The Factors Influencing Procurement Strategy 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 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.

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. 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

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 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).

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

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/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 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 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 the whole 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 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. Contractors are contracted directly to 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.