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The Analysis of Procurement Methods

The research, which has been carried out, is aimed at analyzing procurement methods and their use. In particular, it is of the crucial importance to identify the major criteria for creating the customers profile and organizing delivery. We should also pay extra attention to the choice of particular technique, and the factors, which influence the decision-making process. For this purpose, we should make literature review of internationally-recognized journals and compare the views, expressed by various scholars, on these criteria and procurement routes. Apart from that, theoretical aspects should be illustrated by some practical examples, which show how leading companies approach this issue, namely, we will focus on construction industry and several projects, accomplished recently.

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The table below represents several approaches to procurement criteria, and the aspects, which must be taken into consideration, while selecting the most optimal supply route. This is just an attempt to summarize scholarly approaches on this issue.

Customer’s characteristics Project characteristics External Characteristics Sources
Experience in this field,
Technical Capacity,
Future Relations (Shahadat, p 17)
Attitude towards partners
Priorities (cost-effectiveness, quality, time) (Tookey, et al, p 3)
Type, size, location, use of modern technology, feasibility, urgency (Duc Thang Luu, p 211) Availability of contractors,
Economic and political situation in the region (Duc Thang Luu, p 211)
Labor Productivity
Accessibility of materials (El-Harem, p 270)
Cultural differences
1)Duc Thang Luu. “Parameters governing the selection of procurement system”
John Tookey “Construction procurement routes: re-defining the
contours of construction procurement”
Piscopo “Total Cost of Ownership and Customer Value in Business Markets”
Khan Shahadat “Supplier Choice Criteria of executing agencies in developing countries
Mohamed El-Harem “The role of facility manager”

Procurement methods can also be presented in table format. We need to illustrate the essence of these techniques and various circumstances, under which they can be used.

Name of the method The main peculiarity of the method Customer’s characteristics Project Characteristics External environment Sources
Turnkey A single contactor bears responsibility for the whole project, the customer-receives product, which is ready for use. Extra concern with time and quality. Urgency, relative simplicity Availability of contractor, able to carry out the project (Yean Yng, p 61) Yean Yng Ling “Comparing the Performance of Design-Build and Design-Bid-Build Building Projects in Singapore”
Package Deals The purchase of already-existing project
(Kaplanogu, p 45)
Extra Concern with Quality Availability of the product Kaplanogu “re-project peer reviews in GMP/lump sum contracts”
Design-bid construct The process consists of three stages: the design tendering and construction. The project may be carried out by several contractors The customer focuses on the quality of the project and wants to achieve best price-quality ratio (Ndekugri, p 36) Complexity of the project, and the duration

Complexity of the project

Competitiveness of the market

Availability of the contractor, able to carry out the project

Kululanga “Measuring knowledge management for construction organizations”
Paul Dainty “Management development in a shrinking contracting organization

Ndekugri Building procurement by design and build

Design-build construct The design and construction are performed by the same contractor

In the article Constructing Procurement Routes John Tookey and Michael Murray develop a pattern, which will help the management to make the planning process more efficient, and prevent them from making common mistakes. The authors attach primary importance to such factor as the nature of the client (Tookey et al, p 2). First one should determine whether the client is experienced in this field of activity or not. Secondly, the management should identify what kind of relations will be established with the customer in the future, occasional, constant or it is just a one-time contact. As a rule, special emphasis is placed upon such aspects as cost, quality and time. In this case, the partners should clearly establish priorities. In his turn, Duc Thang Luu presents his own understanding of this question. It seems that his approach is more detailed and more systematic. The scholar singles out three types of criteria: customer, project and environment characteristics: each of them affect the selection of procurement route.

For example, design-bid construct consists of three parts: the first step is the design of the project itself, developing vision, and the identification of the main objectives. The next phase is often called tendering, which means that several contractors are competing for the right to develop the project, and the final stage is the process of construction (Lam, p 386). Such method of procurement can be quite effective if the main priority of the client is the quality of the project. It is possible for the company to choose the most optimal subcontractor. This technique also enables to achieve the best price-quality ratio. As a rule, design-bid construct is applicable to long-standing projects, which usually take more than two years. We can compare this procurement method with its variation, which is often called design-build. The main difference between them lies in the following: the process of design and construction is conducted by the same contractor or supplier (Tookey, p 7).

Another method of procurement that we should discuss is the so-called turnkey, which means the contractor develops the projects and sells it to the customer in a ready to use form. It should be borne in mind that the constructor bears entire responsibility for project. Traditionally, such formula is applied to rather small projects, which do require the participation of several manufactures. Besides, a client can choose such procurement method if he or she wants to achieve quick results. In whole, such form of relations between the client and contractor is one of the most widespread. However, we cannot say that it is very cost-effective because a turnkey project is almost always time-oriented and it often makes the client incur considerable expenses (Fellows, p 65). In this regard, we can discuss the so-called package deals, which means that the project already exists and it completely suits customer’s requirements. As a rule such projects are called type designs.

The cases, we are going to discuss in this research are taken from construction industry. For the purpose of privacy we would not name the companies because such disclosure may have rather detrimental effects. These examples illustrate the use of several procurement methods, and the factors, which influenced the choice of the management.

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Case 1.

Name Factors Procurement method
The construction of a stadium Complexity of the project
Extra concern with quality
Design-bid construct

Case 2.

Name Factors Procurement method
The substitution of a supporting girder Urgency Turnkey

Case 3.

Name Factors Procurement method
The construction of rolling shop Availability of a type project. Package Deals

Case 4.

Name Factors Procurement method
The installment of a new furnace blast The situation in the market Design-build constuct

It can be observed, that the companies have acted according to various criteria, while determining the procurement method. In the first case, we may speak about special concern with the quality of the project and its complexity because the construction of a stadium usually involves several manufactures, only one contractor simply cannot cope with the task. Moreover, the client had a considerable amount of time. The second case is an example of the so-called turn-key project. The customer chose such approach because the company had very stringent deadline and there was practically no time for tendering. Besides, the project could be completed by a single contractor, because the substitution of the supporting girder could be made by only by one company. Furthermore, the client wanted to eliminate every risk of any discordance because in that case any delay could entail considerable expenses.

The third example represents the so-called delivery package deals, the client preferred this procurement route because, he needed a type project, and such product had already existed in the market. The forth case can be regarded as design-build construct, which means that the same contractor bore full responsibility of the delivery of the product. Here, the design and installment of a new blast furnace were made by the same firm. The preference was given to this technique mostly due to the situation in the market, because the company, working on the project was the only one specializing in this field of construction.

Overall, we need to acknowledge that current practices of selecting procurement route did not have any adverse effect on performance and the outcome of the above-mentioned projects. All of them were completed within a given deadline and according to the information, published recently, they still function normally. It can be observed that while deciding on the most optimal method of supply, the management in all these companies focused on mostly on the characteristics of customer and those ones of the project. Certainly, traditionally, it is believed that the external factors must not be overlooked, but in these particular cases, we may state that this aspect was not taken into account. On the one hand, there was practically no necessity to do it.

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However, we should say, there were some controversies between the contractor and the client, namely, in the second case, which concerns the substitution of a supporting girder. The client was mostly time-oriented and wanted the project to be completed as soon as possible. Yet, the company did not consider the situation in the market: there were several design and build organizations that could perform this task, ensuring the best price-quality ratio. Additionally, during the completion stage, there were several disagreements with the contractor regarding the peculiarities of the construction, and these disagreements could have led to the complete frustration of the plan. It seems that this problem could have been averted if the client had chosen to research the situation in the market. As for other projects, we should admit that the procurement routes were appropriate and there were no conflicts, delays, or controversies.

Therefore, we can arrive at the conclusion that the choice of procurement method determines the effectiveness or ineffectiveness of the production process. The special importance should be attached to the priorities of the client, the complexity of the project and the external factors. Traditionally, supply techniques aim to provide the best price-quality ratio. Yet, there are some other characteristic, which cannot be disregarded. For instance, the timelines of the project often force the customer to incur heavy expenses. Furthermore, we may say that the supplier, in his or her turn, must focus on the clients characteristics such as experience, or inexperience in this particular field. Besides one cannot forget about external factors and the way in which they can influence the process of production and delivery. The cases, which we have discussed, illustrate various procurement routes and different approaches to this question. All of them prove, that three types of characteristics (client, project, and external environment) should be taken into account while developing procurement plan.


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