Procurement in the Construction Industry: The Impact and Cost of Alternative Market and Supply Processes (Spon Research)

223 Pages·2006·1.11 MB·English

by  W. Hughes

Procurement in the Construction Industry
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Procurement in the
Construction Industry
The impact and cost of alternative market and
supply processes
Will Hughes, Patricia Hillebrandt,
David Greenwood and Wisdom Kwawu
First published 2006 by Taylor & Francis
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Simultaneously published in the USA and Canada
by Taylor & Francis
270 Madison Avenue, New York, NY 10016, USA
Taylor & Francis is an imprint of the Taylor & Francis Group, an informa business
© 2006 Will Hughes, Patricia Hillebrandt, David Greenwood and Wisdom Kwawu
Publisher’s note
This book has been prepared from camera-ready copy supplied by Will Hughes.
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The publisher makes no representation, express or implied, with regard to the accuracy of
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British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Procurement in the construction industry : the impact and cost of alternative market and
supply processes / Will Hughes ... [et. al].-- 1st ed.
p. cm.
Includes bibliographical references and indexes.
ISBN 0-415-39560-7 (hardcover : alk. paper) 1. Construction industry--Cost control. 2.
Construction industry--Finance. 3. Building materials--Purchasing. 4. Contractors--Selection
and appointment. I. Hughes, Will, Ph. D.
TH435.P726 2006
690.068”7--dc22 2005035157
ISBN 0-203-96873-5 Master e-book ISBN
ISBN10 0-415-39560-7
ISBN13 978-0-415-39560-1
Contents
Acknowledgements vii
Executive summary ix
1 Introduction 1
2 Review of existing knowledge 5
2.1 Calls for change 5
2.2 Characteristics of procurement options 7
2.3 Approaches to supply chain mapping 12
2.4 Theoretical work on the costs of transactions and costs of tendering 15
2.5 Empirical work on factors affecting the costs of procurement 22
2.6 Estimates of costs of tendering and other components of procurement 23
3 Research 27
3.1 Objectives 27
3.2 Method 27
3.3 Discussion interviews 28
3.4 Time sheet audits 44
3.5 Structured interviews 47
3.6 Summary of structured interviews 60
3.7 Staffing levels survey 61
3.8 Bid cost survey 69
3.9 Supply chain maps 71
3.10Construction market data 80
4 Fresh perspectives on construction procurement 81
4.1 Costs to participants 81
4.2 Commercial processes in the context of procurement methods 85
4.3 Competition, collaboration and power 87
5 Conclusions and recommendations for further work 91
5.1 Quantifying the costs of tendering 91
5.2 Indirect costs of collaborative vs competitive working 94
5.3 Main findings 95
5.4 Recommendations 98
6 References 103
CONTENTS vi
7 Indexes 111
7.1 Name index 111
7.2 Subject index 113
Appendix A: Glossary of terms 119
Appendix B: Annotated bibliography 123
Acknowledgements
Research of this nature is highly collaborative and could not take place were it not
for the willing and enthusiastic participation of a large number of industrial
partners. We are grateful to the following organizations for their whole-hearted
commitment to this research: Collaboration for the Built Environment (formerly
Be, now part of Constructing Excellence), who not only contributed a great deal to
the management of the project and the research, but also co-ordinated the steering
group for the project drawn from the following organizations:
(cid:120) Amec Capital Projects Ltd
(cid:120) Amey plc
(cid:120) Asite
(cid:120) Balfour Beatty Civil Engineering Ltd
(cid:120) Building Design Partnership
(cid:120) Carillion plc
(cid:120) EMCOR Drake and Scull
(cid:120) Gardiner and Theobald
(cid:120) Gleeds
(cid:120) Irvine Whitlock Ltd
(cid:120) Kier Group plc
(cid:120) Land Securities plc
(cid:120) Marketing Works
(cid:120) Waterloo Air Management
(cid:120) Waterman Partnership
We should like to thank Helen Lingard and Hong Xiao, both of whom
contributed significantly to the formative stages of this project, and Jenny Hong for
one of the supply chain maps and associated data, prepared as part of her MSc
course in Project Management at the University of Reading.
We would also like to acknowledge the large number of anonymous
interviewees and questionnaire subjects who provided data for our analyses. The
research project was funded by the Engineering and Physical Sciences Research
Council, through the Innovative Construction Research Centre at the University of
Reading, UK.

Executive summary
The UK construction industry has recently witnessed a move to innovative
working practices that involve greater collaboration and partnership than has been
the case in the past. While the benefits of such collaborative ways of working are
widely discussed, little is known about their relative cost. Indeed, there is scant
evidence of the procurement costs of even the more traditional, competitive
practices. The purpose of this major piece of research was to examine whether
different procurement approaches are associated with differences in procurement
costs.
In seeking answers to this question, we examined the most significant
procurement methods, both traditional and innovative, to identify, and where
possible, quantify the commercial costs that are involved in each. The costs arise
under four headings: marketing, agreeing terms, monitoring of work, and resolving
disputes. Recent literature reveals that expectations vary about the impact of
procurement method on procurement costs, but such expectations are largely
untested. Most researchers agree that competition in construction procurement is
organized wastefully, but estimates of the cost of tendering alone have varied from
0.5 to as much as 15% of construction prices. Commentators tend to suggest that
the use of collaborative working would reduce tendering costs, although there has
been little to substantiate this, so far. It was against this background that the
research project was set up to identify and describe the procurement practices in
use, and to explore, identify and measure their cost. The research benefited from
the generous participation of a very active research steering group in which
industry practitioners were strongly represented. Consequently, some guidance
was expected on the most advantageous approaches to be adopted in the future,
with particular interest being shown in the relative procurement costs of
collaborative working.
For the purposes of this report collaborative working is defined as an approach
to procurement where:
(cid:120) competitive bidding is not the only criterion upon which contractors,
consultants and suppliers are selected;
(cid:120) some reliance is placed on the deliberate development of long-term working
relationships;
(cid:120) there is a limited number of interdependent participants or ‘partners’.
The nature of the research has necessitated the adoption of a radical, but far
more rigorous approach to the classification of procurement methods than is
customary. In practice, these have usually been defined in very general terms, and