Boards Of Directors And Allocation Of Procurement

Construction Management

Procurement is considered to be one important factor for success of a project in construction. Management of the procurements is important for both design phase and the construction phase and therefore it is heavily dependent on experience and knowledge. Appropriate procurement management is important for improving the profitability of the organization and it further helps in streamlining the different processes and activities associated with the project. The aim of this report is to analyse the positive and the negative aspects of different procurement method that are generally used for construction project (Masterman and Masterman 2013). The three procurement methods that the report discusses include design bid build, construction management and request for proposal (Fellows and Liu 2015). The positive and the negative aspects of these three procurement methods will be discussed and analysed in this report. Every procurement activities in construction projects follow a planned approach. The design bid build procurement method is one most commonly used methods of procurement in construction industry. However, it is one of the oldest methods of procurement and therefore there are certain issues associated with this procurement method. The construction management procurement method is widely used in Australia and it is a comparatively new procurement method. Request For Proposal is a procurement method is used in construction management. The positive and the negative aspects of these three procurement methods in are discussed in the following section.

Construction Management is a procurement method that is widely used in Australia. In construction project, it is seen that the management of the building process is traditionally undertaken on clients’ behalf. The procurement method of construction management is used for managing and coordinating the design and the construction phases in the project. It is possible since this type of procurement method is able to accelerate the duration of the project (Brook 2016). In this procurement method, the work is mainly constructed by a number of different trade contractors. In this procurement method, the construction managers are mainly appointed at the completion of the conceptual design phase of the project.

Interpretation of the construction management procurement method is difficult as there can be varying interpretation of this particular concept. In the most basic form it can be described as a method for project delivery where the clients are in charge of appointing the design and cost consultant for managing the cost of the project (Jato-Espino et al. 2014). On further analysis, it is seen that there are two basic forms of construction management. In Agency CM, the management role is taken by an individual organization on behalf of the employer. There is another type of construction management procurement method, which is direct CM. In direct CM, the role is provided by a general contractor.

The Advantages of Construction Procurement Management

Although it is hard to find out where the CM was first used, it is observed that the use of CM has spread across the world (Ruparathna and Hewage 2015). This is mainly because there are a number of benefits and advantages of making use of construction management procurement method. It has been observed that construction management benefits the clients or the end users by eliminating the worst case scenario associated with the risks in the project (Ogunsanmi 2013). The construction management was mainly introduced in order to eliminate the different issues related to the lump sum procurements, which includes increased cost of risk premiums, limited benefit and lack of transparency.

1. This procurement method helps in faster project implementation by overlapping the design and the construction phase which is a benefit for the builders and the contractors associated for the project.
2. This type of procurement method provides the ability to closely manage the cost of the project during the design and the procurement phase (Dada 2013). Furthermore, it provides the opportunities to adjust the timing of the procurement that helps in securing the commercial benefits. This is beneficial for the consultants and the client.
3. The construction management procurement method involves hand on involvement of the client of the project which provides one of the significant benefits to the clients.
4. The construction management procurement method offers full control over the designing phase of the project which is an advantage for the builders and the clients.

Although, there are a number of advantages of making use of construction management procurement method, there are certain disadvantages as well. The disadvantages of making use construction management procurement method are as follows.

1. Since the design and the building stage are overlapped in construction management, there is a subsequent risk of design change which is needed to be mitigated. This risk is for the builders and the clients.
2. There is no lump sum cost commitment in this type of contract which is a significant risk associated with construction management.

These are the major risks associated with the construction management procurement method that are needed to be addressed. The procurement methods of design bid build and Request for Proposal are elaborated in the following sections.

Request for Proposal is a two envelope procurement method that is often used in construction management (Porwal and Hewage 2013). The request for proposal procurement method in construction is used when the project and the procurement is in need of technical expertise with specialized capabilities. The request for proposal presents the preliminary requirements associated he construction project.

The most significant characteristics of  request for proposal type of procurement method is that it offers more than just request for the price of the project. This procurement method considers certain basis information associated with the project such as the financial information, the technical capability and the anticipated completion date of the project.

In Request For Proposal Procurement method, the bidders are asked for the proposal of a particular task The bidders should return a proposal by the set date and time. The later proposals may not be consider. Out of the bids that have been received, the most suitable bids are needed to be chosen. The proposals that have been received can help in evaluating the suitability of the supplier and the vendor associated with the project. A suitable and pre determined screening process is followed in screening the requests of the bidders. After screening process, the vendors that have been shortlisted from the screening process will called for the negotiation process. With successful negotiation, the vendor or the supplier who will be appropriate for the project will be considered (Tran, Molenaar and Gransberg 2016). In the negotiation processes, discussions may be held on the proposals. The final selected bidders are then asked to submit the best technical and the financial offer (Ogunsanmi 2016).  There are quite a few advantages and disadvantages of making use of Request for Proposal. The advantages of request for proposal are as follows-

1. One of the major advantages of request for proposal is that in this procurement method, negotiations are desired. This is important for clients and the suppliers.
2. Innovative ideas are expected from perspective bidders which is beneficial for the clients.
3. It allows negotiation for obtaining the best value from the project (Hughes,  Champion and Murdoch 2015).

The Disadvantages of Construction Management Procurement

There are certain disadvantages of request for proposal document are as follows-

1. The process of screening for selection of vendor in quite lengthy.
2. A formal screening process is needed in this type of procurement services.

3.The process is risky as the probability of finding a good vendor is quite low.

However, the request for proposal procurement method is used in construction project as this type of procurement method ensures that the project can be implemented within a set budget. Furthermore, it provides innovative approaches of managing the project.

In construction projects, apart from the construction management and request for proposal method, the design bid build procurement process is also used (Hardin and McCool 2015). The design bid build procurement method is elaborated in the following section.

Design Bid build is another widely used procurement method in construction sector. It is one of the methods of project delivery that is used for owner contracts for the design and construction of the project (Ojeda and Reusch 2013). That is, the design and the building phase are separately managed unlike the construction management procurement method. In design bid build procurement, the entire project is divided into three phases. These phases are the design phase, the bidding phase in which the tender is asked and the construction phase.

In the design phase, the project owner hires and architect for designing the project so that the bids can be produced. According to the project’s design, the bidding of the project will be asked for. In construction projects, the architect works on the design on basis of the owners’ needs and the needs of the project.

After approval of the project design, bids are being asked on basis of the design and it is known as the bidding or the tendering phase. This is a lengthy process as various questions can be asked during the tendering and the bidding process.

After successful bidding and tendering, the construction phase of the project is implemented (Dragos and Neamtu 2013). The selected vendor is in charge of implementing this phase. There are a number of advantages and disadvantages related to the design bid build procurement method.

The advantages of design bid build method are as follows-

1. One of the most significant benefits of design bid build method is that this procurement method looks out for the interest of the owner.
2. The proposal for the cost depends on the design that is being prepared for the architect which is one significant advantage of this type of procurement method.
3. The design bid build method ensures fairness to the potential bidders and identifies the potential contractors who are ready to undertake the project in fair price.

There are certain disadvantages of design bid build procurement method, which are as follows-

1. The architect is in charge of designing a project and after designing the bids are received (Goldman, Rocholl and So 2013). Thus the owner of the project cannot estimate the cost of the project until all the bids in the project is received.
2. If the bids that are received after the design phase are higher than the project budget, redesigning of the project can be needed.

These disadvantages affects the use of design bid build contract in the construction projects to a large extent as the cost of redesigning is generally very high.

Conclusion 

The report discusses three most significant procurement methods that are used in construction projects. These are construction management, Request for proposal and the Design bid build method of procurement. These three procurement methods largely differ. The report analyses the advantages and disadvantages of each of the procurement methods. It discusses negative and the positive aspects of the procurement methods. It has been observed that the construction management procurement method is one of the most frequently and widely used methods of procurement.

References

Brook, M., 2016. Estimating and tendering for construction work. Routledge.

Chang, P.W., 2013. Analysis of contracting processes, internal controls, and procurement fraud schemes.

Dada, M.O., 2013. Client and contractor organisations’ assessment of design-bid-build procurement practice in Nigeria. Civil Engineering Dimension, 15(1), pp.1-10.

Dragos, D. and Neamtu, B., 2013. Sustainable public procurement: life-cycle costing in the new EU directive proposal. Eur. Procurement & Pub. Private Partnership L. Rev., 8, p.19.

Fellows, R.F. and Liu, A.M., 2015. Research methods for construction. John Wiley & Sons.

Goldman, E., Rocholl, J. and So, J., 2013. Politically connected boards of directors and the allocation of procurement contracts. Review of Finance, 17(5), pp.1617-1648.

Hardin, B. and McCool, D., 2015. BIM and construction management: proven tools, methods, and workflows. John Wiley & Sons.

Hughes, W., Champion, R. and Murdoch, J., 2015. Construction contracts: law and management. Routledge.

Jato-Espino, D., Castillo-Lopez, E., Rodriguez-Hernandez, J. and Canteras-Jordana, J.C., 2014. A review of application of multi-criteria decision making methods in construction. Automation in Construction, 45, pp.151-162.

Masterman, J. and Masterman, J.W., 2013. An introduction to building procurement systems. Routledge.

Ogunsanmi, O., 2013. Effects of procurement related factors on construction project performance in Nigeria. Ethiopian Journal of Environmental Studies and Management, 6(2), pp.215-222.

Ogunsanmi, O.E., 2016. Risk classification model for design and build projects. Covenant Journal of Research in the Built Environment, 3(1).

Ojeda, O. and Reusch, P., 2013, September. Sustainable procurement-Extending project procurement concepts and processes based on PMBOK. In Intelligent Data Acquisition and Advanced Computing Systems (IDAACS), 2013 IEEE 7th International Conference on (Vol. 2, pp. 530-536). IEEE.

Porwal, A. and Hewage, K.N., 2013. Building Information Modeling (BIM) partnering framework for public construction projects. Automation in Construction, 31, pp.204-214.

Ruparathna, R. and Hewage, K., 2015. Sustainable procurement in the Canadian construction industry: current practices, drivers and opportunities. Journal of Cleaner Production, 109, pp.305-314.

Tran, D., Molenaar, K.R. and Gransberg, D.D., 2016. Implementing best-value procurement for design–bid–build highway projects. Transportation Research Record: Journal of the Transportation Research Board, (2573), pp.26-33.

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