Procurement Methods of the Construction Projects

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Table of Contents

Introduction
Factors That Determine the Choice of a Procurement Method
Procurement Methods
Conclusion
Overall Recommendations
References

Introduction

The vital significance of procurement in the success of any project necessitate for deliberate measures and consideration in the selection of the most appropriate procurement method (Jim Smith, et al., 2004; Osipova & Eriksson, 2011). From the beginning of any construction project, clients, developers, consultants, builders, end user, and other pertinent stakeholders require optimal performance having budget constraints and other crucial factors in mind.

It is apparent that more than one procurement methods are available and are adopted according to the requirements and the nature of a particular project. The methods/systems can be broadly categorized into traditional method, design and build system, and the management contract method (Mikko & Arto, 2014; Babatunde, et al., 2010; Ojo, 2009).

The available procurement systems have unique characteristics and features and, consequently, they are adaptable to specific projects. In addition, each of the methods has advantages and disadvantages. Therefore, stakeholders in the construction projects ought to be deliberately cautious in the selection processes.

Factors That Determine the Choice of a Procurement Method

Before discussing the various procurement methods, it is sensible to mention some of the issues that influence the decision-making processes during procurement method selection. Stakeholders consider key factors such as pricing, flexibility, time, the nature of the project, risk, responsibility, and client resources among other factors (Davis, et al., 2008; Ojo, 2009; Jim Smith, et al., 2004).

Procurement Methods

Traditional/General Method

In the traditional contracting method, the role of the contractor is restricted to building since the employer provides an already completed design. As such, adopting the traditional method gives the client considerable control on design.

Pricing, in this method, is a product of factors such as bills of quantities given by the client, re-measurement contracts, target cost contracts, and cost plus/prime cost contracts (Davis, et al., 2008). In addition, the pricing approaches in the traditional method have relatively higher levels of certainty since the designing processes are done prior to the actual construction (Ojo, 2009).

Advantages of the traditional method of procurement

The client/employer is offered professional independence in administration and monitoring.
The traditional method allows for relatively higher levels of accountability due to competitive selection techniques.
The is equity during the tendering processes since all contractors are given equitable bidding opportunities.
The responsibility and control over the designing processes are put on the client and, therefore, high levels of functionality and overall quality of design are influenced.
Relatively higher levels of price certainty.
Flexible (easily managed/arranged) variations.
Many construction procurement stakeholders are familiar with the traditional system and, therefore, it is a tested and tried approach that can work in various types of procurements.

Disadvantages of the traditional method of procurement

Splitting of roles (designing and contracting) oftentimes results in disputes, especially when defect arise.
Occasionally, designing processes are delayed and are not fully developed prior the construction creating issues and pricing uncertainties, and disputes.
The sequential nature of the traditional method may make the procedures longer relative to other systems.
The contractor’s input is not taken during the design stage.

Recommendations for the consideration of the traditional system

Traditional system is recommended when

There is enough time to run the program.
Consultant design is needed.
The splitting of roles (designing and contraction) is warranted.
Pricing certainty and budgeting are needed at the initial stages.
High quality is needed.
Balancing of risk among key stakeholders is warranted.

Design and Build (D&B) Procurement System

In the D&B method, contractors are responsible for both design and building. It is worth noting that the D&B method can be categorized into more than one form. First, integrated design and build system allow the contractor to make both the design and carry out the construction but on the clients’ prerequisites and guidance. Second, the novated design and build system is almost similar to the traditional procurement method in the sense that the employer makes the initial design (Ojo, 2009; Davis, et al., 2008).

However, the in the novated D&B, the contractor develops the design further and takes the responsibility. As such, the design and building responsibility lies on the contractor in the novated D&B method. Third, the Turnkey system where the design and build responsibility is on the contractor (Davis, et al., 2008) (Ojo, 2009).

In addition, the employer should be able to operate the constructed plant at the end of the contract with little or no help from the contractor. The Turnkey D&B methods are mostly adopted by process and power projects (and other contracts that require intense/heavy engineering element). Further, performance-based projects oftentimes prefer the Turnkey D&B systems since the risks are placed on the contractors (Davis, et al., 2008).

Advantages of the design and build procurement method

The contractor is responsible for both the design and construction and the overall project fast tracking. As such, the contractor is not required to hire the contractor and designer separately.
With the D&B system, the project (construction) can commence even before the design is complete and, therefore, speed is enhanced, especially in projects that require resource allocation within given timelines.
The D&B method enjoys the popularity and familiarity from many construction stakeholders, including the contractors, consultants, and clients.
Price certainty can be achieved prior to the starting of the construction.
Innovation and price reductions are possible.
The constructor’s input in the design processes augments constructability and quality.

Disadvantages of the design and build procurement method

Clients are likely to experience challenges during the preparation of construction brief for the constructor.
Although changes can be adopted, they may be extremely expensive to the client.
The bidding processes relatively complicated since each designer gives a unique design with different pricing.
The client has the obligation to commit to an incomplete concept design.
Design liability is constrained by the availability of contracts.

Recommendations for using the design and construct D&B procurement system

The D&B procurement system should be adopted in cases where

Projects are functional/practical as opposed to prestigious construction.
Simple buildings that work with minimal or no renovations are needed.
There are possibilities of changing the brief for scope design.
Project acceleration can be attained through overlapping design and building processes.
Splitting of design and building responsibility is not required.

Management-oriented Procurement System

Jim Smith, et al. (2004) and Davis, et al. (2008) categorizes management-oriented procurement method into three distinctive classifications, including management contracting, construction management, and design and manage. Some of the elements that differentiate the three categories include indirect/direct client-contractor linkages, design and construction responsibility, works management, and program development (Davis, et al., 2008).

Management contracting

In management contracting system of procurement, the client selects a team of experts/professionals who work together with the appointed management contractor (Davis, et al., 2008). Before the construction commences, a client can only provide advice to the selected team.

Managing contracting allows an early start on-site and achieves early completion and relatively higher levels of flexibility in design and construction. It is imperative to note that the success of the managing contracting method significantly depends on trust and cohesiveness among stakeholders, including client, design consultants, and contractor (Davis, et al., 2008).

It is recommended that the contractor be appointed during or before the outline design stage. As such, the contractor’s input, in form of advice, is considered in design processes, tender processes, material delivery, and construction works (Davis, et al., 2008).

The management contractor job is dependent on a contract cost plan that is generated by a quantity surveyor, drawings, and the nature of the project.

The lack of certainty and the inability to ascertain the cost put a considerable risk on the client.

Oftentimes, lump sum contracts, characterized by bills of quantities are adopted during the competitive tendering processes (Davis, et al., 2008).

Construction management

Commonly referred to as CM, the construction management system commences with a thorough and cautious selection of a management contractor. A management fee is paid to the successful management contractor.

A unique and a differentiating feature of CM is that there is a direct link between the client and works contractor. Nevertheless, the works contracts are managed/administered by management contractor (Davis, et al., 2008). CM method allows the client to have substantial control and considerable risk. As such, the key role of the management contractor is being a simple agent with no power to determine the completion of the project or the cost to be incurred.

Some of the pros of the CM system:

Minimal confrontation between stakeholders, including design teams, supervisors, and constructors.
Experts are involved in a timely manner.
Design and construction can be done concurrently saving time.
Increased competitive bidding processes.
Augmented accountability.

Design and manage

The D&M system gives the contractor the responsibility for construction and design, which is done by a separate team. The contractor, therefore, is paid for general administration and management of a project. The contractor works with subcontractors in designing and construction (Davis, et al., 2008).

Alternatively, a consultant (a client’s agent) can be employed to make the design and provide management to the project. The consultant can also link the client to work contractors (Davis, et al., 2008).

Advantages of adopting the management procurement system

A majority of the stakeholders (including designers and constructors) are available in one firm and, therefore, coordination and collaboration are enhanced to the advantage of the client, designers, and constructors.
Overlapping of the design and construction roles saves time.
The contractor has the responsibility for both design and construction and their integration.
Current prices can be used during the bidding processes.
Augmented constructability and quality since the constructor has immense contribution in the design processes.
Every stakeholder has clear roles, risks, and responsibility.
The method facilitates design project flexibility.

Disadvantages of adopting the management procurement

It is difficult to ascertain price certainty before the final works packages.
The client needs to be comprehensively informed and proactive for the project to be successful.
Stringent time and information control is a major prerequisite.
The client does not exercise direct control of the project since the contractor influences key activities.
It is a prerequisite that the client provides high-quality brief since the design completion relies on resource commitment.

Recommendations for the adoption of the management procurement method

The method is most appropriate for huge, complex, and quick projects.
The management procurement method should be used in projects that require high degree of stakeholders’ confidence and trust.
Early appointment of management contractors is highly recommended since their expertise and knowledge are key in designing and the entire pre-construction period.
The management procurement system can be used when construction works need to run parallel with detailed design procedures.
The method is appropriate for projects where the client requires high degree of flexibility on design.
Where competitive tendering processes are required.

Conclusion

It is apparent that selecting the most appropriate procurement system/method poses a great challenge to construction industry stakeholders. There are numerous methods of procurement (which have distinct characteristics, advantages, and disadvantages).

This paper has discussed three procurement systems, including traditional method, design and build, and management-oriented method. Recommendations for each of the three methods are provided to the stakeholders.

Overall Recommendations

Construction stakeholders, including the client, contractors, consultants, and the end user must consider key factors such as the project specification, pricing, flexibility, time, risk, responsibility, and client resources during the selection of a procurement method.

References

Babatunde, S., Opawole, A. & Ujaddughe, I., 2010, ‘An appraisal of project procurement methods in the Nigerian construction industry’, Civil Engineering Dimension, vol. 12, no. 1, pp. 1-7.

Davis, P., Love, P. & Baccarini, D., 2008, Building Procurement Methods, Brisbane; Australia: Cooperative Research Centre for Construction Innovation.

Jim Smith, B. Z., Love, P. E. & Edwards, D. J., 2004, ‘Procurement of construction facilities in Guangdong Province, China: factors influencing the choice of procurement method’, Facilities, vol. 22, no. 5/6, pp. 141-148.

Mikko, K. & Arto, S., 2014, ‘Ensuring functionality of a nearly zero-energy building with procurement methods’, Facilities, vol. 32, no. 7/8, pp. 312-323.

Ojo, S., 2009, ‘Benchmarking the performance of construction procurement methods against selection criteria in Nigeria’, Civil Engineering Dimension, vol. 11, no. 2, pp. 106-112.

Osipova, E. & Eriksson, P., 2011, ‘How Procurement Methods Influence Risk Management in Construction Project’, Construction Management and Economics, vol. 29, no. 11, pp. 1149-1158.

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