Strategic Procurement Systems - PDF

Running head: STRATEGIC PROCUREMENT SYSTEM
Strategic procurement system
Name of the Students:
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Executive Summary
This report focuses on strategic construction procurement. This study sheds light on the various
kinds of procurement such as traditional method, design and build procurement system,
management contracting procurement system as well as private financing initiatives. This study
also studies the implementation process of the procurement systems. In this particular study,
various factors influencing construction procurement system are highlighted here. Apart from
this, merits and demerits of different procurement systems are explained in a precise way.
Therefore, it can be stated that the success of a construction project lies on its strategic
procurement.

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Table of Contents
Introduction...............................................................................................................8
Discussion..................................................................................................................8
Types of procurement systems in construction project...............................................................8
Process of implementation of procurement systems in construction project............................12
Variants influencing procurement strategy in construction......................................................14
Advantages and disadvantages of procurement systems...........................................................14
Conclusion...............................................................................................................18
References...............................................................................................................19

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Introduction
Procurement is considered as an integral part of any business. According to Kotulaet al.
(2015), procurement strategy refers to the acquisition of materials, supplies and services, which
an organization or a project needs for operating successfully. In this particular study, different
types of systems in construction project are explained in this particular study. The process of
implementation are highlighted in this particular study. Apart from this, this study will shed light
on advantages as well as disadvantages of procurement systems.
Discussion
Types of procurement systems in construction project
It has been noticed that there are mainly five kinds of procurement systems are generally
practiced in a construction project. These are traditional method, design and build, joint venture
or partnership, management contracting and public financing initiative (PFI).
Traditional method
In case of traditional method, the duty of the contractor is to build the design, which has
been offered to them by the client. It has been noticed that contractor or the engineer design as
well as manages the entire contract. In this context, it can be stated that the client’s
responsibility is to control the finance as well as operations carried out in the project by the
contractor. In accordance with the opinion of Ruparathn and Hewage (2015), this kind of
procurement system is mainly used in the huge projects. Traditional method is also used in
complex projects. In other words, the client appoints the architect for finishing the design. This

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architect is liable for producing certain specifications of a building. It is seen that the it is the
duty of consultant team to control the design as well as cost. In this context, it can be stated that
after the design is being completed by the architect, the employers appoints the main contractor
in order to continue his works via bidding. After this, preparation of the tender documents takes
place on the basis of the specifications well as drawings or bill. It has been observed that the
client gives awards to the lowest tenderer. In this regard, it can be stated that the contract should
take responsibility of every workmanship as well as materials used in the construction project of
the build. Apart from this, the contractor should take responsibility of every work carried out by
the sub-contractors in the construction project. It is seen that the contractual relationship exists
between the employer and every party involved in building construction project. This led the
employer take control in the works. In the opinion of Du et al. (2016), there are chances that
risks can happen because the employer is assigned with so many responsibilities.
Some of the features of traditional procurement system are discussed here. Competitive
tendering is the technique by which the contractor is appointed by the employer. It should be
noted that all the designs are prepared before the tendering process and before the actual
construction initiates. In accordance with the opinion of Lam (2017), design is fully controlled
by the client. In other words, contractor does not have any responsibility to design the
construction project. The tenure of the construction project is long due to separate sequential
procedure of the design as well as construction. Sedita and Apa (2015) commented that
construction cost might be adjusted as mentioned in the contract.
Design and build:
It is the project delivery procurement system widely, which is widely used in the
construction project. In this particular procurement system, the duty of the construction is to

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manage the contract. On the other hand, the employer is subjected to take care of the finance as
well as operations (Che Ibrahim, Costello and Wilkinson, 2015). As opined by Sarhan, Pasquire
and King (2017) design and build is seen to decrease the threats for client. It has been observed
that this particular procurement modifies the conventional sequence of the work.
In this particular procurement system, the contractor is assigned with the task of
designing as constructing the project. In this context, it can be stated that contractors gets a
lumpsum amount from the client’s end for designing the project. In this regard, it can be stated
that contractors are needed for creating the design to the certain level. They are needed for
preparing the tender figure before they present the designing in front of the client. This procedure
is termed as proposal of a construction project. According to Loosemore and Lim (2017), it is the
duty of the team of the team of contractors to evaluate each and every aspect of proposal
submitted by contractors. Moreover, it has been observed that assessment of tenders is a complex
task because contractors are working with several designs. It is very important to notify the
tenders regarding the criteria and price so that they do not have to face any difficulty related to
construction project.
There are certain characteristics features of Design and build procurement strategy. It is
seen that two-stage tendering is used at the time of appointing contractors. In the opinion of
Eom, Kim and Jang (2015), client has the authority to make changes in the design of a
construction at design phase. However, project employer has no control over the creation of
design after it is awarded to a contractor. Contractor is solely responsible person for Valuation
of the construction as well as payment. From the perspective of Eom, Kim and Jang(2015),
employer might appoint the agent who will work as an advisor for him. In other words, client

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does not appoint a contract administrator who will work independently without any dependency
on the client.
Management Contracting:
It has been observed that employers, contractors as well as specialized contracts are part
of this particular management procurement system. According to Love et al. (2015), contractor’s
responsibility is to manage the entire project. On the other hand, clients take care of the finance
of the project along with monitors the operations of the project. It is seen that employers hire
consultants for preparing the project drawings as well as the project specifications. In the opinion
of Li, Arditi and Wang (2015), tenders as well as interviews are used for recruiting and selecting
the management contractor. This contractor does not have to carry out the construction work.
This aids to preserve the independence of the management contractor. As a result, a consultancy
relationship grows up between management contractor and client.
As opined by Jung et al. (2015), payment is given to a management contractor based on
the cost of works packages and agreed fee. It has been noticed that success of the construction
project is dependent on the performance of the team of the contractor. Ćetković et al. (2015)
asserted that budget will be allocated on the basis on the progress made in the construction
project. In this context, it can be state that overall procedure of design as well as construction is
short in comparison with traditional procurement system and design-and build procurement
system. From the perspective of Rahmani, Khalfan and Maqsood(2016), construction
management is considered as another variant.It should be noted that construction manager is
supposed to manage the procedures for employer. It is seen that this variant needs continuous
involvement from the client’s end. It has been noticed that construction management is not
suitable for inexperienced clients (Handfield, Primo and Oliveira, 2015).

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Joint Ventures or Partnering:
It has been noticed that to overcome hindrances, various parties forms the working
environment on the basis of mutual goals, teamwork, faith and sharing threats and rewards. It has
been noticed that the success of this procurement system is highly dependent on understanding of
the different parties. However, Chong and Preece (2014) commented that identifying duties of
every party is quite difficult in case of joint venture procurement system. It is seen that joint
ventures enables the small business organizations in delivering huge projects by merging the
expertise and the available resources. It enables the leading business organizations in acquiring
new resources as well as the expertise from the small-scale business organizations. In order to
share the threats as well as costs, joint ventures are used in the construction project (.Okoye,,
Ngwu and Ugochukwu (2015).
Private Financing Initiative (PFI):
In this particular procurement system, contractor takes care of each and every functions
related to construction. After the completion of the construction project, it will be returned to the
owner. It has been observed that this particular procurement method is usually used by
governmental bodies of the developing nations.
Process of implementation of procurement systems in construction project
Traditional procurement system
The first step includes the recruitment of the consultant team, architect, quantity surveyor
as well as engineers by the client. These individuals have to show some specifications as well as
drawing of a building to the client. It is the responsibility of both the architect as well as engineer

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to provide drawing to the quantity surveyor based on which bills of quantity will be made. After
this, the employer recruits contractor for starting the works related to construction. It should be
noted that contractor team are not in charge of designing the project. After this, it might happen
that employer hires subcontractor for undertaking the specialized works (Li, Arditi and Wang,
2015).
Design and build procurement system
In this procurement method, the main contractor is assigned with the responsibility of
designing as well as constructing the entire project. Here employers recruit consultants for
designing the development. After this, the appointment of the contractor takes place in the hands
of client. It is seen that the contractor has been appointed for continuing every design. It might
happen that the client exerts control over the designworks made by contractor. The consultants
are supposed to prepare the concept design as well as outline specification. After this, contractor
finishes the design and continues the construction. It is seen that consultants either can use in-
house designers for designing the building or can hire consultant designers. It can happen that
owner’s designer have to finish the design. It should be noted that contractors who are hired at
the beginning of the construction project, they have to create the design, Two-stage process has
been used for hiring them. In case of first stage, contractors are hired based on fee, preliminaries,
profit as well as overheads. After this, they starts working with a design team and fixed price has
been negotiated at the next stage after seeing the design.
Management Contracting

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It has been observed that client usually recruits management contractors early in a design
process with the intention of improving costs along with buildability of the proposals. Clients
sometimes ask for advices regarding packaging from management contractors.
Joint venture or partnering procurement system
When alliance occurs between two firms or more than two separate enterprises, gives rise
to partnering procurement systems. It has been noticed that risks along with rewards are shared
by these entities. In accordance with Li, Arditi and Wang (2015), every entity contributes
available resources like land, capital, credentials. In addition to this, they also contribute
available resources like intellectual property, equipments and skills.
Private Finance Initiatives
It is considered as a significant procurement route. It has been noticed that the integrated
supply team has been recruited for designing and constructing the project. Facilities management
expertise is there for designing and building the development of the project.
Variants influencing procurement strategy in construction
It has been noticed that there are many factors that are responsible for impacting
procurement strategy in construction such as external factors, characteristics of an owner,
procurement characteristics, capability to make modifications and cost issues. The size, location
as well as uniqueness of project impacts time, threat and cost. Any changes in laws and interest
rates impacts the procurement strategy in construction project. In order to get success on a
construction project, it is very important for the client to have knowledge, skills and experience.
It has been noticed that should conduct an analysis for the requirement for the cost certainty in

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order to achieve success in a construction project. It is important for the client to identify the
chances of modifications occurring in the project.
Advantages and disadvantages of procurement systems
Traditional system:
There are certain advantages and disadvantages of this particular procurement system.
As the client controls the works of the construction project, it is expected that high-quality works
would be outcome of traditional procurement system. For instance, it is the responsibility of the
consultant team to offer a design that would meet the expectations of the client. In this regard, it
has been observed that contractor as well as consultant offers valuable advice as well as
construction expertise based on which client decides the budget as well as design of the project.
It has been noticed that every tenderer has to produce the tender on the basis of same
information. In this regard, it can be commented that competitive tendering helps the employer to
get the best price or lowest price. This is another advantage of traditional procurement system. It
has been noticed that the accuracy of the construction cost depends on tender. It is easier for the
clients to opt for traditional method rather than other kinds of procurement methods. This is
considered as an advantage of this method. This method is the most common form of
procurement system in any construction project. Therefore, it is not unfamiliar to the contractors
as well as consultant teams. As a result, there are high chances that high-quality work will be its
outcome (Chong and Preece, 2014). In this context, it can be stated that this is another advantage
of this procurement system.

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In case of traditional method, it might happen that the client faces difficulty in managing
a particular construction project as he has to interact with some parties simultaneously. For
example, there is no contractual relationship between the consultant and the contract. As opined
by Walker, Harley and Mills (2015), if there is any need for communication beten contractor and
the consultant arises, they should have to interact with the employer thereby making it
ineffective approach. In this regard, it can be stated that there are high chances of
miscommunication is very high as the client has to interact with several organizations. It takes a
long time to finish the project. This is considered as a disadvantage of this particular
procurement system.
Design and build procurement system
There are certain advantages and disadvantages of design and build procurement system.
It has been noticed that design and build is an effective procurement system that allows some
control over prices. In this regard, it can be stated that the contractor have their designers or they
hires designers outside the business firms. It has been observed that there is another merit of this
system, which is related to chances of decreased construction time. There are certain
disadvantages of this particular system (Chong and Preece, 2014).
Green (2018) commented that the disadvantages in pricing system occur when the
builders has agreed upon a price before the project has begun as there are chances that the
builder will work on the lowest specifications in order to complete the project. In accordance
with the opinion of Tezel, Koskela and Aziz (2018), architects are more efficient than that of
builders. In this context, it can be stated that the architects are highly trained individuals
possessing certain skills, which the builders do not have. It has been observed that architects

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remain updated with the legal as well as design requirements. On the other hand, builders are not
always possess knowledge on the legal as well as design requirements.
Joint venture procurement systems:
According to Green (2018), smaller business firms gain access to credibility as well
economic stability, which the leading companies carry. It has been noticed that small business
firms provide big companies the set of skills, which can enhance the quality as well as efficiency
of a project. These are the advantages of this particular procurement method. Besides, there are
some disadvantages too. In accordance with the opinion of Dong, Tang and Zhou(2018), various
cultures as well as values might impede the project. As more individuals are involved, decision-
making process might be delayed.
Private financing initiatives:
It is seen that PFI brings innovation in the construction project. In accordance with the
opjnion of Li, Arditi and Wang (2015) strategic partnering can be done in a construction project
through private financing initiatives. It has been noticed that it has put emphasize on developing
a long-term relation between the private sector and the public sector. As a result, mutual
knowledge sharing can be done through private financing initiatives. Walker, Harley and Mills
(2015) commented that it not only reduces cost but also delivers good quality work. It has been
observed that risk transfer is considered as a significant component for delivering the good PFI
construction project. As opined by Chong and Preece (2014), Private Financing Initiatives will
decrease the level of risk which is carried by government and it will be transferred to contractors.
These are some of the merits of Private Financing Initiatives. On the other hand, there are certain
demerits too. In the opinion of Li, Arditi and Wang (2015), high prices are often used for

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tendering Private financing initiatives. It has been observed that complex negotiations are made
in order to bring agreements. In the opinion of Chong and Preece (2014), there are several
individuals who are acquainted with Private financing initiatives. Therefore, they are unable to
deal with complexity of PFI construction projects. Not only this, lack of skills and experience of
the local authorities restricts them to cope up with private partners thereby creating an adverse
effect on the partnering development. These are the disadvantages of private financing
initiatives.
Conclusion
From the above discussion, it can be stated that strategy plays a vital role in achieving
success in construction procurement project. There are different methods of procurement such as
traditional, design and build procure system, management contracting, joint venture or partnering
procurement method and private financing initiatives. There are various factors which creates an
impact on the procurement in construction project. These are cost issues, external factors,
capability to make medications and client’s characteristics.

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