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TheFactorsInfluencingProcurementStrategyConstructionEssay

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):
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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
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Ability to make changes - Ideally the needs
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client
identified in the early stages of the
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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

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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 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

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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 inhouse 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.

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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 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.

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