Introduction To Strategic Procurement Construction Essay

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Here we are undergoing to select the best procurement route for proposed auditorium project for Heriot Watt University, the selection parameter of innovative procurement scheme for the client is to provide valid, substantive, compelling economic and social justifications. Sufficient need and demands to develop an entertainment of local surrounding area is the main priority of the selection horizon. The objectives of this report pay attention to provide optional analysis of procurement route to improve the suggestion for the principal of university most likely to be used innovative procurement route although all new strategies have consequences but to enhance sustainable technology.


Construction is competitive and high risk business. In this situation, new auditorium project, selection potential procurement route is main concern of resources endowments, reduce financial risk and to limit the most important thing of project cost curriculum to think about the owner and property liability partnership. There is no doubt that, for each procurement route, and disadvantages of recent problems consistent with other alternative route. Furthermore, the aim is to examine the innovative procurement route impacts on project cycle and its productivity how to use in value of money and how can we achieve the potential benefits according to adoption of implemented procurement strategy.

3.0 Client Type

Clients of the construction industry is identified by those who commission building

work once or twice in their lifetimes and do not know what to expect to those

are non-regular clients and who build for their own use or occupation such as public

service authorities, industrialists ,etc. Therefore, the principal of the university, the client is the occasional client and this fact sheet will produce procurement process with a basic to intermediate understanding of the process.

4.0 Introduction to Strategic Procurement

Which procurement method is likely to prove the most appropriate in a given situation will depend upon the nature and scope of the work proposed, how the risk are to be appointed and what price basic the contract is to be awarded. Selection of procurement system for the complex project was not based only client needs but also on the principal requirements. In particular, the principal decision to commission for design and documentation is the key driver for the decision to pursue suitable procurement system to achieve objectives and value for money, whilst taking into account risks and constraints (Tookey et al, 2001).

5.0 Primary Procurement Options

The purpose of procurement option analysis is to select the appropriate procurement methodology that best achieve the procurement objectives. It will include the decision making rationale for selecting the procurement method. All clients, even those who are not from construction industry, need to understand procurement options (Construction Excellence, 2004).The four categories each have several options but in simple terms they are:


Procurement Options



Traditional procurement

-Client develops a business case and appoints consultants



-Consultant prepare contract documents, design, specifications



and drawings for tendering process.



-Contractor is appointed after following the tendering



stage to construct work by providing the firm price and



completion date.


Design & Build

-Possible contractors tender the design brief and



cost to be returned.



-One of the contractors is appointed by client



under the responsibility to produce the completed



project within agreed cost and time frame



There are two options of management procurement.


Management Contracting



-Client appoints designer and contractor who can manage the

construction work.



-The contractors work together with design team to develop



construction program and contribute design and costing of work.



-Management contractor works competitively with



sub-contractor and specialists in appropriate work packages.

Construction managemant

- Similar concept to Management Contracting



- Clients construct contractor directly and construction



manager managed the process on the consultancy basis.




6.0 Primary procurement option analysis

Basic decisions should be summarized for all primary procurement plans, why defined the non-appropriated reasons based on project conditions are as following table (Construction Excellence, 2004).


Procurement Options




-Complexity in design and this risk totally fall on clients



-No involvement of contractor in design and planning stages



-No chance to suggest for improving design for the builder


Design & Build

-High specification technology and no design overview



-fully responsible for design, construction performance by






-Difficulties to prepare a adequate brief by occasional client



-Not suitable for inexperience clients



-Buildability advice is not provided

7.0 Approach to advanced procurement system

Reasons why projects have failed in the past have been considered by the construction industry have no initiative to advanced procurement route, lack emphasizing for the need for processes where the client and contractors work together as an integrated team to deliver best value for the project. The growth of alternative systems for the procurement system has had a significant effect on the need of the clients. Basic ideas for proposed project by summarizing advanced procurement routes within numerous options are as follows;

7.0.1 Private Finance Initiative (PFI)

PFI have been widely adopted from the wider range of Public Private Partnership. Ultimately, this innovative procurement method include service is procured through agreement between public sector body and a private sector consortium. PFI scheme are comprised by many arrangement organizations formed among the public sector clients, private sector provider and funders. The private sector construct the building based on consequence of need to provide the contract service. The public sector client and the private sector company typically owned by large construction contraction organization establish a single contract in PFI scheme. This special purpose company (SPC) have legal entity to perform the require service to public sector client especially for particular project. SPC will appoint contractor to design and construct the project with design and build procurement route and facilities management organization to manage and operate the resulting building. And the private sector funding (funder and investor) is introduced by SPC as the third party organization into the project to provide the capital expenditure required to start the project. In return, investors want to ensure that PFI scheme is succeed and their investment will be paid by repayment with associated finance charges (D31PZ, 2012).

7.0.2 Aim of Original PFI

The principal aim of the PFI is the public sector contracts with private sector in the provision of quality services, it was felt that the approach is shifting the role of the public sector from owner and provider to enabler and purchaser and administrator of the interests of the end-users (Department of Education, Ireland, 2000). PFI facilitates improvement to the private sector is owner and operator with responsibility for design and construction, has given way to the private sector assuming full responsibility for design, construction, operation, management, maintenance and finance. Meanwhile the public sector as the consumer can focus on their business, or with the public itself as direct user, paying for the provision of a service.

8.0 Examination of Alternative Procurement route to PFI Scheme

It is argued that private sector contractors in PFI scheme bids high capital cost organizing detailed specifications with high complex technology (Allen,2001). In this case study, the public sector contribution is made to secure not only wider social benefits but also reputation image of the university. The project as a whole must consider financial sense of borrowing money and competing uses of the strong resources of each party must be considered in term of ownership of a building. The evidence suggests that some types of alternative procurement route more suited to make partnership in capital financing.

8.0.1 Partnering

Partnering is the long-term commitment two or more organizations for the purpose of achieving specific business objectives by maximising the effectiveness of each participant's resources. (Mustaffa, 2009) Reviewing the history of Herriot university, the public sector in PFI (the principal of university), himself is from private university organization so called not pure government organization and also it is the one of the top universities in the world. The university out-performs consistently and also its national benchmarks for high percentage of entrants from state schools. Every year, university sponsored scholarships to more than 400 students and moreover, it disburses over £5 million in the form of fee. (The Complete university guide, 2012) And the need to create partnerships in capital financing to achieve every party incentive and compliance frameworks, and improve communication within principal of the university and SPC is the most important priority in term of rich organization background of principal. With contracts lasting for 25 to 30 years in PFI scheme, it will affect only for facilitating and maintaining the building, not on legal ownership of building by introduction partnering into the schemes. Public sector bodies thinking of entering into PFI deals will be able to use strategic partnering in capital financing. By collaborating the strategic working partnering, ownership of building can easily develop to raise difficult issues. (Bennett, 2006). However, It may be that principal can makes a large investment that delivers much higher returns inside partnering arrangement. Equally if the principal has strengths that enable SPC to exploit an innovation in a new market, he can do so while he does not want to inhibit the joint ownership. These arrangements depend, like much else in strategic partnering working on participated partners being open each other and agreeing the best courses of business case so there is no big issue in partnership (Bennett, 2006).

8.0.2 Build Transfer Operate (BTO)

BTO is the some form of public private partnership. Under this model, the private sector design and build the building. After the completion of project, the ownership of the building transfers to the public sector and however the private sector operates and provides the facilities to the building for a specific period of PPP agreement. There is service pavement to private sector in term of BTO contract. The transfer of project financing risk by concession agreement generates incentives for the private sector to supply services on time and of a higher quality as they only start to receive service payments (Ranbury, 2011).

9.0 Developing Procurement Influence Factors

Selecting the most appropriate procurement path is key point of determining which performance requirements can lead the fulfilment of the client's priorities. These might include selection parameters are as below (Luu et al., 2003);

9.0.1 Regulatory feasibility

PFI changes the principal from being managing of buildings into purchasers of services provided by private companies. In PFI project, there is a need for SPC to strengthen project management in terms of procedures and reporting to streamline the procurement process, provide greater assurance of accountability (Department of Education, Ireland, 2000). SPC is a legal entity company and established for especially providing the required service to public sector and which have experience before to choose a construction contractors with best image (D31PZ, 2012). This regulatory feasibility provided by private sector can achieve effective management of resources to project success.

9.0.2 Technology feasibility

Public sector clients who never procured a building before are inexperienced in the design process. In this auditorium project, it is ensure to deliver the high-quality design and the skills. Before going to the construction market and associated design services, the public sector clients must involve feasibility studies and options appraisals including studies of alternative design implications (Department of Education, Ireland, 2000). On the other side, PFI provider who himself like the shareholder and partner to keep the buildings in a good state of repair over many years by BTO contract will support sophisticated customer service and good quality design building.

9.0.3 Cost Risk

In that particular project, innovative PFI scheme should reduce the principle's burden from the risk of cost overruns, providing the partnership within the original contract stipulates that this risk shares with the private sector. Partnership in capital expenditure allow both parties to the collaborative approach of commitment and common objectives and managing cost risk and sought each organization's profit.

9.0.4 Project Risk

In the case of a new auditorium, for example, the risk of a structural default in the building should be transferred to the private sector that has a long-term maintenance in the building and therefore has the incentive to design and build that building in a way that minimises structural defects.

9.0.5 Time Constraints

These figures suggest that implemented PFI partnering capital spending must be additional time constraints benefit to principal for construction time frame. Moreover, long-term sustainable businesses provides security of service delivery even where private operators run into the situations where the private sector is best judged able to deal with project duration. The reason why is that the private sector provider needs to be assured that the value for money of obtaining agreed service charges for the timing including the project to be delivered or in a phased of handover by BTO concession agreement.

10.0 Implementing PFI scheme

The golden rule offered in original PFI scheme to be surplus over the project budget cycle,

allowing the Government to borrow only for capital expenditure. In current status, the golden rule is to be broken by funding budget through implemented PFI, as the capital cost of the project is mainly allocated to the public sector so called principal. However, it is worth enough that the auditorium is the reputation image of university and supporting a project using innovative method rather than conventional methods. Its procurement method could count as capital investment and sustain the level playing fees by reviewing the financial incentives for private sector and restrictions currently linked to the different procurement route like partnering (Foster, 2003).

SOURCE: D31PZ. (2012), "Contract & Procurement", School of Built Environment @ Heriot University, pp 4-8

11.0 Benefits of implemented PFI

11.0.1 Achieving Client Short-term Objectives

Implemented PFI concept for short-term objectives promotes the working relationship through strategic partnering. Win-win attitude between both parties encourage each party's performance to achieve shared goals, efficiency of resources, minimum construction period, high quality design, heightened safety standard, communication between all members (Mustaffa, 2009).

11.0.2 Achieving Client long-term objectives

Life cycle cost

In particular, by comparison with traditional procurement route, it can be examined whether the first round of buildings were of good quality building by the PFI provider keeping buildings in a good state of repair over many year. They concentrate onto a whole-life cost to building maintenance. Innovative PFI schemes have an incentive to consider whole-life costs, and to try to minimise them wherever possible so that their bids are competitive and year-on-year costs are not higher than expected.


Low operational and maintenance cost

It was possible to examine planning process with a positive correlation between initial capital costs and provision for whole-life maintenance. Decisions were being made to trade off not against to see each other as partners lead the project with low maintenance cost. SPC will ultimately be avoided design defects for the longer-term quality of their facility management services rather than the initial building's excitement.

11.0.3 Achieving Client's Business Need

PFI provider will ensure that the schedule allows the project to meet the core requirements to be delivered comprising 200 seats, high specification technology, multi-media theatre with air conditioning, comfortable tiered seating and excellent visibility. Excellent Media facilities and security, emergency services will promote client's business by hiring out the auditorium for corporate use and entertainment building for multiple stakeholders. High range of cultural and community facilities with multi-purpose and complex technology theatre develop the university to top world renowned leading university for education business industry with a reputation for innovative education with excellent facilities. The majority of clients is expected not to be involved for this project during every stages of the project's life in term of by occasional clients what lack experienced failure to define their requirements brief. Under this circumstance, the principal can focus on teaching while strategic collaborative working can able to act effectively on client business.

12.0 Conclusions

Ambitiously, our goal is in future of auditorium project that there is zero default in safety, design quality and value for money in project cycle in term of partnering like marriage within the parties. Appropriate risk allocation, lack conflict, competitive bidding for contractor selection and understanding improvement to generate partnering strategy will accolade the project with efficient micro economic solution and maxi social benefit. At the same time, agreement and commitment to a shared vision between principal and SPC is paying attention to the need for each other improve long-term partnership with best policy cycle and educational outcomes. Sustainable investment rule the present state of principal finances could hold him with legal ownership to support high reputable university ranking. Meanwhile, incentive for SPC to seek low capital finance through innovative PFI and the operator's gains profit from the fee paid by BTO concession agreement provide the principal with the key commercial skills to forge increased and better partnerships base on equal terms of profit.