criteria of choice for procurement methods

CRITERIA OF CHOICE FOR PROCUREMENT METHODS

Prof. Peter HibberdDr Ramdane Djebarni

Centre For Research In The Built EnvironmentUniversity Of Glamorgan, Pontypridd, Mid Glamorgan CF37 1DL, UK

1. Introduction

Over the past fifteen years much work has been done on attempting to define procurementpaths and Masterman (1992) provides a good background to some of this work. As thetraditional procurement route came under closer scrutiny other procurement routesdeveloped and consequently means for selection were considered.

In 1985 NEDO set out general requirements for the selection of a procurement path andothers including Skitmore and Marsden in 1988, Bennett and Grice in 1990 and ELSIEcomputer system in 1990 sought to assist in making the selection. More recently Morledgeand Sharif (1996, a,b) have discussed procurement strategy, summarised procurementoptions and outlined a process to assist in the selection of the best procurement strategy.Gillespie (1994) questions the extent that rationality plays in procurement selection andsuggest that other factors often influence choice. Some other researchers suggested theuse of fuzzy logic to produce computerised systems to help practitioners (Peak et al., 1992;Russell, 1992). Turner (1990) provides an assessment of the risk inherent in procurementroutes and it can be inferred that this is an important determinant in the route selected.

It is known that procurement methods play a major role in defining and shaping contractualand work relationships between parties involved in the construction process. Therefore, abetter understanding of those methods and criteria that practitioners use in their selection isa very important step in enhancing our understanding of the issue. This paper presentsthe results of a study into criteria of selection for procurement methods used in theconstruction industry in the UK, and investigates the issue of satisfaction with procurementmethods.

2. Background

2.1 Procurement methods

A review of current practices in the UK shows different approaches to the procurement ofbuilding projects. A classification of these approaches is extremely complex because thereare not clear and universally accepted definitions of what a particular procurement methodis. This raises a major issue in that if there is no accepted definition of what comprises aparticular procurement route, the possibility of establishing criteria to achieve specificobjectives is problematic, if not remote.

McCanlis (1967) pointed out the problems with the traditional descriptors of contractualarrangements but notwithstanding the acknowledged problems, ELSIE (1990) computersystem and Masterman (1992) have defined the various procurement routes.

If the characteristics of a procurement route can be identified and the impact of thesecharacteristics upon performance can be measured, then and only then, can the selectionof a specific procurement path serve a purpose.

2.2 Procurement’ criteria for selection

The literature review on this issue reveals a wide spectre of reasons put forward forchoosing a particular procurement method. Rowlinson & Newcombe (1984), in theirresearch on the impact of procurement methods on performance, produced a table thatprovides a general overview of the respective characteristics of types of contractualarrangement (see table 1). This taken with Turner’s risk assessment and that set out inLatham (1994) provides a useful, albeit fairly crude tool. This paper describes researchwhich has attempted to refine these issues and to provide a greater understanding ofprocurement decisions and needs.

Types of Price Design TimeArrangement

Certainty Level(inc. fees)

ParallelWorking

Changes Buildability

BeforeStart

TraditionalArrangement

Fairlygood

Low No Easy No Slow

Design andBuild

Good Medium Yes Difficult Yes Medium-Fast

Measurement

Averageto poor

Medium Yes Easy No Medium-Fast

Prime Cost Poor High Yes Easy No Fast

SeparateMgtFunction

Averageto poor

Medium Yes Easy Yes Fast

Table 1: Indication of Characteristics of Types of Contract Arrangement(Source: Rowlinson & Newcombe, 1984)

The variables used for selection in this study are: accountability, design input,dissatisfaction with previous process used, knowledge of the process, predictable cost,punctuality, speed of commencement, speed of completion, transference of risk, andworking relationships. Respondents were also given the opportunity to add any furthervariables that they may see as important in their choice.

3. Methodology

A questionnaire was prepared with the objective of obtaining information relating toprocurement choice and satisfaction with procurement methods used, among other things.A total of 122 questionnaires were mailed to both clients and consultants of which 64responses were received, which is a good answer rate (52%). The data was analysedstatistically using SPSS for windows.

4. Results

4.1 Procurement Selection Criteria

Respondents were asked to indicate on a scale from one to ten what they believe to be thedegree of importance of procurement selection criteria mentioned earlier in this paper. Theresults depicted graphically in figure 1 shows the distribution of their answers. In order tofind out how significant are these results statistically, χ2 test was conducted and its resultsare presented in table 2.

No. Selection Criteria χχ2 p1 Accountability 52.34 0.002 Design input 06.78 0.033 Dissatisfaction with previous procurement

process09.78 0.01

4 Knowledge of process 15.50 0.005 Predictable cost 55.72 0.006 Punctuality 27.22 0.007 Speed in commencement 10.91 0.008 Speed in completion 29.66 0.009 Transference of risk 05.09 0.0810 Working relationships 10.72 0.01

Table 2: Results of test for procurement criteria of selection

1 2 3 4 5 6 7 8 9 100

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10

Accountablity

1 2 3 4 5 6 7 8 9 100

5

10

15

1 2 3 4 5 6 7 8 9 10

Working relationships

1 2 3 4 5 6 7 8 9 100

5

10

15

1 2 3 4 5 6 7 8 9 10

Design input

1 2 3 4 5 6 7 8 9 100

5

10

15

1 2 3 4 5 6 7 8 9 10

Previous dissatisfaction

1 2 3 4 5 6 7 8 9 100

5

10

15

20

1 2 3 4 5 6 7 8 9 10

Process knowledge

1 2 3 4 5 6 7 8 9 100

2

4

6

8

10

12

1 2 3 4 5 6 7 8 9 10

Speed in commencement

1 2 3 4 5 6 7 8 9 100

5

10

15

1 2 3 4 5 6 7 8 9 10

Speed in completion

1 2 3 4 5 6 7 8 9 100

2

4

6

8

10

1 2 3 4 5 6 7 8 9 10

Transference of risk

1 2 3 4 5 6 7 8 9 1002

46

810

12

14

1 2 3 4 5 6 7 8 9 10

Punctuality

1 2 3 4 5 6 7 8 9 100

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10

Predictable cost

Figure 1: Distribution of responses of criteria for selection of procurement methods

The table shows that all procurement criteria for choice were significant except for‘transference of risk’. Indeed, all the results are significant at ∝ = 0.05 except for reason 9where p= 0.08 is bigger than ∝, which means that there is no real difference between theorder-ranking of respondents as can be seen in figure 1, that is to say that respondents ingeneral do not see risk transference as an important criterion in making their choice ofprocurement method.

In order to find out the ranking of these criteria, Friedman two-way Anova by ranks wascarried out. The results presented in table 3 demonstrate that ‘predictable cost’ comes firstfollowed by ‘accountability’, while the bottom comes ‘dissatisfaction with workingrelationships’ and ‘transference of risk’.

No. Selection Criteria Mean Rank1 Predictable cost 7.082 Accountability 6.993 Speed in completion 5.824 Punctuality 5.795 Dissatisfaction with previous proc. method

(reversed)5.58

6 Knowledge of process 5.377 Speed in commencement 4.988 Design input 4.839 Working relationships 4.4410 Transference of risk 4.12 N = 50 D.F. = 9 χχ2

r = 47.31p= 0.00

Table3: Friedman One way Anova test results

4.2 Satisfaction with Procurement Method Used

Two questions were asked regarding satisfaction. The first question asked respondents torate their satisfaction level, on a scale from one to five, with the procurement methodcurrently used by them and the second asked them whether their answer would have beenthe same if they consider the previous five years. The answers to the first question showthat more than half of respondents were satisfied with the procurement method currentlyused, one third were moderately satisfied and less than one tenth were dissatisfied (seefigure 2).

22%

42%

6%

30%

highly satisfied satisfiedmoderately satisfied dissatisfied

Figure 2: Satisfaction with procurement

The reply to the second question reveals that the majority of respondents were not satisfiedwith the procurement methods they had previously used.

To this effect, figure 3 shows that the overall majority were not satisfied with previousprocurement methods they used.

χ2 one-sample test was conducted to ascertain the statistical significance of these results.As shown in table 4 both answers are statistically significant.

Variable χχ2 D.F. p

Current satisfaction 16.30 3 0.00Previous satisfaction 36.21 1 0.00

Table 4: χ2 test for current and previous satisfaction

Interestingly, during the same five year period one has witnessed a rise in the use of‘design and build’ and a reduction in traditional procurement. This raises the clearpossibility that ‘design and build’ as a procurement method is providing greater satisfaction.But as many respondents were still using traditional methods it also indicates that thesubstantial change in satisfaction may also be accounted for by a refinement and greaterunderstanding of procurement methods. Possibly, as procurement methods mature moreusers have adopted a particular approach, become more attuned to its usage and achievedhigher satisfaction as a consequence.

11%

89%

Yes No

Figure 3: Previous satisfaction

4.3 Problems with Current Procurement Methods

In a reply to a question on the most significant problems potentially arising during theprocurement process, changing requirements and design team problems, followed bycommunication were considered as the most significant problems as indicated in table 5.More than half of the respondents see the solution of these problems in a change of theprocurement method used.

No Variables Percentage1 Changing requirements 252 Design team 253 Communication 184 Cost control 6.35 Identification of responsibility 4.76 Supply of information 4.77 Quality 3.18 Design faults 3.19 Contract time performance 3.110 Other factors 1.611 Type of contract 0.0

Table 5: Ranking of problems with current procurement methods

Notwithstanding, the fact that a substantial improvement in satisfaction in the use ofprocurement methods has been made, problems with those currently used still exist. Thetop three problems ‘changing requirements’, ‘design team’ and ‘communication’ can all beaddressed by the use of design and build and hence we are likely to witness a continuingtrend. ‘Design and build’ alleviates changing requirements by restricting the ability tochange and hence the nature of the problem shifts from that of ‘disrupting the process’ toone of receiving a less than satisfactory product. Design team problems are also reducedfrom a client’s perspective but the problems may still exist. The difference being that theybecome someone else’s problem, i.e. design and build contractor. ‘Communication’ shouldbe improved as much of this occurs within one organisational unit but this is far from aninevitable consequence.

5. Conclusion

The results show that substantially more users are now satisfied with the currentprocurement methods, than they were with those they had used in the previous five years.A reduction from 89% to 6% of those not satisfied in the procurement method wasindicated .

Dissatisfaction with previously used procurement methods is shown to be a major factor inthe selection of a subsequent procurement method. During the same period thatsatisfaction increased sharply, there has been a noticeable increase in the use of ‘designand build’ and there is the clear suggestion that ‘design and build’ was seen as a way tosolve the problems being encountered. Hughes & Djebarni (u.p.) found that practitionerswho worked on large projects sought a move away from traditional methods whereas thosewho worked on small projects were generally satisfied with the way things were.

Although it was anticipated that ‘the transference of risk’ would be an important criterion ofselection, this is not supported. The criteria for selecting the procurement method were allsignificant except for ‘transference of risk’. It seems improbable if not implausible that ‘thetransference of risk’ is of such a low order and its explanation may lay in the fact that actualrisk apportionment under the various procurement methods is not well understood.

In respect of the potential problems that arise during the procurement process over one-half see the solution in changing the procurement method. As the problems wereidentifiable and as optional procurement methods were available, it raises the question asto why they were not used.

It is possible, that an alternative was not considered but more likely it implies that theoptions did not offer a solution. Therefore, these users, may see the solution to theseproblems in new innovative methods of procurement.

The evidence of this survey does suggest that although selection criteria are importantthere is not an abundance of confidence in the data relied upon to achieve one’sobjectives. Furthermore, many decisions are semi-automatic, being based upon generalcharacteristics rather than specific evaluation against pre-defined criteria.

References

Bennett. J., and Grice, T. (1990). ‘Procurement Systems for Building’ Quantity SurveyingTechniques - New Directors, (Ed. Brandon, P.S.). Blackwell Scientific Publications,London. pp 243-262.ELSIE System, (1990). Imaginor System, RICS QS Division.

Gillespie, B. (1994). ‘The Choice of Procurement Route is A Key Decision - So why nottreat it as one?’ Building, 29 July. p.46.

Hughes, W., and Djebarni, R. ‘A Preliminary Survey of Attitudes to UK ConstructionProcurement Practice’. Unpublished paper. University of Reading & University ofGlamorgan.

Latham, Michael, (1994). Constructing the Team, Final Report of the Government/IndustryReview of Procurement and Contractual Arrangements in the UK Construction Industry,HMSO, London.

Masterman, J.W.E. (1992). An Introduction to Building Procurement Systems. E. & F.N.Spon, London.McCanlis, E.W. (1967) Tendering and Contractual Arrangements, Research andInformation Group of the Quantity Surveyors’ Committee, RICS, London.

Morledge R., and Sharif A. (1996,a). ‘The Procurement Guide’ A Code of Procedure forBuilders and their Advisers. RICS, London.

Morledge R., and Sharif A. (1996,b). ‘Strategies for Procurement: Implications for CostDatabase, Cost Planning and Tender Price Indexing’ COBRA 95-Construction and BuildingConference -, RICS, London.

NEDO (1985)., ‘Thinking about building - a successful business consumer’s guide to usingthe construction industry’, Building Economic Development Committee, London.

Peak, J.H., Lee, Y.W., and Napier, T.R. (1992). ‘Selection of Design/Build Proposal UsingFuzzy-Logic System’Journal of Construction Engineering and Management, 118, pp 303-317.

Rowlinson, S.M., and Newcombe, R. (1984). ‘Comparison of Procurement Forms forIndustrial Buildings in the UK’ The 4th International Symposium on Organisation andManagement of Construction, University of Ontario, Canada.

Russell, J.S. (1992). ‘Decision Models for Analysis and Evaluation of ConstructionContractors’ Construction Management and Economics, 10, pp 185-202.

Skitmore, R.M., and Marsden, D.E. (1988). ‘Which Procurement System? Towards aUniversal Procurement Selection Technique’ Construction and Management Economics, 6,pp71-89.Turner, A. (1990). Building Procurement. Macmillan, London.