Procurement is an integral part of project management in the construction industry that involves acquiring construction materials, services, and supplies needed to complete a given construction project. In the building and Construction industry, procurement of required materials and sourcing of needed services forms the first step toward having a successful project within the stipulated period as per the construction schedule (Kurbel, 2015). Therefore, a procurement department is among the key departments that form the firm’s management structure in construction firms. Procurement in firms is concerned with proper planning through elaborate and effective strategies on how to identify the markets for the various construction materials and then carefully strategize on the procurement method or organize to purchase the required materials in a cost-effective way.
Construction procurement has evolved over time, from conventional procurement methods to the current advocated procurement strategies or modern procurement methods with technological, operational advantages over traditional approaches. The current advocated procurement approaches are more flexible; thus, their application depends on the infrastructure procurement route map, existing procurement policies, and the government playbook of the market. The current advocated procurement strategies consider several factors; some of the factors include project timeline, quality, and the project’s budget. The adoption and integration of these currently advocated strategic procurement approaches in the private and public sectors have led to the success of procurement processes in construction projects (Vijayasarathy, 2016). There are different route maps that a construction firm may consider when it comes to a strategic procurement approach in construction projects. Importantly, when a firm selects the procurement strategy to use in a project, they have to consider the client’s short-and-long-term objectives for the project. In context to the given case, the following are some essential procurement strategies and tips that the firm should consider in construction projects.
Price in advance is a typical traditional procurement approach though it is still widely used in construction projects. It operates on a single-source arrangement set by the firm’s project management, and it has to satisfy all the project requirements. For example, this procurement approach was used in the 1990s when construction firms would contract a single construction firm to offer all construction services, from architectural works to engineering services (Wessel, 2018). And the mode of payment for services was considered before the commencement of the project. The industry realized that the lumpsum or price in advance approach surrounded several problems and conflicts between contractors and clients, raising questions of trust and professionalism. Therefore, the industry embarked on innovative strategies that could enable the establishment of more pragmatic, reliable, and cost-effective procurement approaches in the construction sector (Linford, 2018). it was the urge to provide a solution to the encountered challenges with the traditional procurements that led to the emergence of current advocated procurement strategies currently utilized in modern construction projects.
The design-bid-build strategy might be viewed as a “conventional” procurement approach, but it is worthy of consideration in modern construction projects because of its flexibility to accommodate multiple business relationships. The advantage of design-bid-build procurement strategies is that it gives clients a clear description of the project’s timeline, scope, and budget for completing the project to the required standards (Agrawal, 2020). It, therefore, calls for a qualified contractor or experienced procurement experts to take on the project as outlined in the bid.
However, there are some setbacks in utilizing this kind of procurement strategy. For example, in most cases, contractors prefer the lowest bid options, but the challenge arises when the project experiences variations while on course. Though it is positive for contractors to select the most cost-effective procurement route, it is also important to factor in the effects or impacts of construction variations on the cost of procuring the needed construction materials (Murray, 2019). Therefore, it is recommended that procurement managers in charge of the procurement process have a detailed understanding of the project from designs, construction through to its finish to enable them to predict and factor in any possible variation that may affect the delivery of the project as scheduled.
Clients are interested in knowing the material and service requirements in the project; these kinds of clients would demand accountability in the project by wanting to know what is procured. It is then important that the client have experience and reliable procurement managers to handle their procurement processes in the project. To have qualified and experienced procurement managers on a project, the pre-qualifying contractor’s strategy has to come into play to help identify vendors and partners who would execute the project within a reasonable cost (Knudsen, 2019). However, if the contractor desire to have more control over the procurement process than that allowed with the design-build strategy offers or want to have industry-specific attention, they would need to pre-qualify the procurement managers before handing the bid.
The pre-qualifying strategy involves screening contractors and procurement managers for their experience, portfolio, and expertise before they are awarded the project, unlike the design-bid-build strategy that considers quality and expertise checks when the project is underway after the bid (Watts et al., 2018). The advantage of the pre-qualifying strategy is that only vetted, and reliable contractors are invited to the bidding process, and the client can apply any of the criteria in assessing potential candidates, including but not limited to; evaluating past performance, evaluating the quality of delivered projects and checking on the portfolio every candidate. The outcome remains constant; there is no waste of administrative time, less disruption, and rework during project execution because only qualified and experienced contractors are awarded the bid (Betts, 2020).
Management contracting is a modern procurement strategy that applies engagement principles different from the design & build and traditional methods. In management contracting procurement, it involves the services of additional experts like contractors, consultants, and specialized contractors as part of the procurement team for a given construction project. This strategy has two contractors; specialized contractors and general control. It’s their role that differentiates them in this case of procurement strategy (Toglia et al., 2019). For instance, the general contractor is the project manager and is responsible for the overall coordination of construction activities. In contrast, specialized contractors are responsible for the real build aspect of the project in their respective fields of specialization. The financial management of the project is the sole responsibility of the client regardless of whether it is in the private or public sector.
The joint venture is a current advocated procurement strategic approach designed to help solve the many problems contractors encounter in construction projects. It was established that most construction challenges are caused by barriers between stakeholders and parties to the contract. Lack of effective communication and inclusivity in the project is a recipe for failure and antagonism that often results in compromised project quality, delayed project delivery, and even conflict of interest in the project implementation (Bao et al., 2020). To prevent the encounter or occurrence of the above-highlighted challenge, a partnership is of the essence in the project; therefore, the need to have consensus in project management led to the adoption of a joint venture procurement strategic approach where all key parties to the contract are involved in the purchase of required materials as well as sourcing for the needed services in the project (Wagner et al., 2017). The consensus in the joint venture procurement approach is established based on mutual purpose, trust, teamwork, and sharing of rewards and risks of the project.
A private financing initiative is a popular procurement strategic approach in the private sector where the contractor takes the sole responsibility for every activity involved in the construction project. In this approach, the client entrusts all the responsibilities to the contractor from the start to the finish of the project. The contractor hand over the project to the client after successful completion. This is mainly preferred by clients who are engaged with other duties or those with limited financial background and project management, thus opting to exclude themselves from the construction process (Agrawal, 2020). It is important for the client to thoroughly assess the contractor before they hand them complete control of the project because the basis of the PFI is on the trust to complete the project as designed and to the desired quality.
The current firm’s model is anchored on optimizing the value it creates, delivers, and captures the UK’s construction industry by integrating all its clients’ needs, either from the public or private sector. The firm’s business model explicitly describes the architecture and design of the value creation delivery mechanism as well as the capture mechanism (Linford, 2018). The clarity of purpose for our firm is envisioned on its operational (business) model. The company values its clients’ contribution and therefore has structures and policies that consider clients’ interests in various facets of operations, economically and socially. Being in existence for quite some time, the firm applied a business model that could be referred to conventional model but not entirely because, over the past years, the firm has adopted and integrated some aspects of modern business models in its operations, especially to entice customers to pay for the value it creates and convert these payments to profit (Murray, 2019). In essence, the firm’s business model embodies nothing sort of financial and organizational architecture of the firm’s scope of operation
Currently, the emergence of the global economy has transformed the UK’s construction market, particularly on the model balance between suppliers and customers. The adoption of new and advanced communication and computing techniques in the construction industry has opened a series of global trading regimes, offering clients options; variegated clients are provided with alternatives on supplies that match the value for money (Wanjiru, 2016). The global economy has also revolutionized the procurement process resulting in the new advocated procurement strategies in the market. The new advocated procurement approaches are adopted to improve project delivery and harmonize the relationship between construction firms and their clients from the private and public sectors. Through the current business model applied by the firm is efficient in terms of value creation, the new technology has brought a paradigm shift in the clients’ expectations and demands when it comes to project management and coordination (Knudsen, 2019). Therefore, the company needs to upgrade its business model to conform to market demands.
To remain relevant and competitive in the UK’s construction market, the company needs to adopt a pro-modern business model that will enable it to intersect with the clients’ needs and comply with government requirements. The firm needs to upgrade its current business model to enhance its competitive advantage in the UK’s construction industry since the market is currently accessible to other international companies with pro-modern models. A new business model will broaden the scope of operations, thus expanding its options for creating value and opening the market to new customers that otherwise could remain excluded from the market as per the old model (Cox, & Townsend, 2018). Though there is no comprehensive business model that includes all the factors of production, value creation, and delivery of the created value because of the market dynamics, construction firms should adopt models that resonate well with their market environment.
The change in the model should come with its expansion or development strategy, and for instance, every firm has the vision to expand on its market and have move customers; therefore, with a new business model, the firm can reshape its value creation and delivery options to attract more customers into the fold (Vijayasarathy, 2016). Firms need to have a business model that their clients clearly understand, and this would make them better positioned to respond in times of change (Cox, & Townsend, 2018). And lastly, change is needed to respond to the competitive environment and conform to the government’s commitments to have a single largest construction market that is more productive, efficient, cost-effective, and reliable, where construction firms have a sustainable business model across the UK’s construction sector.
Conclusion
The adoption of new technologies in business operation has led to the creation of global economy that has transformed the construction industry. The procurement approaches have both social and environmental effects on the firm’s operational and organizational management. These positive effects include pollution prevention, cost reduction, community involvement, and the enactment of friendly codes of conduct and practice. There are a number of attempts toward building more comprehensive values in the procurement process; these attempts include improving employee skills through training, purchasing and Source platforms, and enhancing good supplier relationships. The current strategic procurement approaches advocated by the firms include requests for proposals, open tendering, restricted tendering, and a single-source process. The procurement approaches in the contemporary corporate world are consistently changing towards ensuring that the procurement approach does not only focus on competition and economic outcomes but also on broader social and environmental outcomes. The firms in the construction industry can evaluate how their current business models will determine this dynamic procurement approach by assessing the main objective of their business model and whether it is quality-centered instead of cost-centered.
References
Cox, A., & Townsend, M. (2018). Strategic procurement in construction: towards better practice in the management of construction supply chains. London: Thomas Telford.
Kurbel, K. E. (2015). Enterprise resource planning and supply chain management. Functions, Business Processes and Software for Manufacturing Companies. Progress in IS. Springer, Dordrecht.
Vijayasarathy, L. R. (2016). Supply integration: an investigation of its multi-dimensionality and relational antecedents. International Journal of Production Economics, 124(2), 489-505.
van Wessel, R. M. (2018). Realizing Business Benefits from Company IT Standardization (Doctoral dissertation, Ph. D. Dissertation, Tilburg University).
Linford, P. (2018). The Influence of Supply Chain Collaboration on Customer Value. University of Johannesburg (South Africa).
Agrawal, D. K. (2020). Textbook of Logistics and Supply Chain Management. Macmillan.
Murray, J. G. (2019). Public procurement strategy for accelerating the economic recovery. Supply Chain Management: An International Journal.
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Knudsen, D. (2019). Aligning corporate strategy, procurement strategy and e?procurement tools. International Journal of Physical Distribution & Logistics Management.
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Bao, Z., Lu, W., Chi, B., Yuan, H., & Hao, J. (2019). Procurement innovation for a circular economy of construction and demolition waste: Lessons learnt from Suzhou, China. Waste Management, 99, 12-21.
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