In contrast, as referred to the books written by Khairuddin (2002), there are also a few
disadvantages of the management contracting include the price is not known in advance of the
construction. Then, the disadvantages of this system also are the system not suitable for those
clients who lack of experience. Last but not least, the selection factor of this system of procurement
is the time. Normally, the client will choose this system because of time constraint. Then, the other
factor of selection of this system due to the complex or large project.

3.0 Application of procurement system in Universiti Kuala Lumpur British Malaysia Institute
First of all, from the interview session with the Head of Procurement Unit of UniKL BMI, Wan
Hanani Wan Mustafa, we included some information regarding the procurement system applied in
their university. Generally, the UniKL BMI is one of 12 UniKL campus in Malaysia which under
the Mara.

For the system of procurement applied in this university, basically they just used the traditional
and design and build system. The selection of system of procurement is based on the size of project
and the cost of the project. For the smaller project, the UniKL BMI will applied the traditional
system since their procurement unit has designer and staff that can manage the preparation of
specification and the simple building drawing. For a big project, the UniKL BMI will choose the
design and build system as the procurement system for the project. This is because they not have
any architect or designer in their unit. So, the UniKL BMI need to use the design and build system
which the appointed contractor will employ his or her own designers and team for the construction
project. The latest project handle by the procurement unit of UniKL BMI is the renovation of roof
project which broken due to a natural disaster. This project cost is 70k which under the
management and maintenance of maintenance unit in UniKL BMI.

Reference: -

Article Review

1. Conseil International du Batiment (1991) Proceedings of International Symposium W65,

Organisation and Management of Construction. Las Palmas, Gran Canaria.
2. Rosli Abdul Rashid, Ismlail Mat Taib, Wan Basiron Wan Ahmad, Md. Asrul Nasid, Wan
Nordiana Wan Ali & Zainab Mohd Zainordin (2013). Universiti Teknologi Malaysia,
Faculty OF Built Environment, Department of Quantity Surveying. Skudai, Johor. Effect
of Procurement Systems on the performance of construction projects.

Book Review

1. Khairuddin Abdul Rashid (2002). Construction Procurement in Malaysia, Processes and

Systems, Constraints and Strategies.
2. Masterman, J.W.E, Masterman, Dr Jack, Masterman, Jack (1992), An Introduction to
Building Procurement Systems.