Procurement Routes
how can clients choose the best one for them?
Procurement methods
Some definitions: -
• “...the amalgam of activities undertaken by
the client to obtain a building.” Franks
(1990)
• * “The organisational structure adopted by
the client for the management of the
design & construction of a building
project.” Masterman (1992)
Procurement methods
• There are various ‘methods or routes’ by
which a client can procure a building: -
• * Traditional or conventional
• * Design & build
• * Management orientated methods
• * Partnering - ?????
• Each method has characteristics which suit
different clients’ requirements
• It’s essential to select the right method for
each client and for each project
Traditional procurement
Still widely used; provides designer-led
method with competitive tender
Design & Build
• Design &
construction is with
one company,
usually contractor
• Recently, has
become
increasingly
popular
• Almost as popular
as ‘traditional’
• High profile
projects:
–Arsenal
–Wembley
Management orientated methods
Contractor is appointed much earlier, on a fee,
or lump sum, basis
Management contracting Construction
management
Public/ Private Partnerships
Design, build, finance and operate
o Private Finance Initiative
oBuilding Schools for the Future
(BSF)
oPFI hospital building programme
(also adopted by Australia,
Malaysia)
oRoads
Local Improvement Finance Trust
(Health)
o Community based health clinics in
England
Example PFI Structure
National Audit Office
Partnering Arrangements
• Egan (1998)
‘….involves two or more
organisations working together to
improve performance through
agreeing mutual objectives, devising
a way for resolving any disputes and
committing themselves to continuous
improvement, measuring progress
and sharing the gains’
National Health Service
Examples of partnering arrangements
• Procure 21+
• a framework of companies which
have been pre-selected to be on the
framework for a pre-determined length
of time. Client organisations are able to
chose which contractor they want to
work with from the list
National Health Service
• Local Improvement Finance Trust
•A Supply chain headed by one
organisation e.g. a property developer
contract with an NHS body for 20 years
underpinned by an exclusivity
agreement
Advantages of Partnering
• Reduces transaction costs associated with
competitive tendering
• Both parties have mutual/ shared goals
• Increase in trust between the client and the
supply chain
• More effective dispute resolution and issue
resolution
• Continuous improvement
Risks
• Lack of competition
• Inability to achieve efficiencies or value for money
• Inequality in partnering relationship
• Unable to decide on risk/ gain share structure
Is it the structure or the behaviour of individuals
that makes partnering work?
Summary
• Construction is a set of activities
undertaken by the client to obtain a
building
• The 3 main procurement routes are,
traditional, design and build, and
management orientated methods.
• Partnering approaches were developed
because of concerns about the
inefficiency and adversarial nature of
construction methods.
• Partnering has advantages but there
are also risks to a successful partnering
approach
Selection of procurement systems
Introduction
• There are many systems of procuring a new
facility
• The Client needs to select the ‘right one’, based
on their requirements
• Experienced clients can use systems that have
worked for them before
• Inexperienced clients need advice from
construction professionals
• Two phases:
• Assessing & setting priorities
• Considering options
Types of Procurement Systems
We have identified three procurement
methods
• Traditional
• Design and Build
• Management orientated
How does the client know which is best for
them?
View of risk and choice
of procurement route
Franks (1998): -
• Clients should decide level of risk they are going
to take
• Risk can be managed, minimised, shared,
transferred or accepted, but …………………
………….it cannot be ignored!!
Procurement Risk
• There are other risks
• Cost overruns
• Time overruns
• Workmanship
Who takes the risk if a project overruns its timetable? Or
exceed the planned cost? Who is responsible if the
workmanship or design is poor?
Types of Procurement Systems
Latham (1994) suggests
• Design & build deal gives minimal risk to
client.
• Variations include
• Design build, finance & operate (has been used in
pubic sector e.g. hospitals, clinics, schools & toll
roads)
• Traditional method offers slightly more risk
• Management methods place nearly all risk
with client
But how can we judge for ourselves?
Masterman (2002)
• ‘Identifying your priorities 1995’ table is a ‘primer for
discussion.’
• Other guides & aids to procurement selection have been
developed, including a computer-based system
• Franks (1990) uses a 7 point model of basic performance
requirements based on a subjective 1-5 ranking scale
• Masterman identifies one by Bennett & Grice as being most
useful
• Strengths & weaknesses of systems are tabulated
• Client then weights the criteria to reflect priorities
• ‘Score’ for each method can be calculated
• Highest sum of ‘scores’ suggests best method
(2) Masterman (2002)
Identifying your priorities, after Construction Round Table
(1995)Table
Franks’
table
5 = most
suitable
1 = least
suitable
Using Franks’ table
• Best to rate only the 3 most significant needs:
tradl mantcontg D&B
* economy 3 4 4
* time 2 4 5
* price certainty 4 2 4
9 10 13
* D&B appears most suitable, but if you change client’s
needs: -
tradl mantcontg D&B
* economy 3 4 4
* time 2 4 5
* change facility 5 5 1
10 13 10
* then, management contracting appears best option!
Bennett & Grice chart: -
Bennett & Grice chart (example)
Summary
• Selection of procurement systems needs to be disciplined
& objective
• There is no ‘best buy’ in procurement systems
• Guides to selection assist in the choice
• Inexperienced client should always have an experienced
‘professional advisor’
• Latham suggests that such advisors should be retained for
a limited period to remove the possibility of ‘advisor’
expecting to be ‘lead consultant or project manager’