Administration and Procurement - Essay Example

Running Head: ADMINISTRATION AND PROCUREMENT Administration and Procurement [The of the appears here] [The of the appears here] Administration and Procurement A common leitmotiv of the construction industry is the proliferation of definitions of a procurement system. The terms 'contractual arrangement' and 'procurement system' are usually used synonymously. The definition adopted here is that a procurement system is 'an organizational system that assigns specific responsibilities and authorities to people and organizations, and defines the relationships of the various elements in the construction of a project'. Procurement systems can be categorized as: (2) traditional (design-tender-construct) methods: design and construct methods; or (3) management methods. There are numerous derivatives to each procurement method. However, those which have been categorized are considered to be the most popular methods at the time of evaluation. The most commonly used procurement methods, based on Ireland (1982) and Barclay (1994) are: (1) single lump sum contracts and full documentation; (2) provisional or partial quantities; (3) cost reimbursement; (4) package deals/turnkey; (5) construction management; and (6) management contracting. Project management is excluded as it is considered that a project manager could be applied to any procurement method. In other words, to dispel a common misconception, project management is not a procurement method (Bennett, 1986, p. 5). The following criteria can be used to examine client requirements and 'experts' preferences for the performance of each procurement method. NEDO (1985), Skitmore and Marsden (1988) and Singh (1990) suggest employing the following criteria to establish a profile of the clients' requirements: (1) speed (during both design and construction; (2) certainty (price and the stipulated time and knowledge of how much the client has to pay at each period during the construction phase); (3) flexibility in accommodating design changes; (4) quality (contractors' reputation, aesthetics and confidence in design); (5) complexity (client may specify particular subcontractor, or constructability analysis); (6) risk allocation/avoidance; (7) responsibility (completion of program, price, product quality, design and construction); (8) price competition (covering such issues as value for money, maintenance costs and competitive tendering); and (9) disputes and arbitration. The use of multiple criteria to derive a suitable procurement method for a building project will assist the client in identifying their principal goals and objectives. NEDO (1985) relates the characteristics of the most popular procurement methods used to a list of nine client priorities or needs. This technique, while useful as a guide in terms of eliminating unsuitable procurement methods from the available alternatives, is insufficiently sophisticated to enable a final decision to be taken as to the method appropriate for a building project (Masterman, 1992). Franks (1990) uses a rating system based on the ability of each procurement system to meet seven common satisfying criteria. A scale of 1-5 is used, where 1 is the minimum and 5 is the maximum. Masterman (1992) states that the use of this technique in determining clients' needs is valid but is flawed with subjectivity. Skitmore and Marsden (1988) and Singh (1990) used the multi-attribute approach, which is a technique applied to measure a degree of objectivity to subjective areas. Both studies adapted the procurement path decision chart from NEDO (1985) to aid the decision-making process. Bennett and Grice (1990) have undertaken similar work. Furthermore, Skitmore and Marsden (1988) applied concordance analysis and discriminant analysis to their theoretical framework. Concordance analysis is used to measure the consistency of experts' ranking for each procurement against a set predetermined criterion. Discriminant analysis examined data collected under a set of criteria that are characteristics on which the various procurement methods are expected to differ. Thus, procurement paths could be discriminated against for decision-making purposes. Skitmore and Marsden (1988) found from their exploratory work that the multi-attribute approach gave similar results as discriminant analysis. A cognitive perspective to procurement selection was proposed by Liu (1994). Organizational behaviour is modelled as an act-to-outcome process. The act-to-product and product-to-outcome paths are the project realization stage and post-occupancy stage of the building procurement process, respectively. Liu (1994) states that organizational behaviour is governed by organizational goals, and project goals affect the act-to-outcome process. A number of moderators such as ability, task complexity and situational constraints affect this goal-performance relationship, thus affecting the act-to-product and product-to-outcome processes. It is suggested by Liu (1994) that, in selecting an appropriate procurement method, the decision maker should take into account the effect of these moderators using conjoint analysis (a technique used to model a decision maker's judgement profile). The procurement module of the 'Elsie' expert system computer package (Brandon et al., 1988) provides the recommendations on the most appropriate procurement method via a software program. A series of questions relating to the timing, quality, design cost parameters and other characteristics of the project is posed by the program. On evaluation of the information, recommendations are given by means of a list of the most appropriate methods, ranked in order of suitability, together with an indication of the extent to which the various methods will satisfy the client requirements. Love (1996) found that a well established and prominent Australian project management organization selected procurement methods for their clients using a systematic first-principle analysis, by: (1) defining the project; (2) determining the project needs; (3) establishing a program; (4) designing a delivery structure to meet the project needs; (5) allocating responsibilities within the project structure; and (6) establishing a method of appointing for the various participants involved. Essentially, the organization would select the project structure and then adapt a contractual arrangement to suit. Consequently, such an approach was found to stimulate teamwork in one particular project reported by Love (1996) inasmuch as project goals and objectives were clearly defined. Multi-attribute utility analysis is a methodology that can be used as a tool to measure objectivity in an otherwise subjective area of management (Fellows et al., 1983). Since a procurement system is the overall managerial approach by which a client commissions and obtains a building, the multi-attribute approach was considered to be the foremost technique appropriate for examining the criteria of clients and the preferences of experts' weights for each method in the most objective way. By indicating the relative utility of each client requirement and procurement method against a numerical scale, it is possible to obtain a set of utility factors. Case Study: Housing Scheme Project The case study is for Peter, a young investor is trying to invest on his first housing scheme project. The project consists of 25 detached houses with non repetitive designs. His bank agreed to give him a loan in November 2005. But before that he has to prepare and submit all the designs and the Bill of Quantities. Since Peter is very much concerned about the high percentage of interest to pay to the bank, he is trying to get the houses constructed with the minimum possible expenditure. At the same time, Peter is intending to complete the project in phases, so that he can start selling the completed houses before the completion of the whole project. Jack, Peter's elder brother is an Architect, who is working in the United States will be coming to the UK during the next summer. And Peter hopes to get some idea about the designs after he comes. Thus he is anticipating some changes to be incorporated to the design while the construction is going on. The Multi-attribute utility analysis can be used to solve Peter's problem. Different individual project circumstances for Peter demand different criteria weights. For example, in our case study, the cost is the most important aspect, so we would weight the 'cost' criterion higher than the other criteria. However the speed of construction is not so important, as individual houses will start to sell, also the design can change so we would want the speed of development to be relatively slow, thus we would weight the 'speed' criterion lower than the other criteria. The procedure adopted for obtaining Peter's priority weightings for each criterion follows Singh (1990). This involves the following steps. (1) Peter weights the relative importance of each criterion (i.e. speed, certainty, flexibility) on a scale of 1-20. This relative importance score is termed a priority rating. (2) Rationalized priority ratings are then calculated (by dividing each priority rating by the sum of all the ratings). The sum of the rationalized priority ratings then will always be equal to 1. (3) Each rationalized priority rating is taken in turn and multiplied by a utility factor representing the extent to which a procurement method satisfies a criterion. The utility factors connect each criterion to each procurement method in a consistent way, irrespective of the project. Thus, the traditional procurement method, which is known to be fairly slow, is given a fairly low utility factor score. The construction management procurement method, on the other hand, which is known to be fairly fast, is given a fairly high utility factor score. (4) The rationalized priority rating-utility factor products are added for each procurement method and the resulting total ranked in descending order. The most appropriate procurement method is taken to be the one with the highest total. It is shown that similar clients do not in general have similar needs in their procurement objectives. This may of course be due to the different nature of their individual projects like in the case of Peter. There is a consensus, however, that the criteria proposed, and their weights, are themselves appropriate for each procurement method. It can be surprising to find that the application of these weights in the procurement path decision charts can result in the same procurement decision (novation) to be the highest ranked for all the individual projects used, and can suggest that a further study is needed to validate and understand this, perhaps by in-depth interview of Mr Peter. It should be noted, however, that the two most common procurement methods traditional and novation, and the procurement path decision chart find these also to be the most appropriate, albeit in reverse order. The construction management, management contracting and cost reimbursements are ranked low due to the intrinsic uncertainty involved in these methods. NEDO (1985) suggests that the management methods system offers price certainty, although, at the time of contract, the exact nature and detail of the project generally are not established. In light of this research, management methods are derived from prime cost contracts and are thus lacking in price certainty. Since cost is a major concern for Peter, the device of a guaranteed maximum price can be offered, but it is possible to obtain price certainty only if the maximum being guaranteed is high enough, in effect to contain a target figure that includes sufficient contingency. A maximum guaranteed price concept has to be obtained before the time when a construction contract needs to be signed. Peter should have the cost reimbursement form whereby the contractor is paid the actual or prime cost for an indeterminate amount of work, and in addition an agreed fee is paid to cover management, overheads and profit. It is possible that this form is not favoured as the resultant final cost for Peter is difficult to determine. As with construction management and management contracting, fees is paid on the actual cost of the work undertaken. Moreover, Barclay (1994) found from his studies that the design, manage and construct form has not been used that extensively, hence the lower weights and the low overall aggregate rank is assigned to them. References Barclay, J. (1994) A comparison between traditional and non-traditional forms of contracting for the procurement of building projects, B.Sc. thesis, School of Construction Management, Queensland University of Technology. Bennett, J. (1986) Construction Management and the Chartered Quantity Surveyor, Surveyor Publications, London. Bennett, J. and Grice, A. (1990) Procurement systems for buildings, in Quantity Surveying Techniques: New Directions, P.S. Brandon (ed.), BSP Professional Books, Oxford. Brandon, P.S., Basden, A., and Hamilton, I.W. (1988) Expert System: The Strategic Planning of Construction Projects, Royal Institution of Chartered Surveyors and University of Salford. Fellows, R.F., Langford, D.A., Newcombe, R., and Urry, S. (1983) Construction Management in Practice, Longman, London. Franks, J. (1990) Building Procurement Systems, Chartered Institute of Building, Englemere, Kings Ride, Ascot. Ireland, V. (1982) Variables in building projects and the achievement of objectives, in Proceedings of the P.M.F. National Conference, Sydney, Australia, September, pp. 39-49. Liu, A.N.N. (1994) From act to outcome -- a cognitive model of construction procurement, in Proceedings of CIB W-92 International Procurement Symposium, East Meets West, Department of Surveying, University of Hong Kong, 4-7 December, pp. 169-78. Love, P.E.D. (1996) Fast building: an Australian perspective, in Proceedings of CIB-W92 Procurement Systems Symposium, North Meets South, Developing Ideas, Durban, South Africa, 14-17 January, pp. 329-43. Masterman, J.W.E. (1992) An Introduction into Building Procurement System, E & FN Spon, London. Masterman, J.W.E. (1994) A study of the basis upon which clients of the construction industry choose their building procurement systems, unpublished Ph.D. thesis, University of Manchester, Institute of Science and Technology. NEDO (1985) Think About Building, National Economic Development Office, HMSO, London. Singh, S. (1990) Selection of appropriate project delivery system for construction projects, in Proceedings of CIB W-90 International Symposium on Building Economics and Construction Management, Sydney, Australia, pp. 469-80. Skitmore, R.M. and Marsden, D.E. (1988) Which procurement system Towards a universal procurement selection technique, Construction Management and Economics, 6(1), 71-89. Read More