The Factors Influencing Procurement Strategy Construction Essay

8/18/2019 The Factors Influencing Procurement Strategy Construction Essay

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9/1/2015 The Factor s Influenci ng Pr ocur ement Str ategy Constr ucti on Essay

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The Factors Influencing ProcurementStrategy Construction Essay

Masterman 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 PROCUREMENTSTRATEGYThe 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, costand 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):


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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.

The selection of a procurement method should be viewed as an iterative process whereby projectobjectives and constraints are constantly compared with possible procurement solutions. 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

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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 or

design-bid-build).

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 asdesign-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).

Here, we look at each of these strategies in a little more detail.

TRADITIONAL PROCUREMENTThis is probably the most commonly used method of procurement and it is suitable for: all clients

(experienced or inexperienced), complex projects and/or projects where functionality is a prime

objective, time predictability, and cost certainty. However, it is not suitable for fast track projects.

The client develops the business case for the project, provides a brief and budget and appoints a

team of consultants to prepare a design, plus tender documents. The client appoints the building

contractor to construct the works to the design, by the contract completion date and for the agreed

price. Usually much of the work is sub-contracted to specialist firms but the contractor remains liable.

The consultants administer the contract on behalf of the client and advise on aspects associated with

design, progress and stage payments which must be paid by the client. The separation of the

contractor from the design can mean missed opportunities for contractor or specialist contractor to

input on buildability.

This 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 theconstruction 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


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This method of procurement involves the contractor being responsible for design as well as

construction, and 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.

The contractor tenders against a client brief and will often follow an initial concept design prepared

by consultants appointed to advise the client. The design will be developed by the contractor and the

works will be completed, usually for a fixed price. Tendering is more expensive so it carries more risk

for the contractor than the traditional approach. This is because the contractor has to develop an

outline design and a detailed price. Tender lists will probably be shorter than for traditional contracts.

The Design & Build approach gives the client a single point of contact. However, the client commits to

the cost of construction, as well as the cost of design, 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. Changes made by the client during design can be expensive, because they affect thewhole of the Design & Build 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 concept or scheme design stage and the contractor takes on 'finishing off' the

design and construction (develop & construct). Furthermore the contractor may re-employ the

original designers to complete the design in a practice known as novation.

MANAGEMENT CONTRACTINGThis 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 packagesbecoming 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.


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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 MANAGEMENTThis approach is similar in concept to Management Contracting. Contractors are contracted directlyto the client and the construction manager manages the process for the client on a simple

consultancy basis. 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.

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The Factors Influencing Procurement Strategy Construction Essay