Procurement
Procurement is the process of buying or obtaining goods and services from an outside source to be used within an organization. Procurement is achieved through several methods such as bidding of tendering of the required goods and services. Before making decisions on the procurement process, a rigorous decision-making process is initiated, where the decisions are made with consideration of conditions of scarcity. The procurement process follows the principles of economics by using analysis methods such as cost-utility analysis or cost-benefit analysis.
The purpose of the procurement is to enable an organization or a firm to obtain the goods and services at the best prices possible with the consideration of aspects such as quantity, quality, time and the location of the firm. (Latham and Sir, 1994). Besides, it is essential to note that corporations and other firms wish to implement processes that may enhance the acquisition of quality goods and services while limiting the possibility of occurrence of such risks as collusion and fraud. The procurement process usually involves such processes as handling and delivery of the procured goods and services.
The procurement process usually involves several processes that enhance the suitability and reliability of the process. The processes involved in procurement include value analysis, price negotiations, financing, purchase planning, standards determination, supplier research, specifications development, and purchase planning. Besides, procurement also facilitates the actual purchasing, and the control of the inventory and stores (Holti, Nicolini & Smalley, 2000). The above processes performed by procurement makes the process very essential in every organization because the effectiveness in the purchase of some essential commodities determine the success or failure of an organization.
Traditional procurement
Traditional procurement is a widely used procurement route in the construction industry to accomplish the desired project. In the traditional procurement route, the construction aspect and the design aspect of procurement are separate. In essence, the process involves a client who makes a major design of a construction project, and then the client appoints another party, who will accomplish the designed project. Therefore, the process has two main parties, the designer and the constructor (Dallas, 2006).
In the approach, the employer, who is also the client, appoints a team of specialists who include consultants, engineers, architects, and engineers to prepare and analyze the architectural design to be accomplished. Once the design has been successfully drawn, a contractor is selected to affect the construction process. The contractor will further appoint other subcontractors with whom; they will accomplish the tender (Bresnen and Marshall, 2000).
The architecture also has the responsibility of selecting the contractor on behalf of the management due to the practical skills the architecture may have in construction matters. Therefore, two parties can select the constructor, the management, or the architecture.
….………………………………………………………
Challenges of traditional procurement
Even though traditional procurement is commonly used in the construction process up to date, the process has several challenges which limit its potential to accomplish the objectives of the project besides interfering with the set timeframe. Some of the problems of traditional procurement include the following; first, the set back is that the process does not involve the contractor in the design process (Masterman, 2002). The design process is a critical step in constructing, and failure to involve the contractor leads to poor buildability as the contractor may not understand all aspects included in the design.
Besides, the process leads to a slow start and subsequent ending of the project. The process has separated construction and designing; hence the two processes can be done concurrently. Also, the process may unsuccessful in instances where the design is incomplete and thus, less certainty (Walker & Rowlinson, 2007). Also, the process may potentially lead to adverse relationships between the parties involved. Lastly, the design risks are attributed to the client leading to blemish and unsatisfactory completion of projects.
Other dominant procurement routes
Design and Build
Design and build is a construction procurement route where a single contractor is selected to design and construct a project entirely. Unlike traditional procurement, design and build involve one person who designs the nature of the project they are familiar with or one that may be cost-effective. In the design and built route, the client or the owner is only interested in the outcome or the final product of the project; therefore the contractor takes full responsibility. The design and build route have a single point of command therefore, the process has a wide range of advantages.
Advantages of build and design
The first advantage is that there is only one contract agreement between the contractor and the client, therefore the monitoring process by the client is efficient. Unlike in areas where the constructor has several contracts with other parties, the design and build process offers an added advantage for the client to focus on a single afferent. Besides, the client’s burdens of time factor and resources in selecting designers and other parties are significantly reduces as there is a single point of command.
Second, the process has certainty of costs and other resources required for the project provided the client efficiently articulate the requirements of their projects because the contractor has the ability to make correct estimates based on previous experience and evidence. Unlike other processes where there are several intermediaries to give other estimates, the process has added advantage as a single contactor can give a more precise estimate than other procurement processes.
Third, the design and construction tasks can overlap when the contractor works in designing and building inclusively hence reducing the time taken completing the projects. Unlike other projects specifically the traditional procurement, the design and build process is time efficient as the two aspects can easily be harmonized.
Fourth, the design and build approach enables the contractor to contribute to the intended design of the project which is unlike the traditional procurement. The involvement of the contractor in the design process helps to avert the uncertainties that may arise during the construction process.
Disadvantages of build and design
The first disadvantage is that the clients get it difficult in sufficiently expressing the interests and wishes in the architectural design of the project which complicates the evaluation of proposals and other tender requisites (Emmitt, 2007). Some clients lacks sufficient knowledge in the architectural design hence express minimal or poor description of architectural needs of their projects.
Second, the process lacks the appropriate bill of all required attributes of the projects which makes the evaluation of the projects tedious and inhibits the clients freedom to make fundamental changes of the design after the contract period is over. Besides, it’s different to choose between the different bids made as each design adopts a different cost (Gray and Hughes, 2001).
Third, there are limited number of firms that can offer complete design and build services making the process lack the required competition that makes the price of the project to lower. Majority of firms can only afford to integrate with other firms due to the complexity of completing the design and building single-handedly.
Last, despite of the possibility of having aesthetically designed structures, the client has minimal control over the design of the project as compared to other procurement routes.
Management Contracting
Management constructing is a procurement route applied in the construction of largescale projects. Through the management contracting approach, the client has an added advantage of reducing the risk by delegating and transferring the management to other contractors of the said project. The management contracting is however less common as compared to the design and build method as well as the traditional procurement but remain a valid alternative. The projects associated with the management contracting are those that should commence earlier before the actual design is complete. Even though applied in the procuring of complex projects, the approach is usually associated with huge risks which the client should always be aware of before opting for the procurement approach.
The initial step of the approach is that the clients subdivide the project into several section and then contractors are appointed each to represent every segment of the project (Ministry of Public Building and Works, 1964). The selection of contractors is done at the initial stage of design development to enable the contactors participation in the design process.
After assigning every contractor to their respective sections, the client signs agreements with the individual contractors on the various requirements for completing the projects and the contractors are the only components with whom, the client can communicate. The contractors therefore are assigned the responsibility of ensuring that all aspects within their assigned areas have been accomplished in due process and cost as agreed (Meredith & Mantel, 2003).
The contractors appointed by the client will act as the principal in their capacities to ensure all the required activities and other essential elements have been achieved in their respective areas. The process therefore makes a complex approach in completing the project even though the process can be easy and time saving if properly managed.
Advantages of management contracting
One of the main advantages of the approach is that there are minimal risks to the client as the division of risks to the various contractors and the occurrence of uncertain natis is attributed to the individual contractor. In essence, the distribution of the services mean an equal division of the risks hence, there are minimal risks to the client.
Second, the contractors are involved at a very early stage allowing them to contribute to the overall design of the plan which helps in reducing risks. In the approach, a the involvement of the contractors offers an opportunity for the contractors to equally give opinions and contributions on the intended outline of the design minimizing the probability of occurrence of risks and errors.
Third, the project ensures that is continuity of other aspects in case one of the contractors fails. In some cases, one contractor may fail hence meaning that the rest of the contractors can proceed with their work.
last, the approach minimizes the required number of consultants who may increase the cost of completing the project.
Disadvantages of management contracting
One of the major disadvantage of management contracting is that the contractors are prone of intentionally exaggerating the cost of construction products and other purchases leading to a high cost of projects. Besides, the clients have minimal control over the projects and therefore depend on the success of the contractors. Last, there is low price competition because the clients hire many contractors hence, the cost of projects is relatively higher.
Construction Management
Construction management is a procurement route which is distinct from the other procurement routes. In the construction procurement, the client uses individual subcontractors to manage the different specific aspect within the project. The approach is different from the management construction in that in management construction, the client employs a single contractor to be in charge of a given task while in construction management, the client employs several subcontractors. In the construction management route, the subcontractors are referred to as trade contractors (Kelly, Morledge and Wilkinson, 2002).
However, the client usually employs a construction manager who is responsible for managing the affairs of the project for a pay, lower than that of which a main contractor could earn. The construction manager acts in the best interest of the client band ensures all the agreements made between the client and the subcontractors has been fulfilled. However, the obligation to make major decisions rest with the client. The construction manager works to ensure that the operational and financial requirement of the project have been fulfilled (Brown, 2001).
One of the factor that may necessitate the construction management route is when the developer needs the flexibility to control the project and make minor changes where necessary without affecting finances and time. Also, the route may be necessary where the client wants the work initiated at an early stage (Brearley, Myers and Allen, 2014).
Partnering/Alliancing
Partnering or alliancing is a construction approach where the parties in a contract develop a collaborative agreement which enhances trust and openness. The approach is used where the project is a long-term and also where there are more risks involved. Project alliancing can be described as mutual agreement between various parties who are involved in the construction industry (Dainty, Moore and Murray, 2007). All parties involved in the project will work towards a common objective of completing the task. In the partnering route, the client forms an alliance with private sectors or other third parties to enable the success of a project.
Advantages of partnering
Some of the advantages of partnering include a higher certainty of project costs, improved performance and high quality service. Also, the approach increases the innovation opportunities.
Proposed procurement approach for railway construction
Due to the complexity of the task, the most essential procurement approach is the design and build approach. The design and build procurement route remain the most essential construction route because the design process is very key in determining the success of the overall project. The congestion in the city is one of the attributes that make the design and build approach more efficient as compared to the other procurement approaches (Dainty, Green & Bagilhole, 2007). For instance, the contractor must be involved in the whole design process so that he or she will give the opinion on the likely approach to reduce congestion. To produce a design that can effectively mitigate the effects of congestion and one that is elaborate enough to accommodate more passengers by increasing the capacity.
For the project to be successful with a reasonable use of capital, as the client, will advertise the project to various contractors to find one contractor with the appropriate design and a corresponding effective cost. The identification of the contractor will depend on the ability to give the best design that will enable the completion of the project. Once selection of the contractor is over, I will ensure the contractor commences the project immediately and proceeds with a rate reasonable enough to ensure that the project is accomplished in time.
Because I will give all the requirements for the project to the contractor, the contractor will be able to produce a high quality work. Besides, the project route will enable the task to be completed in time because it will commence as the design is being completed hence an early completion of the project. Unlike in the normal traditional procurement that will require the project start after completion of the design, the design and build route will make the project end in time to avoid the necessary interruptions to the normal transport.
Risk management
Areas of risk management process to be improved
Designing
The designing of the project is one of the areas that is prone to high risks. The design process must be accomplished in an effective manner to ensure all objectives are fully accomplished. The design is prone to risks in that the constructor may not meet all the design requirements necessary in increasing the rail capacity to reduce congestion (Loosemore, Raftery, Reilly and Higgon, 2006).
Monitoring of project progress
The monitoring process is also prone to risks in that the contractor may not follow all the required protocol during construction (Sawczuck, 1996). Therefore, there should be close monitoring of the construction process to ensure that all the materials used by the contractor meets the required standards and also that the progress is sensitive to time.
Evaluation of the project process
The evaluation process is essential in ensuring that all the prescribed standards have been met by the contractor. One of the risks that is likely to face the evaluation process is that the person evaluating the project may not address all the prescriptions of the project (Flyvberg, 2003). Evaluation of the project is an essential aspect in determining the success and completion of the project.
References
Latham, Sir M (1994) Constructing the Team: joint review of procurement and contractual arrangements in the UK construction industry, HMSO, London [C – summary will be provided]
Loosemore, M., Raftery, J., Reilly, C. and Higgon, D. (2006) Risk management in projects, Taylor and Francis Group, London [B]
Sawczuck, B. (1996) Risk avoidance for the building team, E&F Spon, London [A-B depending on your other risk reading]
Walker, D. & Rowlinson, S. (2007) Procurement systems: a cross- industry project management perspective, Taylor and Francis, Oxford [C]
Masterman, J.W.E. (2002) An Introduction to Building Procurement Systems (2nd Edition), Routledge, London
Holti, R.D., D. Nicolini & M. Smalley (2000) The handbook of supply chain management, Construction Research and Information Association (CIRIA), London [A]
Dallas, M.F. (2006) Value and risk management: a guide to best practice, Blackwell Publishing Ltd., Oxford [A]
Flyvberg, B. (2003) Megaprojects and risk: an anatomy of ambition, Cambridge University Press
Chapman, C.B. & S. Ward (2011) How to manage project opportunity and risk: why uncertainty management can be a much better approach than risk management
Emmitt, S. (2007) Design management for architects, Blackwell Publishing, Oxford (alternative 15)
Gray, C. and W. Hughes (2001) Building design management, Butterworth Heinemann, Oxford
Ministry of Public Building and Works (1964) The placing and management of contracts for building and civil engineering works, HMSO, London [aka The Banwell Report]
Meredith, J.R. & S.J. Mantel Jnr. (2003) Project Management, John Wiley & Sons, USA [B]
Kelly, J. Morledge, R. and Wilkinson, S. (2002) Best value in construction, Blackwell Science Ltd., Oxford
Dainty, A., Moore, D. and Murray, M. (2007) Communication in construction: theory and practice, Taylor and Francis, Oxford
Dainty, A ., Green, S. & Bagilhole, B. [Eds.] (2007) People and culture in construction: a reader, Taylor and Francis, Oxford
Brown, S. (2001) Communication in the design process Spon, London
Bresnen, M. And Marshall, N. (2000) Partnering in construction: a critical review of issues, problems and dilemmas, Construction Management and Economics, 18, pp229-237 available to download at: bmb.cu.eds.tr/evlac/_private/Documents/Literature%20review%20links/704563_758064 766_713763574.pdf
Brearley, R.A. Myers, S.C. and Allen, F., (2014) Principles of Corporate Finance (11th Edition) Ch.7 – uploaded to MOODLE