Negotiated procurement
- Preferred procurement route and those to be encouraged, accepted or avoided
The procurement route that the company should prefer using is negotiated procurement. With this route, the company will be involved in projects from a very early stage giving it an opportunity to discuss with the client any issue or challenges that may arise (including disputes) during project implementation. The route gives the company an opportunity to negotiate with the clients on various issues and therefore chances of achieving its expected profit margins are high. The company already used negotiated procurement in two of its past 14 projects and the average profit margin for the two contracts was the highest.
The company is encouraged to use selective procurement route, which allows companies to submit tenders only when they are invited to do so by the client. The method is suitable because the company has already worked with different clients both in the private and public sectors and established a track record in the building and construction industry in the region. Therefore most of the prospective clients know the type, size and complexity of projects that the company can handle and will definitely approach them when they have new projects. The company can use its networks and past clients to get referrals as new clients and/or projects. For this method to work effectively, the company should focus on ensuring that they remain unique in the region. This can be achieved by completing their projects within stipulated time and budget, use the latest technologies in their project execution and management, ensure high quality works and avoid disputes by all means. By so doing, they will be a sort-after company in the region and get more contracts through selective procurement. The company already used selective procurement in six of its past 14 projects and the average profit margin for the six contracts was positive except for contract 13 which had very low profit margin.
The company has already used speculative procurement in three of its previous 14 contracts and executed these projects successfully and profitably. This method will still work because of the growing real estate industry in the region. Therefore speculative procurement is an acceptable tendering method that the company can use. Speculative construction is where the company develops a building project without any end user having committed formally to buy or use the property. But for this route to work effectively, the company should do due diligence and conduct extensive market research to identify appropriate and profitable projects before investing in them. Out of the past 14 contracts, the company used speculative procurement in three projects and recorded positive profit margins.
The company should avoid open procurement route. The method was used in two of the past 14 contracts and both of them recorded very low profit margins. This method allows any company to submit a tender, which usually lowers the profit margin because new companies that are trying to make a name in the industry usually submit very low bids for the purpose of winning the contracts. Open tendering is a suitable procurement route for new companies and usually attracts even companies that are unsuitable to implement the project. Most clients use this method when they are certain of not meeting the cost of getting the most qualified companies to perform the work. This company has been in the industry for almost seven years now and has already made its name in the region. Thus the company should avoid this method and focus on the other procurement routes.
- Preferred client and project categories
Selective procurement
The clients that the company should focus on are private clients and local authority (government agencies) while the types of projects that the company should concentrate on are residential, commercial and special purpose (property meant for public use) projects. With private clients and the local authority, the company will have an opportunity to offer them with technical advice, negotiate contract prices and only sign contracts that will give them the anticipated profit margins. The real estate industry in the central belt of Scotland is growing rapidly and this presents a good investment opportunity in residential, commercial and special purpose projects. The booming real estate industry in the region has created demand for housing units, business premises (offices, restaurants, hotels, shopping centers, apartment complexes, parking facilities, theaters, stores, hospitals and grocery stores) and public use facilities (government buildings such as assembly hall, schools, parks, public libraries and cemeteries). A combination of these types of clients and project categories will help the company diversify its investments and be able to get a wide range of projects at any given time.
Key advantages of residential real estate projects include: houses are a necessity for every human being (high market demand), a great deflation and inflation hedge, easy to do sale projections and comparable sales, and can be sold easily under normal market conditions. On the other hand, some of the benefits of commercial real estate projects are: offer higher income potential than other real estate projects, provide stable cash flow, vacancy risk is lower as it is usually spread over various units, offer long-term capital appreciation, and has less competition because of the large size of investment required. The company can overcome the drawbacks of these project categories by ensuring that they develop these projects in the right area and at the right time (for speculative contracts), manage them properly, and ensure that they can source adequate initial investment. If the company gets a project opportunity in industrial sector, they can have expanded negotiations and discussions with the client and execute the project.
Based on experience in the past 14 contracts that have so far been executed, the company should avoid working with housing associations unless they change the procurement method they use with these clients from open tender to negotiated procurement. Open tender makes contracts highly competitive but the profit margins are very low because most bidders can be new in the market and their main focus is to win the contracts rather than getting the highest profit margins possible. Therefore these projects will not work well with the company’s business strategy. Housing associations usually have high value projects but they are complex to implement and the two contracts already done by the company (with these clients) recorded very low profit margins.
- Preferred geographical limits of operation
In the next five years, the company should continue focusing its operation in the central belt of Birmingham. Up to now, the company has clearly understood the procedures of getting the required development and building approvals/permits from the relevant government regulatory agencies, established networks and good working relationships with reputable suppliers and subcontractors in the region and is still creating a strong client base. Venturing in a new region comes at a cost as it requires substantial amount of capital investment to acquire new offices, complete necessary registration with different agencies, get the business operation permits and employ new staffs. This will significantly affect the financial status of the company considering its current performance. The next five years presents a good opportunity for the company to strengthen their reputation in the construction industry in the region. After this period, the company will definitely be ready to expand to other regions. The property market in the central belt of Birmingham is healthy with statistics showing that the time required to sell homes in this region is half the average time needed to sell a home in UK cities. This shows the high demand for real estate investments in the region hence the company should capitalize on this boom.
- Preferred range of project values
Based on the company’s past experience, financial and technical capacity and its strategic plan to expand in the near future, the company should focus on projects whose value ranges from £250,000 to £10,000,000. The value range for the past 14 projects that the company has executed was between £262,500 and £8,800,000. The company has proven to have the capacity to comfortably execute projects within this value range. The wide project value range will create an opportunity for the company to get a wide range of projects from different clients in the private and public sectors. The projects may include new constructions, extensions, rehabilitations, repair works, improvements and completions. The company should be able to complete any project within this value range within a year. Therefore the maximum duration for any given project should be 12 months. If the company gets a contract whose value is exceeding ten million pounds, they can still execute it as long as they do due diligence and establish that the project is within their capability to implement it successfully.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
