Procurement in Construction
Procurement in Construction
A basic definition for the procurement is “the way the building is realised” and “involves assembling and organising the skills and services of a team of construction professionals”. (the Construction Round Table, 1995). More precisely, the construction industry describes procurement as “a system that establishes the roles and relationships which make up a project organisation”; hence the overall organisation and communication structure for the management, administration and control of a project is established by the procurement system. (D.C.H Coles, 2010)
* Procurement Systems essentiality:
Choosing the most suitable procurement method for the specified construction project is a long term hard decision; it is a crucial task “it is one of the most crucial decisions on any building project” (Gillespie, 1994). Choosing the appropriate procurement system is the determinate for a successful project (Building Procurement, 2006) this statement is supported by the investigation done on 25 National Audit Office (NAO) reports, were it was concluded that choosing the wrong procurement method is a major risk source (covering 29% of the risk source percentage) for public sector project failure. Furthermore, an American study concluded the total project cost can decrease about 5% by choosing the correct procurement methodology. “Failure to choose the appropriate procurement approach is recognised as the primary one source for project failure” (Building Procurement, 2006)
* Role of the Project Manager “The presence within the client company of a Senior Executive willing and able to act as a single point of contact throughout the building process, gives the client a distinct advantage” (Construction Round Table, 1995)
Within the last fifteen years, the role of the Project Manager has developed in the construction industry, what is mentioned above proves that having someone to manage and supervise the project is the key for a successful project. The client can appoint a project manager from his company “in-house” or an external consultant appointment. Overview for the Project Manager’s duties:
A project manager can be appointed by the client (especially if it was an inexperienced client in the construction industry where the majority of clients in the UK fall into this category), in order to help him build up his business needs case for the project development, find alternatives and options that are more suitable in order to achieve his business needs, work out the investment appraisals and risk assessments, choose the most suitable procurement method for the project, select the project team, establish and supervise the performance. An important task the project manager must perform before adopting the procurement method is to approach the client, and understand specifically what does he requires and what the outcomes from the new construction building are, more specifically the objectives and the products of the building.
After performing this action the project manager will look at all the alternatives if there are any. Comparing the past with nowadays, when the architect and the engineer had the major role in the project during the past, if the client requests a new building to be constructed they will support his case while the project manager will look at all the alternatives that might be better for the client and his business, the alternatives might include: * Building an extension to the client’s existing building or carrying out alterations and refurbishments to it. * Moving the building to a position that might be more suitable to the business of the company. After understanding the needs of the client and finding all the alternatives, it is the project manager’s task then to choose the most appropriate procurement method for the project. As mentioned earlier, choosing the most suitable procurement method for the project is one of the most crucial decisions on any building project. The Construction Round Table (1995) covers a list of priorities that the project manager must take into account referring to the client’s objectives in order to choose the most appropriate procurement system, these include:
* Timing For most of the clients, timing is a crucial factor that must be taken into major consideration, especially for clients with a required known completion date. For example, supermarkets such as Tesco, the cost might not be their major concern but time is since the earlier they open the supermarket the earlier they can make profit. Timing might not be an important issue for Public Schools since there will be a predicted birth rate.
* Price certainty
The price of the project generally includes the total constructional cost (design fees, construction contracts, financing costs and client management costs); it may also include the land costs, sales costs and the associated agency costs together with developer’s margin.
Nowadays, with the global credit crunch existing, most of the clients and companies are critically focusing on cost, they simply cannot go over budget, and hence cost plays a major role when deciding the procurement method.
* Quality/Performance level
Quality must be appropriate to what the client request; it is a variable issue, for example the quality for constructing a five stars hotel in central London is different than the quality from building a seven stars hotel in Dubai, most importantly the quality of the design and materials should be appropriate to the standard and functional use of the building. For shops such as Next or Marks and Spenser, the layouts change every now and then, hence the project manager must make ensure that the layout won’t be designed for more than a considerable period since it will be a waste of money. A basic definition for performance is how the building is going to be used (how the goods flow).
Within the early life of the project, it should be clear whether the project is a complex one or not. Complexity won’t affect simple projects whereas if the project is technically complex (advanced design and high serviced construction requirement), then this will affect the project could be procured in another way. An example for complexity is the British Library; the temperature for every floor was required not to be more than a half degree different. * Competition
Suitable competition methods must be includes in the chosen procurement method for Public projects (publicly funded 50% or more) in order to satisfy the EU Procurement Directives 2004/17/EC and 2004/18/EC and the U.K.’s Public Contract Regulation 2006.
* Controllable variation This mean making decisions as late as possible in the construction process. Some projects won’t have sufficient detail to enable the contractor to prepare a tender, such as high complex projects, hence a procurement method that allows change in a controlled manner must be chosen. An example on controllable variation is Heathrow Terminal five, the client did not make decisions about a number of issues within the terminal design, such as baggage claims, check in online system. Hence what is ideal for the project manager is to have a procurement system (one or more) that can make decisions as late as possible.
* The division of the management responsibilities An important procurement assessment criterion involves the client’s choice whether he wants to manage separate consultants and contractors or to manage one company (single point responsibility). Furthermore, the project manager must make sure about the client’s objectives for the fact whether he wants to be in charge or not and if so how much does he want to be included.
A good idea for the project is to produce a project management handbook for all the parties involved in the project. For the contract’s case, recently the ICE7 contract has been withdrawn from the construction industry and so the projects now have to follow the NEC3 contract.
* The extent of the professional responsibility/accountability required For the case of accountability, copies of all the variation, money and extension of time must be provided in order to be accounted, this is very important for local authorities and government departments.
* Risk avoidance Assigning and managing the risk has an important effect of the procurement assessment criteria. With the aid of a risk register, the project risks can be carried out in three stages: * Name the risks linked with the client’s objectives and priorities. * Sort out the number of times the risks might occur and their impact on the project. * Choose the best party involved to sort out the risk.
The client has a major role in this issue, more specifically if the client does not wish to deal with any of the risks that might occur, then the project manager might choose the Design and Build method since it is the ideal procurement method, since the contractor will carry most of risks existing, but the cost of his tenders will increase since he is carrying most of the risks. If the client does not wish to pay more for the contractor’s tender for carrying out the risks on site and does not mind carrying most of the risks, then the project manager would go for the Management procurement method which might be the ideal solution for the issue.
The next step for the project manager is to relate the client’s objectives and priorities with the primary issues by using Diagram1 (shown on page6), this way the choices of the procurement methods suitable for the project will be narrowed down. Diagram 1 shows the relationship between the client’s objectives and the priorities and the various procurement methods. (Source: Construction Round Table, 1995)
The project manager can review the reports of similar successful projects from organisations such as Constructing Excellences in order to guide him for the present project.
Generally, the focus of the clients is upon time, cost and quality. Most of the clients request their buildings to be constructed in high quality level, in a small period of time and in a low price. This is very unlikely to happen (does not exist) and if the client did not have a priority of criteria even with the aid of the project manager, disappointment and project failure will exist (Building Procurement, 2006). The project manager must understand exactly the client’s objectives and his criteria, in order to relate it to the ideal procurement method. All of the procurement methods provide satisfactory levels of performance in time, cost and quality but each method have different levels of risks and control on the client (as previously mentioned). Diagram 2 below, shows the three common favourable priorities for the clients and which procurement method is best to follow.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 13 October 2016
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