Procurement of Subcontract Packages

Procurement of guncontract PackagesPurposeThe aim of this paper is to investigate how primary(prenominal) contractile organ procural procedures influence lever on a shake off through agonisticly tendering Sub Contract packages whereby cost is causen down by competition or unity sourcing Sub Contract packages creating treasure through talks and innovation.Design/Methodology/ApproachEmpirical data was collected through structured interrogationnaires issued to Sub Contract companies and master(prenominal) contractile organ firms.1.0 Introduction1.1 Background What the Study is aboutWhen considering the procurement of a Sub-Contract package, the securer is faced with numerous ch completelyenges. First he/she guides to gather exclusively information required to decipher what needs to be procured and how the information toilet be transposed to potential Sub-Contractors. Secondly a contractual agreement is created including obligations and rules of compensation. Thirdly, the procurer needs to decide how to award the procurement contract in the midst of the Sub-Contractors, either through militant tendering or single ancestor negotiation. Ultimately the award method should result in the selection of a highly competent and desirable Sub-Contractor resulting in a cost effective product.The award method whitethorn be appointed to Sub-Contractors in two ways. Either a single Sub-Contractor throw out be burn uped to discuss and agree the works (single source tendering), or a consider of Sub-Contractors can be invited to compete for it (competitive tendering).With regards to competitive tendering it is important to distinguish the method or form of competition from the criteria used for the selection of Sub-Contractors. Ciria (1994, p15) states that competition may be eitherOpen, where there is no limit on the number of Sub-Contractors invited to compete for work.OrSelective or restricted, where the number of Sub-Contractors invited to compete is limi ted.For the purpose of this study spread competitive tendering leave behind not be taken into consideration to keep the number of variables to a constant. Where competition is referenced passim the paper we are to buy up selective or restricted competition.1.2 Research FocusThis paper rack upresss the potential increase of send word cherish generated by detailing a partnering approach establish on Sub-Contractor and primary(prenominal) Contractor relationships compared to that of traditionalisticistic competitive tendering. Competitive tendering can be described as determining the value of the subcontract whereas in contrast, negotiation is send offed to create the value of the subcontract.Since the Latham Report (1994) and Egan (1998) was published there has been a greater awareness regarding the possible benefits to single source a product or service. In theory if contractors and subcontractors engage and work together would it provide best value? Alternatively would v alue be added by competition? Competitive tendering is lull widely recognised as an attractive procurement mechanism and is strongly advocated as it helps to stimulate and promote competition supporting many potential suppliers.This issuance area has been addressed due to its close relationship with the Quantity Surveying profession. Accurate procuring of goods and services is essential to a projects success, having a direct impact on profit margins. This study is relevant to everyday work for a site establish Quantity Surveyor dealing with nominated Sub-Contractors on a daily dry land objet dart working closely with the procurement team to procure future packages. Interest has motivated the investigation and address of the thesis questionSingle source or competitive tendering which procurement route gives best value?1.3 Overall Research Aim and Individual Research impersonalsThe overall aim of this explore is to stir an apprehensiveness of the impacts that tendering Sub-Con tract packages through negotiation or competition fuck off on a projects value. However, in order to understand tendering methods and its effects on value it is mat up necessary to gain an insight into the forces driving Sub-Contractor and chief(prenominal) Contractor relationships and explore the barriers to implementation of both parties achieving maximum value. Further, this interrogation give assess existing practices, exploring the experiences and visualizes of professionals entangled with Sub-Contract procurement. In turn two main research vehicles will be exploited to facilitate this study an in depth review of relevant lit and the collection of and analysis of existential data. The chapter entitled Methodology contains the enlarge of both research strategy and data collection techniques to be used to obtain empirical data. Specifically, a array of objectives have been developed and unpacked from the central question, the objectives of this research are toIdentify a nd investigate the forces driving single source and competitive tendering procurement routes. prize critically the social system industries current views and opinions, compiling the attitudes of the experts.Explore and evaluate the advantages and disadvantages for each method of procurement.Formulate and propose recommendations on the procurement route that provides to a greater extent(prenominal) value to a winding project.1.4 Value of this researchAt the risk of oversimplification of the purpose and value of each of the above objectives, objective 1 focuses on methods, reasons and appear issues. Whereas it is in objectives 2, 3 and 4 is where this research will shake up key contributions to the field of Sub-Contract package procurement through single sourcing or competitive tendering. separately of the objectives must not be viewed as separate, unrelated issues. The listed objectives are necessarily interlinked. The first objective on investigating procurement routes will cover the strategic drivers and methods associated with the procurement of Sub-Contract packages. For example, it will, in effect, attempt to answer the question are there forces driving companies to procure Sub-Contract packages in certain ways and, if so, what are they and what do they bespeak? An example of such driver could be perceived as communication, which if the case, may act as a driver to encourage negotiation through single sourcing Sub-Contractors. Objective 2 on critically analysing the construction industries views provides an opportunity to gain meaningful insight into the views of professional staff, and management form Sub-Contractor and Main Contractor backgrounds, on what would encourage them to procure Subcontract packages through either negotiation or competition, what would discourage them and how these link to value creation as well as their views on the industries past and current approaches. Objective 3 on the advantages and disadvantages is of obvious relevance to assist in the analysis of each procurement route and links in with objective 4. Finally objective 4 formulating recommendations will, as a result of both a review of literature and the collection and discussion of empirical data, make recommendations. The objectives are not to be seen as independent of each different, but rather as all linked to issues surrounding procurement routes and how they can add value in the construction industry.2.0 Literature Review2.1 IntroductionThis literature review will examine the main issues surrounding the drive for single sourcing and competitive tendering associated with Sub-Contractor selection. Emphasizing current obstacles and potential benefits for each procurement routes from both parties. The study within this review of literature focuses on objectives 1 and 2 as plant out in sub-section 1.3 of the Introductory chapter (the third objective will be realised through the vehicle of empirical data collection and analysis, whi le the last-place objective objective 4 is derived as a result of findings from objectives 1, 2 and 3)Identify and investigate the forces driving single source and competitive tendering procurement routes. gauge critically the construction industries current views and opinions, compiling the attitudes of the experts.Explore and evaluate the advantages and disadvantages for each method of procurement.Formulate and propose recommendations on the procurement route that provides more value to a construction project.By exploring the above areas of literature, a significant contribution will be made to this research. At the end of this chapter it is hoped that a critical understanding of key issues is exhibited, that the reader will be better informed in these areas and that there will emerge a clear focus, and justification, for empirical research in the field of Sub-Contractor procurement methods and their effect on value during a construction project.2.2 Forces driving single source and competitive tendering procurement routes.2.2.1 Historical Events Government codeSubcontracting became a popular practice in the 1960s and over the years established itself as an integral part of the industries production process. Projects were procured using traditional methods of lecture with main contracts being awarded through competitive tendering (Uher, 2009 Davenport, 2009, p.200). During these years the economy was stable with little inflation and low interest rates, the contractor was seen as the Master detergent builder due to employing most of its own direct labour and only specialised areas of work such as mechanical and electrical were subcontracted. Since the late 1960s the worlds economies experienced periodic economic downturns, increased inflation and higher interest charges. With the Construction Industry being highly susceptible to economic fluctuations, the adverse economic actions changed the traditional practices of the construction industry one of the foremost changes being the shift towards subcontracting.Since the early 1990s the Construction Industry has continued its conflict-ridden competitive tendering culture, together with adversarial working relationships throughout its supply chain, (Brindley, 2004). The Construction Industry continued to pressure its suppliers to lower prices, along with delaying payments to them so that it could profit from a level of interest. This tradition placed risk on little businesses causing them to cease to exist or execute projects at inferior quality. Authors in the early 1990s were just aboutwhat certain about their view between main contractor and subcontractor relationships with main contractors driving prices down even if detrimental to quality, not paying subcontractors on time and in some cases forcing smaller companies to cease trading. The UK government, concerned by these facts employed Sir Michael Latham in 1994 and Egan in 1998 to produce two reports. Latham advocated the need for a Code of Practice for subcontractor procurement and for statutory stand-in to fair payment terms (Latham, 1994). Consequently in 1996 the Construction Industry Board published and implemented a Code of Practice for the Selection of Subcontractors and the accommodate Grants and Regeneration Act. In increase, Egan (1998) pointed out that partnering through the supply chain is a critical approach with which the UK construction industry can drive innovation and prolong incremental improvement in performance.In recent years main contractor supply chain relationships have changed from the traditional adversarial to the joint venture, with tendering experiencing a sequester from traditional methods of procurement towards single source processes. According to Davenport (2009) the contribution of subcontractors to the total construction process can account for as much as 90 per cent of the total value of a construction project. One of the results of this is that main contractors a re concentrating their efforts on managing site processs rather than employing direct labour to undertake construction work. Main contractors have recognised the positive impacts that closer working relationships with subcontractors can have on package value and quality. Most work undertaken on construction partnering has been between invitee and main contractor relationships with little mention of adopting partnering with subcontractors.2.2.2 The Contracting FrameworkA central problem in procurement is that both Sub-Contractors and Main Contractors share uncertainty about many important design changes that occur after the contract has been awarded. These changes are usually a consequence of design failures, unexpected conditions and changes in regulations, which have an effect on project costs. This observation suggests that relationships between both parties can become adversarial hindering supply chain relationships. Therefore project design completeness will have an impact on t he procurement award method selected. (Tadelis, 2006 Bajari, 2006) argue that simple projects, requiring an uncomplicated design ought to be procured using immovable-price contracts as they have high design completeness. Therefore preventing the need for contract variations, and are best awarded through competitive tendering. In contrast (Tadelis, 2006 Bajari, 2006) state that complex projects demanding big design give rise to surprises throughout the projects due to low levels of design completeness. Implying that there will be a high chance for variations therefore it should be awarded through negotiation. The insight for these thoughts is through incentives to narrow costs that follow on site variations consequently having an effect on a projects overall value. In fixed price contracts, the Sub-Contractor offers the procurer a lump sum price to carry out the works as specified, with any changes being negotiated throughout the contract.The incentives for a Sub-Contractor to red uce tender costs offered by fixed price lump sum tendered contracts will lead to increased costs for the Main Contractor through variations when changes need to be negotiated. This valuable surplus to the Sub-Contractor leads to efficiency loss through the Sub-Contractor wishing to use these changes to his advantage. On the topic of competitive tendering Tadelis (2006, p.4) statesWhile competitive bidding does have the advantage of unbiased awarding of projects, it fails to respond optimally to ex post adaption.Therefore it appears that competitive tendering stifles coordination between Sub-Contractors and Main Contractors before specifications and drawings have been finalised. After all a Sub-Contractor has no incentive to offer the procurer advice on value engineering or innovative ideas, if anything the Sub-Contractor would benefit from holding any information from the Main Contractor as they would offer a competitive advantage over the rival competitors. Once awarded the contrac t the anticipated design errors will be find and the Sub-Contractor will be in a position to claim excessive variation costs. However In negotiated single source tendering both the Main Contractor and Subcontractor typically spend time discussing the project before construction begins. During these discussions the Sub-Contractor will have better incentives to suggest potential cost saving techniques through design and specification changes. Accompanying this more design pitfalls will be picked up before a project begins, potentially adding value.The competitive pressure through negotiating contracts with a single Sub-Contractor is weak with the procurer not achieving all the potential cost savings.2.3 The construction industries current views and opinionsCompetitive tendering is widely recognised as an attractive procurement method and is commonly supported for numerous reasons. Largely it is viewed as a means of promoting and stimulating competition amongst Sub Contractors. By its nature open competitive tendering invites potential Sub Contractors from many venues reducing the likelihood for price inflation (Tadelis, 2006 Bajari, 2006). Fair market price discovery is beneficial to this type of tendering with open competitive mechanisms being transparent, making it easier to prevent corruption. (Cira,1994) suggests that competitive tendering has three significant advantages over negotiation which as as followsCompetition encourages a systematic approach which is more likely to yield the right Sub-Contractors than negotiation with a single Sub-ContractorCompetition is a transparent process and so helps satisfy the increasing demand for right in both public and private sectors.Competition can give clients better value for money, particularly when compared on the basis of both their ability and fees.An arouse point made by CIRA, 1994 pg 14 arguing against competition was that Sub-Contractor input at an early stage cannot be described well enough to cease fair competition. This is because the Sub-Contractor helps define the works needed and bids consist of an element of judgement due to incomplete design. CIRA also mentioned that initially competition is a time consume and expensive process and costs may outweigh any value saved. However the benefits of selecting the most suitable Sub-Contractor for the business concern could outweigh this initial investment. Competition can have practical exceptions to its use through complicated packages where only one Sub-Contractor has the specialist expertise needed. Or is services are needed urgently and there is not enough time to undertake the competitive process properly.Competitive tendering, where the lowest bidder gets awarded the contract, is deeply embedded in the construction industry and can be destructive in the long term as the need to minimise transactional costs tends to reduce quality and client satisfaction. The emphasis on cost competition, and the traditional adversarial Main Co ntractor Sub-Contractor relationships, results in frequent changes in participating firms from one construction project to another. This makes collaboration between them difficult. Partnering leading to single sourcing between Sub-Contractors and Main Contractors has been cited as effective approaches to overcome these difficulties and add value to a project. (Dainty, 2001) identified the following barriers to integration from the subcontractor point of viewFinancial/cost-related issues related to competitive tendering based on price, which has developed adversarial relationships that result in serious problems with regard to paymentsPlanning/time-related issues, such as false expectations on part of the main contractor and surreal schedules andAttitude-related issues, such as arrogant conducts, exclusion of the subcontractor from the early phases, lack of praise for good performance, poor site management practices, and lack of understanding of subcontractors problems.Latham (1994 ) defines partnering as a contractual arrangement between two parties for either a specific length of time or for an indefinite time period. The parties agree to work together, in a relationship of trust, to achieve specific primary objectives by maximizing the effectiveness of each participants resources and expertise. It is for this reason, that principal contractors are oblivious of the fact that sub contractors can bring added value to the construction project (Dainty et al., 2001).Conversely authors such as (Dimitri, 2006) recognise competitive tendering as an attractive procurement mechanism, stimulating and promoting competition, hampering corruption and inviting more potential subcontractors to price work. Although the single sourcing approach has shown promising results, there are some cases in which subcontractors have considered that it did not add any value, while some main contractors have seen little benefit in forming alliances with firms that they do not regularly wo rk with (Dainty et al. 2001).Egan (1998) feels that sub contractors should be involved in the design team as early as possible. An argument which is echoed by Briscoe et al. (2004), who believes that sub contractors should be procured early, therefore need knowledge and ability to exercise value engineering and other innovation exercises. The primary reason for selecting sub contractors is their innovation and knowledge, not necessarily for the lowest price. However, high performing sub contractors use their innovation and knowledge, and can lots deliver a better service at a lesser price. Low performing sub contractors offer only on low price, while high performing contractors offer value (Garrison, T. 2006).The next stage of this research will detail the Research Methods to be used to capture the empirical data, including details on the research strategy to be adopted, data collection techniques, sample selection and management of the research workers role.Ethics StatementWhen u ndertaking a research project careful consideration must be taken to ensure that any material contained within the project causes no defile or potential harm to anyone, or organisation.Ethics is the science that deals with conduct, in so far as this is considered as right or wrong, good or bad. (Dewey, 2008)An Ethics Review Checklist has been completed (Appendix A) which has highlighted a potential area for approval. This is due to the methods of research being undertaken which involve human participation. These activities specifically include questionnaires to ensure they are executed in a morally correct and ethical manner the following steps will be taken.Ensuring that the landing fields have the option to grant voluntary consent the questionnaire will be structured in a way that participants can opt out of answering either individual questions or not participate at all. This is honoured by all questionnaires being issued to the subjects via e-mail, permitting candidates to ret urn the document in their own time and at their own will with no pressure to respond, therefore there will be no reason for any of the participants to feel uncomfortable.All questionnaires issued will be sent with a participation consent form and information sheet. The questionnaire refers to this financial backing via a disclaimer that by returning the survey the subject agrees to the terms and conditions and privacy statement as disclosed in the consent form. This disclaimer ensures the subject that careful consideration is being taken to ensure that all participants and respective companies remain anonymous, to prevent any possible harm. Subjects will be referred to by job role only with no mention of name or company to eliminate any matters of commercial risk or damage to reputations.Feedback will be issued to subjects that assisted in the research thanking each subject for his/her time and input including a summary of the findings once all research has been populated.In line w ith the info Protection Act 1998 upon completion of the research all completed questionnaires and sensitive data will be destroyed, including any stored on hard disk and in the recycle bin. Two hard copy publications of the finished article will be produced for the university, in addition with one electronic these publications may be unattached for public viewing in the university library which is disclosed in the participation information sheet.I intend to conduct a number of case studies for research therefore it is incredibly important that each case study will be alphabetically referenced, with no mention of any information that could identify the individual, project, location, contractor, client or consultants. All material will remain unidentifiable including any diagrams, illustrations or drawings used. This ensures that all parties involved can be assured that there will be no information detailed in the document which could potentially cause harm. All sensitive material collated will be dealt with due care, and destroyed in the correct manner either by shredding hard copies or deleting the information from hard disk.Any secondary research undertaken will be solely and correctly recognized to the author and source throughout the dissertation by means of Harvard referencing.MethodologyIntroductionA valuable aspect to this research relates to Objective 2 the opportunity to study the construction industries current views and implementation in practice in a subject that, although generating much discussion, is in terms of research in its embryonic stages.Research StrategyOne research method that will be adopted, related to research strategy, is a questionnaire. What is a questionnaire approach and wherefore is it suitable for this research?Cohen and Manion (2007 317) describe a questionnaire accordinglyThe questionnaire is a widely used and useful instrument for collecting survey information, providing structured , often mathematical data, being able to be administered without the presence of the researcher, and often being comparatively straight forward to analyse.According to this definition, a questionnaire is therefore concerned with seeking individuals views, facilitating this researchers drive to probe deeply into answering the thesis question as to which procurement route provides more value by seeking representatives opinions. Cohen and Manions definition also gives merit to a questionnaires practical consideration, aiding the justification for using this researchers chosen research strategy and data collection technique.Data CollectionThe questionnaire has been structured using primarily soft research as it is linked to in-depth exploratory study. Enabling the opportunity for quality responses exist through open cease questions, probing participants thoughts and views. Denzin and Lincoln (2003) hold that soft research involves studying things in their natural settings, attempting to make sense of, or interpret, phe nomena in terms of the meanings people bring to them.The subjects have been selected through convenience sampling, a non-probability approach to sampling as they have been exclusively targeted. Convenience sampling was used because of its expediency through issuing questionnaires to staff in the organisation for which this researcher works, and to subcontractors whom this researcher has dealt with. Through having a prior association with the subjects a better rate of return has been achieved, with subjects wanting to engage more in the research. In addition to this further time will be spent by each individual on providing more detailed responses further enhancing the thoroughness of this paper. Respondents are construction professionals and range from job roles such as estimators to surveyors and project managers to directors. The wide variety of job roles will give me the levels of unbiased data required to reach a ending. This method of research has been selected with the aim th at subjects ideas and insights may lead to other, more detailed and representative research.Two different questionnaires were issued via electronic mail to a pre populated list of employees with one questionnaire issued to subcontractors and the other to main contractors. The purpose of this was so that the questions could be tailored to suit either the contractor or subcontractor, it was important to collate both views to reach an straight conclusion. The theory behind using E-mail to distribute and collate the questionnaires was that it is much more reliable than circulation by post, easier to manage and track, whilst being convenient to people encouraging a larger participation as well as being more environmentally friendly and cost effective. Limited background data was bespeak such as position in company and level of industry experience as I entangle other information would be impertinent and not unpack the central question. There are no more than ten questions asked per qu estionnaire, it was felt that no further questions were required as a conclusion can be drawn from the results and that by using fewer questions the participant is more likely to contribute as it will not encroach on their working day. The questions have been structured in a standardised manner so that they can be interpreted and analysed efficiently, there is a balance between open and closed questioning.Framework for Data AnalysisLimitations and Potential ProblemsConvenience sampling suits this area of study because it is industry specific, by targeting known subjects this reduces the limitations of the research as there is only one researcher so manually sourcing or random sampling would be very time consuming with no ensure of the quality of results. A perceived limitation with using questionnaires for research is that they are limited in number. This is predominantly justified due to the lack of time operable as a student. To negate this risk the subjects were carefully selec ted to ensure a high rate of questionnaire return and an increased level of detailed answers.Methodology thinking(prenominal) Behind the hesitationsQuestions issued to Sub-ContractorsInterviews were dismissed as a potential research strategy the rationale behind this is for the reason that unlike questionnaires they are not anonymous. Therefore interviewees may hold back from their true feelings or not give as much detail in their answers. This researcher has counteracted this by using open ended questions in the questionnaire permitting the subject the opportunity to express concerns and genuine views with the knowledge of total incognito further substantiating that by using a questionnaire counts as legitimate empirical research due to its is suitability and relevance to this research paper. This researchers own primary data has been collected due to the lack of previous literature useable on this subject the majority of accessible information is concerned with client and cont ractor relationships and not contractor/subcontractor relations.FindingsIntroductionThis chapter reveals the results of the survey described in Chapter 3 Methodology. This research concentrates on obtaining the views of Sub-Contractors and Principle Contractors with regards to single sourcing or competitively tendering Sub-Contract packages.Survey Findings Description, Analysis and Synthesis Main ContractorQuestion 1.0The first question Question 1.0 was Do you feel that arrogate work with the corresponding subcontractor improves the working relationship in terms of discussing site issues/valuations?Response17 (81%) of subjects questioned felt that working with the same Sub-Contractor improves the working relationship with 4 (19%) arguing against the majority. One respondent responded positively A collaborative working relationship forms the basis of a much stronger approach to on site discussions and subsequent resolution of variations. Another stated It needs to be two ways, w ith both parties fully buying into the benefits. One member conjectured that repeat business can improve working relationships however at times this can be tested due to commercial pressures. No Main Contractor respondents stated a reason behind why repeat work with the same Sub-Contractor does not improve the working relationship. The replies from Main Contractor personnel suggest that there is still a problem with collaborative working. Although 81% of respondents viewed repeat work with the same Sub-Contractor in a wholly positive light, 19% felt differently.Question 2.0The second question Question 2.0 was Do you believe that repeat work with the same subcontractor gives a higher quality of workmanship?ResponseThis question gave rise to many mixed views with 57% of the subjects surveyed believing that repeat work with the