BSS054-6 Risk and Procurement Management: Case Study Report

This report provides a detailed analysis of procurement and risk management within the construction industry, using Balfour Beatty as a case study. It explores the bespoke procurement process, including goods and services decisions, solicitation, and evaluation. The report examines various procurement methods, such as make-or-buy, design-build, and re-measurable contracts, while addressing challenges like risk mitigation, dark purchasing, and inaccurate data. It also highlights the roles of general contractors and subcontractors, and the application of the Kraljic Matrix for supplier segmentation. The report further develops a prototype contract with terms and conditions, discussing how these terms help manage project risks, and concludes with a discussion on contract breaches and improvements. The report emphasizes the importance of procurement methods in overcoming risks and challenges, assessing the sufficiency of the processes for effective contract and risk management.

Risk and Procurement
Management BSS054-6

Table of Contents
INTRODUCTION...........................................................................................................................3
CASE STUDY.................................................................................................................................3
MAIN BODY..................................................................................................................................4
Question 1....................................................................................................................................4
Question 2....................................................................................................................................7
Question 3..................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Procurement Management (PR) is a part of company that look out and manages the way
with the help of which the raw material is being acquired from the suppliers in order to produce
finished goods. This report is based on the cased study of Balfour Beatty Construction Company
that provide designing and construction of many bridges, rails etc. services to their local and
international customers. This report will cover the three stages of bespoke procurement process
and also methods of process which helps the company in managing the challenges they face
while procuring raw material and also for managing risk. The report will also describe the
comparison of types of contractors and form of collaboration. Further, this report will develop a
prototype contract based on the case study scenario and also include terms and conditions. The
report will also discuss how the terms and condition mentioned in the contract help the Balfour
Beatty in managing the risk attach with the contracts. At last, the report will cover the types of
contract breach and ways to improve it.
CASE STUDY
Balfour Beatty is one of the UK’s leading construction companies located in London, UK
that provides services related to construction management, general contracting, cost-consulting,
design build, pre-construction services etc. The company has been considered as a top ten green
builder having 2500 employees of workforce. The project portfolio of company includes
buildings, rails, highways, bridges and water solution and innovation. The company with digital
transformation at the forefront of procurement enabled hard savings and increases efficiency. By
using automated-sources to pay solutions the company shape its procurement and business in
such a way, with the help of which they can easily operates in technological-enabled
environment. The objective of the company is to became customers best choice by concentrating
their focus towards the best performing supply chain partners. The policy of the Balfour Beatty
construction company describes their commitment to deliver sustainable outcome to the clients
through their procurement activity. In order to manage the risk in construction, the company has

hire risk management experts which are also highly trained by the company to identify and
proactively manage the risk attach with the projects and contracts. Balfour Beatty’s risk
management team committed towards adopting and managing policies and procedures which
manages the internal control framework of the company.
MAIN BODY
Question 1
Procurement Process
Procurement cycle is a set of series which every business has to follow in order to acquire
goods and services in their warehouse. The Balfour Beatty construction company in order to
construct bridges, highways, buildings etc. first need to acquire raw material such as cement,
bricks, wood bricks etc. via contracts. It is because without raw material the company are unable
to do their further task that’s why procurement process is very crucial task for procurement
management of the company along with managing the risk attach with it (Roy, 2018).
Three stages of bespoke procurement process
The following construction procurement process can be adopted by the Balfour company
in order to further proceed with their work. These three stages involve goods and service
decision, the ability to call for bids and last evaluation and selection of best and suitable
suppliers’ proposal.
 Goods and Services decision: Here, the Balfour Beatty construction company’s
procurement management need to analyse the raw material which they need to buy from
the suppliers and the raw material they produce by themselves. It is because their no
compulsory that all the goods and services must be sourced from outside. This process
plays important role in determining the cost-effective way or methods of procurement.
After selecting method, the Balfour Beatty need to analyse prices and quality of raw
material of in the market with through research (Roy, 2018).
 The Ability to call for bids/ Solicitation: After analysing the supplier available for the
construction raw material now they need to call all the suppliers for the proposal known
as bids and properly look out each proposal. It is advisable to the Balfour construction

company that do not directly adopt cheapest option rather than visualising the cost,
reputation and quality of suppliers.
 Evaluation/ Selection: The last stage of procurement process involves evaluating and
selecting the best proposal after properly analysing the quality, cost of the raw material
and also the make sure that the entire process is done in best manner possible. While
selection of proposal of the company also considers the upcoming opportunity with
present benefit (Roy, 2018).
Methods of bespoke procurement process
For taking the decision related to goods and services procurement, the Balfour Beatty
company also need to analyse the methods of construction procurement. And for this the
company also need to hire professional representative to look out the expectation of project. The
methods involve:
 Make and Buy: In this the expert of company needs to analyse the situation of buying
raw material from the suppliers or make it in house. This decision must be based on the
outcome and benefits arises from both the situation. Basically, making option is always
beneficial but because of the non-availability of resources buying the material to
recommended to the company (Moretto, Ronchi and Patrucco, 2017).
 Design and Build: In this, the Balfour company themselves design the project and then
ask the client about the design approval. And as per the design the company will acquire
the raw material from the supplier. The impact of this is that it increases the companies’
wages payment to design consultant.
 Re-measurable contracts: In this the cost of the contracts is decided on the basis of
actual work done by the company. This is method is adopted by many large construction
companies in which subcontractors are get appointed for looking out the availability of
raw material and other resources. If in future, the demand of the clients increases than
further raw material will be acquired by the company and if any material remain unused
than it will be returned to the supplier. The cost is again remeasured as per new
requirement (Moretto, Ronchi and Patrucco, 2017).
Challenges in Procurement process

There is various challenge that is faces by the Balfour Beatty company while selecting
construction supplier proposal and while conducting activities related to contracts (Daoud and
et.al., 2018). This includes:
 Risk mitigation: This is the most important challenge which is faces by the company
which involve supply risk, market risk, fraud, cost, quality, delivery risk etc.
 Dark Purchasing: This is a challenge which involve the purchase of raw material that are
outside the procurement process which increases the cost of contract of the company. It
may be arising because of the increase in the expectations of the clients regarding the
projects.
 Long process cycle: Another challenge the Balfour Beatty facing in their procurement
process is long cycle and the impact of which is that it is quiet time consuming and in this
long period the prices of the raw material changes.
 Inaccurate Data: Because of the inaccurate data regarding the availability and quality of
the resources need to construct project, the company faces loss sometimes. Making the
decision based on inaccurate procurement data sometime leads to the shortage of raw
material (Daoud and et.al., 2018).
Role of Procurement Process methods in overcoming risk and challenge
With the help of methods of procurement process mentioned above, the Balfour
construction company can mitigate its risk which is attached with the proposal and contracts. The
remeasurement contract method is helpful for the company in managing the cost of the contract
as per the changes and expectations of the clients. In case, if any changes arises than the
company make an agreement with the clients that the cost of the contract also increases
accordingly via including the escalation clause in terms and conditions. The company can also
hire the contract management along with subcontractors that properly visualize the market
trends, cost of raw material, supplier that provide best quality raw material. But this increases the
cost of company by hiring contract management and design consultant. With the help of design
and build method, the company can also mitigate the risk of increasing the cost because the
actual work is get started only after the approval of clients over the design. The company can
also sign an agreement with the supplier that the cost of raw material is being purchase on in
same cost even if the requirement of raw material increases in future. This will definitely reduce

the risk of contractors. But some time procurement process become complex and time
consuming because of the continues changes in the business environment. That’s why the
company have to hire expert for this purpose so that the company management put their focus on
other critical issues.
Sufficiency of Procurement process and methods
The above-mentioned procurement process and method is sufficient for the purpose of
managing the whole contract work and also managing the risk attached with them. This is helpful
for the company to measure the contract performance and also the delivery is made on the time
or not. This also sufficient for analysing and identifying the impact of purchasing on the
constraints and assumption of the projects plans. With the help of procurement process, the
company can easily identify prequalifies seller of the raw material and also, they will take make
and buy decision (Ottou, Baiden and Nani, 2020).
Question 2
Comparison between General contractor and sub-contractor
As per the Taherdoost and Brard (2019), view Contractor are the one that contracted with
the clients to complete the work and construction of particular project. Basically, the two types
of contractor involve in whole task i.e., general contractor and sub-contractor. They both are
work on the same project but subcontractor is subordinate and general contractor is superior. The
general contractor is a multi-tasking manager of the construction project while the subcontractors
are experts in a specialized work. The subcontractor needs to follow the instructions and
guidelines given by the general contractor of the project. The expectation from the general
contractor is that they need to handle all the task and issues which may arises at the time of work
in progress between the employees and any other.
As stated by Salem, Salman and Ghorai (2018), they have to look out the ways with the
help of which they can manage and mitigate the issues and risk. While on the other hand, the
subcontractors need to focus on specific aspect of the project only. Every company need to hire a
contractor but whether there is a need of subcontractors depends upon the educated and
experienced general contractors’ decision. The communication between the contractors and sub-
contractors may be in both formal and informal way. In order to complete the work on time, the

contractors also delegate some of their responsibility and authority to subcontractors. Providing
proper guidelines to the workers and need to improve workers performance the subcontractor is
act as an intermediary.
Form of Collaboration
Kraljic Matrix for supplier segmentation: As per the opinion of Walters (2020), this is a model
with the help of which the Balfour Beatty company can identify and select best supplier by
classifying them in bottleneck, leverage, non-critical and strategic quadrants.
 Bottleneck quadrant: In this the source of supply is limited and can say monopoly
supplier is exist in this quadrant. Because of the market consist of limited supplier, they
can easily charge high prices for the resources. The Balfour company need to mould their
purchasing strategy in such a way in this market is that first less dependence over the
supplier and second need to ensure continuity of supply.
 Leverage quadrant: Here, Camarena Gil (2019) states, the suppliers deal in type of
material which is easily available to them. So, the company need to use this type of

market for purchasing the items for tendering and competitive bidding. This is commonly
known as buyer’s market.
 Non-critical quadrant: In these suppliers deal with the items having low risk and low
profit impact and also there is a balance between the buyer and seller. So, by dealing in
this market the Balfour construction company can save much time and money by
focusing on reducing administration cost and logistic complexity.
 Strategic quadrant: As per the views of Tesfay (2020), in this, high risk and high profit
impact items are selling by the supplier so to deal in this market the Balfour company
need to collaborate with the suppliers by forming strategic suppliers. It is because these
items are necessity and critical for the businesses.
Prototype Contract
Residential Construction Contract
This agreement is made between the Owner and Builder for the construction of a single-family
residence which is commenced from 25th April 2021 and completed on 1st march 2022 for the
owner located in London, UK and legally described as mutual agreement. The payment of
contract price amounting 100000 pound is done in two instalments by the clients. The first one
will be paid by owner of 40000 pound before commencement of work and the second one of
60000 pound is after the approval of investigator. The payment is made via construction loan.
Terms and Condition mutually agreed by contractor and client are as follow:
 The contract price mutually agreed by both the party involved in this agreement.
 In case if any of the expectation of the clients increases which require extra cost will be
further included in the contract price. (escalation clause)
 The work is commencing as per the design set by the clients and in future if any conflicts
arise regarding the designing than contractor are liable to breach the contract.
 The work is done by the contractor as per the plans and specification decided and in case
conflicts arises between the plan and specification, the specification shall govern.
 The contract is contingent upon the construction loan taken by the client and in case if
any conflict arises regarding payment the contractor can breach the contract.
 The contract price of 100000 pound involves all the tax, fees and commission payable to

contractor including title charges.
 The contractor is not liable to do any work which are not mentioned in the plans and
specification. Plans and specification are fully acknowledged and investigate by lawyer.
 The contractor is liable for the timely payment to labour, suppliers etc. for smooth
functioning of construction.
Role of Term and Condition in managing risk
The terms and conditions mentioned in the contracts act as an rules and guidelines for the
both parties involved in contract. Both the party can breach and terminate the contract in case of
frustration and inconvenience arises. Basically, this act as a legal binding contract between
contractor and client which the both the party have to followed. By incorporating escalation
clause in the contract, the company can mitigate the risk attach with the inflation rate, market
trends etc. By implementing the point related with the expectations of the client’s change will
cause extra cost which must be bear by the client not the contractor. This is helpful in managing
the financial risk of the company. Because of the term and condition the court get involved in it
and the impact of which is that no party can-do fraud with each other. This is also helping both
the party from the abuses and also breach the contract in case of any abuses by any party. It also
limits the liability of the owner in case any error founds in content (Stoffers, 2019). The term and
condition such as Plans and Specifications helps both the parties to ensure that they are not liable
to work or make payment for the work which was not mentioned in the contract plan. Once the
contract signed by both the party, it is impossible to change it without the permission of other
party and lawyer. So, before setting terms and conditions company and clients have to
thoroughly read and communicate all the terms and conditions with each other.
Question 3
Four Types of Contract Breach might face by Balfour Beatty construction co.
 Minor Breach: The Powers (2017), states that this is quite minor breach which arises
when one party are unable to fulfil one part of contract. Here, it is difficult to identify loss
unless the party prove significant loss. For example, to redesign the hotel the contractor is
unable to fulfil their request of traditional crystal chandelier.

 Material Breach: As per the opinion of Goldberger (2018), this breach is occurred when
the key element of the contract is not fulfilled get fulfilled and this is the most sever type
of contract breach arises in the contract agreement. For example, when a buyer purchases
rare item from the seller and also pay amount for this but instead of paying the particular
item to contractor the seller gave the item to third party.
 Anticipatory Breach: As stated by van Gilst and et.al. (2020), this breach occurs when
the one party unable to fulfil the part of contract on specific time and they also not
formally notified to the other. For example, when buyer is unable to make instalment
payment to contractors on give date and also not formally notified for the same.
 Actual Breach: The viewed and stated by Mukuna (2019), that this type of breach occurs
when one party improperly fulfil their duties which is not anticipated. But in case is
identifiable that remedy is recoverable on the basis of severity of harm it caused. For
example; the goods are supplied wrongly or damaged to the buyer by the supplier whose
payment is already maid.
Ways to resolve dispute
In order to resolved the risk of breach of contract, it is recommendable to the Balfour
company that they must work out on the satisfactory solutions with their clients. In the
negotiation settlement both the party can resolve the contract and issue via settlement over a
particular amount paid by the liable party to suffer party. Beside this, the company and the
clients can agree on submit and shift their dispute to the neutral third party in order to resolve the
dispute. But such an action must be agreed by all the parties involved including the third party.
This is known as arbitration way to solve dispute and issues. The parties can also enforce their
contract right into the court via law (Tesfay, 2018). With the incorporation of liquidated damage
clause the parties that wrongfully or intentionally breach contract are liable to pay the loss of the
profit which is considered as liquidated damage rather than penalty. For example, the owner of
home terminated the contract with Balfour Beatty company than in such case the owner or client
need to pay liquidated damage. But this may cause loss to the Balfour company as well if they
take any wrong step so the company need to use it as a remedy to protect the contract from any
breach.

CONCLUSION
The report concludes the procurement and risk management of the Balfour Beatty
construction company in which the four types of breach of contract also involved. The report
also concludes the three stages and methods of bespoken procurement process which helps the
Balfour company in mitigating the challenges they have faces in procuring the raw material of
constructing the projects. The report also concludes the comparison between general contractor
and subcontractor along the form of collaboration via kraljic matrix. This is a matrix which helps
in classifying the suppliers and markets segmentation which further help the company with the
way to respond with a particular supplier.

REFERENCES
Books and journals
Roy, T., 2018. Implementing electronic government procurement (e-GP) in Bangladesh: a study
on 10 district LGED offices (Doctoral dissertation, BRAC University).
Moretto, A., Ronchi, S. and Patrucco, A. S., 2017. Increasing the effectiveness of procurement
decisions: The value of big data in the procurement process. International Journal of RF
Technologies. 8(3). pp.79-103.
Daoud, A. O. and et.al., 2018, January. Exploring the relationship between materials
procurement and waste minimization in the construction industry: the case of Egypt.
In International Conference on Sustainability, Green Buildings, Environmental
Engineering & Renewable Energy (SGER 2018).
Ottou, J. A., Baiden, B. K. and Nani, G., 2020. Six Sigma Project Procurement application in
public procurement. International Journal of Quality & Reliability Management.
Taherdoost, H. and Brard, A., 2019. Analyzing the process of supplier selection criteria and
methods. Procedia Manufacturing. 32. pp.1024-1034.
Salem, O., Salman, B. and Ghorai, S., 2018. Accelerating construction of roadway bridges using
alternative techniques and procurement methods. Transport. 33(2). pp.567-579.
Walters, L. M., 2020. A Supplier Risk Matrix Approach to ISO 9001: 2015 Compliance: A Case
Study.
Camarena Gil, E., 2019. Operations management GADE. Chapter 4: Exercice Kraljic Matrix.
Tesfay, Y. Y., 2020. The best coordination to Egypt and Ethiopia on the Blue Nile from supply
chain performance perspective: an application to Kraljic-Tesfay portfolio
model. Sustainable Water Resources Management. 6(4). pp.1-12.
Stoffers, L., 2019. Analysis of tactical sourcing levers and their implementation in relation to the
Kraljic matrix in the chemical industry (Master's thesis, University of Twente).
Tesfay, Y. Y., 2018. Applications of the Kraljic-Tesfay portfolio matrix and the hyper-hybrid
coordination in global supply chain analysis. International Journal of Logistics
Economics and Globalisation. 7(2). pp.125-150.
Powers, J. F., 2017. Paying for What You Get-Restitution Recovery for Breach of Contract. Pace
L. Rev. 38. p.501.
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Goldberger, J., 2018. Assessment of damages for breach of contract. Commercial Law Quarterly:
The Journal of the Commercial Law Association of Australia. 32(3). pp.12-51.
van Gilst, E. and et.al., 2020. The role of remediation in mitigating the negative consequences of
psychological contract breach: a qualitative study in the banking sector. Journal of
Change Management. 20(3). pp.264-282.
Mukuna, N., 2019. Price Reduction as a Remedy for Breach of Contract by the Seller Under the
CISG and English Law. University of Johan
Online
BALFOUR BEATTY CONSTRUCTION LIMITED 2021. [Online]. Available through:<
https://find-and-update.company-information.service.gov.uk/company/SC106247>
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