Procurement Systems

A Guide to Best Practice in Construction

Steve Rowlinson, Peter McDermott

• Publisher: Routledge
• Year: 2005
• Print ISBN: 9780419241003
• eBook ISBN: 9781135805999
• Topic: Architecture
• Subtopic: Architecture Methods & Materials

Procurement Systems details the whole spectrum of procurement issues in the construction industry, starting with the client /customer and running through managerial, cultural and IT-based issues. The book commences with an overveiw of previous work and a section on selection criteria is provided to enable practitioners to make their choices of procurement form. Importantly, perfromance comparisons of different procurement forms are discussed and the main emphasis of the book is to highlight best practice based on the most up-to-date research. One chapter deals specifically with developmentally orientated procurement issues in NICs (newly industrialised countries), where best practice is assessed from a different set of perspectives. The authors contributing to this book are among the most highly respected and eminent in the field.

Part I
Introduction to procurement systems

1
Strategic and emergent issues in construction procurement
Peter McDermott

Introduction

The purpose of this chapter is to explore and explain the strategic issues of construction procurement which have arisen through the published work of the Commission CIB W92—Procurement Systems of the International Council for Building Research Studies and Documentation. The contributions have been made from very different theoretical and cultural perspectives; the contributors have come from all continents and from different economic, legal and political systems. The significant strategic issues prevalent in the work of the Commission have been identified as competition, privatisation, development, culture, trust, institutions, procurement strategies, contractual arrangements and forms of contract. Emergent themes—those which have begun to emerge in recent years and which are expected to grow significantly—have been identified as organisational learning, culture, developmentally orientated procurement systems and sustainable procurement.

This chapter is a development of work reported elsewhere (McDermott and Jaggar 1997; McDermott et al, 1997). The Commission was founded in 1990 as a result of an international workshop held at the University of Liverpool in 1989 entitled International Workshop on Contractual Procedures. Since then, in addition to Commission meetings, there have been six separate Symposia, in 1989, 1990, 1991, 1994, 1996 and 1997. In 1993 and 1997 the Commission operated in association with W65 (Construction Management). Much of the work of the commission is complementary, not only to that of W55 (Building Economics) and W65, but also to that of TG15 (Construction: Conflict Management and Dispute Resolution), W82 (Future Studies in Construction) and TG23 (Culture and Construction).

What is procurement?

The procurement concept in construction has been defined in many ways. Hibberd (1991) began with the general definition of the term procurement offered by the Oxford English Dictionary, ‘the act of obtaining by care or effort, acquiring or bringing about’, and then argued that the concept of procurement can raise awareness of the issues involved both in challenging generally accepted practices and in establishing strategies.

Others, including Mohsini and Davidson (1989:86), have attempted more sophisticated definitions—‘the acquisition of new buildings, or space within buildings, either by directly buying, renting or leasing from the open market, or by designing and building the facility to meet a specific need’. At the Montreal Symposium in 1997 the Commission was challenged to debate hypotheses which attempted to establish the relationship between procurement and innovation (Davidson, 1998). For the purposes of this debate, the following definition was accepted: ‘Procurement is a strategy to satisfy client’s development and/or operational needs with respect to the provision of constructed facilities for a discrete life-cycle’ (Lenard and Mohsini, 1998:79). This sought to emphasise that the procurement strategy must cover all of the processes in which the client has an interest, perhaps the whole lifespan of the building.

However, it has been argued that for some research purposes the usefulness of definitions such as this is limited (McDermott and Jaggar 1991). For example, as a means of comparing projects or project performance across national boundaries it is limited to developed market economies. This conclusion is supported by Sharif and Morledge (1994) who have drawn attention to the inadequacy of the common classification criteria for procurement systems (that is, traditional, management, design and build, etc.) in enabling useful global comparisons.

Even comparisons between developed economies are fraught with difficulties. Latham (1994:5), in a review of procurement and contractual arrangements in the UK, has noted the difficulty of drawing conclusions from existing studies, stating that ‘some international comparisons reflect differences of culture or of domestic legislative structures which cannot easily be transplanted to the UK’. Davenport (1994) has reported that the French do not recognise the British and North American concept of procurement.

It has been argued that two of the key assumptions contained within the common definitions—those of client choice and the availability of a range of procurement options—render the procurement concept, as defined, irrelevant to Third World countries (McDermott et al, 1994). However, a working definition of procurement was developed by CIB W92 at its meeting in 1991, defining it as ‘the framework within which construction is brought about, acquired or obtained’ (unpublished document). This definition served a useful purpose as it is both broad, encouraging a strategic interpretation, and neutral, being applicable not only to developed, market economies.

Theoretical foundations

The formal aims of CIB W92 (see the Preface) clearly suggest that procurement is a social science and implies that the disciplines of history, sociology, economics, psychology, law and politics can all make a contribution to furthering understanding. Rarely, however, do researchers or practitioners make their approach explicit. Green (1994) argues that research has reflected the positivism of functionalist sociology and has largely ignored the validity of naturalistic inquiry. This means that the research methodologies adopted tend towards the establishment of causal relations from a distance (having assumed that there is an objective reality which exists independently of human perception) rather than to the participation of the researcher in what is being researched.

Green attempts to identify and characterise shifts in the paradigms of procurement practitioners during the 1980s and early 1990s in the UK. Although very few practitioners give any explicit consideration to their operative paradigm, Green maintains that a ‘default paradigm of practice’ can be identified from behaviour in the field. Green draws upon the work of Morgan (1985) who identified eight different organisational metaphors, amongst which practitioners might recognise their own views of the world. These metaphors portray organisations as machines (which also relates to scientific management), biological organisms (which also relates to the systems approach), brain (or experiential learning), competing cultures, political systems, psychic prisons, states of flux and transformation, and instruments of domination.

Much of the work of practitioners and researchers in CIB W92 can be identified within the machine or biological metaphors. For example, the systems and contingency approaches are used extensively (both explicitly and implicitly). Hughes (1990), drawing upon a tradition of using the systems approach to analysing the organisation of construction projects, starts with the premise that buildings are procured through organisational systems. He describes various means whereby flexible procurement systems can be designed which are appropriate to each project. Naoum and coworkers (Naoum 1990; Naoum and Coles 1991; Naoum and Mustapha 1994) used systems-based models in comparing the performance of alternative procurement systems. Also, Carter (1990) outlines the use of data-flow diagrams and activity profiles as a means of improving the management information systems of designer and contractor organisations.

Many researchers have conducted their work within a socio-technical framework. Jaggar and I (McDermott and Jaggar 1991; McDermott 1996; Newcombe 1994) and Jennings and Kenley (1996) have emphasised the relevance of the 1960s work of the Tavistock Institute for procurement research now. Jennings and Kenley (1996), for example, have argued that the dominant functionalist paradigms of the 1980s failed to extend beyond the technical logistics of procurement and into a consideration of the social aspects of organising for procurement.

The contingency approach is evident in the work of Swanston (1989) and Singh (1990), amongst others. Many researchers draw upon the models and insights provided by the transaction-cost or markets-and-hierarchies approach developed by Williamson (1975). Doree (1991) notes the drift towards the ‘contracting-out’ of design services by public clients and asks the question: When should unified governance structures (in-house production) and when should market governance structures (contracting-out) be applied? He concludes that although the move towards contracting-out can be justified on the basis of design production efficiencies, the equation is not complete if the transaction costs of operating in the market and the opportunity costs (of, for example, increased lifecycle costs) are not considered.

Chau and Walker (1994) investigated the nature of subcontracting in the Hong Kong construction industry and concluded, inter alia, that the decision to subcontract is not random but is predicated on the attempt to minimise transaction costs. Alsagoff and I adopted a similar methodological approach in investigating the true level of infiltration of relational contracting in the UK construction industry (Alsagoff and McDermott 1994). Cheung (1997) uses a transactional analysis to construct a model for determining the most appropriate form of dispute resolution procedure.

The business process re-engineering (BPR) paradigm and the so-called new (lean) production philosophies which have penetrated other industries have been investigated in construction. For example, Baxendale et al. (1996) investigate the implications of concurrent engineering for roles and relationships within procurement systems, and Lahdenpera (1996) argues that procurement needs to be re-engineered in a fundamental way rather than to continue to study incremental and non-fundamental issues. Green (1997) argues for a soft systems interpretation of BPR for application in construction. BPR, he suggests, as currently practised, is relevant only where the problems are easily identifiable. In complex circumstances, as in construction, these techniques will not lead anywhere. Egbu et al. (1996) sought to compare the procurement of project work in ship refurbishment with that in the construction industry. BPR (Mohamed 1997) and lean production (Alarcon 1997) are both the subject of significant research activity elsewhere.

Jennings and Kenley (1996) also emphasise the importance of recognising the theoretical underpinnings of procurement research. They argue that procurement systems go beyond technical logistics and that it is the perception and response to project objectives by organisations which is a key determinant of procurement system suitability. Liu (1994) takes this further and discusses a cognitive model of the procurement system where the goal—performance relationship is paramount. Liu uses conjoint analysis as a means of illustrating this.

Kumaraswamy (1994a) discusses the appropriateness of developed countries’ procurement systems when applied to less-developed countries and argues that a sustainable and synergistic procurement strategy must be developed in such situations. The power paradigm (Newcombe 1994:245) suggests that selection criteria for procurement systems are less important than the realisation that ‘procurement paths create power structures which dramatically affect the ultimate success of the project’. Using this paradigm Newcombe criticises the fragmentation and friction evident in the traditional system. This is further supported by Walker (1994) in that he draws the conclusion that project construction speed is strongly determined by how well clients relate to the project team.

The importance of conceptualising the procurement problem is that lessons can be learnt in one context and transferred to another. Although practitioners clearly need to focus on solutions the role of the research community is to provide the conceptualisation and theory which will lead to the development of best practice and to satisfying the technology transfer objectives of the CIB.

Development and privatisation

During the 1980s the technical and academic press reflected client concerns of project performance in construction, with much debate concerning international comparability and standardisation of contracts and contract procedures. This was in an environment of significant changes in the legal, economic and social structures of states in developing and developed countries. Privatisation, in its many guises, had been effected not only in Europe and North America but also in Eastern Europe (through the transitions from socialist ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of Contributors
• Foreword
• Preface
• Abbreviations
• Part I: Introduction to Procurement Systems
• Part II: Organisational Issues In Procurement Systems
• Part III: Emerging Issues In Procurement Systems
• Part IV: Procurement Systems In Practice
• Appendix 1: Procurement Games—A Learning Process