TC70020E AdvancedConstruaction Procument and Process Sample

1. Introduction

The drastic changes in the international economic climate and the increment of various disruptions in supply faced by the construction industry have led to significant changes in the procurement and contracting process. This study is aimed at developing a thorough understanding of modern procurement methods and contracting in the construction industry. The first section of this study is focused on the evaluation of the various procurement methods implemented in the construction industry. The second section of this study is designed to justify the selection of a procurement method for the public project in consideration based on the client and project requirements. The next section of this study intends to evaluate the two major approaches in the selection of the main contractor. The final section of this project is intended to discuss the role of subcontractors and the distinguishing factors between named, nominated and domestic sub-contractors in the construction industry.

2. Comparison and Evaluation of Different Procurement Methods

The development of the formal construction industry has led to the gradual development of the types and complexities of procurement methods in the industry. According to Rowlinson (2022), the major procurement methods in the construction industry include the “Traditional Method”, “Design and Build Method”, “Management Contracting method”, “Joint-Ventures” and “Private Financing Initiatives”. These procurement methods are primarily distinguished based on the functions of construction such as build, design, management, operation and financing. As stated by Liu et al. (2018), the procurement methods are also distinguished based on the vendor selection process such as open tendering, two-stage tendering and selective tendering among others. The selection of the procurement method is also reliant on the three-party system in construction projects. As seen in figure 1, the use of the traditional method places the responsibilities of designing and management on consultants, building the project on the contractor and finances and operations on the client. The “Design and Build Method” places the responsibilities of designing and building on the contractor, financing and operation on the client, and management on the contractor.

Figure 1: Procurement Methods and Functions

(Source: Wondimu et al. 2020)

The procurement methods are tailored to suit the specific requirements of the clients and the projects in the contracts established in the project. As opined by O’Shea et al. (2019), “Joint Ventures or Partnership” projects divide the functions of construction among the contracted parties based on the mutual understanding of the project environment and internal capabilities. On the other hand, the “Private Financing Initiatives” primarily assign the functions to the contractors during the construction of the project and the ownership of the project is transferred to the client after its completion. As per the views of Mojumder et al. (2022), the design process and the construction process in conventional procurement are separated and full documentation precedes the tender offering for contractor selection. In this procurement method, the professional consultants act as the “independent contract administrators”.

[Refer to Appendix 1]

The procurement method is divided into different phases with distinct value additions and outputs. As inferred by Pu et al. (2020), the client controls the phases of need definition, land allocation and financing in public projects, leading to the outputs of built facility requirements, location and project decision. The agents control the phases of conception, designing and detailing leading to the outputs of the project brief, facility definition and facility description. As argued by Tang et al. (2019), the main contractor or turnkey contractor controls the phases of production planning, structural construction and finishing construction leading to the outputs of the project program, budget, structure and completed facility. The role of the client or the public institution at the end of the project is the management of the facility leading to its usage of the facility.

Figure 2: Procurement Systems

(Source:  Gransberg and Molenaar, 2019)

Procurement Systems are the core elements that give rise to the procurement methods in the construction industry. As seen in figure 2, three primary procurement systems are the “Separated and Cooperative System”, “Integrated System” and “Management-Oriented System”. According to Cao and Wang (2022), the “Seperated and Cooperative System” consists of the “Traditional Procurement Method” and its varieties. The varieties include the “Sequential Procurement Method” and the “Accelerated Procurement Method”. As stated by Montalbán-Domingo et al. (2019), the “Integrated Procurement System” includes the “Design and Build Procurement Method” and its varieties. The varieties are “Package Deal Procurement”, “Turnkey Procurement Method” and the “Develop and Construct Procurement Method”. One of the highly nuanced methods included in this system is the “Design Build Finance Operate and Maintain Procurement (BDFOM) Method”. As opined by Hu and Chong (2022), in this procurement method all five aspects of public projects are transferred to private entities, reducing government spending and liability. The “Management-Oriented Procurement System” relies on “Management Contracting” and “Construction Management” methods.

3. Justification of the Selected Procurement Route Based on Client and Project Characteristics

The selected project in this case is the “Fewston Reservoir”. The dam is located in the “Washburn valley in the north of Otley and west of Harrogate in Yorkshire, England”. The dam has a size of “3.5 million cubic meters”. It is considered to be an Embankment dam, which is constructed naturally by using different excavated materials and industrial waste such as “compacted plastics” and various types of sand, rock, soil and clay. The budget of this project has been evaluated as 70 million GBP. The client of this project is the “National Infrastructure Commission”. This is a government party as the client of the public infrastructure construction project. As per the views of Hashem et al. (2018), the most common procurement method used successfully in public projects in developed nations is the DBFOM method as it reduces public spending and liability of maintenance.

Figure 3: Factors Influencing the Selection of Procurement Method

(Source: Grandia and Kruyen, 2020)

Several internal factors of projects influence the selection of the procurement method along with external factors. As seen in figure 3, the three primary internal factors are Client Characteristics, Client Requirements and Project Characteristics. The confluence of these elements in the selection of the procurement method is necessary as they provide the needs, preferences, resources and timeline for the execution of the project. As argued by Zhao et al. (2019), the level of risk for the different stakeholders in public construction projects also influences the selection of the procurement method. It has been noted that the “Design and Build Method” and its variations show the lowest level of risk for the client. On the other hand, according to Nguyen et al. (2018), the procurement method of “Traditional Cost plus Fixed Fee” shows the highest level of risk for the clients of the projects. This evaluation has led to the consideration of the DBFOM method as the most effective method of procurement for the selected project.

The characteristics of the client and the project in this case are highly significant in determining the procurement method of the project. As stated by Wondimu et al. (2018), the UK Government considers the legal frameworks of “Public Contracts Regulations 2015”, “Concession Contracts Regulations 2016”, “Utilities Contracts Regulations 2016”, and “The Public Procurement (Amendments, Repeals and Revocations) Regulations 2016” in the procurement process of public projects with certain exemptions. It has been noted that the government policies focus on “value for money and savings”, “support of enterprise and growth”, and “promoting greater transparency”. As opined by Grandia and Kruyen (2020), these objectives of the government are most effectively achieved through the implementation of the DBFOM method as it enables the government in reducing its expenditure on public infrastructure while promoting the growth of private enterprises. This policy focus has led to the selection of this procurement method in the project under consideration.

Figure 4: Procurement Methods used by Different Clients

(Source: Liu et al. 2018)

Different procurement methods are used by public and private institutions during their involvement as clients, consultants and contractors in construction projects. As seen in figure 4, “Traditional Procurement” is primarily preferred by public institutions as clients and consultants in construction projects. The “Design and Build Method” is also used by public institutions as clients and consultants in construction projects. As per the views of Wondimu et al. (2020), public institutions in the UK do not prefer the procurement methods of “Cost Plus”, “Management Contract” and “Turnkey Contract” due to the involvement of higher risk and lower transparency. This has justified the elimination of these procurement methods from consideration in this project. As inferred by Gransberg and Molenaar (2019), the “Negotiated Procurement Method” and “Construction Management Procurement Method” have notably lower usage by public institutions as they lack transparency. These methods have not been considered in this project as they negate the procurement policy of the UK Government for public projects.

The DBFOM method has also been justified for this project for procurement as it provides higher flexibility to the process of construction and design. As argued by Chen et al. (2018), the “novation agreement” is used in this method by the contractors for the formation of detailed designs based on the engagement of the employer’s consultants. This process has helped the “National Infrastructure Commission” in specifying the initial design and project requirements without engaging in the detailed designing process. “Open Tendering” or “Competitive Tendering” has been adopted by the client in this project to ensure transparency.

4. Competitive and Negotiated Approaches in the Selection of the Main Contractor

The two main approaches used in the construction industry for the selection of the main contractor are the “Competitive and Negotiated Approaches”. According to Russo et al. (2018), the Competitive Approach in the selection of the primary contractor of a project is focused on the identification of the best cost structure of the project for the client. This approach helps the clients invite a large number of offers from different contractors and helps in the selection of the best contractor based on the specifications of the project, the needs of the client and the offer of the contractors. As stated by Rosli et al. (2022), the Competitive Approach commonly engages the process of open tendering of projects by providing the project specifications and the initial design. This approach offers higher transparency in the contracting process.

Figure 5: Selection of Main Contractor

(Source: Russo et al. 2018)

The Competitive Approach is initiated with the selection of the most effective tendering approach. As seen in figure 5, this process is followed by the stages of document selection and selection committee determination. This leads to the finalisation of the methodology and the publication of the procurement documentation. As opined by Elghaish et al. (2022), this process is followed by the reception of tenders, prequalification of the contractor bids and the evaluation of the tenders resulting in the contract award to the most suitable contractor. As opined by Hu and Chong (2022), the disadvantages of this approach include the increment of the project timeline and the cost incurred. The increment of cost and time are assigned to the lengthy tendering process and the need for initial designing and project feasibility evaluations by the client.

On the other hand, the Negotiated approach is highly focused on project performance and speed of project completion. According to Rowlinson (2022), the Negotiated Approach for the selection of the main contractor in the construction industry primarily involves a “single general contractor” for the project. This method of selection is based on the pre-arranged agreement of the client with a contractor for the development of a construction project. As stated by Liu et al. (2018), this approach involves the consultation of the client with the contractor from the project initiation phase regarding the feasibility and the design of the project up to the development of the cost and management plans. This approach is widely used in the private construction sector such as housing projects due to the emphasis on speed and cost-efficiency of the projects for the clients.

Figure 6: Comparison of Negotiated and Competitive Approaches

(Source: Rosli et al. 2022)

Negotiated Approach provides lower transparency in construction projects. As opined by O’Shea et al. (2019), the major benefits of the Negotiated Approach involve budget reduction for the client and higher project quality. The comparative evaluation of these two approaches indicates several distinctions. As seen in figure 6, the Competitive Approach can involve the development of the project by multiple contractors and the owner with price competition of the contractors leading to a laborious approach for the client. On the other hand, the Negotiation Approach engages one contractor with pure alliance and single TOC as well as fee set as a price component leading to fast project completion but conflict with the EU regulations.

[Refer to Appendix 2]

The Negotiated Approach includes many types of contract development with the project contractors. As inferred by Pu et al. (2020), the major types of contracts in this approach are “Cost plus Fixed Fee”, “Cost plus Cost Percentage”, and “Cost plus Fixed Fee plus Profit Sharing” contracts. These contract types of determined based on the project cost formulated through the collaborative effort of the selected contractor and the client. As per the views of Mojumder et al. (2022), the Competitive Approach involves contracts such as “Lump Sum Contract”, “Measure and Pay Contract” and “Schedule of Rate Contract” in construction projects. The contracts in this approach are based on the lowest cost of the project incurred by the client through contractor engagement.

5. Role of Sub-contractors and Differences between Domestic, Nominated and Named Sub-contractors

Sub-contractors are engaged by the primary contractors of the project for the performance of different segments of the project based on their expertise. As argued by Tang et al. (2019), the central role of the sub-contractors is based on the contractual obligations formed between the primary contractor and the sub-contractor. The primary contractor acts as an intermediary between the client and the sub-contractors. According to Cao and Wang (2022), the role of the sub-contractor in a construction project involves the completion of different specialised areas of the project. The central focus of the sub-contractors is to enable efficient and timely project completion through collaboration with the primary contractor. As inferred by Stokke et al. (2022), the importance of the role played by the sub-contractors in a construction project is based on the engagement of expertise in different niches of the project. The sub-contractors have highly specified roles in different project stages such as structural development and finishing.

The first type of subcontractor is the Domestic Sub-contractor. As stated by Montalbán-Domingo et al. (2019), domestic subcontractors are selected by the main contractor for the completion of a specific aspect of a construction project. The negotiation of terms and price of the subcontract are negotiated between the primary contractor and domestic sub-contractor. As argued by Chen et al. (2018), the main contractor assumes liability for the performance of the domestic sub-contractor in the project. The responsibility for the payment of the subcontract is also taken by the main contractor. As seen in figure 7, the approval of the domestic sub-contractor is conducted by the project consultant. The development of the contract is also conducted between the domestic sub-contractor and the main contractor.

Figure 7: Differences between Nominated and Domestic Sub-contractor

(Source: Rowlinson, 2022)

On the other hand, the selection of the Nominated Sub-contractor is undertaken by the client or the project consultant. As per the views of Hashem et al. (2018), the negotiation of the terms and price of the sub-contract is conducted between the project consultant or the client and the Nominated Sub-contractor. However, the liability of the project performance of the Nominated Sub-contractor is assigned to the main contractor. As inferred by Stokke et al. (2022), the payment of the Nominated Sub-contractor is undertaken by the client of the project. Approval of the Nominated Sub-contractor is assigned to the project consultant.

The contract is developed between the Nominated Sub-contractor and the main contractor based on project roles. As argued by Zhao et al. (2019), “Named Sub-contractors” are defined as the sub-contractors who are directly included in the project by the client. This helps the clients in controlling the selection of subcontractors by the main contract through direct engagement. According to Nguyen et al. (2018), JCT contracts primarily involve “Named Sub-contractors” and they are either named in the tender offering or in the project instruction included in the contract. This process helps the client gain the “specialist’s design input” in the project.

6. Conclusion

The study has effectively compared different types of procurement methods ranging from traditional procurement to the modern “Design and Build” method. The study has also selected and justified the use of the “DBFOM procurement method” as the most effective method of procurement in the selected public project. The study has further explored the aspects of the Competitive Approach and Negotiated Approach used in the construction industry for the selection of the main contractor through the evaluation of its benefits and drawbacks. The study has examined the role of sub-contractors in a construction project along with an evaluation of the distinguishing elements between Domestic, Nominated and Named Sub-contractors.

Reference List

Cao, F. and Wang, C. (2022). An Empirical Study of Determinants of Pay-for-Performance in PPP Procurement. Sustainability, 14(19), p.12738.

Chen, L., Manley, K., Lewis, J., Helfer, F. and Widen, K. (2018). Procurement and governance choices for collaborative infrastructure projects. Journal of construction engineering and management, 144(8), p.04018071.

Elghaish, F., Rahimian, F.P., Hosseini, M.R., Edwards, D. and Shelbourn, M. (2022). Financial management of construction projects: Hyperledger fabric and chaincode solutions. Automation in Construction, 137, p.104185.

Grandia, J.J. and Kruyen, P.P. (2020). Assessing the implementation of sustainable public procurement using quantitative text-analysis tools: A large-scale analysis of Belgian public procurement notices. Journal of Purchasing and Supply Management, 26(4), p.100627.

Gransberg, D.D. and Molenaar, K.R. (2019). Critical comparison of progressive design-build and construction manager/general contractor project delivery methods. Transportation Research Record, 2673(1), pp.261-268.

Hashem M. Mehany, M.S., Bashettiyavar, G., Esmaeili, B. and Gad, G. (2018). Claims and project performance between traditional and alternative project delivery methods. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 10(3), p.04518017.

Hu, X. and Chong, H.Y. (2022). Integrated frameworks of construction procurement systems for off-site manufacturing projects: social network analysis. International Journal of Construction Management, 22(11), pp.2089-2097.

Liu, K., Su, Y. and Zhang, S. (2018). Evaluating supplier management maturity in prefabricated construction project-survey analysis in China. Sustainability, 10(9), p.3046.

Mojumder, A., Singh, A., Kumar, A. and Liu, Y. (2022). Mitigating the barriers to green procurement adoption: An exploratory study of the Indian construction industry. Journal of Cleaner Production, 372, p.133505.

Montalbán-Domingo, L., García-Segura, T., Amalia Sanz, M. and Pellicer, E. (2019). Social sustainability in delivery and procurement of public construction contracts. Journal of management in engineering, 35(2), p.04018065.

Nguyen, P.H., Lines, B.C. and Tran, D.Q. (2018). Best-value procurement in design-bid-build construction projects: Empirical analysis of selection outcomes. Journal of Construction Engineering and Management, 144(10), p.04018093.

O’shea, C., Palcic, D. and Reeves, E. (2019). Comparing PPP with traditional procurement: The case of schools procurement in Ireland. Annals of public and cooperative economics, 90(2), pp.245-267.

Pu, W., Xu, F., Chen, R. and Marques, R.C. (2020). PPP project procurement model selection in China: does it matter?. Construction management and economics, 38(2), pp.126-139.

Rosli, N.M., Mustaffa, N.E. and Arifin, H.L.T. (2022, October). The Crucial Conditions and Attributes of Domestic Subcontract in Malaysian Construction Industry. In IOP Conference Series: Earth and Environmental Science (Vol. 1067, No. 1, p. 012054). IOP Publishing.

Rowlinson, S. (2022). Construction project procurement: A critical review. Describing Construction, pp.112-137.

Russo, D., Taccogna, G., Ciancarini, P., Messina, A. and Succi, G. (2018, May). Contracting agile developments for mission critical systems in the public sector. In Proceedings of the 40th international conference on software engineering: Software engineering in society (pp. 47-56).

Stokke, R., Qiu, X., Sparrevik, M., Truloff, S., Borge, I. and de Boer, L. (2022). Procurement for zero-emission construction sites: a comparative study of four European cities. Environment Systems and Decisions, pp.1-15.

Tang, Z.W., Ng, S.T. and Skitmore, M. (2019). Influence of procurement systems to the success of sustainable buildings. Journal of Cleaner Production, 218, pp.1007-1030.

Wondimu, P.A., Hosseini, A., Lohne, J. and Laedre, O. (2018). Early contractor involvement approaches in public project procurement. Journal of Public Procurement.

Wondimu, P.A., Klakegg, O.J. and Lædre, O. (2020). Early contractor involvement (ECI): ways to do it in public projects. Journal of public procurement.

Zhao, N., Ying, F. and Tookey, J. (2019, November). Selection Criteria for Procurement System: A Systematic Literature Review. In International Symposium on Advancement of Construction Management and Real Estate (pp. 2147-2155). Springer, Singapore.

Appendices

Appendix 1: Contemporary Procurement Routes

(Source: Elghaish et al. 2022)

Appendix 2: Comparison of Negotiated and Competitive Approaches in the Selection of Main Contractor

(Source: Adapted from Hu and Chong, 2022)