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Procurement Management and Choice of Suppliers

Introduction

Procurement management and selection of suppliers have a great impact on the performance and outcomes of every project. The Achieving Excellence in Construction Procurement Guide published by the Office of Government Commerce (OGC), 2007) showed that the primary consideration in the procurement of construction projects is the need to obtain best value for money in the whole life of the service or the facility. This means that the design and operations of the facility should provide the maximum effective services. This is most likely to be achieved through integration of design, construction, operations and ongoing maintenance. OGC, 2006 defines Value for Money as ‘the optimum combination of whole-life costs and quality to meet the user requirement’. It also defines Contract Strategy a’ contract strategy determines the level of integration design, construction and ongoing maintenance for a given project, and should support the main project objectives in terms of risk allocation, delivery, motivation, etc. according to the OGC 2007, since April 2000, the UK government policy has been that construction projects should be procured using one of the three recommended procurement routes. Here the UK government approach is based on the premises that suggest that the private sector can offer project management skills, more innovative design and risk management expertise that can bring substantial benefits to the construction projects.

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The Achieving Excellence in Construction Procurement Guide No 6 (OGC 2007) suggested that traditional procurement routes should only be used if they prove to be more value adding in comparison with the three recommenced routes. The new Achieving Excellence targets agreed by UK Ministers in 2002 require projects to demonstrate a significant improvement in performance in terms of quality, cost and time targets. In order to achieve this all procuring parties should adjust to proper integration of the design, construction and operations functions which in turns will require a step forward to fully integrate with supply teams from early stages, motivating payment mechanisms, continuous improvement and collaborative commitment to achieving best whole-life value. The Achieving Excellence in Construction Procurement Guide 2006 showed that these entire requirements are applicable whichever of the three recommended procurement route is selected (Cohen and Roussel 2004).

The Nature and Characteristics of Four Projects

The four projects I was involved in are (1) quality management project performed by the UK government (2) service quality improvements project, (3) integration pf computing systems and (4) monitoring of progress. All of these projects were performed by the UK government. The nature and main characteristics of the projects were similar as they were performed by one organization. The first project lasts for 2 weeks, the second project lasts for 4 weeks, the third project lasts for 3 weeks and the forth project lasts for 2 weeks.

Within the first project, the UK Government strategy is to adopt collaborative contracts in procuring construction works instead of applying traditional procuring methods so that best risks allocations are achieved and maximum benefits from private sectors’ expertise are derived as an incentivised private sector is urged to achieve better outcomes. Adopting collaborative procurement routes in construction projects also offers better involvement of supply teams of constructors, sub-contractors and specialist suppliers from early stages of the project which ensures better evaluation and understanding of clients’ value system requirements.

Within the second project, the OGC guide on construction procurement is considering the adoption of traditional procurement and contracts strategies only where it can be clearly demonstrated that this approach will provide better value for money than the preferred collaborative procurement routes. However, the adoption of traditional procurement approaches require a clear understanding of the clients’ requirements in to establish a clear vision about how to achieve best value for money in the construction business. Awareness of the construction markets in order to form better relationships across the construction supply chain particularly the well informed selection of specialist suppliers. The Guide shows that achieving sound and successful business solutions requires procuring construction projects in terms of assessing the whole-life cycle of construction projects. This is viewed by the OGC ‘Achieving Excellence in Construction Procurement’ guidance, to be achievable through integrating processes between designers, constructors and specialist suppliers working together with the client in a series of projects, continuously developing the product and the supply chain in order to provide best value for clients and all parties involved in the project (Christopher, 2005).

The application of the third project suggests that the critical factors of success in construction projects with regards to the client organization are: the well establishment and clear understanding of the needs of the project particularly, the expected life of the facility in order to achieve a whole-life assessment business case. The selection of the right suppliers to act as partners with everyone involved in the project working together as an integrated team with effective communication and coordination across the whole team. The role of planning in early stages of construction projects is also considered by the OGC Guide on Project Procurement Lifecycle to have a core role in achieving best solutions for the business (Walker and Brammer 2009). The philosophy of early good planning in construction projects is time consuming but the rewards are to be reaped in terms of the time and costs saved in later stages of the projects as identifying points along the project planning route beyond which the project should not proceed without accurate management and funding procedures having been prepared. According to Achieving Excellence in Construction: A manager’s checklist, it is essential that at each point in the planning route the investment decision makers should always evaluate the business case and investment options and proposals, and if justified in terms of providing value for money at each stage proposals should be approved and projects are to be proceeded. The other benefits of good planning are the potentials of ensuring that the client’s requirements and organisational values are well established and understood and therefore provided for. That helps providing better design, reducing wastes and enabling project team to cope better with risks as they occur (Walker and Harland 2008).

The forth project shows that monitoring progress in construction projects is an essential step recommended in Achieving Excellence Guides under the philosophy of a whole-life cycle monitoring of construction projects. Measures of progress are to involve critical activities rather than small details of the project and they should include:

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  • Percentage of completion of an activity in terms of time and cost
  • Planned progress against actual progress
  • Work in progress and key activities
  • Impact on critical path
  • Payment progress and
  • Outstanding requirements and resources

The Guide is also referring to some difficulties in achieving best whole-life cycle targets associated with the one-off nature if some construction projects where full integration and continuous improvement in performance between designers, constructors and suppliers is not possible (Tookey et al. 2001).

Comparison and Construct of the Projects

The first and the third projects were based on similar guidelines and management principles. For these projects it is possible to say that a strategy for more sustainable construction established by the UK Government in 2000, suggested key action themes in environmentally consumption of resources that would encourage the development of sustainable construction within the construction industry. Although the focus is on environmental issues it is also considered by the UK Government to be useful starting point in considering the broader issues that affect the construction project lifecycle. The project procurement lifecycle considers the whole life of a project from inception through to design and construction, operation and finally re-use and disposal (Puschmann and Rainer 2005). The project procurement lifecycle includes the following critical phases:

  • Business justification
  • Project brief and procurement process
  • Design brief
  • Construction process
  • Operation management
  • Disposal and reuse

The OGC guide on sustainability outlines the main sustainability management requirements during a construction projects in order to achieve best business solutions for clients/customers as well as for the standard of people’s life (Munoz, 2009).

In contrast to the and the third projects, the second and the forth projects demanded heavy resources and investments. In these projects, the procurement management requires the needs of individuals and considers their well-being. In the construction industry social sustainability can be realized through means of high measures of health and safety for all individuals involved in the industry beside the provision of training programs and eventually eradicating poverty. This focuses on the stable economic growth through means of adopting measures of fair and rewarding employment and abiding by rules of competitiveness and trade. This is concerned with protecting and conserving biodiversity and environment, by reducing waste, preventing pollution and using water and other natural resources as efficiently as possible (Parry 2006). In ‘Achieving Excellence’ The Government Construction Client Panel (GCCP) declared its commitment to change and improvement in the performance of the UK Government as a construction client in terms of maintaining social, economic and environmental sustainability in all construction works. The Sustainability Action Plan issued by the OGC 2000, showed that achieving sustainable construction projects as well as providing value for money, can be achieved by building relevant factors relating to sustainable development and environment into contract specifications as the ‘Achieving Excellence’ drivers are setting a framework for construction procurement to move and measure progress in a sustainable direction (Murray et al 2008). The purpose of the framework set for construction procurement is aimed at:

  • Procuring construction projects in line with value for money principles on the basis of whole-life costs
  • Less waste during construction and operation
  • Targets for energy and water consumption
  • Targets developed in terms of respect for people for procurement of the government estate; a contribution to the goals of less pollution, better environmental management and improved health and safety in construction sites (Cohen and Roussel 2004).

The UK Government and commercial guidance on construction procurement share several commonalities as all government procurement policies require all public procurement to be on the basis of value for money (Kong and Love. 2001).

Gaps in Current Practices

The main gaps in the second and forth projects were incorrect budgeting and a need to attract more human resources. It is evident that overall cost is an important part of all the value chain activities. The design of this stage affects the materials and process used in production. Cost reduction efforts do not focus exclusively on any one part of the value process. For example, attempts to join manufacturing costs without considering the need to modify product design, outsourced material, quality standards, and promotional effort well result in a poorly made product with a strong image. The construction company uses such technology as ePurchasing. It includes IT and web-based technologies, and helps management to reduce costs and improve quality of products (Cohen and Roussel 2004). If the product derives its value primarily from its low price, it may be immune to these hidden costs if customers expect little beside flexibility from the product To compete with its direct competitors, the construction company should establish effective connections with parts of the external environment–suppliers and customers being two of the more important elements to attract this sort of effort-the teams will perforce be not just on an inter-activity and interdepartmental basis but also inside the company. The value vision has to transcend both internal and external barriers. Internal barriers to horizontal value exchanges can be reduced through the use of value teams, job rotation, broader training, etc. External barriers need to be separately tackled. It is not uncommon for firms to assume a stance of confrontation or hostility, particularly toward suppliers. The argument is typically made that competition among suppliers will bring out the best in them, and hence the best for the firm The use of comprehensive data bases (perhaps with restricted access to sensitive information) would be one approach to wider sharing of information (Luu and Thanh 2003). The wider use of real time data-sharing systems has undoubtedly helped strengthen the linkages among disparate activity areas and dispersed locations Areas in which the construction company value performance is deficient need to be targeted for improvement, focusing resources where most effective. The company tries to achieve a cost reduction through a coordinated effort between R&D and manufacturing; analyzing and addressing the environmental impact of the firm’s product, processes and philosophy. Also, a special attention is paid to reducing set up times to improve volume flexibility (Eriksson, 2009).

Critique of Current Practices

The four projects mentioned above show that the ‘Achieving Excellence’ in construction approach adopted by the UK Government is offering guidance on construction projects procurement with the main focus on precision in times, budgets and quality of the construction projects in order to achieve the maximum value for money for both clients and customers/users. Still, continuous development of the construction products and the emphasis of integrated teamwork philosophy in running construction projects are also at the core of the construction procurement guides published by the Office of Government Commerce in the UK. Most of the OGC guides on construction procurement share the main values for best practice in procuring construction projects in order to implement policies that offer sound business solutions for construction public, private and commercial clients. The values shared by most OGC guides are defined in terms of offering value for money through achieving best design quality, minimum wastes and continuous development of all participants to drive improvement in performance in construction projects. The values and directions stated in the ‘Rethinking Construction’ report for achieving maximum business benefits out of construction projects, are also adopted in most procurement guides published by the OGC and other UK Government and commercial guidance with specific attention to sustainability in construction sector as a business for achieving not only construction facilities but also as a means of offering better quality of life for people and maintaining biodiversity and environment in the UK. Procurement management and choice of suppliers influence profitability because they allow organizations to build customer value by offering customers both a wider range of channels, and more personalized treatment through the integration of channels. Getting this role right, and to a standard of expertise that is superior to that of competitors and sustainable in the longer term, requires an in-depth understanding of the nature and nuance of customer service.

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List of References

Cohen, Ch., Roussel, J. 2004. Strategic Supply Chain Management. McGraw-Hill; 1 edition.

Christopher, M. 2005. Logistics & Supply Chain Management: creating value-adding networks. FT Press; 3 edition.

Cohen, Sh., Roussel, J. 2004. Strategic Supply Chain Management. McGraw-Hill.

Eriksson, Per Erik, TorBjorn Nilsson, Brian Atkin. 2009. Overcoming barriers to partnering through cooperative procurement procedures. Engineering, Construction and Architectural Management 16 (6), 598 – 611.

Luu, Duc Thanh, Ng, S. Thomas. Chen. Swee Eng. 2003. Parameters governing the selection of procurement system – an empirical survey. Engineering, Construction and Architectural Management 10 (3), 209 – 218.

Kong, C.W. P.E.D. H. Li, Love. 2001. An e-commerce system for construction material procurement. Construction Innovation 1 (1), 43 – 54.

Munoz, Sarah-Anne. 2009. Social enterprise and public sector voices on procurement. Social Enterprise Journal 4 (1), 69 – 82.

Murray, Gordon, Peter G. Rentell, David Geere. 2008. Procurement as a shared service in English local government. International Journal of Public Sector Management 21 (5), 540 – 555.

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Parry Glenn, James-Moore, Mike Graves Andrew. 2006. Outsourcing engineering commodity procurement. Supply Chain Management. An International Journal, 11 (5), 436 – 443.

Puschmann, Thomas Alt, Rainer. 2005. Successful use of e-procurement in supply chains. Supply Chain Management. An International Journal, 10 (2), 122 – 133.

Tookey, J. E. et al. 2001. Construction procurement routes: re-defining the contours of construction procurement. Engineering, Construction and Architectural Management 8 (1), 20 – 30.

Walker, Helen Harland, Christine. 2008. E-procurement in the United Nations: influences, issues and impact. International Journal of Operations and Production Management 28 (9), 831 – 857.

Walker, Helen, Brammer, Stephen. 2009. Sustainable procurement in the United Kingdom public sector. Supply Chain Management. An International Journal, 14 (9), 128 – 137.

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