I had chosen the procurement system and construction supply chain in the construction industry sector of Singapore for the VRM study. As we knowing that construction supply chain are the most complex and involving with multiple parties. It is characterized with high fragmentation, low productivity, cost and time overrun and conflict. Very often project schedule slips, budget overrun, quality is compromised, that claims and counter claims problem have plagued the industry (Yeo and Ning 2006). The appropriate used of the supply chain management and applied at the right time, they will be contribute the flow of materials and labours that value added to the project delivery
The crucial here is how to bring the supply chain management incorporate those skill into the VRM study at the strategic, design and operational phases. The supply chain are involve actively at the construction phase, however it can be bring forward to the design stage to work collaborative with the designer and principal contractor or in the partnering to developed long term strategic relationship between the client, contractor and supplier.
Nevertheless, the related of the construction supply chain will depend upon the procurement method adopted. The choice of the procurement is fundamental to setting up the parameter for the delivering value through the project process (J. Kelly, S. Male 2004) and the strategic decision of the procurement and contract is to maintain the alignment of the project value chain. If inappropriate procurement selection that create barriers, denning access to appropriate knowledge, skill and expertise within the supply chain.
Evidance of Poor Performance Construction Supply Chain Value Related to the Procurement System
The general contracting "SIA" form of contract (GC) and design and build (DB) are the common procurement in the Singapore construction industry. The most popular form of contract SIA which is similar to traditional contract, the separate appointment of design team and a construction firm was provided additional interface and given the more disruptive to the project value in the two stage tendering. This form of contract is resist early involvement of the supply chain during the design stage. The CSC VE contribution is carry out after the completion of design, as the result, the impact of the cost and time saving is minimum as early involvement. Beside that the client value might be loss due to the change of the focus in value system from the contractor present to the multiple supply chain. The value transition point is not work effectively is this kinds form of contract. Furthermore, Duties of consultant in the traditional contract is responsible for the design, the RM concern in the construction phase might not fully identify during the design stage, such as the difficult access, shortage of material, and safety of work sequence.
Another form of DB procurement practice is the client favour at the last decade, this form of the contract provided a single point responsibility to eliminate the inherent conflict that exit between the designer and contractor, ccontractor also fully responsible the risk in design and construction. The DB project always proof a batter performance as compare to GC in term cost effective, reduce construction time and early delivery of project. Beside those advantages, the disadvantage of the DB is full controlling power given to main contractor over the designer and CSC without influence by client, the aesthetic of the building design value is always sacrificed in favour of easy construction, the final deliver of project in the design and build with minimum performance requirement and the long term interest in the client value maybe compromise.
Evidence of Established Value and Risk Management Approach in Singapore Construction Industry related in procurement and supply chain
The driver of MOF of the Singapore has set guideline procurement fundamental principal "Value for money" in the procurement strategy. The government cities "Government will procure from source that can best meet its requirement and which offer the best value. Value for money is derived from the optimal balance of benefit and costs on the basis of total cost of ownership. As such, value for money does not necessarily mean that a tender must be awarded to the lowest bidder".
The PPP project would be involve public sector as purchaser of services and the private sector bring innovation, efficiency and finance to provide public service and the partnership where is co-operation and sharing of risk by the parties. The current PPP arrangement have been involved in the Singapore include:
a. Desalination Plant (PUB)
b. Ulu Panda New Wate Plant (PUB)
c. Incinerator Plant (NEA)
d. Trade Exchange (Singapore Customs)
e. Sport Hub (Ministry of community Development, Youth and Sport / Singapore Sport Council)
f. Development of new ITE College West
The primarily concern of the PPP is to ensure competitiveness and Value for money. The one stop service driver by the Contractor-led procurement system which is mean the private consortium form by the construction firm, services consultant as well as bank. That formation of consortium given a minimal disturbance to project value chain, as the PF contractor has to operate what they has design and build up to 30 year. This put the PF contractor in the stronger negotiating position with the supply chain to ensure the product return on investment and achieving the desired performance. In contrast to the DB and Trunkey procurement, the latter does not facilitate additional requirement to hold liability for operating the physical asset.
Another value approach on the private sector is Partnering. Most of the partnering here is the client-led either in project partnering or strategic partner between client, consultant and principal contractor, the approach is to maximise the effectiveness of each participant resources and expertise that fully contribute throughout the project value chain. Partnering promote improved performance through collaborative business relationship based on best value rather than lowest cost. The fundamental component required each parties work together in an open and trusting relationship based on mutual objective, an agreed problem resolution methods and an active search for continuous measurable improvement. The collaborative approach is intended to improve communication and joint problem solving, it enhance the joint approach to thorough RM.
Evidence from the Singapore construction supply chain is the change of the procurement and contract with the Joint Venture practice between subcontractor and principal contractor. Join Venture is near similar to the partnering, enter of JV is for a specific project and there is a time limit and clearly stated on their purpose. The way of the JV is minimising opportunistic behaviour by the owner of the specific asset at the cost of the principal contractor. In this kind of arrangement is provide common incentive framework and improves the flow of the information between each parties. The form of the joint venture is one part is seek for the technological expertise, both parties are sharing risk equally and invest equally on capital, time and effort to achieve the common goal.
VM and VE creating opportunity in the project Value Chain
VM process brings different value system together with a view to moving a project forward. The VM study in the strategic stage sort out difficulties raised by the choice of the procurements route and to decide the procurement strategic that to maintain the alignment of the project value chain. VE as a subset of VM, the studies tend to be technical response in nature dealing with elements, components and construction process. The VM and VE is to bring right people together and right time regardless of where they are located in supply chain, is an integrating function within the project value chain. (J. Kelly, S. Male).
Teams are Involve in the Risk Management
Client, designer, contractor, sub-contractor and supplier are the main participate in the risk process at the time when is require. In the RM perspective it is fundamental to identify the player/participant who has partial or complete responsibility and the needed authority in decision-marking, in order to measure, control and manage a risk factor. The assignment of risk factors responsibility is also essential for a proper profit margin distribution, so providing each individual with a clear awareness of the need to successfully accomplish project activities ( D. Alonin, R.Dulmin, V. Mininno and S. Ponticelli).
Recommendation for RM
Construction industries face a lot inherent uncertainties and issues like company's fluctuating profit margin, competitive bidding process, weather change, productivity on site, the political situation in a country, inflation contractual rights, market competition etc. Thus the construction industry, more than other has been plagued by risk (Carr & Tah, 2001) and there is no construction project with risk free (Lam, Wang, Lee & Tsang, 2007).
The objective of project risk management is to increase the probability and impact of positive events, and decrease the probability and impact of negative events in the project (PMBOK). Risk in construction industry is tedious task as the objective function tends to change with the project life cycle and the scenarios are numerous due to sensitivity of projects to uncontrollable risks stemming from the changes in the macro-environment, existence of high number of parties involved in the project value change, and one-off nature of the construction process (Dikmen, Birgonul, Anac, Tah & Aouad, 2008).
RM appears as a valuable approach in order to prioritize the most problematic issue in complex and risky project and select adequate response actions (Finch, 2004; Khan and Burnes, 2007) The project success usually depends on the combination of all risks, response strategies used to mitigate risks and company ability to manage those (Dikmen, Birgonul, and Han). Hence the underlying concept of risk management is to manage risk effectively. The RM principal is underlying the six processes of Plan RM, Identify Risks, Performa Qualitative Risk Analysis, Perform Quantitative Risk Analysis, Plan Risk Responses and Monitor and Control Risk.
Risk can be responded by contract and risk must proportional or fairly allocated, disproportion allocated of risk may lead to adversarial relationship between client, contractor and supply chain that resulting litigation and breach of contract. Allocation of risk should be interpreted in specific and express term in the contract to governing the relationships between participants. Beside allocation, quality of contract is depending how precisely and clearly defines the scope of each party "responsibilities". The respective parties must be carefully and understand properly in the contract implies and express term specifies in the contract clauses to prevent any dispute in future.
Dealing with external risk uncertain risk such as flooding, earthquake, fire and disease outbreak and cyclone are natural event that is uncontrollable. If clients insist to manage throughout the contract high premium sum might be incurred, Alternative way to dealt is cost sharing between client and contractor to mitigate the impact of the risk. This must be expressly provided in term and condition of contract. Risk in prices escalating (in long term project), change of employment law and tax, movement of exchange rate which is beyond control. The contract arrangement must provide adjustable or flexible from time to time to reflect change in general prices level and pre-agreed formula. All above agreement must clearly in term and condition of contract.
VM and RM are interrelated activities that should be carried out parallel on the project. Since the VM has major role at the strategic stages or project while RM role is in latter delivery tactical stage. The VM and RM should not be deal separately; the two methodologies should be integrated into the VM job plan.