Report on Procurement Methods

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Report on Procurement Methods

There is a need for the Local Authority to refurbish various infrastructural materials which are in a bad condition. In that case, there is need to investigate on the best procurement mechanisms that are open for the authority to start the journey of making these repairs. This report intends to make recommendations on the most convenient model of procurement that the Local Authority can adopt while re-procuring its responsive repair services.

The impact of Egan’s report Rethinking Construction, on modern methods of procurement.

Sir John Egan oversaw the production of the report on the scope for improving the quality and efficiency of UK construction which made formidable recommendations to be handed to the deputy prime minister. The reason behind engaging a taskforce to come up with this report was to find a way of rejuvenating an underachieving construction industry whose many clients were dissatisfied with its output. This report was presented to the Deputy Prime Minister for Implementation.

The committee applauded and highly recommended the emergent trends then, of countering fragmentation which included partnering and making framework agreements.  Partnering occurs when two or more organizations come together, synergize with a view of achieving a common goal or improvement on their current endowment. (Egan J 2004) The two entities agree on a mutual way of solving disputes if any arises and also on how they can share proceeds of their venture.

While underscoring the importance of partnering as a solution to construction inadequacies, the taskforce cited a number of examples of organizations which have since taken up the approach and in the end reduced to a greater extent their operation costs, thus achieving highest attainable standards of business success.

In light of the above recommendations, this paper goes ahead to give an intelligible analysis of the effectiveness of partnering over other procurement processes. Egan envisaged a situation whereby a change in the processes in the construction industry would greatly boost the economy of the state. The most fundamental process that the taskforce proposed to be expedited was a shift to the model of partnering in the supply chain. Even though they acknowledged the technicalities and the cumbersome nature of partnering as compared to tendering, they also pointed out that the goods outweighed the shortcomings of the process. With this in mind, the taskforce reasoned that partnering enhances the involvement of all the players in the supply chain since all the partners take credit for every improvement that is witnessed in the industry and owing to this, the incentive to work even harder is always there.

Having made these observations, the taskforce went ahead to recommend that the supply chain practice in the country should be transformed in the following manner. First, that new suppliers should only be acquired through value based sourcing. Secondly, the supply chain should be organized and managed in a way that maximum results are realized. Also, there was need to manage the workload to balance with the capacity of the organization and finally that the innovative ideas of suppliers should be factored in the plans of the company.

The Principle of Procurement by Partnering

Partnering is an approach in management which is used by two or more organizations in order to meet common and precise business goals and it does this by capitalizing on each partner’s most effective resources. (Broom 2002) The parties in partnership work together in a fiduciary relationship and their engagement is required to be symbiotic. The parties also must factor in the anticipation of any dispute and provide in their agreement their preferred dispute settlement mechanism. The import of this model is majorly to reduce duplicity of roles in the supply chain and also to enhance communication between various players in that contract.

Forms of partnering

There are two major types of partnering; Long term and short term partnering. While long term partnering focuses on a precise mega project that the two partners intend to work on for a strategically predicted period of time, short term partnering or project specific partnering is employed as an interim measure aimed at fixing a specific shortfall in the existing construction venture. (Bower 2003) However, the recent trending debate about long term partnering is that it may ultimately do away with competition from other companies. The essence of partnering is to reduce fragmentation of many companies providing the same services. But this has to be balanced against giving few selected companies very long contracts which may ultimately compromise the already established principles of competition.

Advantages of Partnering

There are so many advantages associated with partnering. First, the parties relate at arms’ length and have a common goal which is completion of the contract. Therefore, they are likely not to engage in blame game as is always the case in other models of procurement. Another plus is that, in partnering, there is always a way of avoiding disputes. The parties anticipate the dispute beforehand and thus set up informal structures to solve such disputes expeditiously before they get out of hand. Alternative Dispute Resolution mechanisms are highly embraced in partnerships. (Koopman 2008)

The other set of advantages is all to do with efficiency in service delivery. With partnering, the duplicity of roles in the supply chain is eliminated and this leads to better service delivery. Also, the synergy between the partners ensures stability which facilitates better planning for investment. In the same breath, there is a timely delivery of goods mostly because the partners and stakeholders are likely to be people with the requisite expertise. One fundamental feature of partnering is that it puts in front efficiency and quality of services delivered as opposed to preferring sourcing suppliers for low prices without regarding their output. It also enhances predictability, in that the contracted experts can accurately project the duration which the project may take and also the estimated costs.

Ultimately, such a partnership hopes to achieve high levels of customer satisfaction, real value for the client’s money, a balance of profit margins between contractors and suppliers, satisfaction of the staff and enhancing their development and finally encouraging innovations and industry development.

Other methods of procurement and their effectiveness

A comparison between partnering and other options of procurement in the construction scene cannot be escaped. It is from this analysis that the paper finally makes a clear proposal and recommendations on the best way forward in procurement.

There are a myriad of other methods of procurement aside from partnering. The most prominent that has been employed over time is that of traditional procurement. Under this method, design and construction are usually separated using a lump sum. (Russill 2008) The designer only designs and the contractors are to complete the rest of the project. Essentially, the responsibility for coordinating subcontract packages lies with the constructor. The biggest inadequacy of this is that a clear separation between design and construction is likely to open the Pandora box and result in several disputes. It further disenfranchises constructors in such a way that they have no say in the apportionment of risks and allocation of costs.

The other method is the design and build model. Under this, the risk always lies with the contractor since he is the one responsible for designing and building of the house. This model resonates well with the clients because it is very simple to understand. Another positive element of this method is that it enhances communication between the two factions such that the architect may render advice on the site and the contractor is also involved in contributing to the feasibility. (Keeler & Burke 2009)

In addition to this, there is prime contracting method of procurement. Even though it is majorly viewed as an improved version of build and design, prime contracting requires that a prime contractor has a comprehensive supply chain and oversees the whole process of design and construction at all stages. All costs and proceeds are paid to the prime contractor and he bears all the risks appurtenant. The same challenges that the design and build method faces replicate themselves here i.e. it is hard to predict disputes when and if they arise and this can effectually compromise the completion time of the project.

Also, there is management contracting in which the main contractor takes charge over or supervises other contractors and sub-contractors also called the works. The positive thing about this method is that the contractor gets involved at all stages of construction including the early stages. Also, he is able to engage sub-contractors whom he has worked with before and thus that synergy will be helpful. This method also has demerits. The most outstanding being that there’s no common reference point to which responsibility can be apportioned both during both design and construction.

Framework agreements still fall under methods of procurement. They entail signing template agreements for a number of projects. It is easy to work with this model because you only need to negotiate a contract once and the rest are automatically renewed for expediency.

Another rarely used procurement method is construction management. It is also intended to serve very momentous projects which are very complex. The construction manager is the focal point of everything and he even heads the design team. This method is majorly used if the construction has to specifically be done in tandem with the design.

There also exists the Private Finance Initiative or the Public Private Partnership which was developed in the early 1990s by the conservative government. This model targets large scale and mega projects like building of a railway line. The government never pays a lump sum. Instead, the government undertakes to pay a constant amount of money annually for the number of years that the project is anticipated to last. Much as this method frees up the government in that it does not participate in administrative roles, the aspect of accountability is compromised because then, no one keeps a close audit of the private firm. It is this method that the Egan Report sought to do away with by proposing adoption of Partnering as the best procurement method.

Benefits of using fewer larger contractors than many small contractors

The analysis of this paper points to the fact that there are so many benefits of engaging fewer larger contractors than many smaller contractors as explained in this paper. The first one is that larger contractors always have a strong management team in which case every member of each team is exclusively dedicated to their line of expertise. Small contractors on the other hand, have several structural problems. Due to financial constraints, they always have difficulties in estimating accurately and marketing. Also, in most cases they always have very few employees, a state of affairs that does not guarantee efficiency.

In light of this, it is always anticipated that large contractors are likely to complete the project assigned to them in time and efficiently. It would not be reasonable to assign many smaller contractors the same project because of the cumbersome nature of coordinating these small companies and also, they may still mess such an enormous project because of their little skills.

Another angle of looking at it is the financial aspect. Owing of high levels of predictability and accuracy of estimates given, larger contractors are likely to stick to the initial price quoted till the end. (Jones & White 2008) This is not the case with many smaller contractors because they may quote inaccurate prices which may have to be enhanced later. It is also not guaranteed that the work they will do will be conclusively efficient and so they may have to redo part of the project; which, to the clients, may incur additional costs.

It is therefore recommended that the Local Authority engages the services of few large contractors if timely and efficient results are to be realized. This will also lessen the administrative burden on the authority and enhance predictability about the completion period of the project.

Recommendations

Having explored the various options that are open to the local authority when it comes to procurement, this report recommends that the authority adopts the partnering model of procurement to re-procure responsive repair services. While acknowledging the rigors associated with partnering, I still suggest that it is the most viable model because it has worked efficiently for many other organizations. This was evidenced in the independent Review of Public Sector Efficiency where the report pointed out that the Office of the Deputy Prime Minister reduced costs of housing repairs for work. The Fusion 21 partnership had very cheap prices that would ultimately reduce the savings of the government to 7.5 per cent on cost of repairs. If this method is then considered by the Local Authority, it is likely to use very little resources to get quality services.

With the advent of the Latham and Egan Reports, it was manifested that clients and suppliers have to closely work together in a manner that will endeavor to reduce the number of entities on the supply chain. Bearing this in mind, this paper further recommends that only two contractors should be engaged in executing this project. These two will be apportioned two distinct tasks, design and construction. The choice for two contractors is informed by the fact that the work ahead of them is not novel. Repairs are not cumbersome to make and therefore the two are enough for the contract. (Keohane & Smith 2010)

These two contractors are to be paid on a proportion of 30 against 70 per cent. The reason behind this apportionment is that the contractor doing designs will not be performing a new task altogether. Also, the main contractor will have to be paid a lump sum as contract fee aside from out of site expenses that the contractor may have incurred. These designs have been contemplated before and his sole responsibility will be to observe whether there are any alterations to be made owing to the destructions that may have been experienced. The construction contractor on the other hand will have a hard time performing his task because much of the infrastructure within the territory is worn out. In this respect, most of the time, the contractor will have to make constructions from scratch.

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