The Strategic Approach To Procurement Construction Essay

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Procurement Method is the phrase given to the process by which clients and users achieve the delivery of their construction projects. 'Procurement' means much more than just the purchase of products and services. It covers the process from initial concept planning and design, to development, construction, maintenance and ongoing monitoring of performance. Procurement is more than the activity of 'purchasing' and covers both internal and external provision and can be defined as (Byatt Report, 2002):- The whole process of acquisition of goods, services and construction projects spanning the whole life cycle from the initial concept and definition of business needs through to the end of the useful life of an asset, services contract or need for the activity.

STRATEGIC APPROACH TO PROCUREMENT

Masterman (1996) described project procurement as the organizational structure needed to design and build construction projects for a specific client. This is very true to an extent because the process of "obtaining" a building by a client involves a group of people who are brought together and organized systematically in term of their roles, duties, responsibilities and interrelationship between them. After assessing all options and confirming the need for a construction project, a more detailed case for the project should be developed.

A strategic approach to procurement should be based on understanding the client's business needs and drivers, and to fully appreciate the market in which it operates. This is absolutely fundamental in establishing how efficient the construction project can assist the client in achieving business success. The bespoke nature of many construction projects increases the inherent risks. These risks include completing a project which does not meet needs, which is delivered late or costs more than the client can pay or fund. All these risks can impact the client's core business, seriously. The procurement strategy developed should balance risks against project objectives at an early stage. Even at this early stage, initial concept designs can be developed to enable the client and those who will use the new facility to look at how initial designs will respond to business needs.

FACTORS INFLUENCING PROCUREMENT STRATEGY

The selection of an appropriate procurement strategy has long been identified as a major contributor to project success but which route is the most appropriate depends on the goals, requirements and resources available. Many procurement strategy selection techniques have been developed, with a view to assisting clients in their choice of the most appropriate procurement approach for their projects (Kumaraswamy and Dissanayaka, 2001; Luu et al., 2005; Perng et al., 2006; RICS, 2007).

Most conventional procurement selection techniques are based around the concepts of time, cost and quality. While the use of such criteria can be used as a guide to assist decision-makers with an initial understanding of the basic attributes of a particular procurement method they should not be used as the sole basis for selecting the procurement method. This is because of the underlying complexity associated with matching client needs and priorities with a particular procurement method.

An array of variables can influence the choice of a procurement method. Once the primary strategy for a project has been established, then the following factors should be considered when evaluating the most appropriate procurement strategy (Rowlinson, 1999; Morledge et al. 2006):

External factors - consideration should be given to the potential impact of economic, commercial, technological, political, social and legal factors which influence the client and their business, and the project team during project's lifecycle. For example, potential changes in interest rates, changes in legislation and so on.

Client characteristics - a client's knowledge, the experience of the organization with procuring building projects and the environment within which it operates will influence the procurement strategy adopted. Client objectives are influenced by the nature and culture of the organization. The degree of client involvement in the project is a major consideration.

Project characteristics - The size, complexity, location and uniqueness of the project should be considered as this will influence time, cost and risk.

Ability to make changes - Ideally the needs of the client should be identified in the early stages of the project. This is not always possible. Changes in technology may result in changes being introduced to a project. Changes in scope invariably result in increase costs and time, especially they occur during construction. It is important at the outset of the project to consider the extent to which design can be completed and the possibility of changes occurring.

Cost issues - An assessment for the need for price certainty by the client should be undertaken considering that there is a time delay from the initial estimate to when tenders are received. The extent to which design is complete will influence the cost at the time of tender. If price certainty is required, then design must be complete before construction commences and design changes avoided.

Timing - Most projects are required within a specific time frame. It is important that an adequate design time is allowed, particularly if design is required to be complete before construction. Assurances from the design team about the resources that are available for the project should be sought. Planning approvals can influence the progress of the project. If early completion is a critical factor then design and construction activities can be overlapped so that construction can commence earlier on-site. Time and cost tradeoffs should be evaluated.

Risk - The unique and bespoke nature of building projects means that clients who decide to build are invariably confronted with high degrees of risk. The risk inherent in every construction project can be assumed by another party. The principal guideline in determining whether a risk should be transferred is whether the receiving party has both the competence to fairly assess the risk and the expertise necessary to control or minimize it (Harman, 1996). Hartman (1996) found that both parties must have a clear and similar understanding of the risk.

Turner (1990) says that the key to procurement is to identify the priorities in the objectives of the client and to plan a path, a procurement route that will be most appropriate. It is emphasized that priorities must be put in order of precedence, each in order before other, because by definition there can be only one priority.

SELECTING THE PROCUREMENT ROUTE

The selection of a procurement method should be viewed as an iterative process whereby project objectives and constraints are constantly compared with possible procurement solutions. To assist with marrying project objectives and constraints with a procurement method, specific criteria can be used to assist clients with determining their priorities (NEDO, 1985): certainty of time, certainty of cost, price competition, flexibility, complexity, quality, responsibility and risk.

ASSUMPTIONS

My assumptions of the client's priorities in the project objectives based on the NEDO criteria are:

Certainty of time - not only is early completion required but also certainty of project completion time is important to the client.

Certainty of cost - a firm price is needed prior to the client making construction commitments.

Quality - high quality and functionality of the auditorium is desired.

Complexity - the auditorium will be highly specialised featuring high specification technology.

Responsibility - the client prefers a single point of responsibility after the briefing stage.

Risk - transfer of risk is important to the client.

Price competition - consultant and contractor selection by price is not a priority.

Flexibility - client variations won't be necessary once the contract has been signed.

Once the criteria for determining a procurement method has been identified and we have a clear understanding of the priorities in the project objectives, the next thing is to describe the underlying characteristics of popular procurement options in comparison to the NEDO criteria.

TRADITIONAL PROCUREMENT

This is probably the most commonly used method of procurement and it is suitable for all clients (experienced or inexperienced), complex projects, and projects where functionality is a prime objective, and where time predictability, as well as cost certainty is desired. However, it is not suitable for where early completion is desired.

The client appoints a consultant team to prepare a design and tender documents following a development of the business case for the project, and the provision of a brief and budget. The successful tenderer (building contractor) is appointed to execute the construction works based on the design, by the fixed contract date and for the agreed contract sum. Even when the contractor sub-contracts most of the construction to specialist contractors, liability stays with the contractor. The consultants' role isn't limited expertise input on design related aspects as they also perform contract administration on behalf of the client. The omission of the contractor from the design stage can mean missed opportunities for contractor or specialist contractor to input on buildability.

The traditional procurement strategy is a low-risk option for clients who wish to minimize their exposure to the risks of overspend, delays or design failure. However, the exposure to risk will increase where the design phase is rushed, where unreasonable time targets are set or where the tender documents are not fully completed.

There is a variation of this method which involves two-stage tendering - contractor's tenders are based on a partially developed consultant's design (stage 1 tender). The contractor then assists with the final development of the design and tender documents, against which tenders for the construction works are prepared (stage 2 tender). Whoever put forward the first stage tender has the opportunity to tender or negotiate the second (construction) stage. This approach increases the risks of an increase in overall price and a less certain completion date but contractor involvement is likely to increase the likelihood that both these criteria are realistically established.

DESIGN & BUILD

This method of procurement places the responsibility of both design and construction on the contractor, providing the client with less point of contact than with the traditional approach. Constructing Excellence (2004) confirms it can be suitable for all clients, including inexperienced clients and those requiring distance from the project, faster track and where cost certainty is desired. However, it is not suitable for uncertain or developing client brief as well as complex buildings.

Responsibility for both design and construction is borne by the main contractor and will either use in-house designers or employ consultants to execute the design whiles specialist or sub-contractors execute the bulk of the construction work.

Following an initial concept design produced by the client's consultants, the contractor will tender against a client brief before carrying out further design development after which the works will be completed at a contract sum. This brings cost benefits as the close integration of design and construction methods and the relative freedom of the contractor to use their purchasing power and market knowledge most effectively can provide a client with a competitive price.

With the Design & Build approach, the client makes both design and construction cost commitments much earlier than with the traditional approach. Whilst risk is shifted to the contractor, it is important that design liability insurance is maintained to cover that risk (Constructing Excellence, 2004). Once a contract is signed, there's limited accommodation of changes by the client without cost penalties, because they affect the whole of contract, rather than just the design team costs.

Noteworthy is the high design/quality risk associated with this approach as the contractor develops the design. To overcome this, we can have a refinement to this approach where the client has the design prepared to design concept stage and then the contractor completes the design and construction - develop & construct. Furthermore the client's consultant designers may be retained by the contractor to complete the design in a practice known as novation.

MANAGEMENT CONTRACTING

This is suitable for fast track projects, complex buildings, and a developing brief. However, it is less suitable for inexperienced clients, clients wanting to pass risk to the contractor, and where cost certainty is desired before starting construction.

Here, the client appoints designers and a contractor (management contractor) separately and pays the contractor a fee for managing the construction works. A feature is the early appointment of the contractor to work alongside the design team to develop a programme for construction and contribute to the design and costing of the works. The works are let competitively by the management contractor to subcontractors and specialists in appropriate works packages. This approach often means that design and the start on site overlap, with the design and tender packages becoming available 'just-in-time' to suit the construction programme.

The management contractor will not carry out construction work. This preserves the management contractor's independence and reinforces a consultancy relationship with the client. Payment is made to the management contractor on the basis of the cost of the works packages plus the agreed fee. Much of the success of this approach depends on the contractor's team. Unless the team is drawn from companies which are experienced in this kind of team working, the benefits are not always realised.

There is less price certainty at the outset, because construction tends to start ahead of completion of all design stages and at a point when many of the work packages have yet to be tendered. This often means adjustments are made to the design and specification of works packages later in the programme to keep the project within budget. However, the overall process of design and construction tends to be shorter than in either traditional or design & build situations.

CONSTRUCTION MANAGEMENT

This approach is similar in concept to Management Contracting. The construction manager administers the contract on behalf of the client and specialist contractors are contracted directly to the client. Although in a sense this gives the client a greater measure of control, it also means that the client accepts a considerable amount of risk. The management contractor is simply an agent, and usually cannot guarantee that the project will be finished to time and cost. As it requires constant involvement by the client this approach is really only suitable for experienced clients.

DESIGN & MANAGE combines the characteristics of design & build with the management routes. The contractor assumes liability for both the specialist contractors and the design team, at the price of a fee. Turner (1990) confirms two common variations of design and manage, one of which is where a project design and management organisation (contractor) designs and manages the work, generally for a fee and delivers the project by employing works contractors as its subcontractors to design/or construct. And the 'consultant' variant is where a project designer/manager is the client's agent, who designs and manages the work, obtains subcontract tenders from works contractors who then each enter into a direct contract with the client (Turner, 1990).

Alternatively, there are advanced and more sophisticated procurement practices, some of which were briefly discussed earlier as refinements or variations to the most common forms of procurement. Others develop their own principles. For example, in a response to reduce the incidence of time and costs overruns, the disputes that may often arise, and the likelihood of project success, alternative forms of procurement method such as partnering and alliancing have been advocated (Love et al. 1998). Hybrid versions do prevail but these have to be judged based on their specific merits and their suitability for achieving client objectives.

In summary, a good number of procurement methodologies are available to satisfy a client's priorities in the project objectives. There are procurement methods that will achieve: Certainty of cost and time for a design developed by an architect employed by the client; however, this is a sequential and consequently slow process (known as the traditional procurement process). Relative speed and cost certainty; however, the design will usually be the responsibility of a contractor and consequently the client will lose some control over the design process (known as design & build). Relative speed for a design developed by an architect employed by the client; however, cost is uncertain almost until completion (known as either management contracting or construction management).

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