Procurement models in construction – dissertation proposal
Background
In July 2011, Government set out a range of activities they would undertake to reform industry practice, reduce waste and drive better value from its procurement of construction. The key aim was to reduce costs of government construction projects by 15-20% by the end of parliament so these savings could then be reinvested into other government projects. The government construction task group report, which was published in July 2012, highlighted the very real challenges which occur in construction procurement. They came up with an initiative to trial three new models of procurement; cost led procurement, integrated project insurance and two stage open book, which include various principles such as early contractor and supply chain involvement, collaborative working as well as a transparency over the total cost of the project. These new models will look to change the way in which public sector clients purchase construction to a stage where contractors/ supply chain members will respond to a specified requirement along with a stated budget by the client. This differs from the way in which the industry has done it for years where contractors/ supply chain would build up a rate/price against a detailed client requirement without understanding the client’s financial situation and knowing exactly what they can afford or what budget they have for a certain project. The three new models could be described as more evolution than revolution as they try to establish a clear collaborative process which is led by the client and has been developed from existing best practice instead of coming up with something brand new. The models look to achieve a variety of different things, such as, efficiency gains that can be released for additional work, create new employment and industry activity, make projects more affordable and fundable as well as making the UK construction industry more competitive.
Introduction to the three new models of procurement.
Cost Led Procurement
The client would choose one or more integrated supply chain/ contractors from a framework. With collaborative working being such a key element of all the new models, the supply chain teams chosen would be selected on their ability to work in a collaborative manner in order to deliver the first project below the cost ceiling as well as achieving cost saving on any subsequent projects while ensuring the level of quality is maintained at the required standard.
Two stage Open Book
The two stage open book procurement model would have the client invite proposed team members for a single project or from a framework to bid for the work based on a summary brief from the client along with a cost benchmark. Contractors and consultant teams would then compete for the first stage contract with the successful bidder being chosen due a number of various factors such as their; capacity, experience, capability, stability, strength of their supply chain and finally the fee for their services (profit plus company overhead). The second stage is where the successful contractor and consultant team would be appointed to work up a proposal for the project on the basis of an open book cost which meets all the clients stated requirements and outcomes as well as meeting the clients cost benchmark. This procurement model differs from the cost led procurement one as it reduces industry bidding costs and it also allows for quicker mobilization and it also provides clients with the opportunity to work with a single integrated design team earlier who are testing design, risk and cost issues in advance of the start on site on award at the end of the second stage.
Integrated Project Insurance (IPI)
This procurement model incorporates many of the features which are common with both the cost led model and the two stage open book model, combined with the introduction of an innovative project insurance project. This procurement model is currently being trialed for the first time by the ministry of defense and the outcomes from its adoption during the pre-procurement stages on the RM Lympstone project are the subject of one the case studies which were published alongside the 'New Models of Procurement' paper published in July 2014. To implement Integrated Project Insurance, the client holds a competition to appoint the members of an integrated project team (IPT) who will be responsible for the delivery of the project. The IPT will be assembled of members who are scored on various elements such as; competence, capability, proven track record, maturity of behaviors, proposals for removing waste and inefficiency and fee declaration. The chosen IPT will then work up a preferred solution which will deliver the outcome which is defined by the client, with savings against existing cost benchmarks. The key difference between this and existing procurement models is the adoption of a single (third party assured) insurance policy which covers all the risks associated with the delivery of a construction project. This insurance policy essentially packages up all the construction related insurances which are currently held by the client and supply chain members in the current models.
Literature review
The government has published varies papers that will be the key literature for this paper. These papers are titled; New Models of Construction Procurement: Introduction, Government construction strategy, Government construction strategy: trial projects, as well as a published paper on each of the new models and finally the 10 project case studies where one of the new models had been implemented. This research of these documents will also be supplemented with other articles and journal papers. The new models of construction procurement: introduction, which was published on the 2nd of July 2014, is one of the key pieces of literature this proposal/ dissertation will be based on. This government paper provides an introduction as to what the needs for the new models are and the aim of what they tried to achieve by introducing them. It then goes into brief detail of each of the new proposed models; Cost led Procurement, Two stage open book and Integrated Project Insurance (IPI) as well as having a summary of the common principles which feature in the new models. The paper also features on the importance of supply chain collaboration as well as an important section on the key considerations which must be taken into account when selecting one if the models.
The other literature which will be directly feed into the research for my dissertation will be the cabinet office’s detailed guidance publications on the 3 new models. Each of these publications goes into much greater detail of each of the new procurement models and the various features of each. This document also breaks down the models into a step by step guide, key process features as well as techniques for success when using this model. This information will be vital for me in order to understand how successful the trial projects were and also understanding what went well on these projects as well as what issues occurred when I speak to the key people who were involved in implementing these new models of procurement on the trial projects.
The ten trial project case studies will also be one the main literature items I will analyze in order for me to complete my dissertation. Each of these case studies explain what new model of procurement was being implemented as well as; a project summary, client objectives and visions, new procurement techniques and processes, cost targets and savings as well as other area such as key lessons from the case study, additional benefits of using the new models and an overall assessment of the case study. These case studies will be key to understand just how beneficial the new models of procurement are to the industry as well as how much of a cost saving has actually been achieved by using them.
Data Gathering Tools proposed for research.
As this topic is one which is relatively new as these new models were only published by the cabinet office last year, the majority of my research will be analyzing secondary data which has been published by the cabinet office. There are ten case studies were one new models of procurement have been adopted so it is my intention to analyze these case studies and see what benefits opting to use these new models had. To get a better understanding of this, I plan to get in contact with the key people who were involved in the projects and conduct interviews / ask for their input; whether that be face to face, over the phone or just emails back and forth, any input from the professionals involved will give me a better understanding of what benefits adopting one of the new models had as well as any issues occurred during the trial projects. As each trial project had a project delivery group and a project support group, there are plenty of individuals I am hopeful of making some sort of contact with as any input from professionals who were involved in the trial projects would greatly aid my research.
Significance of these new procurement models to the industry.
So far these new models of procurement have only been trialed on public sector projects. If the trial projects can show that by implementing the various new models of procurement can offer a significant cost saving along with other benefits such as a reduced program or quicker mobilization on site then it could potentially completely change the way in which the construction industry procures projects.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/325012/Cost_Led_Procurement_Guidance.pdf
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/325014/Two_Stage_Open_Book_Guidance.pdf
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/326716/20140702_IPI_Guidance_3_July_2014.pdf
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/325011/New_Models_of_Construction_Procurement_-_Introduction_to_the_Guidance_-_2_July_2014.pdf
http://www.construction-manager.co.uk//management/whats-ne1w-new-mod8els-const5ruction-procurement/
https://www.gov.uk/government/collections/government-construction#procurement-trial-case-studies