Selecting An Appropriate Procurement Method for a Building Project

One of the basic elements of determining projects success is the proper evaluation and selection of procurement methods. Therefore, the selection of a procurement system is a very important task, as employing an inappropriate procurement system may lead to project failure (Chua et al., 1999), and the selection of an appropriate procurement method can reduce construction project costs by an average of 5%. While potentially enhancing the probability of project success.

Appropriate procurement method

(Morledge et al.

, 2006)’s summary of appropriate procurement methods will be used to determine the appropriateness of the chosen procurement method.

The Hospital

According to (Morledge et al., 2006) Based on the political, economic and the need for price certainty factors, the FPC would have been a good procurement choice. Nevertheless, when you take into consideration the sheer size, complexity and project uncertainty. The high risk associated with new cutting-edge technology and the fact that RCL had stated in the case study lacked it the technical expertise to adequately design and evaluate the needs of the project which contributed to the subterranean water hole issue and scope creep, and further highlighted by the fact that RCL accepted a bid that was €20m cheaper even though the project started several years later and incurred an additional project cost of €156 million .

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Proves that FPC was not the appropriate method to choose. The profile of the project suited a PPP. Although as discussed by (Yescombe, 2014), Fortfaiting, would have also fulfilled the economic and political factors as well as adequately transferring project risk.

The Carpark

Again considering (Morledge et al., 2006)’s factors, the PPP was a good choice for the carpark because it enabled RCL to draw on private capital investment, while containing its own capital expenditure (economic reason). It was built on time and within budget and it enabled RCL share some of the project risk. It had a degree of flexibility and allowed for reasonable contract re-negotiation. But though this seems a good choice, the profile of this project is more suited for a FPC. Since it did not present the CA with any technical nor commercial challenge, there was certainty of project scope, a fixed project cost of €30 million and risk could have been transferred to BHP Spa which would have assisted in mitigating the risk of contract renegotiation. Also, in comparison to the hospital it was not a complex, highly technical, nor high risk project.

FPC and PPP Making the right choice

Determining the optimal procurement approach can be very challenging. However, building on (Morledge et al., 2006)’s theory, the following factors are considered important.

Project characteristics – The size, complexity, location and uniqueness of the project should be considered, as this will influence time, cost and project risk. Thus, PPP’s are more suited for projects that are long and complex, while FCP are better suited for projects that are simpler and have a shorter life plan. External factors such as political, economic or regulatory can influence procurement choice. Therefore, it is imperative that project objectives and outcomes are taken into consideration when external factors are being considered. Client characteristics and its ability and capacity for risk will also influence the procurement method adopted. PPPs are more capable of assuming a significant portion of the project risk, while in a FPC risk is usually transferred to the awarded contractor. This leads us to the ability to make changes. The desired level of flexibility for the client to make changes during the project will influence the procurement method. PPP’s provide flexibility when it comes to projects with a degree of uncertainty in terms of scope and cost. While FCP are better when the scope is not likely to change and can be accurately defined. Most capital projects are required within a specific time frame, thus in most cases PPP’s are more suitable for long term projects, while FPC projects have a shorter lifespan. The need for price certainty prior to commencement of construction will tilt a project towards a FPC, while PPP projects tend not to require total price certainty upfront and it is usually unable to accurately assess project cost.

Conclusion

The selection of an appropriate procurement method is crucial to successful project delivery. However, the inherent complexity, scale and project scope and the fact that some factors are geared towards FCP, while others towards PPPs can increase risk of the wrong procurement method being selected. Therefore, it is imperative that in future RCL’s procurement choice should be determined by the degree of Value for money that will be derived from it.