Procurement systems advantages, disadvantages and risks for the construction client

Procurement systems advantages, disadvantages and risks for the construction client

Various procurement systems available in the industry are individually acknowledged to have strengths and weaknesses which is the job of the client and project manager to carefully calculate and choose the most appropriate system.

A UK based survey research carried out by the Charted Institute of Buildings (Hawkes, 2010) indicate that 93% of responders have been involved with a project that overran in terms of cost and 94% have been involved with a project that overrun on time with around 50-60% believing the procurement system had a direct influence.

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Procurement is a succession of calculated risks and allocation of responsibilities carefully matched to the project specifics and objectives. Different types of procurement (Traditional, Design and Build, Construction Management, etc) as shown in Figure 3.1-3.3 (download report above to see figures), the CIOB study shows the popularity of traditional systems for small projects, design and build for medium and partnering for large complex projects.

Traditional

Organisational structure for a traditional approach

Advantages

Traditional procurement as illustrated in Figure above has the advantage of ensuring a firm contractual date of completion (Cooke & Williams, 2010) provided that the design has been fully developed and uncertainties are eliminated before the tender stage. This results in minimising the tendering costs (Greenhalgh & Squires, 2011) and provides competitive fairness since contractors are bidding on the same basis (Morledge & Smith, 2013).

The client is benefitted from the knowledge of the lump sum cost before being committed and this results in obtaining the best contract price for the full scope of works (Cooke & Williams, 2010) which will result, in the final project cost being lower than using the majority of other procurement methods (Greenhalgh & Squires, 2011) and provide reasonable price certainty at contract award (Morledge & Smith, 2013).

Furthermore, the use of this method provides a higher degree of certainty that a high level of quality and functionality standards will be met (Greenhalgh & Squires, 2011) since the client retains control over the design team (Cooke & Williams, 2010) (Morledge & Smith, 2013). Finally, these types of procurement systems are well known, enabling confidence to be assured in those involved throughout the supply chain. (Morledge & Smith, 2013).

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Disadvantages

The sequential, fragmented and adversarial nature of this system can result in lengthy design and construction periods, poor communication between clients and the project team, and problems of buildability and can far exceed the client’s expectations of the end product quality (Greenhalgh & Squires, 2011) (Cooke & Williams, 2010).

Furthermore, due to that, a tender is only being able to be finalised when a full design is commissioned, it potentially leads to an extended construction program with no parallel working and high overall project and pre-contract design fees (Cooke & Williams, 2010) (Morledge & Smith, 2013).

Moreover, the ability to make late design changes is one of the main causes of delay and increased cost as well it results in adversarial relationships (Cooke & Williams, 2010) (Morledge & Smith, 2013).

Another disadvantage occurs when there is no input into the design or planning of the project by the contractor since they are appointment at the tender stage (Morledge & Smith, 2013) with all design risks being ultimately carried by the client.

Design & Build

Design and Build Diagram

Advantages

Design and Build one of the most popular models as illustrated in Figure above offers price certainty as it is secured before construction starts, satisfying clients’ requirements (Cooke & Williams, 2010) (Morledge & Smith, 2013). Also, construction completion dates are fixed early in the design stages (Cooke & Williams, 2010) where a possibility of reducing the total project time is present due to an opportunity of overlapping activities scheduling (Morledge & Smith, 2013).

Furthermore, the client has the benefits to deal with only one firm, therefore significantly reducing the need to designate resources and time to contracting designers/architects and contractors separately (Morledge & Smith, 2013).

This system enables the contractor to contribute to the design and project planning (Morledge & Smith, 2013) which thereafter reduces the risk of price changes during the project development since one contractor is responsible for the design and construction (Morledge & Smith, 2013).

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Recent research into major projects by (Dalton, 2008) as shown in Table 1 found that 75-80% of the causes of projects failing were due to procurement, the definition of project requirements, and the client’s management capabilities.

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Disadvantages

Difficulties can arise when clients are required to prepare a sufficient and adequate brief stating in detail the requirements contractors’ proposals should include for the bid stage (Morledge & Smith, 2013). The need for an early design, obliges the client to commit to a concept design in the early stages way before a much clearer detail design is complete (Morledge & Smith, 2013).

This results in bids evaluation be difficult since the project programme, price and design of each bidder will be different (Morledge & Smith, 2013). Additionally, changes to the design can prove to be expensive and disruptive to the contractor, making the project price driven up at the expense of quality (Cooke & Williams, 2010) and problems of controlling design and quality to the client is present (Cooke & Williams, 2010).

Management Contracting

Organisational structure for a management contracting approach

Advantages

Management contracting as illustrated in Figure above offers maximum programme time benefits of the project due to overlap between design and construction processes (Morledge & Smith, 2013)(Cooke & Williams, 2010).

Quality can be assured since the system provides a high level of supervision and quality control as well as promotes buildability and value engineering with the benefits of having the contractor part of the client’s team and contributing to the design (Morledge & Smith, 2013).

Suited for complex projects where design is developed in work packages that are let at competitive prices hence getting the current market value as the project commences. Furthermore, packages provide the advantage of keeping price variations under control (Cooke & Williams, 2010).

Disadvantages

Poor certainty of the total cost of the project is present due to the cost being estimated well into the construction program (Cooke & Williams, 2010) (Morledge & Smith, 2013).

Furthermore, matters of damages for delays produced by the contractors and subcontractors are passed to the client by the management contractor hence money is lost on negotiations of disputes subsequently giving all the risk to the client (Cooke & Williams, 2010).

Client commitment to significant resources to the project in an early stage to provide a good quality brief to the design team (Morledge & Smith, 2013) results in an increase of the early-stage costs of the project.

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Construction Management

Organisational structure for construction management

Advantages

The construction management system as illustrated in Figure above has the advantage of time-saving due to overlapping of design and construction as well as quality improvements that enables constructors to contribute to the design and project planning.

Moreover, changes in design can be accommodated later than in some other routes, without paying a premium, provided the relevant trade packages have not been let and already awarded packages are not adversely affected (Morledge & Smith, 2013).

Roles, risks, and relationships for all participants are clear, where the client has direct contracts with contractors, directly paying them which is evidence of lower prices due to the contractor’s cash flow certainty (Morledge & Smith, 2013).

Disadvantages

Big importance plays in the client selecting good quality and committed team which needs to ensure the delivery of design information required for work package procurement and ensure no delays on site. The team also has a big responsibility on ensuring the correct budgeting on packages hence competent personnel working for the client should be selected (Morledge & Smith, 2013).

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Summary of Procurement systems

Nevertheless, all the procurement options mentioned provide satisfactory performance in the objectives of the golden triangle with emphasis on one particular objective of time, cost, or quality which can affect the priority given to the allocation of project resources and the way management is concentrated (Lock, 2013) as well as different levels of risk and control for the client are offered for every model.

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The AI Answer:

Advantages:

1. Cost Efficiency: Different procurement systems offer opportunities for cost savings through competitive bidding, negotiation, or collaborative arrangements.

2. Speed and Time Efficiency: Certain systems, like design and build, can expedite project completion by overlapping design and construction phases.

3. Innovation and Quality: Some systems encourage innovation and quality by involving contractors or suppliers in the early stages, allowing for better solutions.

4. Risk Allocation: Systems like Public-Private Partnerships (PPPs) can transfer certain risks to the private sector, reducing the burden on the client.

5. Flexibility: Clients can choose a procurement system that best aligns with their project requirements, offering flexibility in approach and execution.

Disadvantages:

1. Complexity and Risk Allocation: Certain systems may distribute risks in ways that might not align with the client’s preferences, leading to disputes or unexpected costs.

2. Limited Control: Some systems might reduce the client's control over the project, especially in design and build scenarios, potentially impacting the final outcome.

3. Higher Initial Costs: Systems that involve more upfront collaboration or design work might have higher initial costs.

4. Dependency on Contractors: Collaborative systems rely heavily on contractor expertise, which might result in issues if there’s a lack of alignment or communication.

Risks:

1. Legal and Contractual Risks: Complex contracts in some procurement systems might lead to legal disputes if not managed properly.

2. Cost Overruns and Delays: Inadequate risk allocation or poor project management can lead to unexpected costs and delays.

3. Quality Concerns: Depending on the system, there might be quality concerns if the design or construction phase isn’t managed effectively.

4. Dependency on External Factors: External factors like market changes, availability of materials, or changes in regulations can affect the success of certain procurement systems.

Clients need to carefully evaluate the specific needs of their construction project, the level of risk they are willing to take on, and the degree of control they wish to maintain throughout the process when selecting a procurement system. Additionally, having a robust risk management plan in place can help mitigate potential downsides associated with any procurement approach.

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References:

Best, R. d., 2020. statista. [Online] Available at: https://www.statista.com/topics/3797/construction-industry-in-the-uk/ ; https://www.statista.com/topics/5137/construction-industry-in-europe/ [Accessed April 2021].

CIOB, 2014. Code of Practice for Project Management for Construction and Development. s.l.:John Wiley & Sons, Incorporated.

Greenhalgh, B. & Squires, G., 2011. Introduction to Building Procurement. s.l.:Routledge.

Hackett, M. & Statham, G., 2016. The Aqua Group Guide to Procurement, Tendering and Contract Administration. s.l.: John Wiley & Sons, Incorporated.

Harris, F. & McCaffer, R., 2013. Modern Construction Management. Seventh Edition ed. s.l.:Wiley-Blackwell.

Hawkes, D., 2010. A REPORT EXPLORING PROCUREMENT IN THE CONSTRUCTION INDUSTRY, s.l.: CIOB.

Lock, D., 2013. Project Management. 10th Edition ed. s.l.:Taylor & Francis Group.

Morledge, R. & Smith, A. J., 2013. Building Procurement. 2nd Edition ed. s.l.:John Wiley & Sons.

Pervez, D., 2019. Construction statistics, Great Britain: 2019. [Online] Available at: https://www.ons.gov.uk/businessindustryandtrade/constructionindustry/articles/constructionstatistics/2019 [Accessed April 2020].