Building Services Procurement

Christopher Marsh

• Publisher: Routledge
• Year: 2003
• eBook ISBN: 9781134478484
• Edition: 1
• Topic: Architecture
• Subtopic: Architecture Methods & Materials

Procurers and contractors increasingly need practical guidance for the strategic procurement of building services. Clients seeking to improve the delivery performance of the construction industry are increasingly using alternative procurement arrangements. These modern arrangements attempt to deliver a more strategic approach to achieving value for money. Yet little thought is ever given to the strategic importance of building services. No other single aspect of a project will affect project success more than the timely delivery of a fully functioning services installation. Beyond the normal considerations of time, cost and quality, building services have a series of unique requirements not normally considered. For the first time these unique requirements are combined in a single text, providing the reader with the definitive guide to building services procurement.
The text reviews each of the major critical success factors and clearly explains the supporting processes that must be enacted to ensure success. It reviews the general nature of procurement systems and construction projects, and then explores the increasing importance that building services play both in the construction process and in determining success for the client. Each significant stage within the procurement process is explored by explaining its importance and showing what decisions need to be made to develop a cohesive strategy. It concludes by giving a step-by-step guide to clearly develop and implement a building services procurement strategy.

Chapter One
Introduction

1.1 The Issue of Procurement

During no other time in the history of the construction industry, has the subject of procurement dominated the debate on possible reforms. Regardless of country, from the United Kingdom, to Malaysia, Australia and America, the industry has been bombarded by material on how to improve the construction process. Procurement has often been the dominant issue, with the plethora of "new" procurement arrangements demonstrating the industry's and its clients' deep desire to seek improvements in the manner in which a project is formulated and executed.

Despite all of this, something is lacking. Very few of these industry reports or calls for improvements understand the complexity of initiating, then arranging, a supply chain as complex as that found on the average building services installation.

It would be arrogant to think that a single textbook will level this imbalance. Nevertheless, this text has been written to address the subject and cover as widely as possible the issues that have the greatest effect on the successful procurement of building services.

1.1.1 A Sub-optimality in Building Services Procurement

Procurement is defined as being to "Obtain by care or effort, acquire; bring about". In construction terms it is defined as "The framework within which construction is brought about, acquired or obtained". It is the term given to the process of organising and putting into action a new project. Determining a procurement strategy involves risk identification and assessing the most appropriate party to manage these risks. Although generic strategies exist, each can use contractual relationships to tailor a system specifically to meet a client's objectives.

This all sounds very simple and straightforward - needs are assessed, risks identified and apportioned, competent people are hired, a design is drawn and a competent contractor is hired to manage the works. So why does the procurement of a project seem to cause so many problems for building services?

This is mainly due to two highly complex reasons.

Firstly, each step is influenced by a large number of external factors, resulting in what academia calls a "wicked" problem. It is a problem with so many boundaries, external environments, subsystems, interactions and levels, that a single factor causes repercussions throughout the entire system. A simple example can be used to demonstrate this domino effect. If 20 subsystems are involved, and the first subsystem has one interaction with the next, which has two, and so on with the interactions doubling with each subsystem, by the time you reach the last subsystem you are dealing with 496,288 interactions: a truly wicked problem.

Secondly, traditionally procurement has been based on the tactics of traditional design-tender-construct mechanisms. Historically, building services contractors could be brought in at an early stage by the design team, on the basis that they would be nominated - a preliminary example of partnering. This simple process worked; however clients began to seek greater value for money and were adverse to taking risks, while consultants sought to discharge themselves from the risk of nominating a rogue contractor.

All of this has resulted in a lack of knowledge on how to procure building services in a strategic manner. Industry has ignored it due to nomination or a "lowest cost" wins mentality and academia has done so by only researching into nomination - an aversion to detailed research being driven by its wicked nature.

However, industry and academia have now woken up to the problem and some interesting developments have begun to emerge.

1.1.2 The Changing Nature of Project Procurement

Clients seeking a risk-free approach to their construction needs are largely driving the growing sophistication in construction procurement. The current trend in focused business has meant that most companies now outsource their non-core processes, in the quest for risk minimisation. This same philosophy has now spilt over into construction, with clients favouring procurement arrangements that either place all risk with the contractor or, through the use of investment vehicles, have the building provided to them as a serviced facility.

In the UK the government is leading changes in procurement regime. On 23 May 2000, the Treasury announced that in future all construction work, including maintenance and refurbishment, must be procured in one of three manners: design and build, prime contracting, or using the Private Finance Initiative. For building services, several key issues have now developed:

• the main contractor becomes the pseudo client
• the designer has a second tier seat
• choice c an now be made on capital cost, whole life cost or operating cost: or any combination or permutation of these
• procurement of services has changed from the tactical to the strategic.

The supply chain must be joined together within a concept of a virtual network (in fact prime contracting demands this). Prime contracting requires that individual suppliers and contractors now deliver a complete product to the client. Modern strategies such as the UK's Ministry of Defence's prime contracting are based on this.

1.1.3 The Supplying Market

The marketplace that provides suitable organisations to participate within these modem arrangements is made up of a diversity of firms, but all of them are classified as small enterprises. Highlights of the UK market include:

• 137,000 companies supply a market worth £12 billion
• 99.5% of these companies employ less than 24 people
• the top 20 contractors control 27% of the market, with the largest firm controlling only 3.6%
• the median profit of all of these companies is 1.43%
• only 13% of tradesmen are directly employed.

The consultants market shows a similar picture:

• 2,729 professional services firms supply a design market of £720 million
• average profit is 6%
• 80% of firms are sole traders with a turnover of less than £99k
• 45% of smaller firms do not use information technology
• total employment of consultants equals 16,457
• firms are split over a range of 18 major disciplines - ranging from standard mechanical through to lifts, communications, fire engineering etc.

Therefore the supplying market is dominated by organisations that are small in nature, making minimal profits. This must be borne in mind when procuring building services. Due to the market, and diversity of technologies, even the simplest of projects will require multiple subcontracting.

This causes a de-facto approach to building services, for not only is there a diversity of organisations, but each specialist technology is often viewed as a separate trade or engineering profession

This provides certain benchmarks for use when procuring building services:

• all projects will involve sub-contracting
• risk transfer to contractors is a false ideal as few have commercial reserves or buffers
• the design programme will be limited to the resources of the consultancy and the number of specialist designers
• all elements will require some form of design work, which will be split between manufactures, fabricators and the specialist contractor
• an introduction to systems theory.

We are now able to draw a composite picture of the problem that faces all procurers of building services. To be successful will require the balancing of many sub-systems comprising the various consultants, contractors and technical systems, all of which are operating in a diverse socio-organisational environment.

Building services have the following characteristics. They are:

• connected parts of other systems and environments;
• a complex whole of technical, organisational and institutional subsystems;
• materially organised whole; and
• purposeful by having a change of inputs, synergy of parts and a definable boundary.

Furthermore, they are an open system as they respond to negativity, external environments and are continuously adapting to these influences.

Management is the process of pursuing effective and efficient activities with and through other people. It involves three simple processes:

• inquiry, through analysis that leads to planning
• action, through organising and leading
• cybernetics, through control and communication.

Therefore the procurement of building services can be seen as a pure management activity.

The ability to effectively plan and control the chaotic system that surrounds most management decisions led to the development of open systems theory in the 1950s. Success of a project, for example a new school, will be seen from a number of perspectives: from the students, from the faculty, the service manager, the contractors and so on. This is known as the world-view, and the various cultural divisions and objectives between these groups allows the different perspective. This now adds a third dimension to the problem: the system we are now dealing with becomes a web rather than linear.

The final dimension of the puzzle must centre on the critical success factors that are set for the project. At the end of the day, the client will be the only judge of the success of a project. The developed strategy must respect this and set clear measurable objectives in the form of critical success factors and defined processes to enable them through a clear strategy.

Figure 1.1 Text Framework

1.2 Framework of the Text

The text approaches the subject from the science of operations management, where a number of key resources must be gathered and then with the aid of a series of management tools, each is utilised to its full extent. The delivery, being a coordinated approach to the development and final execution of a strategy, is focused on value delivery and maximisation of resource potential.

Regardless of the specific approach developed for the whole construction project, building services can be seen as a specific sub-project, where a separate strategy can be developed. Using the principles of supply chain management, a cornerstone in the operations management toolkit, a strategic approach can be developed that ensures the product remains focused on the clients needs, while the inherent issues of value and cost can be maximised and minimised respectively.

The expression "services team" is used as a generalisation of all parties required in the designing, procuring, installing and commissioning of a fully operating installation. It is used for simplicity, but implies that in this modern age it is the collective responsibility for all team members to work towards a successful installation and drop the historical divided responsibilities. In areas where precise roles are required the general descriptive title of the role is given, e.g. design engineer, commissioning engineer, project manager etc.

No textbook would be able to cover each subject in sufficient depth to lead the reader to a proficiency with which they could apply the modalities to any given situation. The reference list directs readers to further sources of information. These can be used to find further practical applications of the concepts, as in the referenced documentation or deeper understanding of the underlying theories.

References

1. BSRIA (1998) M&E Contracting - Market Size, Structure, Sectors and Self-employment, Bracknell, UK, BSRIA Publications.

2. BSRIA (1999) Building Services Consultants - Market Size, Structure and Sectors, Bracknell, UK, BSRIA Publications.

Further Reading

An excellent introduction to the subject of construction procurement can be found in:

3. Cox, A and Townsend, M (1998) Strategic Procurement in Construction, London, Thomas Telford Publishing.

4...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• Tables and Figures
• Preface
• 1 Introduction
• 2 Project Requirements
• 3 Contract Strategy
• 4 Project Modalities
• 5 Developing a Strategy
• 6 Quality
• 7 Retrofitting and Maintenance
• 8 Product Modalities
• 9 The Supplying Market
• 10 Forming the Team
• 11 Engaging the Supply Chain
• 12 Performance Modalities
• 13 The Project Environment
• 14 Design Responsibilities and Programmes
• 15 Tendering
• 16 The Procurement Process
• Index