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The purpose of this report is to evaluate the research questions which were raised through my literature review and formed the basis of my hypothesis. It was previously explained that the construction industry is constantly evolving as a result of; a levelling of the trade cycle, methods of placing contracts, increased emphasis on quality, experience and innovations, increased competition among firms and a change in clients buying behaviour (Yisa, Ndekugri & Ambrose 1996, pp.47).
The methodology which is described in greater detail in the report involved conducting two interviews with industry specialists and forming an analysis of the results through cognitive mapping and decision explorer.
The main conclusions are that the points rose in my literature review and interviews were almost identical. The main issues in both were the economic recession, change in attitudes, below cost tendering, increased public spending, reduced bidding frequency, partnering, lean construction, innovation, strategic project mix and being in a strong position following the recession.
The recommendations were that the construction industry cannot obstruct change but needs to welcome it and adopt new practices which can benefit all the stakeholders. Lean construction for individual projects and the whole company needs to be adopted so as to reduce waste and overheads. Further analysis is recommended in the form of a questionnaire which can then be assessed.
In addition to the changing attitudes of clients in construction which was promoted by the Latham and Egan reports the economic climate has brought additional difficulties to the industry. Clients have become more advanced and are continually seeking improvements within the industry to meet there needs (Yisa, Ndekugri & Ambrose 1996, pp.51). In addition to this they realised that during difficult times, they can use their dominance to acquire a better deal (Woods & Ellis, 2005, pp.321).
The research comprises of two unstructured interviews completed by industry specialists which aims to examine and compare their views on the impact of an economic recession on tendering practices in UK construction. On the grounds of confidentiality both interviewee names and their company name have been omitted but if required contact details such as email addresses and phone numbers can be provided. The main aim is to develop a greater understanding of the subject in addition to the previous literature review and to stumble upon any differences between the two. An opening question was provided which allowed the interviewee to expand his thoughts along with some key questions in order to keep the interviewee on the topic.
Both interviewees are employed by the largest privately owned construction company in the UK with offices in India, Australia and the United Arab Emirates. The company has an integrated capability thus allowing a holistic view of construction.
The first interviewee is a project manager who has experience of tendering with Lagan and Farran construction and is currently working alongside NIW on a large PFI project valued at approximately £130 million.
The second interviewee is a bid manager for on the building schools for the future framework (BSF). He is leading a team on a project worth over £1 billion with a budget of £5.6 million.
Following the analysis a number of issues were highlighted in both the literature review and interviews and will assist in formulating a questionnaire. This approach of combining qualitative and quantitative research will give a superior analysis of the subject.
The report is structured in a streamlined manner so as to firstly give the reader an insight into the research methodology, a brief introduction into mapping and the three cognitive maps which then allows the analysis and discussion to be completed. The report concludes with the main conclusions, recommendations and a number of implications for practice.
2. Research Methodology
In order to receive a greater understanding of the topic we are combining qualitative and quantitative research methods. The approach employed is that qualitative research facilitates quantitative research by providing a hypothesis or assists measurement by suggesting questions (Lukumon, 2009).
The hypothesis was established through reading relevant journals and this was developed further through carrying out two interviews which when mapped can then assist in forming a questionnaire.
2.1 Qualitative Research
Yin (1989) observes that in qualitative research the broadest question should be stated so that data can be drawn from a number of sources such as: archival records, direct observation, documents, interviews, participant observation and physical artefacts. Qualitative research is any kind of research that produces findings not arrived at by means of statistical procedures or other means of quantification (Strauss and Corbin, 1990).
2.2 Quantitative Research
Creswell (2003) explained quantitative research methods are used to test or verify theories or explanations, identify variables to study, relate variables in questions or hypotheses, use statistical standards of validity and reliability, and employ statistical procedures for analysis.
2.3 Unstructured Interview
This interview has no set format beyond the opening question but the interviewer may have some key questions which they can use to keep the interviewee on the topic. The interviewer is receptive to the interviewee's responses and the interview follows a conversational style.
3. Cognitive Mapping
Cognitive mapping allows the analysis of large amounts of qualitative information and can be used to structure messy or complex data for problem solving. It is especially useful as a note taking method during interviews and assisting the process by increasing the understanding of the subject (Ackermann et al., 1992).
Decision explorer is a tool which allows relationships to be pictured relating to a subject. Data entry is provided using "concepts", which capture the core aspects of a notion. The concepts are then linked to show the relationship and factors of importance between ideas (Brightman, 2002).
Figure 3.1 shows the three methods which can be used to question where a concept is leading towards. For the purpose of this analysis I have utilized the Action - Outcome method as I feel that it is best suited to exploring the subject and discovering the goals/outcomes. Once completed, debate and reflection can then follow on the most important factors which have been established.
3.1 Map No.1
3.2 Map No.2
3.3 Map No.3 - Merged Map
4. Analysis & Discussion
Using the maps in the previous chapter the main factors can be discussed and their influence on other concepts.
4.1 Central Concepts Analysis
Central analysis reveals the concepts that have been linked the most times with other concepts and means that the concepts listed below have the greatest influence on the analysis. A central analysis was conducted and the following top five concepts were revealed:
- Change in Contractor & Client Attitudes
- Contractors Using below Cost Tendering
- To Remain Lean and Competitive During the Recession
- Economic Recession
- Increased Likelihood of Repeat Work
20 from 39 Concepts.
19 from 35 Concepts.
15 from 31 Concepts.
14 from 32 Concepts.
14 from 29 Concepts
All these top five concepts are directly related as the economic recession and change in attitudes has resulted in contractors using below cost tendering and lean construction to remain competitive during the recession with the increased likelihood of repeat work.
The main issue/driver mentioned in the interviews was the economic recession which as stated in my literature review impacts severely on the construction industry as there is a reduction in the number of projects along with the cost of borrowing to repay loans and pay wages increasing (Ren & Lin, 1996). This logical relation was explained in my literature review and is illustrated in Figure 4.1.
The change in attitudes from both the contractor and client was also discussed with Latham (1994) trying to adopt a "win-win" mentality and Egan (1998) focusing on improving quality and efficiency and creating a "movement for change". This change from the 1960's mentality whereby private and public jobs were awarded solely on competitive tendering to a situation whereby a variety of issues are evaluated (Edum-Fotwe & McCaffer, 1999) has put additional pressure on contractors forcing them to retain quality and project time but reduce their tenders to below cost if necessary.
Clients are having a greater participation and have requested a less fragmented approach which has resulted in a change of contracts to a more frequent use of design and build (Yisa, Ndekugri and Ambrose, 1996).
Interviewee No.2 feels that clients are manipulating the current climate in order to get the same quality of work done cheaper whereas Interviewee No.1 is of the opinion that it is the contractors who are quick to adopt below cost tendering in an effort to hold onto staff as other projects are completed.
The concept of remaining lean and competitive during the recession is extremely important and is discussed in great detail in my literature review. Cartlidge (2002) describes how lean construction eliminates waste so that value is added to each process, leading to lower costs, shorter construction periods and greater profits. The concept of leanness incorporates reduced bid frequency as overheads need to be reduced. Walwork (1999) and Interviewee No.1 both stress the need for contractors to select the "right project" which will then give a greater chance of success. Innovation can reduce costs through "organizational learning" (Barlow and Jashapara, 1998) but both interviewees felt that as overheads need to be reduced innovation should come from your supply chain which have budgets for research and development. As discussed in my literature review suppliers involvement should be welcomed at an early stage so that they can contribute new ideas, products, or processes (Cartlidge, 2002).
Increased likelihood of repeat work was felt by Interviewee No.1 to come through partnering which allows a greater outcome for the whole supply chain (Dozzi et al., 1996; Larson and Drexler, 1997). A better outcome is achieved as the required business objectives can be met or exceeded (Bennett & Jayes, 1998). Interviewee No.2 felt that early involvement with the client allowed links to be established thus leading onto repeat work.
4.2 Domain Concepts Analysis
The domain analysis counts the highest number of links in and out of a concept and establishes connections with other issues within its immediate domain. It analyses local complexity but fails to examine the wider context of the subject. A domain analysis was conducted and the following top five concepts were revealed:
- 8 Links around
- Change in contractor & client attitudes
- Contractors using below cost tendering
The previous central results determined the concepts with the greatest influence on the entire map and therefore it follows that these should have the highest number of links.
Changes in attitudes, below cost tendering and lean construction were central to my literature review and interviews and this is why they have been highlighted here. The drivers for change are changing attitudes and below cost tendering with lean construction providing a number of strategies to improve through off-site manufacturing, innovative design and assembly, pre-fabrication, supply chain integration and pre-assembly (Cooke and Williams, 2009).
The government's policy of increased public spending was noted by both interviewees and McFall (2008) in my literature review as offering a company strategy to survive the economic recession. RICS (1st October 2009) reported that tender prices for new construction work will not rise until 2011 and that if the public spending was cut it would have a detrimental effect on the construction industry.
This is further supported in my literature review which states that strategic tendering and project mix is even more crucial during a recession. Ren and Lin (1996) judge that it is in a company's long term interest to carry out a more aggressive bidding policy towards the public sector. The issue of evaluating clients was emphasised by both interviewees as a number of private clients have simply wound up their projects. Both see the public sector as a safe bet for investment both in a boom and even more so in a recession as they possess a triple A rating by the rating agencies.
Partnering was touched upon by both interviewees but they had a different viewpoint with Interviewee No.1 feeling that it has opened a forum for communication and along with the new engineering contract there is a "win-win" mentality established as encouraged by the Latham report (1994).
Interviewee No.2 was sceptical however and felt that clients and contractors were both reverting to type with contractors using below cost tendering and looking for variations while client were manipulating the climate by ignoring frameworks in order to tender ever project and receive increased savings.
Woods and Ellis (2005) as mentioned in my literature review accepted that a more open relationship now exists but that it will take some time before a fully genuine relationship will be in place due to an engrained culture of mistrust and deception.
4.3 Cluster Analysis
The cluster analysis produces an overview of the model, with each cluster a relatively isolated set of ideas. It is simply a proposal about the way in which a model could be split.
4.3.1 Cluster Analysis No.1
As stressed in my literature review and illustrated below in Figure 4.2 the economic recession has caused an increase in public spending which along with a change in contractor and client attitudes has resulted in a "win-win" mentality, different procurement methods and therefore the use of partnering and increased communication which relates back to the Latham and Egan reports.
Another effect of the economic recession has been a reduced number of contracts which causes increased competition and a reduced frequency of bidding due to higher tendering costs (Cooke and Williams).
The final analysis revolves around contractors need to win work which along with the recession causes them to change their attitude and use below cost tendering which reduces staff numbers and increases the workload thus impacting on quality, environmental and H&S standards.
4.3.2 Cluster Analysis No.2
Both interviewees drew attention to increased exposure to risk which can cause a contractor to go bankrupt due to a lack of cash. The need to evaluate client financial stability was established in my literature review (Kometa et al., 1996).
Besides financial risk exposure there is also the risk associated with H & S, environmental and CSR which require investment so as to promote a favourable client and public perception which leads onto the goal of a strong company position.
The other analysis involves utilizing innovation to gain a competitive advantage which can be accomplished through lean construction and pressurising the supply chain which both interviewees feel have the research and development capabilities and budgets to supply new products thus allowing contractors to adopt their processes. Once again, this allows the company to remain lean and be in a strong position following the recession.
4.3.3 Cluster Analysis No.3
The final cluster analysis focuses on the goal of becoming the company of first choice which is part of the interviewee's company vision and both interviewees referred to it. It concentrates on the principle that construction is continually evolving and that contractors need to innovative and adopt so that stakeholders are satisfied. It relates to a number of factors such as striving for a better outcome for both client and contractor and aligning your company towards the most advantageous sector through strategic project mix which many contractors see coming from PFI projects as they have a guaranteed source of income for a number of years.
As highlighted in my literature review and enforced through the two interviews, the construction industry is continually evolving due to the economic climate, client requirements, methods of placing contracts, innovations and government policies.
The economic recession has forced cost to the forefront of clients and contractors minds thus requiring a number of strategies to be implemented so that the standards reached in quality, health and safety and the environment are not abandoned. Reverting back to type by both parties through below cost tendering is a regretful scenario as there have been many advances in the last number of years through construction.
Following the literature review and interviews I can conclude that there are many techniques available to the industry so that Latham's (1994) aim of a "win-win" mentality can still be achieved through lean construction, evaluating risks, strategic project mix, reduced bidding frequency and innovation. The concept of partnering and early client involvement is extremely important so as to build up a strong relationship with a better outcome for both the client and the contractor with the increased likelihood of repeat work.
The original hypothesis;
"That the construction industry has adapted and improved in the last number of decades but will have to continue to do so in the face of new challenges",
remains unchanged and has been supported by the interviews.
Based on my hypothesis, literature review and interviews the construction industry cannot obstruct change but needs to embrace it and adopt new practices which can benefit all the stakeholders.
It is too easy to think that in order to cut costs you can reduce expenditure on health and safety, environmental, CSR, etc. as this increases your exposure to risk which may cost you more in the long term. It has been shown and supported that by adopting new practices, costs can be reduced without having a negative effect on other aspects. Lean construction can be adopted through individual projects or the company as a whole.
It is recommended that further analysis is carried out in the form of a questionnaire which will reach a larger target area and thus give a greater understanding of the topic.
Implications for Practice
The implications for the practice include;
- The economic recession has slowed the advances of the Latham and Egan reports which may then necessitate a new report.
- Below cost tendering has caused both the client and contractor to revert to type with contractors looking for variations and clients trying to manipulate the current situation.
- In an effort to win work contractors have increased their exposure to risk and many have gone bankrupt.
- If contractors fail to adapt and improve they will be left behind by a progressive industry.
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