Procurement methods in Construction Industry
Procurement methods in Construction Industry

Introduction

Construction professionals are always keen to understand about procurement methods practiced in industry. Therefore analyzing requirement and characteristics of procurement system is very vital. Core objective of a procurement system is identifying responsibilities and task for of each and every participant in a signed project.

Before looking at types of procurement, one should know what the functions are carried out in construction industry and parties involved with it. Generally, five functions are undertaken in a project. They are design, build, management, finance and operation. It can be understood that, a procurement system defines scope or responsibilities of each parties (Client, Consultant & Contractor). In other words, procurement system is very important term to understand properties of construction contract.

Types of Procurement methods

Commonly, five procurement systems are being exercised in industry. Each of them shall be discussed in detail below. It is recommended that, to have deep understanding on types of procurement methods, always functions of construction industry to be remembered.

  1. Traditional Method

Responsibility of a contractor is limited only to build. All design works and management of contract are carried out by consultant or engineer. Finance and operation on project shall be controlled by client. This method of procurement recommended for complex and comparatively huge project.

  1. Design & Build

As name suggests, design and build responsibility covered by contractor. Consultant’s scope only limited to management of contract. Client is responsible for finance and operation.

  1. Management Contracting

This method of procurement system is completely different from traditional method and design & builds method.  In addition to client, consultant and contractor, specialized contractors become as participant. Contractor acts as a manager for project whereas specialized contractors undertake real build aspect on their specialized field. Finance and operation carried out by client. This method will be chosen if there are possibilities to identify projects in packages.

  1. Joint Venture/Partnering

Many of the problems that existed in construction are attributed to barriers that found between parties of contract.  In other words, to overcome barriers, different parties establishing a working environment based on mutual objectives, teamwork, trust and sharing risks and rewards. The success of this setup solely depends on memorandum of understanding. Identifying responsibilities of each party is bit difficult in joint venture procurement system.

  1. Private Financing Initiative (PFI)

Contractor is solely responsible for all functions of construction. After successful completion, project shall be transferred to owner. This is very helpful for client who does not have a sound financial background. This method generally used by government of developing countries.

The below chart compares and contrasts five main procurement methods in construction industry.

Sl.No Procurement methods Functions of Construction
Design Build Management Finance Operation
1 Traditional Method Consultant Contractor Consultant Client Client
2 Design & Build Method Contractor Contractor Consultant Client Client
3 Management Contracting Consultant Specialized Contractors Contractor Client Client
4 Joint venture/Partnering All the functions shall be shared with parties in mutually understanding environment
5 Private Financing Initiative All the functions shall be carried out by contractor and ownership of project shall be transferred to client

 

Although different procurement methods existed in construction industry, following factors should be considered in suitable selection of procurement method for a project.

  • Complexity nature of project
  • Time management
  • Quality Assurance

 

Summary

Generally it is experienced that traditional method provides more quality assurance in a complex project though it consumes more time than other methods. Design and build method suits for relatively small project in complexity whereas management contracting can be possible if project identified in package basis. Joint venture is not very easy procurement method to adopt since it requires a lot of trust and mutual understanding.

Conclusion

Once again it is recommended that, selection of suitable procurement method is the very first step for the success of any construction project. Thus consideration should be given to this process.

It is identified still some construction professionals are struggling to understand differences between forms of contract and procurement methods. It is believed above analysis provides a clear picture on procurement methods of construction industry. Explanation on suitable forms of contract shall be discussed in next article.

Written by Gowrinath  © BasicCivilEngineering.com

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