Procurement Strategy for The University of Salford - Report Example

Procurement strategy for The of Salford Table of Contents Summary……………………………………………………………………………… 3 0 Introduction……………………………………………………………………………. 4 1.1 Key procurement issues to be considered …………………………………………….. 5 1.1.1 Key objectives and constraints……………………………………………… 6 1.1.2 Risks ………………………………………………………………………… 7 1.1.3 Level of complexity…………………………………………………………. 8 1.2 Selecting the procurement strategy……………………………………………………..8 1.2.1 Traditional contract strategy…………………………………………………. 9 1.2.2 Design and build option - Lump sum……………………………………….. 10 1.2.3 Management Contracting……………………………………………………. 11 1.2.4 Alliance……………………………………………………….…………….. 12 1.2.5 Bundling…………………………………………………………….............. 13 1.3 Recommendations……………………………………………………………………… 13 1.3.1 Proposed strategy and social sustainability……………………………………..…… 15 1.3.2 Assessment of the payment method………………………………………………...... 16 Conclusion…………………………………………………………………………………. 18 References………………………………………………………………………………….. 19 Summary This report attempts to examine the best procurement strategy that The University of Salford can adopt in building the modern quality student accommodation. It will look at the various methods of procurement strategies in relation to time, cost and quality. In addition, it will provide key analysis of the issues that the University should consider in relation to procurement. Moreover, it will explain the how the procurement strategy that will be adopted will help them to attain social sustainability. In addition, it will give details on how the strategy will ensure that there is fair and timely payment to all parts of the supply chain. 1.0 Introduction Adopting the best procurement strategy will help The University of Salford to be in line with its vision of becoming an outstanding and a renowned University. This report aims to evaluate the University’s objectives and help recommend the appropriate procurement strategy that the University can adopt. In order to arrive at the best alternative, the appraisal of all the procurement method is very important. This would include a detailed analysis to show the applicability of other procurement methods. In addition, it is very important to consider the current time factor laid by the university and other conditions that need to be achieved. The University is aiming at building a modern quality student accommodation, which conserves the environment and is student centered. It should be built next to the University house, on the site of the Northern Car Park. The site is ready for the construction of the new building since the demolitions are not on site. The University has recognized the need of them getting value for their money in this current climate. In addition, it wants the outcome of the project to bring social sustainability. Furthermore, it has a deadline that it should meet. They should ensure that the project done before August 2016 when the handover is to take place. The budgeted project cost estimate is £64 million. Ultimately, it wants the proposed strategy to ensure timely and fair payments to all parts of the supply chain of the project. This report will examine the best strategy that can be adopted to ensure that the strategic objectives of the University are achieved. Procurement entails the process of acquiring goods and services from other third parties. It starts from the identification of the needs of the University to the end of the project when the building would be completed (OBrien, 2009). The procurement decisions about construction should always focus on the value that the project would deliver. Value of money is measured by the quality of services that the students would obtain for the full life of the building. (Mosey, 2009) 1.1 Key procurement issues to be considered In coming up with the best strategy, there is a need to evaluate the various procurement strategies that are available (Mead & Gruneberg, 2013). Procurement strategy identifies the best ways of achieving the objectives of the University. In addition, it identifies ways in which it will ensure that the University obtains value for their money. Moreover, procurement strategies look into the risks and constraints that the University is likely to face in its project. It also looks at the best funding mechanism that the University can adopt and asset ownership for the project. The purpose of the procurement strategy is to achieve balance between the funding of the project, risk and control of the project (Jonker & Witte, 2006,). In addition, the procurement strategy involves also the development of a procurement strategy that the University can adopt. Procurement strategy entails determining the key objectives of the university, the constraints, the funding mechanism and the risk allocation, whereas, procurement route entails the determination of the contract strategy that can be used (Harding et al., 1993). Before selection of the procurement strategy, an analysis of factors that influence the procurement strategy selection need to be evaluated. They include key objectives and constraints, the risks that may arise during the contract and how the risks may be dealt with and the level of complexity of the project (Cox & Townsend, 1998). 1.1.1 Key Objectives and constraints The University is planning to finish building by August 2016. Its main objective is to build a quality building that will offer value to the students and help them achieve their vision as a University. They have recognized the importance of social sustainability, which should be included in the project. They have estimated the whole project cost to be £64 million. The project, however, has various constraints attached to it. There is a time constraint because the facility should accommodate the new academic year. This has seen the university set a deadline of finishing the building to be August 2016. In addition, there is a budget constraint, in that the University has set a budget already at £64 million. The amount includes the development costs, construction works, external works, statutory and professional fees. Moreover, the project may face physical constraints because the site is adjacent to the University House, hence the building will be limited to the space available. There is no provision for expansion of the new building to be set up. In addition, the University has no capacity constraints since it has the capacity to finance the project from reserves and through borrowing. The information provided does not provide any other constraints. Therefore, in this report we assume that there are no any other constraints such as policy requirements, market or industrial conditions and availability of resources. The project team must remain flexible in order to address any problem between the key objectives and the constraints. In order to achieve flexibility, the team must monitor the key objectives and the constraints involved as the project progresses. In addition, they should be prepared to adjust the procurement strategy appropriately (Lamb Media Limited, 2010). 1.1.2 Risks Risks entail events that may occur during the delivery of the project and may cause certain adverse outcome (Walker & Hampson, 2003). The nature of risks and their outcome depends on the key objectives and constraints outlined above. There is a risk of securing the timely completion of the building project. This is due to the tight time framework that is set by the University. By the University, setting a deadline that should be met imposes a risk of timely completion on the project. In addition, the University has set a fixed budget, which also poses a budget risk. This is due to the fluctuating prices in the market in relation to construction materials. The prices agreed with today may vary in the future. Hence, costs estimated today may be very different with the costs estimated in the future. These possess a risk in relation to a set budget by the University. There is a minor risk that the building activities may affect the University House that is near the building site. The materials may destroy or fall in the University House. In addition, the site is on the Northern Car Park, which may poses a risk to the cars in the parking lot and the people passing by. In managing the risks, the University should adopt a procurement strategy that passes on the risk to the contractor. In so doing, the University will not be affected by the Budget risk and the period risk. Therefore, in coming up with the procurement method the University should consider the best method of dealing with the risks that are involved. In addition, the risks should be allocated to the party able to deal with the risk, to avoid contractual disputes and litigation. 1.1.3 Level of Complexity In considering the procurement strategy, the level of complexity should also be considered. In order to determine the level of complexity of the project certain factors are considered. They include the size of the project, the duration that the project will take, the scope of the project, the number of stakeholders involved, level of technology to be used, level of innovation required and the market conditions (Walker & Hampson, 2003). The University’s project is complex. The facility is expected to contain 1367 en suite bedrooms that make the size of the project to be big. In addition, there are also other features like the gymnasium, launderette, cinema that require professional handling. However, the project has only one stakeholder, the University. In conclusion, the University’s project is complex based on the features it should offer. In addition, the scope of the project is to not only build a building but also provide social sustainability and ensure that the environment is kept clean. Moreover, the current market conditions have necessitated the need for value for money to be considered a key consideration in this project. 1.2 Selecting the Procurement Strategy It is also important for the management to develop a procurement route. The university can implement its procurement strategy using procurement route. It entails a contract strategy that will make sure that the needs of the university are met. The procurement route should be integrated to ensure that design; construction process, operational process and the maintenance are considered as a whole. This ensures that there is teamwork among the members involves (Howes & Robinson, 2005). The contract strategy should support the main objectives in terms of the risk allocation and delivery. There are different strategies the University can adopt. They include PFI, Traditional methods, Design and Build, Managing Contractor, Alliance and Bundling. 1.2.1 Traditional contract strategy It entails the University engages the knowledge of consultants in describing what is supposed to be undertaken and then design the project. Then a contractor is given the go ahead to construct a building in accordance to the specifications developed by the consultants for a certain agreed price. This strategy is best suited where there is certainty on specific project requirements (Esty & Simmons, 2011). Traditional contract strategies should only be used where the approach will provide better value for money than the other methods of contracting. In the traditional method, the client appoints a separate team that undertakes the design, while a contractor competitively appointed does construction. The traditional procurement strategy’s success depends on the adequacy and accuracy of the construction documentation. In cases where the construction documentation does not offer adequate and accurate costs, it makes it difficult to control time and costs. In addition, this method is characterized by many claims. Ultimately, it not suited for fast tracking a project (Khalfan, McDermott, Li, Arif, & Kashyap, 2008). 1.2.2 Design and build option - Lump sum In this strategy, the University will engage also the knowledge of consultants who will come up with the scope and requirements of the project. Afterwards, the contractor then completes the design of the project. In addition, he also prepares a documentation and constructs the project for the agreed sum of £64 million. The integrated team is responsible for the design and construction of the project. In this strategy, greatest performance benefits to the University can be realized through innovation, standardization and integrated supply chains. Where appropriate, output specification can be used in this strategy. Output specification focuses on what the facility would offer to the University. For example, in the Cinema room the output specification can be ‘to provide for a conducive entertainment environment for watching films.’ However, it does not offer a detailed explanation as how many seats would the cinema contain. The quality of the design and performance of the building would be compromised where there is no output specification. The omission can also be risky. In some cases, design and build option can cover the maintenance costs and the operational costs of the university for a given period. By including the maintenance and operational requirements, the suppliers have increased incentive to be innovative and give the University value for their money (Khalfan, McDermott, Li, Arif, & Kashyap, 2008). This strategy can be effective in situations where the need of project completion using strictly budgeted funds outweighs the need for quality. However, it is not effective for projects that involve complex building. Hence, it is not the appropriate strategy to be used by the University. 1.2.3 Management Contracting Management Contracting is a case where the University hires a contractor who becomes responsible for the management and delivery of the construction in time. The contractor also should ensure that he sticks within the budgeted cost. In addition, the contractor ensures that the building serves the objectives of the University. The contract can include demonstration in the initial operating days to ensure that the operating and cost parameters are met. The cost associated with the demonstration can be met in accordance with the agreement between the University and the contractor (Harding et al., 1993). Management Contracting requires the prime contractor to be a single point of responsibility between the client and the supply team. The Management Contractor should be able to bring all the parties necessary to meet the University’s needs. In addition, the prime contractor should have the necessary experience needed in the construction of a modern building. During the initial periods of the project, the Management Contractor demonstrates whether the costs associated with the project, (operating and performance costs) can be met. The result may be a gain or pain to the client. It results to gain where the Management Contractor reduces the project costs. In coming up with a contract strategy, the University should be able to determine what it wants. In addition, it should be aware of the market and negotiate deals based on the whole life value. Market research is very fundamental in assessing the best strategy. Moreover, the University should know the major players in the market and establish who can meet their needs. Moreover, the client should request the details of members likely to be in the supply team (Harding et al., 1993). Once the client gets the details, technical assessment should be done. In addition, the client should meet the representatives from all the companies in the supply team. The forms of contract that the University should choose should improve the quality and be cost-effective. This can be achieved through motivation of the supply team to work together as a team. In addition, it can be achieved through the University assessing the individual risks involved in the construction of the building. Then the risk is allocated to a party that can manage it. Moreover, quality and cost efficiency can be achieved by the University setting up collaborating arrangements between the client and suppliers who are committed to the established supply chains. 1.2.4 Alliance In this strategy, the contractor is involved in the early stages of the project. It involves the formation of an alliance between the contractor and the university. Both the contractor and the university are responsible for all the aspects of delivering the project. In addition, this strategy is structured in such a way that the commercial risks and rewards are shared among the parties. It is best suited in complex, high-risk projects where alternative risk allocation strategies will not be effective. The strategy is suitable where it is difficult to transfer the risks. In addition, it is effective in projects, which involve risks that cannot be transferred. Moreover, it provides an early involvement of the contractor. Historically, not many constructions have been done using this method. The prior statement raises difficulties in ascertaining whether it is an appropriate method to be used by the University. 1.2.5 Bundling It is a strategy, which involves the delivery of a number of projects under a single contract. It is effective in times when the labour market is under strain. However, this strategy cannot be used on its own (Butter, 2007). The procurement strategy is used where the cost of the project ranges between $0.5 million to $20 million (Walker, Hampson, & Peters, 2000). In addition, it is suitable where there are multiple projects in the same time. Its success depends on the willingness of the departments involved in participating in bundling opportunities that exist. It is advantageous in that it generates savings through bulk buying. 1.3 Recommendations The University of Salford should adopt the Managing Contractor Procurement strategy. This is because of the University’s key objectives, constraints, risks involved and the level of complexity. The Management Contractor Procurement strategy will ensure that the University’s needs are met. The report recognizes the project to be undertaken to be of a high level of complexity. In addition, it also recognizes the budget constraints and the time constraints that the project faces. Management Contract is used for major and complex projects. In addition, it is used where there is some degree of uncertainty present. It also allows for early involvement of the contractor, which may lead to an accurate determination of the costs. Moreover, it recognizes the importance of quality of the project. Furthermore, this procurement method ensures that the claims and disputes are minimized (Butter, 2007). Management Contract is characterized by high flexibility. This allows the contract to be tailored to suit the needs of the University. In addition, it ensures better performance and it includes the provision for the inclusion of the long-term maintenance. The procurement option also offers many options that can be adopted by the university. Single- stage option entails the tenderer giving the costs and time duration of the project to the University, which can be then accepted or rejected by the University. Document and construct option entails design and documentation to be done by the University, then the Management Contractor does the documentation and governs the project. The risks associated with the project are transferred to the Management Contractor. Hence, the University will only remain with the risk of adequately describing the project requirement (Harding et al., 1993). The Management Contractor will be responsible on the management of the other risks in the project. He is to ensure that the building is finished within the period provided for. In addition, he is to ensure that the design developed is suitable for the project. Moreover, he is to ensure that the project uses quality inputs, which would lead to quality output. Ultimately, he is to ensure that the project delivers on the social sustainability objective of the University. In contrast, this procurement strategy is likely to face challenges because it does not work well where time and costs have already been fixed. It establishes its own costs and time that the project can be undertaken. 1.3.1 Proposed strategy and social sustainability The University of Salford recognizes the significant of the project they are about to undertake has on various parties. They have identified social sustainability as one of the key objectives that will enable it in becoming a leading university. Therefore, procurement policy adopted should contain policies that will ensure that all the needs of the parties are taken care of Social sustainability entails the recognition of various needs of everyone impacted by construction. It takes account of the local community around the university, site workers, supply chain, the students and staff who will use the facility (Esty & Simmons, 2011). Quality is a guarantee under this method. Student’s satisfaction will be high due to quality facilities. The strategy ensures that the University will get value for their money. Due to the satisfaction of students, this will enable the university to be recognized as one of the leading Universities. The proposed Management Contracting procurement strategy is a more efficient in ensuring that there is social sustainability. It recognizes the diversity aspect of the suppliers and the workforce and their human rights. The recommended strategy would ensure social sustainability for the supply chains by improving the risk management process (Esty & Simmons, 2011). The result would be increased opportunities for the supply chains to innovate and come up with ideas. In addition, it allocates funds that would be solely for the support of the social sustainability agenda. Moreover, the strategy monitors supply chains to ensure that fair contract prices and terms are applied. In addition, it ensures that it meets the human rights that are expressed in the International Labour Organization. Furthermore, it ensures that the payment made to the supply chains is timely and fair. Increased trust between the contractor and the supply chain is enhanced. In addition, it communicates to the suppliers about the motive of procuring sustainably (Addis, Talbot, & Construction Industry Research and Information Association, 2001). The strategy offers management since the strategy will ensure that need for social sustainability is attained. This is through the detailed documentation about how they want to achieve social responsibility. The Management Contractor is the one to find ways in which he can enhance social sustainability. The Management Contractor will ensure that he attains the University’s objectives since that constitutes part of the agreement. 1.3.2 Assessment of the payment method Appropriate payment mechanisms should be built into the contract. Consideration should be given to the supply team for their contribution in innovativeness to value engineering. Therefore, it is important for the University to arrange on methods of payment that deliver great value for money and benefit to suppliers. Poor payment practices in construction can result to additional and financial costs. In ensuring that the system used is fair the certainty of how much should be paid and when is very important. This builds trust among the supply team members ensures that they work in collaboration to achieve value for money for the University. In the Design and Build strategy, the price is fixed (Howes & Robinson, 2005). The supply teams are paid a combined fixed price for the design and construct components of the project. This method is advantageous to the client because he is certain about the final price of the facility. Also, the contractor knows the payment that he will receive on the completion of the project. On the other hand, it transfers all the risk to the supply team. This may render this may this method not cost effective. In addition, changes to the requirements may result to the increase in costs, which may make the process expensive and hard to ascertain the price. In this method, the payment is fair however; it is not timely to the contractor. This is because the contractor is paid at the end of the contract. However, to the supply team it can be timely in cases where the contractor uses his own funds to pay them. In the target price payment, the University and the supply team work in collaboration to develop a target price for the project. This method is fair to the project chain of supply. This is because the supply team can also benefit from incentives of cost savings. However, the target and arrangements of sharing efficiencies can omit the principle of attaining value for money. In considering the recommended Procurement Strategy, Management Contract payment is broken into two parts, namely stage one and stage two. The Management Contractor is paid the tendered stage one fees. Afterwards, he is paid the tendered stage two fees according to the laid down agreement. Consequently, he is paid the actual construction cost that he incurred (Jonker & Witte, 2006). The Management Contractor strategy ensures that the payment system adopted by the University will be fair (Lefaix-Durand, 2005). The method ensures that there are contractual terms between the University and the Management Contractor about fair payment methods for supply chain participants. The involvement of the University will ensure that there is fair payment framework available to the supply chains. Moreover, this procurement strategy ensures that the payment framework is transparent and the supply chain participants know what money they should expect from the contractor. In addition, the Management Contractor strategy would ensure timely payment to the supply chain participants. This is due to the periodic contract payment that is made by the principal to the contractor, ensuring timely payment to the supply chains. Conclusion Management Contractor procurement method is the best method that can be adopted by The University of Salford. The recommendation was arrived at after appraisal was done on the various procurement strategies that are available. 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