Types of Procurement Systems
Discuss about the Improving Construction Procurement Systems Using.
Procurement is considered as an integral part of any business. According to Kotulaet al. (2015), procurement strategy refers to the acquisition of materials, supplies and services, which an organization or a project needs for operating successfully. In this particular study, different types of systems in construction project are explained in this particular study. The process of implementation are highlighted in this particular study. Apart from this, this study will shed light on advantages as well as disadvantages of procurement systems.
It has been noticed that there are mainly five kinds of procurement systems are generally practiced in a construction project. These are traditional method, design and build, joint venture or partnership, management contracting and public financing initiative (PFI).
In case of traditional method, the duty of the contractor is to build the design, which has been offered to them by the client. It has been noticed that contractor or the engineer design as well as manages the entire contract. In this context, it can be stated that the client’s responsibility is to control the finance as well as operations carried out in the project by the contractor. In accordance with the opinion of Ruparathn and Hewage (2015), this kind of procurement system is mainly used in the huge projects. Traditional method is also used in complex projects. In other words, the client appoints the architect for finishing the design. This architect is liable for producing certain specifications of a building. It is seen that the it is the duty of consultant team to control the design as well as cost. In this context, it can be stated that after the design is being completed by the architect, the employers appoints the main contractor in order to continue his works via bidding. After this, preparation of the tender documents takes place on the basis of the specifications well as drawings or bill. It has been observed that the client gives awards to the lowest tenderer. In this regard, it can be stated that the contract should take responsibility of every workmanship as well as materials used in the construction project of the build. Apart from this, the contractor should take responsibility of every work carried out by the sub-contractors in the construction project. It is seen that the contractual relationship exists between the employer and every party involved in building construction project. This led the employer take control in the works. In the opinion of Du et al. (2016), there are chances that risks can happen because the employer is assigned with so many responsibilities.
Traditional Method
Some of the features of traditional procurement system are discussed here. Competitive tendering is the technique by which the contractor is appointed by the employer. It should be noted that all the designs are prepared before the tendering process and before the actual construction initiates. In accordance with the opinion of Lam (2017), design is fully controlled by the client. In other words, contractor does not have any responsibility to design the construction project. The tenure of the construction project is long due to separate sequential procedure of the design as well as construction. Sedita and Apa (2015) commented that construction cost might be adjusted as mentioned in the contract.
It is the project delivery procurement system widely, which is widely used in the construction project. In this particular procurement system, the duty of the construction is to manage the contract. On the other hand, the employer is subjected to take care of the finance as well as operations (Che Ibrahim, Costello and Wilkinson, 2015). As opined by Sarhan, Pasquire and King (2017) design and build is seen to decrease the threats for client. It has been observed that this particular procurement modifies the conventional sequence of the work.
In this particular procurement system, the contractor is assigned with the task of designing as constructing the project. In this context, it can be stated that contractors gets a lumpsum amount from the client’s end for designing the project. In this regard, it can be stated that contractors are needed for creating the design to the certain level. They are needed for preparing the tender figure before they present the designing in front of the client. This procedure is termed as proposal of a construction project. According to Loosemore and Lim (2017), it is the duty of the team of the team of contractors to evaluate each and every aspect of proposal submitted by contractors. Moreover, it has been observed that assessment of tenders is a complex task because contractors are working with several designs. It is very important to notify the tenders regarding the criteria and price so that they do not have to face any difficulty related to construction project.
There are certain characteristics features of Design and build procurement strategy. It is seen that two-stage tendering is used at the time of appointing contractors. In the opinion of Eom, Kim and Jang (2015), client has the authority to make changes in the design of a construction at design phase. However, project employer has no control over the creation of design after it is awarded to a contractor. Contractor is solely responsible person for Valuation of the construction as well as payment. From the perspective of Eom, Kim and Jang(2015), employer might appoint the agent who will work as an advisor for him. In other words, client does not appoint a contract administrator who will work independently without any dependency on the client.
Design and Build
It has been observed that employers, contractors as well as specialized contracts are part of this particular management procurement system. According to Love et al. (2015), contractor’s responsibility is to manage the entire project. On the other hand, clients take care of the finance of the project along with monitors the operations of the project. It is seen that employers hire consultants for preparing the project drawings as well as the project specifications. In the opinion of Li, Arditi and Wang (2015), tenders as well as interviews are used for recruiting and selecting the management contractor. This contractor does not have to carry out the construction work. This aids to preserve the independence of the management contractor. As a result, a consultancy relationship grows up between management contractor and client.
As opined by Jung et al. (2015), payment is given to a management contractor based on the cost of works packages and agreed fee. It has been noticed that success of the construction project is dependent on the performance of the team of the contractor. ?etkovi? et al. (2015) asserted that budget will be allocated on the basis on the progress made in the construction project. In this context, it can be state that overall procedure of design as well as construction is short in comparison with traditional procurement system and design-and build procurement system. From the perspective of Rahmani, Khalfan and Maqsood(2016), construction management is considered as another variant.It should be noted that construction manager is supposed to manage the procedures for employer. It is seen that this variant needs continuous involvement from the client’s end. It has been noticed that construction management is not suitable for inexperienced clients (Handfield, Primo and Oliveira, 2015).
It has been noticed that to overcome hindrances, various parties forms the working environment on the basis of mutual goals, teamwork, faith and sharing threats and rewards. It has been noticed that the success of this procurement system is highly dependent on understanding of the different parties. However, Chong and Preece (2014) commented that identifying duties of every party is quite difficult in case of joint venture procurement system. It is seen that joint ventures enables the small business organizations in delivering huge projects by merging the expertise and the available resources. It enables the leading business organizations in acquiring new resources as well as the expertise from the small-scale business organizations. In order to share the threats as well as costs, joint ventures are used in the construction project (.Okoye,, Ngwu and Ugochukwu (2015).
Joint Venture or Partnership
In this particular procurement system, contractor takes care of each and every functions related to construction. After the completion of the construction project, it will be returned to the owner. It has been observed that this particular procurement method is usually used by governmental bodies of the developing nations.
The first step includes the recruitment of the consultant team, architect, quantity surveyor as well as engineers by the client. These individuals have to show some specifications as well as drawing of a building to the client. It is the responsibility of both the architect as well as engineer to provide drawing to the quantity surveyor based on which bills of quantity will be made. After this, the employer recruits contractor for starting the works related to construction. It should be noted that contractor team are not in charge of designing the project. After this, it might happen that employer hires subcontractor for undertaking the specialized works (Li, Arditi and Wang, 2015).
In this procurement method, the main contractor is assigned with the responsibility of designing as well as constructing the entire project. Here employers recruit consultants for designing the development. After this, the appointment of the contractor takes place in the hands of client. It is seen that the contractor has been appointed for continuing every design. It might happen that the client exerts control over the designworks made by contractor. The consultants are supposed to prepare the concept design as well as outline specification. After this, contractor finishes the design and continues the construction. It is seen that consultants either can use in-house designers for designing the building or can hire consultant designers. It can happen that owner’s designer have to finish the design. It should be noted that contractors who are hired at the beginning of the construction project, they have to create the design, Two-stage process has been used for hiring them. In case of first stage, contractors are hired based on fee, preliminaries, profit as well as overheads. After this, they starts working with a design team and fixed price has been negotiated at the next stage after seeing the design.
It has been observed that client usually recruits management contractors early in a design process with the intention of improving costs along with buildability of the proposals. Clients sometimes ask for advices regarding packaging from management contractors.
When alliance occurs between two firms or more than two separate enterprises, gives rise to partnering procurement systems. It has been noticed that risks along with rewards are shared by these entities. In accordance with Li, Arditi and Wang (2015), every entity contributes available resources like land, capital, credentials. In addition to this, they also contribute available resources like intellectual property, equipments and skills.
Management Contracting
It is considered as a significant procurement route. It has been noticed that the integrated supply team has been recruited for designing and constructing the project. Facilities management expertise is there for designing and building the development of the project.
It has been noticed that there are many factors that are responsible for impacting procurement strategy in construction such as external factors, characteristics of an owner, procurement characteristics, capability to make modifications and cost issues. The size, location as well as uniqueness of project impacts time, threat and cost. Any changes in laws and interest rates impacts the procurement strategy in construction project. In order to get success on a construction project, it is very important for the client to have knowledge, skills and experience. It has been noticed that should conduct an analysis for the requirement for the cost certainty in order to achieve success in a construction project. It is important for the client to identify the chances of modifications occurring in the project.
There are certain advantages and disadvantages of this particular procurement system. As the client controls the works of the construction project, it is expected that high-quality works would be outcome of traditional procurement system. For instance, it is the responsibility of the consultant team to offer a design that would meet the expectations of the client. In this regard, it has been observed that contractor as well as consultant offers valuable advice as well as construction expertise based on which client decides the budget as well as design of the project.
It has been noticed that every tenderer has to produce the tender on the basis of same information. In this regard, it can be commented that competitive tendering helps the employer to get the best price or lowest price. This is another advantage of traditional procurement system. It has been noticed that the accuracy of the construction cost depends on tender. It is easier for the clients to opt for traditional method rather than other kinds of procurement methods. This is considered as an advantage of this method. This method is the most common form of procurement system in any construction project. Therefore, it is not unfamiliar to the contractors as well as consultant teams. As a result, there are high chances that high-quality work will be its outcome (Chong and Preece, 2014). In this context, it can be stated that this is another advantage of this procurement system.
Public Financing Initiative (PFI)
In case of traditional method, it might happen that the client faces difficulty in managing a particular construction project as he has to interact with some parties simultaneously. For example, there is no contractual relationship between the consultant and the contract. As opined by Walker, Harley and Mills (2015), if there is any need for communication beten contractor and the consultant arises, they should have to interact with the employer thereby making it ineffective approach. In this regard, it can be stated that there are high chances of miscommunication is very high as the client has to interact with several organizations. It takes a long time to finish the project. This is considered as a disadvantage of this particular procurement system.
There are certain advantages and disadvantages of design and build procurement system. It has been noticed that design and build is an effective procurement system that allows some control over prices. In this regard, it can be stated that the contractor have their designers or they hires designers outside the business firms. It has been observed that there is another merit of this system, which is related to chances of decreased construction time. There are certain disadvantages of this particular system (Chong and Preece, 2014).
Green (2018) commented that the disadvantages in pricing system occur when the builders has agreed upon a price before the project has begun as there are chances that the builder will work on the lowest specifications in order to complete the project. In accordance with the opinion of Tezel, Koskela and Aziz (2018), architects are more efficient than that of builders. In this context, it can be stated that the architects are highly trained individuals possessing certain skills, which the builders do not have. It has been observed that architects remain updated with the legal as well as design requirements. On the other hand, builders are not always possess knowledge on the legal as well as design requirements.
According to Green (2018), smaller business firms gain access to credibility as well economic stability, which the leading companies carry. It has been noticed that small business firms provide big companies the set of skills, which can enhance the quality as well as efficiency of a project. These are the advantages of this particular procurement method. Besides, there are some disadvantages too. In accordance with the opinion of Dong, Tang and Zhou(2018), various cultures as well as values might impede the project. As more individuals are involved, decision-making process might be delayed.
Advantages and Disadvantages of Procurement Systems
It is seen that PFI brings innovation in the construction project. In accordance with the opjnion of Li, Arditi and Wang (2015) strategic partnering can be done in a construction project through private financing initiatives. It has been noticed that it has put emphasize on developing a long-term relation between the private sector and the public sector. As a result, mutual knowledge sharing can be done through private financing initiatives. Walker, Harley and Mills (2015) commented that it not only reduces cost but also delivers good quality work. It has been observed that risk transfer is considered as a significant component for delivering the good PFI construction project. As opined by Chong and Preece (2014), Private Financing Initiatives will decrease the level of risk which is carried by government and it will be transferred to contractors. These are some of the merits of Private Financing Initiatives. On the other hand, there are certain demerits too. In the opinion of Li, Arditi and Wang (2015), high prices are often used for tendering Private financing initiatives. It has been observed that complex negotiations are made in order to bring agreements. In the opinion of Chong and Preece (2014), there are several individuals who are acquainted with Private financing initiatives. Therefore, they are unable to deal with complexity of PFI construction projects. Not only this, lack of skills and experience of the local authorities restricts them to cope up with private partners thereby creating an adverse effect on the partnering development. These are the disadvantages of private financing initiatives.
Conclusion
From the above discussion, it can be stated that strategy plays a vital role in achieving success in construction procurement project. There are different methods of procurement such as traditional, design and build procure system, management contracting, joint venture or partnering procurement method and private financing initiatives. There are various factors which creates an impact on the procurement in construction project. These are cost issues, external factors, capability to make medications and client’s characteristics.
References
Caffieri, J.J., Love, P.E., Whyte, A. and Ahiaga-Dagbui, D.D., 2018. Planning for production in construction: controlling costs in major capital projects. Production Planning & Control, 29(1), pp.41-50.
?etkovi?, J., Ruteši?, S., Žarkovi?, M., Kneževi?, M. and Vatin, N., 2015. Primary directions and advancements in competitiveness of montenegrin construction sector. Procedia Engineering, 117, pp.775-785.
Chang, C.Y. and Qian, Y., 2015. An econometric analysis of holdup problems in construction projects. Journal of Construction Engineering and Management, 141(6), p.04015004.
Conclusion
Che Ibrahim, C.K.I., Costello, S.B. and Wilkinson, S., 2015. Key indicators influencing the management of team integration in construction projects. International Journal of Managing Projects in Business, 8(2), pp.300-323.
Chong, H.Y. and Preece, C.N., 2014. Improving construction procurement systems using organizational strategies. Acta Polytechnica Hungarica, 11(1), pp.5-20.
Connaughton, J. and Hughes, W., 2018. Sustainable Procurement. Sustainable Futures in the Built Environment to 2050: A Foresight Approach to Construction and Development, p.194.
Dong, B., Tang, W. and Zhou, C., 2018. Strategic procurement outsourcing with asymmetric cost information under scale economies. Journal of the Operational Research Society, pp.1-22.
Du, L., Tang, W., Liu, C., Wang, S., Wang, T., Shen, W., Huang, M. and Zhou, Y., 2016. Enhancing engineer–procure–construct project performance by partnering in international markets: Perspective from Chinese construction companies. International Journal of Project Management, 34(1), pp.30-43.
Eom, S.J., Kim, S.C. and Jang, W.S., 2015. Paradigm shift in main contractor-subcontractor partnerships with an e-procurement framework. KSCE Journal of Civil Engineering, 19(7), pp.1951-1961.
Green, S., 2018. Sustainable Construction: Contested Knowledge and the Decline of Professionalism. Sustainable Futures in the Built Environment to 2050: A Foresight Approach to Construction and Development, p.172.
Handfield, R.B., Primo, M. and Oliveira, M.P.V.D., 2015. The role of effective relationship management in successful large oil and gas projects: Insights from procurement executives. Journal of Strategic Contracting and Negotiation, 1(1), pp.15-41.
Jung, Y., Moon, B.S., Kim, Y.M. and Kim, W., 2015. Integrated cost and schedule control systems for nuclear power plant construction: leveraging strategic advantages to owners and EPC firms. Science and Technology of Nuclear Installations, 2015.
Kotula, M., Ho, W., Dey, P.K. and Lee, C.K.M., 2015. Strategic sourcing supplier selection misalignment with critical success factors: Findings from multiple case studies in Germany and the United Kingdom. International Journal of Production Economics, 166, pp.238-247.
Lam, T., 2017. Prediction of performance outcomes for procurement of public-sector construction consultants for property management. Property Management, 35(4), pp.433-447.
Li, H., Arditi, D. and Wang, Z., 2015. Determinants of transaction costs in construction projects. Journal of Civil Engineering and Management, 21(5), pp.548-558.
Loosemore, M. and Lim, B.T.H., 2017. Linking corporate social responsibility and organizational performance in the construction industry. Construction management and economics, 35(3), pp.90-105.
Love, P.E., Smith, J., Simpson, I., Regan, M. and Olatunji, O., 2015. Understanding the landscape of overruns in transport infrastructure projects. Environment and Planning B: Planning and Design, 42(3), pp.490-509.
Okoye, P.U., Ngwu, C. and Ugochukwu, S.C., 2015. Evaluation of management challenges facing construction practice in Nigeria. International Journal of Application or Innovation in Engineering & Management, 4(1), pp.19-28.
Rahmani, F., Khalfan, M.M. and Maqsood, T., 2016. Analysing the drivers for early contractor involvement adoption by construction clients. International Journal of Procurement Management, 9(4), pp.373-397.
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.
Sarhan, S., Pasquire, C. and King, A., 2017. The concept of institutional waste within the construction industry: a potential theoretical framework. Lean Construction Journal, 2017, pp.12-24.
Sedita, S.R. and Apa, R., 2015. The impact of inter-organizational relationships on contractors’ success in winning public procurement projects: The case of the construction industry in the Veneto region. International journal of project management, 33(7), pp.1548-1562.
Tezel, A., Koskela, L. and Aziz, Z., 2018. Current condition and future directions for lean construction in highways projects: a small and medium-sized enterprises (SMEs) perspective. International Journal of Project Management, 36(2), pp.267-286.
Walker, D.H.T., Harley, J. and Mills, A., 2015. Performance of project alliancing in Australasia: a digest of infrastructure development from 2008 to 2013. Construction Economics and Building, 15(1), pp.1-18.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
