Recent Papers 03-01-2022

Explore the role of various procurement systems in various types of construction projects

Construction Procurement

Context
Conventional approaches to construction and infrastructure procurement have been consistently criticised for continuing to focus the competitive element – the tendering process almost solely on the determination of an initial price for a given design.

Modern approaches to procurement are expected to consider wider client and stakeholder values. Both public and private sector clients have sought to introduce approaches that focus competition not only on economic but also, wider social and environmental outcomes.

In 2017 the UK government put it this way – “We will maximise the contribution that... investments can make to growth and productivity by strengthening consideration of broad strategic outcomes at the earliest stage... and then carrying them through all subsequent parts of the design and procurement process”. In addition, in September 2021 it was emphasised the “The Government is committed to using its position as the single largest construction client to support adoption of a more productive, efficient and sustainable business model within the UK construction sector".

Task details

Your employer – as part of a strategic review of the business - has asked you to produce an internal report on the significance of these moves towards “procuring for value” by both government and private sector clients.

You are tasked to

• do a critical review of attempts at building wider values into the procurement process. The focus should be on what is meant by value.

• explain and synthesise the current advocated strategic approaches to procurement (including for example the guidance of the Government Playbook, Infrastructure Procurement Route-map and the wide array of Framework Arrangements, available in the market- place) that public and private sector clients are adopting

• discuss in detail your firm/how firms in the construction industry could be considering how their current business model can help them address the changing procurement approaches, and whether they need to change their business model to capitalize on these changes. You are encouraged to discuss cases and real project examples in building your arguments.

You may choose to apply the learning from the module directly into your current or recent workplace.

Instructions

Business Report Format

The assignment is to be submitted in a report format and as such should have a formal structure and layout. It should be submitted as a single document. The University has produced general guidance for Business Report writing and this should be followed –

Executive Summary

This should contain a summary of all the paper (i.e. the background, project, conclusions and recommendations). Although it comes first, you shouldn’t write it until you have finished the report! Again, it should be concise (usually no more than 5- 10% of the overall report, but do check for any module guidance). Not all reports require this, so do check your module requirements. Don’t include it if not required, or it will be a waste of your word count Explore the role of various procurement systems in various types of construction projects

List of Contents

This needs to be accurate and includes all titles and subtitles, along with page numbers. Section numbers are also often used in reports.

For example:

1. Introduction........................................p.1
2. Background........................................p.2
2.1 Current use of building.......................p.2

2.2 Funding Application............................p.5

Introduction
this needs to be concise, to the point and clearly state what the direction and scope of the report is. While some background to the report/project is useful, think carefully about what your reader needs to know about the background, and what might be unnecessary information.

Main Body

This is usually split into sections to help guide the reader. What sections you decide to use will depend on the project and report, but they should follow a logical path which helps to support your conclusions and recommendations.

Conclusions/Recommendations
You will be expected to draw conclusions to the report. These will summarize your main findings, and address the issues set in the brief. You may also be asked to make recommendations for action, which should, again, address the issue set in the brief. These are often set out as bullet points. They should contain a concise justification for each recommendation.

Acknowledgements
This is a space to thank anyone who has helped you with the report. They are not usually required for shorter reports, though some people do use them for major projects. If you have worked with a real client or someone in the industry, it might be polite to thank them here. This is rarely a requirement.

Appendices
Appendices are for information which is relevant or useful, but which might break up the text too much if you included it in the main report. For example, if you had conducted a survey, you may wish to refer to some of the main findings, but putting all of the survey results in the main body may be lengthy. In this case, you could put them in an appendix, and refer your reader to this. Appendices need a title to tell the reader what they are looking at, and they are usually also labelled and referred to in the text as Appendix A, Appendix B and so on. You should only include them if needed and some tutors prefer you to actively avoid them. Do check for your tutor’s preferences

References
your report needs to include citations and a reference list, just like an essay

Presentation and Tone

As well as splitting the report into more sections to allow the reader to navigate through the report, there are also some ways of presenting information in a report which you may not usually use in an essay. You can use bullet points for lists (which would not be recommended in an essay). Graphs, diagrams and tables are also a useful way of putting information into a report succinctly, and in an easily accessible way. However, do ensure that this is the reason you are including them, and that they have a purpose, rather than using them purely to make the report look attractive! Also remember that they need to be labelled (e.g. Figure 1 or Table 2) and given a title. Explore the role of various procurement systems in various types of construction projects. If they are taken from another source (e.g. a journal article) then they also need to be cited and referenced. Although some of the aspects of the presentation of a report are different, you should be careful that your tone is still precise and formal. You should still avoid the use of ‘I’ and ‘we’, unless told otherwise, and maintain a formal use of language.

Module Outline

  • Explore the role of various procurement systems in various types of construction projects
  • Critically examine strategic procurement approaches for effective and efficient design and construction solutions.
  • Critically evaluate client objectives and determine the appropriate selection of procurement systems for design and construction services.
  • Critically evaluate supply chain relationships and partnering schemes and develop strategies for various stakeholders in the construction industry.
  • Advise the client on the selection of the appropriate procurement routes.
  • Advise relevant parties on the rationale regarding strategic procurement decisions.

Module Aim

  • 1.  Strategic procurement in construction – policy and practice.
  • 2.  Procuring for value in design and construction services – examining alternative strategies for procuring consultants and contractors.
  • 3.  Procurement frameworks – understanding alternative contractual frameworks within which relations between organisations are formed.
  • 4.  Partnering strategies within construction procurement.
  • 5.  Supply chain management – examining ‘supply chain’ relationships across and within projects – including business models. 

5 main reasons why firms might want to change their business models

  • An unmet or changed demand in the market
  • A new solution opens the market to new customers previously excluded from the market;
  • The emergence of new technologies that reshapes value delivery (e.g. the internet);
  • To fend off competition, often from low-cost producers; or
  • To respond to a rapidly changing competitive environment, for example, from a focus on cost, to one on lifecycle carbon impacts.

What is Procurement?

Dictionary Definition

  • ‘The obtaining of goods and services’

More specifically in relation to construction

  • ‘Obtaining the whole spectrum of goods, materials, plant and services in order to  design, build and commission a building that delivers the best possible value for money for the client over its life cycle
  • a strategy to satisfy clients development and/or operational needs with respect to the provision of constructed facilities for a discrete life cycle’  (CIB W92 – International procurement Systems)

Procurement Systems

  • Procurement is about the whole project not just the main building contract
  • Therefore includes consultants, specialist contractors, nominated sub-contractors, suppliers etc.

Project Objectives

Project priorities:

Time:

  • is early completion required?
  • is phased / sectional completion required?
  • is certainty of time or a particular deadline important?

Cost:

  • is price competition important?
  • do I want single point responsibility?
  • is cost certainty or a firm price important?

Strategic Procurement (Procurement Types)

Fundamentally 5 categories of system:

  • price in advance (Traditional/ fixed price / lump sum)
  • design and build
  • management
  • cost reimbursement
  • partnering / alliancing / framework agreements

Contractual arrangement of a traditional approach to procurement?

Strategic procurement versus supply chain management

Features of Strategic Procurement Management (Demand) and

Supply Chain Management

  • A more strategic view of procurement, e.g. supply matching demand
  • An appropriate fit-for purpose relationships between purchaser and supplier
  • Achieving `best value` rather than lowest price
  • Developing a relationship over the longer term
  • A collaborative style of working 
  • A proactive approach to supplier development
  • The business benefits for adopting a more strategic approach to procurement

Strategic procurement

Why is there a need for strategic approaches?

  • Meet the changing demands of the business environment
  • E.g. demand capacity issues, adversarial relationships, sustainability issues

Evolution of construction procurement?

What are the conventional approaches?

  • Traditional design-bid-build approach
  • Single source methods (e.g. D&B)
  • Management approaches (e.g. Management Contracting & Construction Management)
  • Collaborative working arrangement: partnering / alliancing / framework agreements

Procurement Types

Fundamentally 5 categories of system:

  • price in advance (Traditional/ fixed price / lump sum)
  • design and build
  • management
  • cost reimbursement
  • partnering / alliancing / framework agreements

Fit-for-purpose approach

Strategic procurement

What type of supply relationship will best meet my needs?

How should I manage the relationship to best deliver the required benefits?

Starting point: define what you want to achieve

Improved value for money/cost reduction?

Reduced lead times?

Improved quality?

Understand your power position and constraints

  • Demand/spend profile
  • Criticality/commercial risk

Then possible to develop operational relationships & practices which align with your strategic goals

This is Strategic Procurement

More work through fewer suppliers/optimising your leverage

Attractive account = prepared to “jump through hoops”

Greater certainty

Continuity of work in exchange for some margin

Planning for efficiency

Reduction of overheads (e.g. reduced tender costs)

Initial commercial benefits are gained through negotiations based on economies scale

Fundamentally 5 categories of system:

  • price in advance (Traditional/ fixed price / lump sum)
  • design and build
  • management
  • cost reimbursement
  • partnering / alliancing / framework agreements
  • Procurement Road Map

Report – Part Three

Your employer – as part of a strategic review of the business - has asked you to produce an internal report on the significance of these moves towards “procuring for value” by both government and private sector clients.

Discuss in detail your firm/how firms in the construction industry could be considering how their current business model can help them address the changing procurement approaches, and whether they need to change their business model to capitalize on these changes. You are encouraged to discuss cases and real project examples in building your arguments.

Business model – simple definition

  • While there is no single, agreed definition, a business model can be seen as describing the way a firm creates value, and captures a portion of the value for itself
  • Firms with a business model that is clearly understood are likely to be better positioned to respond in times of change.
  • However, changing a business model is a challenging process, and requires a detailed knowledge of how a firm currently operates. This needs to be recognised urgently by construction firms in particular, because they operate in a low-margin, litigious industry, so may struggle to access the key resources needed for business model transformation

Value Toolkit

A suite of tools to support faster value-based decision-making across the whole investment lifecycle

Value Definition

Defining the unique value profile for a given project and creating value indices through which informed decisions can be made

Delivery Model

Selection of a delivery model and commercial strategy that best meets the value drivers of the project

Procuring for Value

Helping the market to shape their offers and helping clients to make procurement decisions based on the Value Drivers of the project

Ongoing Measurement

Continuous forecasting and measurement of value performance throughout delivery and operation

Latham (1994) Review

The main terms of reference of the Latham Review:-

"to consider - current procurement and contractual arrangements and current roles, responsibilities, and performance of the participants... and ...in doing so....to consider the structure of the industry" (Latham, 1993, p,38).

The Farmer Review 2016

In housing, infrastructure and commercial …“we find the survivalist business model, the absence of alignment between industry and client interests, and of the incentives and means to invest”.

Andrew Wolstenholme OBE

Co-Chair, Construction Leadership

Council

The Challenge from the Farmer Review 2016

Changing Business Models: Implications for Construction

  • While there is no single, agreed definition, a business model can be seen as describing the way a firm creates value, and captures a portion of the value for itself
  • Firms with a business model that is clearly understood are likely to be better positioned to respond in times of change.
  • However, changing a business model is a challenging process, and requires a detailed knowledge of how a firm currently operates. This needs to be recognised urgently by construction firms in particular, because they operate in a low-margin, litigious industry, so may struggle to access the key resources needed for business model transformation
  • By exploring the changing nature of the market, and considering whether their value proposition and strategic approach remains valid, firms can consider whether their existing assets, capabilities and value delivery mechanisms will enable them to continue to create value

5 main reasons why firms might want to change their business models

  • An unmet or changed demand in the market
  •  A new solution opens the market to new customers previously excluded from the market;
  •  The emergence of new technologies that reshapes value delivery (e.g. the internet);
  • To fend off competition, often from low-cost producers; or
  • To respond to a rapidly changing competitive environment, for example, from a focus on cost, to one on lifecycle carbon impacts.

Drivers of change

Data

Effectively harnessed, customer use and performance data could deliver benefits worth £15bn for infrastructure.

Demand

Society’s expectations are changing – Net Zero by 2050 and increasingly ethical investors – 50% have increased allocation to sustainable funds compared to five years ago.

Devolution

The devolution of spending and decision making powers is bringing closer alignment of clients and users. Between July 2012 and August 2014, 26 city-deals were agreed.

1. Vision

Operation

Data led Asset Performance

 

Policy

Strategic Planning and Placemaking

Delivery

Delivering Integrated Projects

2. Value-based business models

Natural capital

The natural environment, natural resources and the ecological services provided.

Human capital

The individual: health, skills and motivation required for a productive economy.

 

Social capital

Societal groups, communities, schools, businesses, voluntary organisations, etc…

 

Financial capital

Traditional economic measure of value
which is intrinsically linked to natural,
social and manufacture capital.

 

Manufactured capital

Materials and goods/assets that
are required to input to the
process.

Business models how do we sell

Accommodation as a service

Facilities management outcomes as a service

Apps aimed at
end-users/consumers.

Large complex
infrastructure projects.

Compliance/safety assessment and follow-up services across a network of assets.

Provision of a live service in place of a static report, e.g. air quality monitoring or a live environmental assessment.

Digital twin creation and provision of a service providing ongoing advice.

Design in a design for manufacture scenario.

Master planning utilising layout software.

Design for private house builders with projects using a standard house layout.

Required to replace an individual in the client’s organisation with a particular expertise.

Bespoke first principles design for a high-value project.

Development of a report/business case

ASSESSMENT CRITERIA AND L7 MARKING SCALE

Criteria

Task

Weighting

Knowledge, understanding and critical review of the need to consider value and not just cost or price in procurement

…..attempts at building wider values into the procurement process.  The focus should be on what is meant by value.

30%

Knowledge, understanding and the bringing together of the different views on modern, strategic approaches to procurement 

….explain and synthesise the current advocated strategic approaches to procurement that public and private sector clients are adopting Explore the role of various procurement systems in various types of construction projects

30%

Knowledge, understanding and critical discussion on how more modern methods of procurement by clients might require the suppliers to change their own business models in response.

….discuss in detail how your firm/how firms in the construction industry could be considering how their current business model can help them address the changing procurement approaches, and whether they need to change their business model to capitalize on these changes. You are encouraged to discuss cases and real project examples in building your arguments.

30%

       

Criteria

Task

Weighting

Communication

Presentation of business report (Layout, structure, visual presentation, use of language, clarity of expression, referencing within text)

Sources are recorded in accordance with Harvard APA 7th.

Source literature appropriately applied to the discussion of value, strategic procurement and business models.

10%

       

Some References;

https://corporate.jctltd.co.uk/products/procurement/

https://www.gov.uk/government/publications/procurement-policy-note-0620-taking-account-of-social-value-in-the-award-of-central-government-contracts

https://www.gov.uk/government/publications/the-construction-playbook

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