Discretionary Procurement Systems

Mohammed Elaida MCIOB

During the past articles, on procurement in construction, we addressed various categories of Construction Procurement Systems: Traditional, Integrated and management-oriented systems. The client may have the discretion to use any of the systems, either individually or in combination or even a bespoke system of his/her own making, but with the chosen system(s) being implemented within a specific setting controlled by the client.

A discretionary system is, therefore, an administrative and cultural framework into which any procurement system(s) can be incorporated, hence allowing the client to carry out the project by imposing a very specific management style, or company culture, while at the same time enabling him/her to use the most suitable of all of the available procurement methods.

Partnering

Partnering is considered a fundamental withdrawal from the traditional procurement methodology in terms of management of the supply chain bond and construction procurement. During the last couple of decades, partnering and other associated methods of collaboration were regarded as a means of addressing the fragmentation within the construction industry that has troubled the efforts to improve project performance for many years.

Partnering originated in the USA at the beginning of the 1980s as a cooperative technique aiming to decrease the mounting disputes between construction stakeholders and the associated costs.

Partnering may be described as a procurement system that relies on trust cooperation and collaboration, which helps innovate construction projects at both organisational and inter-organisational levels, improves communication between project team members, mitigates competition, reduces transaction costs and information irregularities, and alleviates tense working atmosphere. The system is dependent on “cooperation and teamwork, honesty, trust, equity and equality between the various members of the supply chain”.

Partnering Process (Masterman, 2002)

While the RICS (2012) report showed that the use of Partnering increased from 0.6% to 1.0% between 2001 and 2010, the CIOB (2010) report, found that, when dealing with big-scale value projects, partnering is regarded as appropriate and more effective:

• 17.6% for projects of a value under £5 Million.

• 24.1% for projects of a value between £5 Million and £50 Million.

• 29.3% for projects of a value over £50 Million.

The following are some common goals and benefits found in healthy partnering:

• Parties seek “win-win” solutions.

• Long-term relationship (Strategic Partnering) is based on value, trust, honesty and long-term commitment.

• Common problem-solving and avoidance of blame.

• Common benefits and profit sharing.

• Continuous improvement, training and learning from past mistakes

• Common needs and objectives of all partners.

• Decreased costs and increased profit.

Public-private partnerships (known also as PPP or Triple-P)

Public-private partnerships involve collaboration between a government agency and a private-sector company that can be used to finance, build, and operate projects, such as public transportation networks, parks, power plants, and convention centres. Financing a project through a public-private partnership can allow a project to be completed sooner and/or make it possible.

PPPs were first developed in the UK in the 1990s with the aim that private sector companies might be more efficient at providing certain services than public authorities and so could deliver better value for money projects for the taxpayers.

PPPs can cover a range of partnerships to deliver policies, services, buildings or infrastructure, from hospital catering to maintenance and underground transportation. Partnerships can either be with central or local government, with typical contract periods of 20 to 30 years, or longer.

The three main categories of PPP are:

Concession contracts, where a private sector company provides a concession on behalf of a public authority, for which the public pays them (such as a toll road / Bridge / Tunnel).

Private Finance Initiatives (PFI), where a private sector company finances and provides a public service that might include construction, maintenance and operation, for which they are paid by a public authority.

Institutional PPP is where a joint venture company is established jointly by a public authority and a private company to provide a public service.

PFI is the most common form of PPP and is one of the three procurement routes preferred by the Government Construction Strategy for central civil government projects, in the UK. Generally, it is only suitable for large-scale projects, i.e., those with a capital cost of over £20 million, such as hospitals, schools etc….

References:

• Cartlidge, D. (2009). Quantity Surveyor’s Pocket Book. Oxford: Elsevier.

• CIOB. (2010). Procurement in the Construction Industry. Retrieved from https://www.ciob.org/industry/research/ Procurement-Construction-Industry

• Masterman, J. W. E (2002). An Introduction to Building Procurement Systems (2nd ed.). Oxon: Taylor & Francis.

• NEDO. (1988). Faster Building for Commerce. London: HMSO.

• RICS. (2012). Contracts in Use. A Survey of Building Contracts in Use during 2010. London: Royal Institution of Chartered Surveyors Publications.

• Office of Government Commerce. (2007). Achieving Excellence in Construction Procurement Guides 06. Retrieved from http://webarchive.nationalarchives.gov.uk/20100503135839/http:/www. ogc.gov.uk/documents/CP0066AEGuide6.pdf