Strategic Construction Procurement | Report

Running head: STRATEGIC CONSTRUCTION PROCUREMENT 1
Strategic construction procurement
Name
Institution

STRATEGIC CONSTRUCTION PROCUREMENT 2
Table of contents
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 3
DESIGN AND CONSTRUCT (D&C) PROCUREMENT SYSTEM
Definition and Key characteristics . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 4
Implementation process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .pg. 5
Merits/ demerit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 6
PATTERNING PROCUREMENT SYSTEM
Definition and Key characteristics . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 7-9
Implementation process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .pg. 10-11
Merits/ demerit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 12
ALLIANCING PROCUREMENT SYSTEM
Definition and Key characteristics . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 13-14
Implementation process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .pg. 15-16
Merits/ demerit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 17
PUBLIC AND PRIVATE PARTNERSHIP SYSTEM
Definition and Key characteristics . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 18-19
Implementation process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .pg. 20-21
Merits/ demerit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 22
REFERENCES . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 23-24

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EXECUTIVE SUMMARY
The thesis of the paper paper presented entails a report on the strategic procurement management in
which various procurement terms and details have been discussed ibto details. The report consists
of a detailed explanation of four construction project delivery systems which has been linked to the
given five. The four strategies applied in procurement are Design & Construct, Partnering,
Alliancing and Public-private partnership methods. from the above mentioned procurement
methods, Each of the construction procurement system’s definition, key characteristics,
implementation process highlighting contractual and functional relationships and the comparisons
concerning their advantages and disadvantages are explained into details. In-depth knowledge of the
procurement systems, usage of these methods to particular projects is studied.

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DESIGN AND CONSTRUCT (D&C) PROCUREMENT SYSTEM
DEFINITION & KEY CHARACTERISTICS
As opposed to the traditional Design-Bid-Build system where the one employs both architect and
contractor to finish the design and construction work respectively, this new integrated system
enables the whole work to be completed by single engineer. This implies that, the procurement
strategy in which single contractor accepts the role of design and construction of the project owing
to the specifications laid down by the owner.
Key characteristics of the D&C technique are,
Under this type of contracts, in principle, solitary point of responsibility is identified. Hence, the
owner has only one firm to manage. In practical, the owner's necessities are explained to the degree
that the contractor's design contribution, and obligation, is reduced.
• It states that the construction work can be started early as the design could be created and
modified along the construction process.
• The time frame for completing the project is expected from the engineer. This commitment
on the contractor to be in charge of the progression of their necessary data is a highlight
amongst the most appealing characteristics of D&C.
• Hiring consultants and allocation of ample time by the owner is expected in border to assist
in the preparation of requisites.
• Following difficulty practically evaluating tenders, the contractors are informed of the
criteria for selection and whether the price of the project is given the most priority.
• Benefits can be achieved when designers and estimators are working firmly together. The
contractor's familiarity with current economic situations and delivery times can guarantee
that a contract runs easily, financially and speedily.

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IMPLEMENTATION PROCESS
Ndekugri and Turner (1994) argued that there are few variations of D&C process such as
Direct, Competitive, Develop & Construct, Package deal and Novation. The usual flowchart of
the process is shown below
Figure 1 Pre-novation process
The above figure shows the process of D&C system within a project
Depiction of the flowchart above shows pre-novation where the consultants are appointed to assist
the owner. Usually, the owner is the cause for the project brief to be delivered to initiate the D&C
process based on the owner’s project requirements and objectives (Rahmani et al., 2017). These
include functional, performance, quality and design life requirements along with the constraints on
the design if any. These conditions of the contract should be drafted by the owner with clearly
allocating risks and avoiding uncertainty. Then follows the pre-qualification process for the tender
call. Next, the owner calls for a tender in which agreement will be made between the owner and the
contractor who got the tender on a fixed-price basis. The contractor then starts the project work
employing its designer. In the case of novation, contractor acquires the previous design model from
the owner/client and uses it to finish the design requirements of the current project and starts
construction.

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MERITS/DE-MERITS
Merits of going with this strategy are,
• the client is expected to work with only one firm to save resources and time required to hire
two separate contractors for the design and construction of the project
• overlapping the work hours results to project’s time and complexity is reduced
• following contractor’s input into the design, the chance of improving constructability
• Usage of guaranteed maximum price with split savings, reduction of cost and time takes
place and innovation is stimulated
In contrast, demerits of the technique are also identified as follows
• It is difficult to prepare a comprehensive brief that incorporates necessary info for the
owners which leads to the changes need to be made to scope in later stages very expensive
• Since each design is different, it is hard to compare the tenders and the prices for each
design will also be different
• Owner is needed to commit to a concept design at an initial stage before the whole design is
fully finished

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PARTNERING PROCUREMENT SYSTEM
DEFINITION
Past investigations has provided various meaning of partnering. Among them, the definition created
by the Construction Industry Institute (CII) in the United States is the most generally referred to the
long-term commitment between two or more firms with aim of achieving specific operational
objectives by maximizing the use of the resources (Institute, 1991).
In summary, partnering is a management system that involves an alliance between two or more
entities having specific mutual objectives working together towards success with understanding and
trust between each other. It means to produce a hierarchical domain of trust, open correspondence,
and employee association (Sanders and Moore, 1992).
Key characteristics
In the past years, partnering has advanced as a creative way used by different construction firms to
deal with the obtainment of construction benefits in the industry. It limits the uncertainties of cost
overruns and delays because of better time and cost command over the project (Black et al., 2000).
It provides the premise to project members to re-orientate themselves toward a ''win-win'' way to
deal with critical thinking and encourages synergistic cooperation among them.
A few observational examinations and the suppositions of industry specialists from documented
information recognizing significant variables influencing the accomplishment of partnering projects
were audited, and the key factors responsible for the success of a partnering venture is depicted in
fig below.

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Figure 2 Success factors for Partnering
The above figure illustrates the success factors involved in a Partnering procurement system
Enough resources
Following the fact that construction resources are rare and competitive, it isn't normal for an
association to impart its assets to other people. These primary assets incorporate learning,
innovation, data, explicit abilities, and capital (Ndekugri and Turner, 1994) (Brooke and Litwin,
1997). It is likewise huge to learn the most extreme utilization of shared assets.
Support from higher management
With support from top management success of partnering in guaranteed since they are always key
factors for partnering project success. As senior administration plans the technique and direction
flow of business exercises, their full help and responsibility are basic in starting and driving the
partnering spirit (Cheng et al., 2000).
Mutual trust
Mutual trust towards other partners in the venture is considered significant for any partnering
venture to be fruitful. It is fundamental to ''open'' the limits of the relationship since it can alleviate
pressure and upgrade flexibility, data trade, joint critical thinking, and guarantee better results
(Cheng et al., 2000) (Bayramoglu, 2001).

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Long-term commitment
This implies to the ability of the incorporated entities to coordinate ceaselessly to unexpected issues
(Bresnen and Marshall, 2000). Progressively dedicated entities are required to adjust the fulfilment
of short-term goals with long haul goals and accomplish both individual and joint missions without
raising the dread of opportunistic conduct (Romancik, 1995).
Productive conflict resolution
Variations in goals and objectives among different parties are the causes of conflicts among the
partners. However, certain resolution techniques such as coercion and confrontation can be adopted
to solve the issues in some cases while in other cases they may prove counterproductive (Slater,
1998) (Lazar, 2000). So, by seeking alternative solutions for the conflicts that are in boundaries of
Either parties’ mutual satisfaction helps to secure a jointly approved solution.

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Implementation process
Definition of partnering can be summarized as the system that strives to organize an adequate
project management process between two or more entities. The figure below illustrates the
partnering project process since from the decision of use of partnering through to the review and
feedback.
Figure 3 Implementation process of Partnering
The above depicted figure represents the process of implementation of Partnering project
delivery method
The need for partnering arises when a party is in short of resources required to undertake the project
or if it is out of its expertise to accomplish the project and in few other occasions. Once the decision
has been made to use the partnering procurement system the first step in the process is to organize a
workshop housing all the stakeholders, project managers and architects and establishing mutual
objectives. Additionally, project deliverables and percentage of partnering resources shared are
discussed and agreed. Problem resolving process and the teams required to perform the necessary
actions are chosen.

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Follow-up workshops and workshops to familiarize the teams with industry are carried out.
Simultaneously, it is advised to note the project performance at regular intervals and give feedback
on results to project team for better performance. This proves to be essential in ensuring the
efficient usage of time and resources to keep the project on track. Finally, to envision the successful
completion of partnering project procurement system a workshop exhibiting the deliverables,
review and feedback on the project is undertaken through which project performance can be
measured.

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Merits/demerits & comparisons
The system is believed to efficiently maximize the utilization of each entity’s resources and helps in
achieving shared objectives. However, there are a considerable amount of downsides to housing
different parties with different objectives in one project giving rise to conflicts.
Some of the major merits and de-merits are tabularized below for easy understanding.
Table 1. Merits & De-merits of partnering procurement system
MERITS DE-MERITS
Reduced exposure to litigation Inhibition of developing new businesses
Lesser administrative costs Usage of cut-throat competition to win other
ventures
Improvement on the quality and project’s
related cost
Conflicts in decision making
Improved turnover and profits Limited open communication
Tailored service provision Chance to inhibit deep partner relationships
through commercial realities
Shared risks and resources

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ALLIANCING PROCUREMENT SYSTEM
Definition & key characteristics
Alliancing is defined as the procurement strategy where ‘the owner decides to collaborate with one
or more companies to share the uncertainties and responsibilities in delivering the capital phase of a
project’ (DTF Victoria, 2006). In other words, a joint venture in which two or more firms combine
and strive towards mutual objectives while retaining individual identity and control over their
respective organizations. Project alliancing is ordinarily utilized on bigger and progressively
complex projects, where there is a lot of vulnerability so would be valuable in a crisis circumstance.
To fully understand the concept of alliancing, we must focus on the practical boundaries and
implications and the principles incorporated in the same. The significant number of researchers
have given thought to these principles and among them (Walker et al., 2002) (Hauck et al., 2004)
who researched on National Museum of Australia project practice and (Ross, 2003) who reported
mostly on alliancing in AU are notable. Combining the data of these reports along with the
guidelines provided by the Department of Treasury and Finance, Victoria (DTF Victoria, 2006).
The key characteristics of alliancing are summarized below
Team selection
 Select the best personnel for the particular project
 Select partners with good reputation and competence
Project proposal development
 Devise the project proposal with alliance partners and owner’s co-operation

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Risk & Reward allocation
 Share the risks and rewards collectively
 Maintain owner’s goals in line with partner’s commercial goals
Governance and management
 Make the major decisions unanimously
 Communicate effectively with partners and maintain ‘open-book’ while documenting
and reporting
Dispute resolution
 Resolve conflicts and debates internally
 Make a deal to avoid litigate or arbitrate
.

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IMPLEMENTATION PROCESS
The alliancing process initially was following a business-as-usual process with selection process
first based on service criteria and price consideration as a secondary level issue. In this, it is
assumed that the best value will follow (Chen et al., 2012). However, over the years new alliancing
projects are being justified first based on cost. As in equipping the organizations with the capability
to ascertain the capacity to manage the risk of cost overruns. There are majorly three types of
alliancing arrangements based on the literature review conducted,
 Product focused (Manufacturing & Distribution industry)
 Service focused (Airline industry)
 Product and service focused (Engineering & Construction industry)
Based on the (Abrahams and Cullen, 1998) alliancing selection process is illustrated below:
Figure 4 Alliancing selection process

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The above figure demonstrates the selection process for alliancing procurement system
A free facilitator enables the customer and different members to build up the arrangement of rules
that will give the basic work culture that will characterize the project's group working condition.
The alliance team emerged with other contractors involved will form an alliance board, project
management team and develops measures required to measure commitment and quantify the results.
When the alliance board is chosen, it will concur target costs for the venture and the gain share/pain
share equation with the customer. The customer will, for the most part, be exhorted by outer experts
to guarantee that probity and value for cash are kept up. The contrast among partnering and
alliancing is apparent at this stage because partnering understandings are set up and consulted after
individual project mates have offered or negotiated
their different contracts (Larsson et al., 1998). In strategic alliances, the alliance assumes
responsibility as a group for increasing the venture cost and keeping up that cost or enhancing it.
Conflicts are treated likewise as partnering procedures however the additional motivating force of
alliance partners' sharing gain or pain, as a gathering is increasingly compelling (Larsson et al.,
1998). It is in light of a legitimate concern for all alliancing entities to enable a low performing
member to perform at an elevated requirement all together that all may get a share in any reward.
It’s this win or loses a case that empowers genuine motivation in the involved parties.

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MERITS & DE-MERITS
Table 3. Merits & De-merits of alliancing procurement system
MERITS DE-MERITS
Completion of project on time-early
completion in cases of set backs
Lack of certainty in cost outcome for the
owner
Effective management of stakeholder issues Demands significant commitment of owner
personnel and management superiors
Skills transfer, professional growth and
development for working staff
Target outrun cost inflated
Enhanced reputations for owner, contractors
involved and stakeholders
Hidden margins in cost overruns and
fraudulent accounting
Sound sense of balance between capital
investment and whole-life-costs
Substantial costs to establish and maintain
alliance culture
Much better informed solutions for usage of
equipment and technical solutions
Probity issues may arise in case of
government projects

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PUBLIC PRIVATE PARTNERSHIP (PPP) SYSTEM
Definition & key characteristics
The definition of PPP has been summarized as the act of bringing about something, providing
maintenance and serving by applying project-wise approach from joint risk acceptance, estimated
costs and expected returns by aiming at the commercial and social objectives” (Knoester, 1988).
It is a special kind of procurement strategy that has complex objectives with limited time and scope
(Knoester, 1988). Differences in objectives in a project are resulted by the nature of participants and
cultures (Reijniers, 1994).
PPPs are unique in their way as they help solve governments’ financing shortfall by reductions in
expenditure in investment and searching for potential outcomes of sponsoring the activities from
different channels. Also identifies new market gaps for investment, as they encounter a decline in
one of their investment goals because of reductions in the administration's financing shortfall
(Turner and Müller, 2005). Due to this, the private organizations get to involve in a significant way
in decisions taken by the government. However, due to the very nature of PPPs having housed the
involvement of public and private organizations, differences in terms of objectives and funds arise
which is a potential pitfall of the system. For example, public interests could be defined as
legislation and political influence, reducing the risks associated, democratic decision-making
process, focusing on the achievement of social goals etc. On the other hand, private organizations
have their own set of objectives which generally represent aiming for returns on investments,
tendency to take risks, focusing on achieving commercial goals and so on.
IMPLEMENTATION PROCESS

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Like the other procurement management systems, PPPs also are implemented based on a phased
approach. In order to realize a goal directed, successful PPP the following 5 phases are deemed
essential based on the literature research conducted.
 Objectives determination phase
 Planning phase
 Organization phase
 Control phase
 Implementation phase
In the objectives establishment phase, the team establishes the actual principals or clients. Risks
encountered are analyzed along with feasibility analysis. Project objectives and scope are defined
and milestones are established paving the way to the final goal (Reijniers, 1994). Level of
participation of each party is defined along with the share of risk and revenue. The planning phase
is further divided into two levels. One concentrates on the milestones, as in what to achieve while
the other focus on the activities to be carried out under each milestone.
A considerable amount of creativity goes into this phase with realistic planning and risk
management incorporated in it. The following flowchart depicts the organizational flow in such a
PPP project:
Figure 5. Implementation process of PPP project

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The above figure illustrates the implementation process of PPP procurement system
A chart with responsibilities and authorities are drawn in the next phase (organization) practically.
Series of personnel involved along with funds are realized. A project manual will be compiled for
ease of understanding their tasks for all project participants. Finally, a kick-off meeting is conducted
with all the involved personnel. The following phase oversees the planning phase with progress
reports being evaluated at each milestone. This is the control phase, in which the changes made to
the original plan are monitored closely. In the case of formation of any bottlenecks, early detection
is facilitated.

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MERITS/DE-MERITS & COMPARISIONS
The usage of PPP procurement management system in a project has its advantages and
disadvantages. As discussed earlier, there is scope for both public and private organizations to work
collectively in this venture with shared goals and complex objectives realized. There is an
advantage of achieving both commercial and social goals equally efficiently within the predicted
time. The private sector gains advantage to involve more with the government’s decisions and
the public sector has access to private organization’s resources and equipment. Moreover, political
and economic risks are equally spread at inception level. The project is monitored at regular
intervals, at each milestone, and changes in the project are closely evaluated. However,
With the presence of the private sector, changes made to the policy or objectives by the public
sector might not bode well with the private organizations involved. Hence, the public sector is
required to provide financial compensation for ensuing consequences. Additionally, in the case of
projects with large risks, the entrepreneurs’ huge surcharge of risk has to be approved by the
government.

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