Project Procurement Strategy

Introduction

Procurement is the process that is used to deliver construction projects. The dictionary definition states that procurement is ‘acquiring or obtaining by care or effort’. Clients who have made the major decision to build are faced with the task of procuring the construction works that they require. This may be a daunting prospect, given the level of financial commitment and other risks associated with the venture, the complex nature of construction and the possible perception of the construction industry as one that frequently under-performs.

A little over 35 years ago the clients of the construction industry had only a limited choice of procurement methods available to them for commissioning a new construction project. Since then there have been several catalysts for change in procurement, such as:

• Government intervention
• Pressure groups being formed to create change for the benefit of their own members, for example, the British Property Federation
• International comparisons, particularly with the USA and Japan, and the influence of developments relating to the Single European Market
• The apparent failure of the construction industry and its associated professions to satisfy the perceived needs of its customers in the way that the work is organised
• The increase in PFI projects and planned expansion of PFI policy
• The influence of developments in education and training
• The impact from research studies into contracting methods
• The response from industry, especially in times of recession, towards greater efficiency and profitability
• Changes in technology, particularly information technology
• The attitudes towards change and the improved procedures from the profess ions
• The clients’ desire for single point responsibility
• The publication of headline reports: in 1994, the Latham Report, and in 1998, the Egan Report.

This has resulted in a significant shift in methods of procurement used by clients.

Although traditional procurement systems are frequently used, in recent years there has been a significant shift towards alternative strategies. Forms of Design and Build procurement now appear to be as commonly encountered as traditional procurement. Similarly there is continued use of management contracting which, by value, represents a significant proportion of procurement overall.

General matters

The wide range of procurement systems now available, and the understanding that procurement choice may have a significant bearing on the outcome of a project, signify both the opportunity and importance of meeting the procurement challenge with a well-considered strategy. The selection of appropriate contractual arrangements for any but the simplest type of project is difficult because of the diverse range of views and opinions that are available. Much of the advice is conflicting and lacks a sound base for evaluation. Individual experiences, prejudices, vested interests and familiarity, together with the need for change and the real desire for improved systems, have all helped to reshape procurement options available to us at the commencement of the twenty-first century. The proliferation of differing procurement arrangements has resulted in an increasing demand for systematic methods of selecting the most appropriate arrangement to suit the particular needs of clients and their projects. In recent years, the amount of research and publications within the field of construction procurement has also grown, as the bibliography at the end of this chapter indicates.

Whilst the main issue is that of satisfying the client’s objectives, a matter examined in detail later, at an implementation level the following are the broad issues involved.

Consultants or contractors

These issues relate to whether to appoint independent consultants for design and management or to appoint a contractor direct. The following should be considered:

• Single point responsibility
• Integration of design and construction
• Need for independent advice
• Overall costs of design and construction
• Quality, standards and time implications.

Competition or negotiation

There are a variety of different ways in which designers or constructors can secure work or commissions, such as invitation, recommendation, speculation or reputation. However, irrespective of the final contractual arrangements that are selected, the firms involved need to be appointed. Evidence generally favours some form of competition in order to secure the most advantageous arrangement for the client.

There are, however, many different circumstances that might favour negotiation with a single firm or organisation. These include:

• Business relationship
• Early start on site
• Continuation contract
• State of the construction market
• Contractor specialisation
• Financial arrangements
• Geographical area.

Also, the advent, development and promotion of partnering has changed the view of some clients toward the need for competition (see later in this chapter). In determining the need for competition, it must not be assumed that the choice between that and the option of negotiation is clearly defined, as each case must be decided on its own merits.

Measurement or reimbursement

There are in essence only two ways of calculating the costs of construction work. The contractor is either paid for the work executed on some form of agreed quantities and rates or reimbursed the actual costs of construction. The following are the points to be considered between the alternatives:

• Necessity for a contract sum
• Forecast of final cost
• Incentive for efficiency
• Distribution of price risk
• Administration time and costs.