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rest of the boxes in this Figure may be a part of the client organization. Even if they are, these roles are still fulfilled, and they may have different labels on them.

This discussion demonstrates that it is basically unrealistic, if not impossible, to develop an ideal procurement system. Just as there is no one best way to organize a firm (Woodward 1965), so there is no one best way to organize a project (Hughes 1989). Many projects suffer from inadequate or inappropriate procurement decisions. The industry has, for a long time, lacked a sensible and systematic policy for choosing appropriate procurement systems, although this is now changing with the emergence of British and international standards (British Standards Institution 2010, 2011). The most useful protection that can be offered to a client is a clear policy for developing a procurement strategy for each building project.

7.4IDENTIFYING AND CHOOSING PROCUREMENT METHODS

It is clear from the discussion so far that there are many different variables to take into account when selecting procurement methods. It can be difficult, in practice, to make clear distinctions between procurement methods, since procurement methods differ from each other in unique ways. For example, GC differs from DB in terms of where the responsibility for design lies, whereas it differs from CM in terms of how site co-ordination is achieved. Some developments in procurement practice have made the situation more complex, for example, the use of private sector finance for public sector projects (see Section 2.2.1).

7.4.1Identifying procurement principles

The discussion so far reveals that each procurement option differs from the others on its own basis. In other words, in many cases they are not simply alternatives to each other and the procurement decision is not, therefore, simply a case of choosing between this bewildering array of options. They can be combined in different ways. For example, a general contract may or may not be partnered, it may be financed by the private or public sectors, and it may or may not involve much sub-contracting. The key to thinking through the procurement method for a project is to take certain issues in a specific sequence because some decisions may preclude the need to consider all of the other issues. This is illustrated in Figure 7.2 and explained below.

The first issue confronting a procurer is the question about how to fund the project. We have seen that private finance initiatives and buying real estate from a developer are two ways of funding the process by someone other than the eventual client. If the client chooses to fund the construction work, then other procurement methods come into play. But the client may decide from the outset to go to the market, seeking a completed facility as a package, including funding, whether purpose-made or ready-built. In this event, the client has no further procurement decisions to make, apart from the decision about who the supplier will be and how the price will be calculated, usually related to value. There are two options for the

7.4.2Defining a procurement strategy for a project

The range of procurement options and the different ways of combining them reveal a confusing array of methods, as each is distinguished from the other on a different basis. The combination of contracting, funding, selection and payment methods can all be combined with different modes of ownership in many different ways. Simple labels such as PFI, partnering, general contracting, and so on, communicate little about the way that a project is structured. As we have seen, these different methods are not mutually exclusive categories of doing work. By grouping the procurement variables, it ought to be possible to describe any construction procurement method. These principles of procurement are variously represented in every procurement method, even though a procurement method is usually characterized by only one factor. For example, PFI involves private sector investment in major infrastructure projects, whereas in DB the contractor’s responsibility for design is the defining characteristic. To bring more clarity to the distinctions between procurement methods, the categories in Table 7.1 are suggested.

These principles have been derived by identifying the questions to which each common procurement strategy seems to be an answer, then listing some alternative answer to that question. The way to put more detail on to the decision tree in Figure 7.2 is to deal with each of the procurement principles in turn.

As we have seen, the source of funding is key to developing a procurement strategy. Examples are given in Table 7.1, including PFI, which is an archetypal funding method. Part of the financial decision-making is related to the way that the price is calculated. This is a decision for the purchaser at each point in the supply chain. While a contractor may be paid monthly for work in progress, the contractor’s suppliers may be paid a lump-sum after installing something they have designed. Business models throughout the supply chain vary considerably and it is this variety that results in different cash flow patterns for different suppliers.

The principles of design and co-ordination, and their impact on the procurement strategy, have been discussed in the previous section in relation to

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Figure 7.2. A further issue is the principle of supply chain management. For some clients, the management of supply chains is seen as a domestic issue for the contractor/supplier to take care of. However, increasingly, it is seen as an issue of great concern to the employer. A primary reason for supply chain management is that an employer wants to save costs, either by eliminating part of the supply chain costs (having a framework of suppliers that are used for many jobs, rather than retendering every time) or because they want to work with the supplier on innovation, again to lower costs. For example, one supermarket chain in the UK works directly with a fridge manufacturer to change the design of fridges to better fit the dimensions of their store layouts. The relationship with one manufacturer means they get a bargain price because the manufacturer has a three-year deal covering 250 stores. There may be other reasons for wanting to get involved in a contractor’s supply chain; whether for sustainability imperatives, quality assurance, health and safety or a corporate social responsibility agenda, many clients need to control the source of materials, or other aspects of the work. Some collaborative practices discussed in Chapter 6 and some procurement strategies discussed in Chapter 7 are defined by the need for an integrated or partnered supply chain. This imposes a particular selection process on the immediate supplier that extends into the supply chain.

The final principle of procurement is the selection method. At every point in the supply chain, there is a relationship between a buyer and a seller; a contractor and a sub-contractor; a client and a supplier. While partnering and frameworks are often encountered in construction projects, the practices of tendering in open or limited competition are options.

Using Table 7.1, it is clear that describing a project as, for example, PFI does not indicate where the responsibility for design lies. Describing a project as general contracting does not indicate how much sub-contracting there is, or how the contractor was selected. To adequately describe how something is procured, all six principles are needed.

In setting up a construction project, discussion and decisions are needed around these principles. Of course, in some projects, not all options are open. For example, the source of funding may simply be a matter of policy or even regulation for any given client. But it needs to be explicit. The methods of selection open to the client may be a matter of choice or preference, but in many cases, particularly in the public sector, there are regulations about how suppliers may be selected. The choice about how the price is calculated is a mechanism for apportioning risk, as discussed in Section 7.2. Responsibility for design and responsibility for management define where the liability lies in the event that the project does not meet expectations. The extent of supply chain integration is an indication of the scale of the co-ordination and management task for a project, but is also a response to the technical complexity of the project, as discussed in Chapter 1.

By working through each of the principles and making a clear decision or statement about the approach used in the project, the procurement strategy can be made clear.

One interesting and somewhat surprising point about Table 7.1 is the number of combinations of the six variables. Given that there are at least five options in each of the six categories, there are at least 15,625 different ways of procuring a building. In fact, there are many more, because the options given here are only