Constructon Procurement - Essay Example

Discuss these apparently differing attitudes to collaborative procurement in construction. Table of contents 0 Executive Summary 3 2.0 Introduction 3 3.0 The concept of collaborative procurement strategies in the construction industry 4 4.0 Critical comparison between ‘partnering’ and ‘incentivised collaborative contracts’ highlighting the advantages/disadvantages of these strategies to both clients and contractors, including the wider supply chain 5 5.0 Conclusion 7 6.0 References 9 7.0 Bibliography 9 1.0 Executive Summary The use of traditional contracting in the construction industry has resulted to a series of problems. One of the parties may have to face the following problem: his interests are not fully served, at least as compared to the interests of the other party. The introduction of collaborative procurement contracts has been considered as a means for resolving the above problem. The collaboration of parties in regard to their contract results to the limitation of conflicts and disputes; the chances for the failures of the project involved are then reduced. However, in many cases the following concern appears: which type of collaborative procurement contract should a party chose in regard to an existing construction project? Incentivised collaborative contracts are often preferred, since they allow the parties to act independently; in contracts where close cooperation is required, a partnering procurement strategy would be more appropriate, offering to parties equal power to affect the development of the particular project. 2.0 Introduction The responses of people towards the procurement strategies developed in the construction industry are not standardized. Other people wish to participate equally in the benefits and risks involved while others prefer to avoid the exposure to risks, maybe because their budget for covering the needs of the construction project involved is very tight. Such issue appears in regard to the comments of Steve Morgan of BAA and Ian Ballentine of Network Rail (case study); the former seems to reject any case of partnering as a procurement strategy, while the latter considers partnering as rather unavoidable, being related to incentivized collaborative practices. The credibility of the above view is explored below. The literature developed in this field is presented and analyzed aiming to verify the increased power of collaborative procurement strategies in the construction industry. In addition, emphasis should be given on the fact that the expansion of partnering, as a method of collaboration in the construction industry, is continuously expanded. In any case, incentivised collaborative contracts seem to be preferred than the partnering contracts, at the level that they refer to pain sharing as just an option and not as an obligation, as in the case of partnering. 3.0 The concept of collaborative procurement strategies in the construction industry In the context of the construction industry, collaborative procurement strategies are used for securing the success of construction projects by promoting cooperation between the parties of the construction contract involved. In order to understand the role and the value of these strategies it is necessary to present the characteristics of procurement, especially as related to the construction industry. According to Akintoye et al. (2012) procurement can be described as ‘the act of obtaining by care or effort, acquiring or bring about’ (Akintoye et al. 2012, p.252). Especially in regard to the construction industry, procurement incorporates a series of activities, such as ‘market sourcing, identification of tenders and management of delivery’ (Akintoye et al. 2012, p.252). Collaborative procurement strategies, as a framework, reflect the intention of the parties of a construction contract to cooperate as the construction project is in progress; in this way, the various phases of the particular project are more effectively managed, a fact that limits the risks involved and increases the chances for the project’s success (Morledge and Smith 2013). Different explanations have been given for the promotion of collaborative procurement strategies in the construction industry. Senaratne and Sexton (2011) explain that these strategies have been introduced for ‘promoting teamwork and trust’ (Senaratne and Sexton 2011, p.15) in regard to construction projects. In addition, collaborative procurement strategies refer to the sharing of vision and responsibilities between the parties (Senaratne and Sexton 2011, p.15). Partnering is a form of collaborative procurement strategies (Senaratne and Sexton 2011, p.15). Partnering focuses on the achievement of the objectives set using the resources that both parties can provide for the realization of a construction project (Senaratne and Sexton 2011, p.15). Partnering is differentiated from other types of collaborative procurement strategies, such as the incentivized collaborative contracts (Walker and Rowlinson 2008). The differences between partnering and the incentivised collaborative contracts, as analyzed below, prove that collaborative procurement strategies can highly vary serving different needs and priorities of construction projects. 4.0 Critical comparison between ‘partnering’ and ‘incentivised collaborative contracts’ highlighting the advantages/disadvantages of these strategies to both clients and contractors, including the wider supply chain As explained earlier, two types of collaborative strategies are critical for the success of construction projects: partnering and incentivised collaborative strategies. Each of these strategies has certain benefits and disadvantages that need to be taken into consideration when having to choose one of these strategies for supporting a specific construction project. Partnering contracts can offer to clients and contractors a series of benefits: a) parties, clients and contractors, can choose between two modes of entering in a partnering contract: they can either use an existing contract, as related to all construction projects, such as ‘the Engineering and Construction contract’ (Chappell 2010, p.26) or develop, by scratch, a partnering contract setting their own terms in regard to trust and ethics on which the contract will be based (Chappell 2010, p.26); b) if a construction project based on a partnering contract is successful, the further cooperation between the parties for similar projects is secured; in other words, the partnering contracts can be considered as a means for building ‘long term relationship in regard to the development of construction projects’ (Ramsey 2007, p.124); c) Partnering helps towards the improvement of communication between the parties, at the level that partnering tend to focus ‘on relationship management’ (Cheung 2007, p.50) and d) in a partnering contract, the client participates actively in the development of the construction project (Morledge and Smith 2013); in fact, in a partnering contract all individuals working for the completion of the project are considered as ‘members of the project team’ (Morledge and Smith 2013, p.201). On the other hand, partnering contracts can have certain disadvantages, for both clients and contractors: a) the terms of these contracts may not be clear to one of the parties (Chappell 2010, p.26); in this case, the partnering contract involved is considered as non-valid (Chappell 2010, p.26), b) in the case of an unexpected problem, the cooperation between the parties can be set in risk (Ramsey 2007, p.124), at the level that one of the parties may choose to act independently, without informing accordingly the other party (Ramsey 2007, p.124); of course, it is possible for relevant terms to be included in the contract, so that the chances for failures in partnering to be reduced (Thomas and Thomas 2008); c) if the parties are not able ‘to control prices’ (Ramsey 2007, p.124) then it will be quite difficult for partnering to be successfully established. The incentivised collaborative contracts also have a series of benefits and disadvantages that are differentiated from those of the partnering strategies, as presented above: a) Incentivised collaborative contracts can have two different approaches, being aligned with the market trends at each, different, points of time: ‘gain share contracts and pain share contracts’ (Morledge and Smith, 2013, p.201). The first form of incentivised collaborative contracts is more likely to be welcomed. Indeed, having in mind that they will share the gain of the project, leads the parties to seek for ‘a reduction in prices’ (Pryke and Smith 2011, p.111). In opposition, pain share contracts are non common, at the level that the recovery of a loss may take a long period of time leaving the parties with non-incentives in regard to the development of the project. From this point of view, it could be noted that gain share contracts attract contractors while pain share contracts can prohibit contractors from investment on a local enterprise (Pryke and Smith 2011).From a similar point of view, it is noted that a term referring to gain share can ‘incentivise contractor to reduce costs’ (Institution of Civil Engineers 2006, p.12), a fact that will increase the chances for the project’s success. Moreover, Wright (2007) notes that the gain share contract leads contractor to manage the construction project as effective as possible, aiming to reduce costs involved. In this way, the chances for failures are minimized. 5.0 Conclusion The effective development of construction projects is highly depended on the ability of the parties to communicate and cooperate. The collaborative procurement strategies help towards the increase of collaboration in the context of construction projects. Still, the approaches on which these strategies are based are differentiated. Particular reference should be made to partnering strategies and the collaborative incentivised strategies, as analyzed above. It has been proved that each of these strategies has a series of benefits and disadvantages; individuals that wish to proceed to a construction contract need to review the positive and negative aspects of these strategies and choose the strategy that it is more aligned with the needs of the project and the targets set by the parties involved. 6.0 References Akintoye, A., Goulding, J. and Zawdie, G., 2012. Construction Innovation and Process Improvement. Hoboken: John Wiley & Sons. Chappell, D., 2010. Construction Contracts: Questions and Answers. 2nd ed. Oxon: Taylor & Francis. Cheung, S., 2007. Trust in Co-operative Contracting in Construction. Hong Kong: City University of HK Press. Institution of Civil Engineers, 2006. ICE Conditions of Contract Target Cost. London: Thomas Telford. Morledge, R. and Smith, A., 2013. Building Procurement. 2nd ed. Hoboken: John Wiley & Sons. Pryke, S. and Smith, H., 2012. The Management of Complex Projects: A Relationship Approach. Hoboken: John Wiley & Sons. Ramsey, V., 2007. Construction Law Handbook. London: Thomas Telford. Senaratne, S and Sexton, M., 2011. Managing Change in Construction Projects: A Knowledge-Based Approach. Hoboken: John Wiley & Sons, 2011 Thomas, G. and Thomas, M., 2008. Construction Partnering and Integrated Teamworking. Hoboken: John Wiley & Sons. Walker, D. and Rowlinson, S., 2008. Procurement Systems: A Cross-Industry Project Management Perspective. London: Routledge. Wright, D., 2007. International Forms of Contract: User Guide: The International Purple Book. Warwickshire: IChemE. 7.0 Bibliography Bower, D., 2003. Management of Procurement. London: Thomas Telford. Cooke, B. and Williams, P., 2013. Construction Planning, Programming and Control. Oxford: Wiley. Jayalath, C., 2011. Contractual Dimensions in Construction: A Commentary in a Nutshell. iUniverse. Pryke, S., 2009. Construction Supply Chain Management. Hoboken: John Wiley & Sons. Winch, G., 2010. Managing Construction Projects. Hoboken: John Wiley & Sons, 2010 Read More