PROCUREMENT

APPROACHES

Procurement is the process of selecting a team for successfully

conducting a construction project.
There are three main ways in which owners procure construction
services: in-house capability, appointment and competition.

IN-HOUSE
The in-house capability is extensively used by owners who
undertake large volumes of work, such as large private
developers and state agencies. The functions usually handled inhouse are related to design and facility management, because
there has been a shift towards outsourcing most project functions
in recent years.

There are a number of important advantages offered by the in-house

capability option, including:
no need for a complete contract prior to starting the project
extensive administrative audit capability for the owner
minimal risk of opportunistic profiteering at the owners expense.
However, there are also important disadvantages of this option:
possible diversion from the owner core business
expensive to maintain in-house capability for small number of projects
possible production inefficiencies because of lack of competition.

APPOINTMENT
Appointment is often used for design and project management
services.
However, in many European countries, appointment for public
projects is limited to a pre-established maximum contract value;
above that value a tender procedure is required.
Appointment may also be used when the project requirements are
so specific that only one entity can fulfil them or when the
requirement to mobilise resources is so urgent that there is no
time to go through a tendering process (e.g. urgent repair of a
wall at risk of collapsing).

The advantages of appointment are:

restricted search of suppliers with lower costs and reduced risks
high-trust relationships built up between the client and the
supplier.
Possible disadvantages are:
lower levels of production efficiency and effectiveness due to
the lack of competition
lack of transparency of the appointment criteria
too-cosy relationships, leading to inadequately rigorous
appointment criteria and this can degenerate into corruption.

COMPETITION
Competition is widely used in the construction industry as a
means of procurement. Design competition is primarily used
when the conceptual quality of the design solution is paramount.

The advantages of competition are that it:

generates opportunities for fresh competitors
brings transparency to the procurement process
encourages production efficiency.
Against these advantages, there are some important disadvantages:
only limited information on competitors is available for decision
some less important aspects of the offer may be over-assessed to the detriment
of possibly more important issues (particularly in design competition)
procurement costs are high, both to the owners (rewards, search and selection)
and to respondents to the competition (in order to prepare the offer, which may
include creative work as in design competition)
requirements for high uncertainty transactions are difficult to prepare
underestimated winning tenders may lead to motivation problems during contract
delivery.

TRADITIONAL PROCUREMENT
RELATIONSHIPS

Traditional procurement assumes the separation of design and construction.

Typically, the owner first contracts design either to an architect for a building
project or to a consulting engineer for an engineering project, and they become
the owners agent during the design phase and act as the design team leader
For small projects, the architect or the consultant engineer, as the case may be,
can take the role of contract administrator on behalf of the owner. Alternatively,
a member of the owners staff can be appointed for this
Coordinators may be appointed to embrace the responsibility and authority of
part of the project team (e.g. the design team, pre-construction team or the
construction team.
Under the traditional procurement approach, contractors are approached at the
pre-construction stage; eventually, a contractor is selected to carry out the
works. The main contractor must nominate a representative acting on the
contractors behalf, who tends to be called construction site manager, site
director, and contractors agent or even project manager, depending on the
countries.

DESIGN AND BUILD

PROCUREMENT RELATIONSHIPS

Design and build arrangements aim at overcoming some of the

criticism of traditional procurement, namely the responsibility
chain, the need for complete design prior to signing the contract
and too late involvement of the
contractor in the project life-cycle.
In order to develop the design, the contractor may use in-house
capabilities or outsource design to an independent team.

MANAGEMENT CONTRACTING
RELATIONSHIPS

Under this approach, the owner appoints a person or a company

to manage a set of work package subcontractors performing the
construction works on site
This approach allows for overlapping design and construction
because each work package may be launched only after the
corresponding design is sufficiently developed. This may result in
reduced contract period and lower construction costs.
the owner first contracts the design and then contracts the
management contractor. This allows the owner to keep control of
the design, while benefiting from the experience of the
management contractor (e.g. constructability and value
engineering) during the development of the design.

CONSTRUCTION MANAGEMENT
RELATIONSHIPS

Under the construction management approach, the owner directly

contracts each work package, and the construction manager
prepares the corresponding project execution and coordinates
works on site.

RELATIONAL
CONTRACTING
Relational contracting embraces various approaches, such as
partnering, joint venturing, alliancing, integrated project delivery
and other collaborative working arrangements and risk sharing
mechanisms