Construction Procurement Strategies - Term Paper Example

 Construction Procurement Strategies Introduction Procurement has become a rather integral aspect of the process of acquiring goods, works and services in the sectors of the economy. In particular, the construction, engineering and architectural sectors really require and use procurement practices and processes to a large extent. Hence, the relevant authorities and stakeholders of these sectors have been at the forefront in ensuring that the right rules, regulations and laws regarding procurement are enacted and enforced by the industry regulators and other players (Halchin, 2013). Although different countries may have their unique and distinct procurement rules, regulations and practices, the principles of procurement are generally similar. In fact, for some states and unions, commissions design, develop and implement procurement strategies, rules and regulations, which member states have to comply with (Halchin, 2013). One such union is the European Union, which has various rules, regulations, practices, forms, databases for members to use in their procurement activities. Nevertheless all nations and regional blocks must align their public procurement rules, regulations, principles and practices with the UN guide on procurement principles (Halchin, 2013). In its general sense, procurement features prominently after the requisition of items has been approved and funded, by the procurement team of an organisation. At this stage, the input of a competent, skilled and ethical procurement officer is core, especially with reference to the determination and implementation of the most appropriate procurement strategies (Shaw, 2010). One importance of settling on the most appropriate procurement strategy is that it would ensure that the best goods, services, works or solutions that would meet the set standards and requirements are obtained (Shaw, 2010). Second, the use of the most appropriate procurement strategy helps ensure that all pricing-related advantages and those of contractual conditions are exploited. Hence, a competitive process of procuring items that would not only deliver the required items but also do so within the set time and budget constraints should be applied. The contents of a good procurement strategy include a good choice of procurement method, a good selection of the type of arrangement or contract and the competitive approach to be adopted in acquiring the needed goods, services or works (European Commission, 2013). As mentioned earlier, significant in the process of designing or selecting a procurement strategy is the procurement officer, whose mandate entails placing several crucial factors under thorough scrutiny and consideration (Loots & Henchie, 2007). These factors include authority and task delegation, procurement procedures, financial factors, organisational approval and clearance, time, nature of procurement (goods, services, work or contracts), specificity and complexity of the process and the prevailing conditions of the market. Additionally, the procurement officer and team should consider already established procurement procedures and strategies or contracts and the likelihood of adopting a collaborative approach to procurement. This paper explores the Process Of Procurement In The UK Construction Industry With Reference To The European Procurement Law and directive and their impacts on the procurement of construction and the tendering of construction contracts in Europe. In addition, the use of prequalification questionnaires, SIMAP and TED are also discussed. Importantly the paper overviews the appropriate use of case law and some of the major projects across UK and Europe and the procurement approaches adopted in these projects. The paper takes the general stance that the delivery of UK construction projects is quite restricted by European Procurement Directives, which largely and seriously affect the procurement strategies adopted by the UK and other nations in Europe.” Construction Procurement Strategies in the UK The United Kingdom is one of the members of the European Union, which is bound by the various rules, regulations and principles of public procurement as envisaged by the EU Commission. However, the principles of public procurement in the UK’s construction industry do not differ much from those used in other nations and regions across the globe (Caldwell et al., 2009). In essence, the process of procurement is quite similar across the globe except for a few differences. In all cases, the determination and selection of procurement strategy entails a series of decisions. In fact, it is rarely a strict sequence of events or steps that have to be adhered to. In many case, procurement teams first deal with all the internal or organisational portions of the procurement process before dealing with external factors such as state and EU rules and regulations (Caldwell et al., 2009). In UK’s construction industry, the formulation of procurement strategies to use normally entails the analysis of the requisition with the aim of identifying and defining the specifications, nature and the expected value of the procurement action. It is only after determining the above aspects of a requisition that the right unit within an organisation may be assigned to undertake the recommended courses of action (Caldwell et al., 2009). Second, determining the above factors helps in reaching the decision of procuring, renting or leasing an item through an existing Long Term Agreement (LTA). Third, it may then be easier to carry out a competitive solicitation and settling on the solicitation method to apply. Fourth, determining these aspects of a requisition helps in the identification of the type of competition to use in the procurement. European Union’s Public Procurement Directives The role and influence of European Union’s directives on public procurement on UK’s and Europe’s construction industry cannot be overemphasised. Two of these directives were adopted in 2004 by the EU Council and the European Parliament. The core purposes of these directives were to make clear, modern and simple, the European laws on public procurement existing at that time (Bovis, 2007). One of the directives was the Directive 2004/18/EC. This directive targeted public supply contracts, service contracts and works contracts. The second one, the Directive 2004/17/EC dealt with procurement procedures of businesses and individuals dealing in energy, water, transport and postal services sectors. A notably inclusion in these two directives, unlike the laws they replaced was that they had environmental considerations in the processes of tendering and awarding of contracts (Bovis, 2007). In fact, the introductory parts of these directives clearly mentions the need for contracting authorities to ensure that whereas the best value for money is the key interest in signing contracts, the contribution a party makes towards the protection and preservation of the environment and supporting sustainability are equally paramount (Bovis, 2007). A detailed analysis shows that Article 23(3) b of the Directive 2004/18/EC requires that the technical specifications of environmental requirements are included in contracts. Similarly, Article 23(6) stipulates that eco-labels are used in contracts whereas Article 26 calls for the inclusion and setting of the requisite social and environmental conditions for performance of contracts. In addition, Article 27 of the same directive requires that parties entering a contract show their abilities to understand and meet their sustainability and environmental; obligations. Articles 48(2)f and 50 of the directive requires that contracting parties show that they have the capacity and willingness to comply with the set sustainability and environmental management measures (Bovis, 2007). Recently, changes have been suggested for the EU procurement rules, as changed after the 2004 directives. In simple terms, new EU procurement rules are just about to replace the old ones. However, the suggested amendments may still be exposed to ratification (Bovis, 2007). If implemented, these proposed changes are likely to affect the manner in which construction stakeholders procure their supplies, goods, services and works. It is thus of the essence that the effects of these proposed changes are understood and mitigated. One reason these changes are recommended is that while all construction procurements in the UK expectedly comply with EU procurement legislations, high-valued contracts, which fall above the set thresholds are subjected to rather stricter procurement process and monitoring structure (Lewis & Roehrich, 2009). Although the framework is often portrayed as intended to promote free and fairness in the competition, the public sector has constantly been disadvantaged. Lamentably, earlier efforts to promote fairness in procurement completion have only made the process more costly, time-consuming and difficult to implement (Barlow & Wright, 2010). The main reason the current changes are proposed is to allow for the modification of the threshold to align them with changes in the markets and other factors such as inflation and other unpleasant occurrences in the financial world. However, the main cause of the widespread criticism and scrutiny is there likelihood to have far-reaching impacts on the Sub-Central Government organisations such as fire, police, education departments and local authorities, given that threshold for smaller contracts, works, goods and services are mainly encountered in Sub-Central Government entities. In addition, the proposed threshold changes are likely to have little or no impacts on bigger works. Hence, the thresholds for SCG contracts are bound to increases or double in some cases. The proposed thresholds for public works remains unchanged from the old one and stands at EUR 5,000,000 while the proposed threshold for sub-central government supplies and services, which currently stood at EUR 200,000 after the 2004 directives are EUR 500,000 The proposed directives, which are likely to take effect sometime in late 2013, will have both positive and negative implications for procurement strategies in UK’s construction. One significant effect of the new SCG threshold of EUR 500,000 is that a larger proportion of contracts will now fall under the same category as many SCG contracts. Whether this effect will be positive or negative is still a debatable issue. The Positive and Negative Impacts of the Threshold Changes The first positive effect is that given that the thresholds are set to increase, quite a number of projects are expected to fall below the levels. In other words, fewer contracts and procurements will be subjected to formal and legal competition and regulations. Many projects will escape the conventional rules and regulations for procurement (Burnett, 2010). The second positive effect will be the liberation of the public sector with regards to procurement time and cost constraints. The public sector will no longer be subjected to strict frameworks as the buying process gets more freed-up. In addition, these new EU directives are likely to translate into reduced intensity of advertisement competition currently observed in procurement processes. In other words, the administrative obstacles and burdens that currently hamper and derail the procurement process will be reduced, if not entirely eliminated. This impact will by extension result in a short procurement process (Graells, 2011). Despite the fact that contracting authorities and parties will be required to indulge in certain degrees of competition and diligence for regulatory purposes, the notion that more contracts will no longer be required to comply with intricate procurement procedures and regulation will obviously make procurement faster, more flexible and more efficient for bidders as well as the Sub-Central Government entities (McIntyre & Strischek, 2005). Unfortunately, the proposed EU Directives on procurement will also have several disadvantages. For instance, despite of these directives’ positive effects on procurement costs, flexibility, speed and time-benefits, procurement will be marred by quite many risk factors. This worry is rife especially because the authorities will not be so much required to apply the same diligence in ensuring procurement procedures are followed by all types of contractors (Graells, 2011). It will also not be easier to ensure that the best value and service is delivered when only a few contractors are expected to compete for contracts while others are not bound by the directives to compete fairly (Weele, 2010). In fact, the public reserves will suffer most in this regard since the government agencies undertaking contracts, which fall below the thresholds, will not be subjected to the same level of diligence as practised in the past (Benslimane et al., 2005). Thus, self-managed transparence, responsibility and fairness will lack, resulting in lack of or little criticism and technical argument-based claims for abuse of competition laws and discriminatory practices (Graells, 2011). Finally, although these proposed directives are intended to modernize the procurement process and promote the ease of the process and sound practices of requisition, the changes are likely to be marred by numerous risks. In addition, the increases in thresholds are rather huge (Graells, 2011). The apparent increases in autonomy could be good but they may lead to compromises in fairness, equality and the procured goods’ and services’ quality. Information System for European Public Procurement The other aspect of public procurement in the EU is the use of various forms and databases in the requisition of goods, services and works. One such database is the Tenders Electronic Daily (TED), which helps stakeholders stay informed on the European public procurement process (Tenders Electronic Daily, 2013). The UK construction industry should thus take advantage of databases such as TED, Community Research and Development Information Service (CORDIS) and SIMAP portal, which avails vital public procurement information for European businesses. Core content of the TED website is tender notices, which is considered the official source of public contracts for Europe. The eNotices on this website helps viewers by speeding and simplifying the preparation and publication of tender notices. For qualified organisation wishing to submit notices, the TED website has provisions for eSenders services (Tenders Electronic Daily, 2013). The role of various standard procurement forms in the EU procurement regulations and rules cannot be ignored by contractors in the construction sector. Notably, public entities are advised to use eNotices on-line forms such as those found on the TED website to deliver their notices for publication since such notices would be published in record time compared to those filled in other formats (Tenders Electronic Daily, 2013). Comparatively, notices delivered in the form of fax, e-mail and post may be published twelve days after their receipt. The electronic format also has the advantages of automatic checking of the mandatory fields and clear structures. Some of these forms are prior information notice, contract notice, contract award notice, periodic indicative notice, contract notice, Public works concession, and design contest notice, results of design contest, contract award notice, voluntary ex ante transparency notice and subcontract notice (Tenders Electronic Daily, 2013). Due to the key role the TED website plays in the EU procurement process, it is advisable that stakeholders visit this site as regularly as possible. Second, it is essential that all the useful documents are filled while preparing a bid. The relevant forms declaring the absence of any type of conflict of interest should also be filled just like any grounds for exclusion and absence of conflict of interest should be declared (Tenders Electronic Daily, 2013). The important forms that must be filled are the financial identification and the legal entity forms. Besides availing information on current tenders, the TED website contains tenders done in the previous five years, which can be searched on the basis of document type, geographical situation, and contract type and by use of keywords (Tenders Electronic Daily, 2013). The table below highlights the types of contract and the threshold or contract values, which are set to be replaced by the proposed EU directives later this year. Type Of Contract Threshold (Contract Value) Service contracts EUR 200,000 Public works EUR 5 000,000 Supplies contracts EUR 200,000 Supplies and services in the water, energy and transport sectors EUR 400,000 Contracts falling under the GPA agreements EUR 130,000 A Sample Case Law Numerous case laws highlight the manner in which breaching of the EU procurement laws and regulations and UK procurement laws are dealt with in the justice system. One such case law in the UK is the Harmon CFEM Facades (UK) Ltd versus the Corporate Officer of the House of Commons [1999] EWHC Technology 199: 1996 ORB No 1151-held in the Queen's Bench Division of the High Court of Justice and decided by his Honourable Judge Humphrey Lloyd Q.C. The plaintiff and the defendant in the case were Harmon CFEM Facades (UK) Limited and the Corporate Officer of the House of Commons respectively. The judgment was delivered on 28, October 1999. The plaintiff was represented by Richard Fernyhough Q C and Michael Bowsher whereas the defendant was represented by Andrew White QC, Fiona Parkin and Geraint Webb. One of the plaintiff’s claims was that the defendant breached the Public Works Contracts Regulation of 1991, especially its obligations as stated in the Articles, 6, 30, 5965 of the Treaty of Rome and some provisions of European Directives on procurement of public works such as 71/305 and 89/665. In addition, the plaintiff claimed that the defendant was liable for misfeasance in public office and had treated his tenders unfairly and flouted tendering procedures in awarding the contract for the designing and placement of windows in the New Parliamentary Building at Westminster (EWHC Technology 84, 2000). The technology and construction was required to establish whether the plaintiff had been treated freely, equally, fairly and openly and that he was not discriminated on the basis that a British firm was awarded the contract. The court was also expected to decide on the damages or compensations such as exemplary damages, if the defendant was legally responsible for them. Luckily, the court decided in favour of the plaintiff. In the judgment, the judge held that the claimant Harmon was entitled to recover damages from the defendant for the breach of the Public Works Contracts Regulations 1991 under Regulation 31(6)(b)(ii) and for infringement of its obligations as provided for in the principles of EU law. In addition, the claimant was entitled for damages for breach of a term of an implied contract. The defendant should have treated Harmon fairly and openly and avoided misfeasance in public office in consequence of its conduct of the Project Sponsor. In the judgment, the court considered earlier cases such as the Lehman Brothers versus Maclaine Watson [1987] 1 WLR 480, Biguzzi versus Rank Leisure [1999]1 WLR 1926, Shearson; British and Commonwealth Holdings plc versus Quadrex Holdings Inc [1989] QB 842 and Schott Kem Ltd versus Bentley [1991] 1 QB 61. The judge asserted that despite Harmon’s liquidation, he was still awarded £221 108 for wasted tender costs; £1 848 456 for loss of margin and profit and £1 307 031 for losing the chance of being awarded the contract, given to another contractor (EWHC Technology 84, 2000). Conclusion The United Kingdom, being a member of the EU, is affected in numerous ways by the EU procurement laws, regulations and strategies. Due to its operations and materials used in the implementation of its projects, the construction industry in the UK is among the most affected in this regard. The 2004 EU Directives 2004/18/EC and Directive 2004/17/EC are some of the procurement directives by which UK’s construction stakeholders must abide in their requisition of goods, services, works and contracts. Recently in 2013, a few changes have been proposed that would result in a rise in the threshold or contract values that would be regulated by the EU directives and procurement regulations and laws. A key effect of these changes would be that quite many tenders and contracts will not be subjected to the intricate regulations by procurement laws and directives. However, the negative effect of unfair competition is cited by many. The proposed thresholds are also expected to reduce financial and time related costs, especially for small contracts. References Halchin, L. E. (2013). Transforming government acquisition systems: overview and selected issues. Congressional Research Service. WTO (2013). “Government Procurement.” Retrieved on November 18, 2013 from http://www.wto.org/English/tratop_e/gproc_e/gproc_e.htm#plurilateral European Commission (2013). “New EU GPP Criteria on Waste Water Infrastructure.” Retrieved on November 18, 2013 from http://ec.europa.eu/environment/gpp/index_en.htm Loots, P., and Henchie, N. (2007). Worlds apart: EPC and EPCM contracts: risk issues and allocation. Mayer Brown. McIntyre, M., and Strischek, D. (2005). “Surety Bonding in Today’s Construction Market: Changing Times for Contractors, Bankers, and Sureties.” The RMA Journal, 3(3); 342. Electronic Daily (2013). “What is TED?” Retrieved on November 18, 2013 from http://ted.europa.eu/TED/main/HomePage.do;jsessionid=8F4B3F5D3DAE163029C6A87B0FDB540E.backendB2. Harmon CFEM Facades (UK) Ltd versus the Corporate Officer of the House of Commons [2000] EWHC Technology 84 (2000). Retrieved from http://www.bailii.org/ew/cases/EWHC/TCC/2000/84.html Benslimane, Y. Plaisent, M., and Bernard, P. (2005). “Investigating Search Costs and Coordination Costs in Electronic Markets: A Transaction Costs Economics Perspective.” Electronic Markets, 15(3), 224. Weele, A. J. (2010). Purchasing and supply chain management: analysis, strategy, planning and practice, fifth edition. Andover: Cengage Learning. Lewis, M. A. and Roehrich, J. K. (2009). “Contracts, Relationships and Integration: Towards a Model of the Procurement of Complex Performance.” International Journal of Procurement Management, 2(2), 142. Caldwell, N. D. Roehrich, J. K., and Davies, A. C. (2009). “Procuring Complex Performance in Construction: London Heathrow Terminal 5 and a Private Finance Initiative Hospital.” Journal of Purchasing and Supply Management, 15(3); 186. Bovis, C. H. (2007). EU public procurement law. Elgar European law series. Edward Elgar Publishing. Burnett, M. (2010). Competitive dialogue – a practical guide. European Institute of Public Administration. Graells, S. A. (2011). Public procurement and the EU competition rules. Hart Publishing. Barlow, J., and Wright, S. (2010). “De Facto Privatisation or a Renewed Role for the EU: Paying for Europe's Healthcare Infrastructure in a Recession.” Journal of the Royal Society of Medicine, 103; 55. Shaw, F. N. (2010). The power to procure: a look inside the city of Austin procurement program. Applied Research Projects, Texas State University-San Marcos. Read More