Construction Projects: Establishing a Procurement Strategy - Research Paper Example

CONSTRUCTION PROJECT: ESTABLISHING A PROCUREMENT STRATEGY INTRODUCTION In the construction industry, successful outcomes to projects or programmes have to be achieved for clients. For this purpose, establishing a valid and robust procurement strategy at the outset, is essential for achieving the construction objectives. Most clients rely on the professionals they appoint, to assist in the selection of the best-suited procurement path. For the duration of a construction project, the participants work as a temporary multidisciplinary team, with their functional inter-relationships ending with the completion of the project. This paper will investigate procurement strategies for a given scenario: a spectacular new concert hall commissioned by the client: a recently formed trust body with a budget of £70m, partly funded by national lottery. Thesis Statement: The purpose of this paper is to determine the relative whole life suitability and risk apportionment of two appropriate but differing procurement methods for the above construction. The two procurement methods to be evaluated and compared will be the design and build (D & B) and the construction management (CM) approaches. DISCUSSION The procurement system is the project organisational structure adopted by the client. It is the “collective action required to acquire the design, management and installation of inputs” (Ngowi 2000, p.362). The design and build (D & B) system is an improvement of the traditional method of procurement. The D & B approach aims to increase optimal results in the construction industry. Its main goal is to complete and deliver the entire project without the adversarial approach of traditional construction. Using a cooperative instead of adversarial relationship between the design professional and the contractor, results in “faster project delivery, greater cost certainties, superior quality and increased efficiency” (Cushman & Loulakis 2001, p.154). Another procurement system is the construction management (CM) method (ASCE 2000). CM involves the “planning, scheduling, evaluation and controlling of construction tasks to accomplish specific objectives by effectively allocating and utilizing appropriate labor, material and time resources in a manner that minimises costs and maximises the customer/ owner’s satisfaction” (Jackson 2004, p.36). Construction management comprises several tasks undertaken by a construction management team. Minimising cost while maximising overall value to the owner, optimises the cost incurred. Quality, safety, scope, and function of the construction, and the risks involved are important criteria. CM is a relatively new project delivery approach that was developed to solve the problems inherent in the traditional procurement and project delivery method. It is based on a variety of meanings depending on the context in which it is used and the contractual relationship between the owner and the construction manager (CM). Implications to the Client in Procuring the Concert Hall “U.K. strategies for the procurement of new construction projects have not changed significantly in the last 25 years” (Morledge 2006, p.95). However, the traditional method has evolved into the D & B system and other hybrids, besides other procurement systems such as the construction management method and concurrent engineering. For the construction of a spectacular new concert hall with a large budget of around £70m, the client’s objectives and the procurement path should consider the following priorities: An acceptable layout for the project in terms of function and use. This includes all the required functions the building is intended to deliver. An aesthetically pleasing design not only for the client, but also as viewed by others as the building is meant to be spectacular. This requires careful considerations in selecting the best procurement methods which will deliver best design quality. The final cost of the building should match the estimate as the budget provided is already very large (around £70m as mentioned in the project scenario). The cost of a project is a combination of land, construction, fees and finance, and the client will need to balance these against the various procurement systems that are available. In terms of cost savings, a less expensive site elsewhere may be more appropriate rather than reducing the costs of quality. The quality of the project should be in line with current expectations. This is largely dictated by the client’s requirements and the contractor’s reputation regarding aesthetics and design, which form part of the procurement process. The future performance of the building, the whole life performance and the associated cost-in-use. The project is available for handover and use on the date specified for completion of work. One way of measuring the success of a project is whether the building is available by the date suggested in the contract documents. Where time is considered to be very important by the client, then it may be necessary to consider adopting a fast-track construction and procurement method that reduces the length of the contract. Towards optimal procurement selection, an eight-factor solution was derived by Luu et al (2003, p.217). These are: “external environment, project risks, client’s long-term objectives, project’s physical characteristics, client’s short-term objectives, client’s characteristics, involvement and risk allocation, and building’s aesthetics and complexity”. The two factors that were based on the highest feeling of cooperation and belonging were: external environment and project risks, with their parameters having greatest mutual association. Clients deal with five different categories of the development and evaluation process: “the analytical search, consultative search, historical evaluation, intuitive evaluation and policy compliance” (Masterman & Masterman 2002, p.209). Best & Valence (1999) assert that since the 1970s, clients have increasingly seen the procurement method as a central factor in helping them get value from their projects. The Rationale for Selecting the Two Procurement Methods To achieve the desired product in a construction project, the various disciplines are integrated by means of numerous procurement systems. In this scenario of the concert hall construction, the two methods: D & B and CM will be evaluated. The main advantage of using the D & B system is its speed of use, and also that construction involving significant architectural input is undertaken “with the client contracting the architect as the principal design consultant” (Ngowi 2000, p.362). The client and structural or civil engineer enter a contract. This is followed by a separate contract between the client and the contractor or builder. The architect coordinates the designer’s and the builder’s work. The tender is a single comprehensive set of documents that is put forth; a coordination of all of the design input from the various technological design specialists (Ngowi 2000). Moreover, in the Design and Build (D & B) procurement system, the different construction disciplines are efficiently combined together (NEDO 1985). In this “the organisation takes full responsibility and carries sole liability for both design and construction” (Ngowi 2000, p.362). The organisation may be a multi-disciplinary firm with in-house design staff, or may be an association including a contractor, an architect, a structural engineer and civil engineer. The functional relationship between the participants determines the extent to which benefits of the D & B method of procurement are realised. On the other hand, according to the ASCE (2000), in the Construction Management method of procurement, the role of the design professional depends on the agreement between the owner and the construction manager (the CM). Often, owners engage construction managers to assist in developing bid documents and overseeing project construction. It is better for participants to define construction management according to the project at hand. It is the owner who decides about construction management responsibilities regarding relegating responsibility and authority. The client may even define new roles for the CM with the progress of the project (ASCE 2000). Critical Evaluation of D & B and CM Procurement Methods The traditional procurement system of D & B faces difficulties in the “phasing and sequencing of functions” (Ngowi 2000, p.362), has little coordination between participants and trades, and is adversely affected by adversarial contract conditions and unsatisfactory competitive tendering. Hence, wastage occurs as an integral aspect of the different stages of design and construction. The D & B is sometimes unable to satisfy the client’s needs, especially in larger, more advanced projects. The integration of the participants who are closely inter-related and inter-dependent is difficult. Also, the design and build system does not allow the specific skills of the contractor to be used on the project in order to enhance the general performance of the design and construction teams, as well as the completed project (Franks 1990). Further, according to Evbuomwan and Anumba (1996) the outline design which forms the basis of tenders curbs the creativity of the participants from the various disciplines who form the team, limiting the work to the initial consultant’s vision of the facility. Moreover, delays occur because of various reasons related to developing the design; clarifying client requirements and liaising with the initial consultants; and sourcing and seeking approval for alternative materials and design changes. Additionally, there may be disputes and claims at the construction stage because of the client’s requirements not being well-defined at the early stages. The functions associated with construction management are applicable in design and build method also, as in other procurement methods. However, the project delivery methods of D & B and CM differ in five basic criteria: the number of contracts the owner executes, the relationship and roles of each participant to the contract, the point at which the contractor gets involved in the project, the ability to overlap design and construction, and the participant who warrants the sufficiency of the plans and specifications (Jackson 2004). Two main limitations of the construction management procurement approach are: “the consequences of site operations and specialisation” (Nam & Tatum 1988: 133). These characteristics relate to insights and guidelines in developing construction technology and practical applications of the approach. In both the procurement systems, the three primary players – the owner, the designer (architect and/ or engineer), and the contractor, are involved. Each participant has their traditional roles and responsibilities, though accountabilities may differ for various criteria. In construction management, problem solving and decision making are the two most important skills needed for achieving results. Besides these, other characteristics required are: flexibility, ability to work efficiently in a fast-paced environment, decisiveness, working well under pressure especially when confronted with unexpected occurrences and delays, the ability to coordinate several major activities at the same time while resolving specific problems, as well as comprehension of engineering, architectural and other construction drawings (Jackson 2004). It is the responsibility of the owner to select the best procurement system, according to the requirements of the construction project. The factors that influence the selection are: cost, schedule, quality, design, risk tolerance, and construction expertise. It is important to assess the goals for every project, to decide on the method of procurement. “Design and build is typically the fastest project delivery method” (Jackson 2004, p.50). Relative Whole Life Suitability and Risk Apportionment of D & B and CM Methods of Procurement The new concert hall construction needs to be completed on time, keeping within the budget and to the highest quality. In recent years, environmental issues such as carbon footprint and legislative requirements such as health and safety, have emerged. These criteria can be used as a guide for comprehending the basic attributes of a procurement system. There is a great deal of complexity associated with matching client needs and priorities with the procurement method, while providing value for money, managing risk and meeting project objectives also play an important part (Love et al 2008). The relative suitability of each method is presented in a comparative format in Table 1. below: Table 1. THE RELATIVE SUITABILITY OF D & B AGAINST CM WEIGHTING ON 100% Procure-ment Method Time Completion Within Cost Complexity Quality Certainty Risk Transfer to Other Units D & B 19/ 20 16/ 20 4/ 10 10/ 20 13/ 15 13/ 15 CM 15/ 20 14/ 20 4/ 10 16/ 20 8/ 15 8/ 15 Results: The weighted assessment matrix (Table 1. given above) illustrates that between the two procurement options, the Design and Build (D & B) method has the higher total value of 75/ 100, while the Construction Management (CM) method has the lower value of 65/ 100. Each method will be evaluated on its ability to satisfy all the requirements of the client, rather than assuming that the highest total score should be considered as the better one. Ranking Priorities The ranking scale is based on the concert hall project priorities, for selecting a suitable procurement strategy. Table 1. above shows the comparison between the two processes of procurement. The national lottery objective have to be fulfilled through the appropriate procurement method. The client’s priorities and requirements are indicated (Handout). For example, Time, Cost and Quality were given 20% of weightage, Compexity was given a weightage of 10%, and Certainty of time and cost was given 15% , similar to Risk allocation being given 15%. The highest total weighted score of the two procurement options will provide a suitable procurement route for the proposed project, that would be able to best fulfill all of the national lottery objectives. The Design and Build Method Project performance aspects of cost, schedule and quality under Design and Build can be clearly defined and appropriately balanced (individual risks are managed by the party best able and positioned to manage that risk). Change orders due to defects in construction are eliminated because the correction of such is the responsibility of the design-builder, not the client. This aspect of assigning risks to those best capitalised and experienced to assume and manage them is the rationale behind design-build project delivery method. In this procurement method, clients will receive different design solutions and best cost proposals to meet the client’s requirements. These different proposals will represent the best thinking of several design-builders and will enable the client to better weigh the risks and the benefits of several competing proposals before committing to any single design solution (Franks 1990). In the D & B single-source strategy, the main allocation of risk is to the contractor. The client, however, cannot avoid all of the project risks, though his risks can be minimised in the event of a comprehensive brief being prepared. If the project fails for any reason, the client’s interests will be safe-guarded, and the contractor will be held responsible. That means, there can be no passing of the buck between the architect and the builder (Franks 1990). The disadvantages include uncertainty of the specific final details until the construction is completed, limited design liability, difficulty in controlling standards, changes can have consequences on cost, and usually only the basic minimum is provided to satisfy the client’s requirements. Recommendation: In my opinion, D & B is the most appropriate procurement method for this case, taking into account all the advantages discussed above. The client will not share the burden of risk that is undertaken by the contractor; the client can save time by starting on-site construction early, before the design is completed; the client can save financially because reduced time duration of construction would mean savings in payments to contractors and consultants; there is cost certainty of the project; and also, the D & B procurement route is considered to be suitable for any project. The Construction Management Method In the construction management procurement approach, the main participant held responsible for risks is the contractor, as seen in the D & B method. The contractor is held responsible for losses incurred due to weather conditions, subcontractor failure, job site safety, material deliveries, quality of the work, delays in the work, defective work, code compliance issues, estimate errors and labour strikes. Risks due to site conditions are allocated to the client. Similarly, project funding and delays in the work are also the responsibility of the client (Jackson 2004). Hatem (1998) adds that the accuracy, completeness and constructability of a project stands guaranteed when a client provides a design in the form of a set of construction documents, to a contractor. On the other hand, quality of the work, defective design and code compliance issues are attributed to the designer. Some other risks in construction management are “political risks, innovation risks, and organisational risks” (Jackson 2004, pp.40-41). Therefore construction management involves evaluating the situation, assessing the risks, making decisions and accepting the responsibility for the results, right or wrong. The key to removing risk to all stakeholders, is to start with a well defined scope of requirements for the project. This will help the contractor to plan the project perfectly. Recommendation: In my opinion, this method is less suitable for the national lottery since risk apportionment, completion within cost as well as certainty of time duration are lower than in D & B. Moreover, Construction Management is less applicable in this case, where fast-track construction is demanded. Hence, the use of Design and Build Procurement approach is recommended for construction of the concert hall. CONCLUSION This paper has highlighted procurement strategies with specific relevance to the given scenario of the construction of a spectacular new concert hall commissioned by a recently formed trust body, partly funded by national lottery, with a budget of around £70m. By comparing the advantages and disadvantages of two appropriate procurement systems: design and build, and construction management, the relative whole life suitability and risk apportionment of both methods have been evaluated. Further, the essay discussed the likely issues and wider implications to the client desribed above, in the selection of the procurement method for constructing the concert hall. The rationale for selecting the two procurement methods was explained, they were critically evaluated, and the comparative format of the relative whole life suitability of each method was presented. Although both procurement methods are beneficial, the design and build has been evaluated to be more advantageous, since adversarial conflict can be minimised and cooperation between the parties can be maximised. To achieve this, the team should be structured, and each participant must work actively to promote each other’s interests. When speed of time and related schedule are important factors, and client involvement is only moderate, D & B proves to be better, since it is the fastest project delivery method (Jackson 2004, p.50). Bibliography ASCE (The American Society of Civil Engineers). (2000). Quality in the constructed project: a guide for owners, designers, and constructors. Edition 2. The United States of America: ASCE Publications. Cushman, F. & Loulakis, M.C. (2001). Design-build contracting handbook. 2nd Edition. New York: Aspen Publishers. Evbuomwan, N.F.O. & Anumba, C.J. (1996). Towards a concurrent engineering model for design and build projects. 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