PROCUREMENT ROUTES IN THE CONTEMPORARY SYSTEM

Separated Routes Integrated Routes Mediated Routes The Routes Compared

The aim of this section is to present and evaluate the range of procurement routes available within the contemporary professional contracting system in the UK. A procurement route can be considered as a complex suite of relational contracts (cf Winch 1995) which charter the project coalition for a particular project. Thus it forms "the organizational structure adopted by the client for the management of the design and construction of a building project" (Masterman 1992 p 1). Masterman identifies three basic groupings of procurement routes - separated and cooperative, integrated, and management orientated - around the mode of coordination of the design and construction tasks. This classification will be adopted and developed for the following discussion as the separated, integrated, and mediated routes. The reasons for these changes will become apparent as each is appraised. Each route will be presented in terms of its structure, as defined by the contractual relations between the members of the project coalition, and its process in terms of the allocation of responsibilities through the project lifecycle. Separated Routes The essence of the separated route is that the client contracts with a design team, either jointly or severally, and a general contractor independently. The architects and engineers are typically appointed, although fee bidding is now becoming more common, while the general contactor is selected through competitive tender, normally on a bill of quantities. The quantity surveyor is the prime control actor for cost and time, while conformance quality is controlled by the designers. The separated route is what many commentators on the UK have called the traditional system, it underlies the RIBA Plan of Work, and is most commonly deployed at present using the JCT 80 standard form of contract. A typical separated project coalition structure is illustrated in figure 1, while the project process is captured in figure 2. Masterman includes a number of "variants" within this classification, such as serial contracts and cost-reimbursable contracts. However these variants essentially refer to the manner in which the contract sum is formed, and both in principle and in practice, can be adopted within any of the procurement routes. The principal requirement for this route to work effectively is for all design work to be completed prior to tender. If this requirement is met, then the route can offer cost certainty after tender, and good quality assurance. It also offers high transparency in the formation of the construction contract. However this requirement is also its principal disadvantage. If design work cannot be fully completed prior to tender, either due to time pressures, or uncertainties in the specification, then it can lead to serious problems in handling the inevitable variations to the contract. The route can also increase overall project cost due to the difficulty of deploying construction expertise during the design phase. This route is most appropriate where clients are price-sensitive, desire to achieve high conceptual quality, and require high standards of public accountability, and inappropriate where there are high levels of uncertainty regarding the project mission . Integrated Routes The distinctive feature of the integrated route is that the responsibilities for the design and construction tasks rest with the same actor. Various terms exist for this type of route - design and build; package deal, turnkey contract and so on. Contracts are let either on a single stage competition on the client's statement of requirements, or more commonly on a two-stage basis in which competing contractors submit outline proposals .   The selected contractor then develops the design until it can be firmly priced, negotiations ensue, and a price for the remainder of the works is agreed. The client normally retains a cost consultant or employer's agent as a control actor to monitor the programme and budget aspects of the work, but conformance quality responsibilities rest with the contractor. The JCT 81 standard form of contract is commonly used for this procurement route. The principal advantages of this route are programme and budget, and a single point of responsibility for the entire project. Integrated projects tend to be faster and cheaper than other routes, while the integration of the designer and constructor within one contract significantly reduces the problems of dispute resolution. The issues of quality - conception, specification and conformance - have been the subject of much contention, particularly from architects. However, there is no reason, in principal, why integrated routes cannot provide high levels of quality on all dimensions except, perhaps, that of conceptual quality. The principal limitation of the integrated route is that the client must be able to specify very clearly in advance what its requirements are, and variations once the contract sum has been formed are likely to be fraught. Figure 3 provides a typical integrated project structure, while figure 4 illustrates a typical process . The terms package deal and turnkey package are used to denote variants of the integrated route, but not always consistently. The principal additional service that can be offered is to find the site, such as is the case under volume contracts with British housing associations. Under certain circumstances, the contractor may also help to finance the project where full financement is dependent upon a fully developed project. The difference between this approach and concession contracting to be discussed later, is that the finance is more in the form of a short-term loan than a long term equity stake. Where the client is concerned for conceptual quality, or planning permission problems are anticipated, an architect may be retained to do initial conceptual work before the integrated contract is formed. Rowlinson (1987) has identified three basic types of contractor offering the integrated route - pure design and build, integrated design and build, and fragmented design and build contractors. In the former contractors offer self-contained systems to solve particular client needs. In the second, the contractor has both design and construction management expertise to meet the client's particular project needs. In the third, general contractors offer packages while sub-contracting design work to architectural and engineering practices. This last type of contractor is often associated with what has been called "hybrid" design and build in which the design is developed by architects and engineers up to complete definition of the project - typically stage D of the RIBA Plan of Work - before tender. Effectively, this approach shifts risk associated with site conditions to the contractor while allowing the client's consultants to retain design authority. It is particularly favoured by public sector bodies such as housing associations. The British case study in Winch and Campagnac (1995) represents an example of hybrid design and build. In reality this procurement route variant is more appropriately classified as a separated one, as it fails to meet the test of the integration of design and construction activities. Mediated Routes Mediated routes are characterised by the introduction of additional actors other than those directly responsible for the design and construction in order to provide integration to a fragmented project coalition. This actor is normally designated as the construction manager or management contractor, the main difference between the two being the contractual arrangements between the project coalition members and the client. The rise of mediated routes is an American importation, and largely associated with the rapid expansion of commercial property construction during the last decade. Their most notable feature is the separation of the responsibility for managing the process from doing it. This has allowed the "professionalisation" of the principal contractors' role. The principal contractor is normally appointed, and is reimbursed either by a fee based on the value of the works, or fixed by negotiation. Actual site work is let in packages to trade contractors, normally by competitive tendering on a lump sum basis. Under management contracting these trade contractors are in contract with the principal contractor, while under construction management, they are in contract with the client. Figures 5 and 6 illustrate these two variants, while figure 7 identifies the process. The main advantage of mediated routes is their ability to cope with uncertainty in project objectives. They are particularly favoured by clients whose main concern is the project programme, and who are willing to pay more for a shorter elapsed time. Such additional costs are outweighed by the reductions in the cost of capital over the shorter period. Mediated routes also allow the client to change its objectives during the project in response to uncertainties in the nature of the project or changing market conditions for the services provided by the built facility. These benefits are achieved in two ways, Firstly, the design and construction phases of the programme are overlapped to achieve reductions in overall time, a process known as "fast-tracking", which is illustrated in figure 8. This is normally achieved by sub-dividing the project into a series of works packages which can be designed, tendered, and let independently. Secondly, by delaying the letting of the later packages adjustment can be made to both programme and specification should the need arise. Reintegration of the works packages is assured through the principal contractor. It is the separation of the relatively low cost project coordination tasks from the relatively high cost site execution tasks that give the mediated route its flexibility. Construction expertise can be obtained by the client at relatively low cost early in the programme, while the benefits of competitive tendering for the execution of packages on a lump sum basis can be retained as and when requirements become fixed. This expertise is, in addition, available for contributing to the design process. Such a contribution may be limited to offering suggestions as to more effective details - known as buildability - or may be more extensive. The development of design and manage, in which construction management is extended to the design phases of the project extends this logic further. Such construction management services may be offered by architects or other consultants, but more commonly, such services are offered contractors. The principal disadvantages of the route are budgetary control, and the burdens placed upon the client. Because the tendering of works packages is left until relatively late, the total costs of the works are not known until the last package is let. This can cause problems for price-sensitive clients, particularly in the public sector. One solution is for the principal contactor to offer a guaranteed maximum price. Secondly, the additional fee of the principal contractor is an overhead, but this can be outweighed by the benefits of contractor involvement in the design process. Particularly under the construction management form, the client has additional project management burdens due to the far larger number of contracts into which it enters. The mediated routes are only suitable for experienced clients, and provide the greatest benefit on complex projects, or those where it is expected there will be a necessity to change project objectives during the programme. A particular problem with management contracting, as opposed to the other variants, is that it has become associated with highly opportunistic behaviour by management contractors - especially by delaying payments to trade contractors. The Routes Compared Starting during the sixties, there has been a secular trend away from separated systems. They have been characterised as slow, conflict-prone, and inflexible. They are slow because of the necessity to develop a full description of the project prior to tender; they are conflict prone because of the separation of the two phases of design and construction, and also because the architect or engineer has a conflict of interest between its role as a designer, and its role as a control actor for quality during construction; and they are inflexible because of the difficulties in making variations after tender and drawing on contractor expertise during design. Both of the other routes have grown in importance, being favoured under different circumstances. Where clients know their requirements are not going to change, integrated routes are preferred. They do much to eliminate conflict due to the single point of responsibility, and tend to be faster. Where clients need flexibility to cope with project uncertainties, then the mediated routes are preferred. Many proponents have suggested that they are less conflict-prone as well, but the evidence on this point is mixed (Masterman chap 5). The three routes can be compared on five criteria - risk allocation, flexibility, programme performance, budget performance, and quality performance. The differences in risk allocation between the client and the principal contractor are illustrated figure 9. Risk allocation is according to the criterion of who accepts liability when unforeseen circumstances occur - a typical example would be unfavourable ground conditions, and risk transfer takes place at the formation of firm contract. As can be seen the integrated route is most favourable for the client, while the mediated routes are least favourable, on this criterion. Flexibility is assessed on the criteria of how easy is it to negotiate variations to the contract should client requirements change, and how late in the project programme fixed price contracts are formed. This is illustrated in figure 10. Again, it can be seen that the most flexible are the mediated routes, while the least flexible is the integrated. Clearly, there is a trade-off in procurement route choice between flexibility and liability for risks. Client objectives for the project can be categorised into three types - quality of conception, specification, and realisation. The quality of realisation has two aspects, the level of service offered in terms of programme, budget, and conformance quality, and the capability to keep to that offer (Usmani and Winch 1993). So far as quality of conception is concerned, separated routes are most favoured, because they allow the time and autonomy that leading designers require to develop their ideas while also offering the means to ensure that what is built rigorously conforms to that conception, but the mediated routes are not necessarily inimical to this. Integrated routes tend to perform poorly here due to the problems of designing to a cost, and retaining top level designers within an integrated organisation. So far as quality of specification is concerned, this is largely a technical matter, and should not be degraded by procurement route, however, the ability to value engineer within the integrated and mediated routes favours these from this point of view. So far as quality of realisation is concerned, the integrated and mediated routes offer shorter programmes over the project life cycle, while the integrated route offers lower budgets. The apparent advantages of the separated routes here, tends to be due to a tendency for the existing research to focus upon contract sum rather than total project cost. Mediated routes can also offer low budgets if value engineering is practised. There is no difference in principal between the routes in the levels of conformance quality attainable. So far as control against these objectives is concerned, separated routes have a poor reputation due to their diffused risk allocation, while integrated routes offer the best performance overall. The mediated routes are intended to be much more flexible, and so it would not be expected that they would offer the same level of performance. However, their record on programme performance has been impressive. Integrated routes have been criticised for their low conformance quality due to the lack of independent quality control, although there is little systematic evidence on this point. Despite their considerable variation, these three routes share common features of the professional system. In an important sense, the mediated systems represent the apotheosis of the professional system. They attempt to place the principal contractor and its employees in the same status-group as the other professions by placing them in an independent advisory role to the client. This tendency is reinforced by the growth of the Chartered Institute of Building, which received its charter in 1980. Lump sum competitive tendering is then confined to the works packages. This may appear superficially similar to the trades system, but the crucial difference lies in the risk-transfer that lump sum tenders allow compared to after-measurement. Mediated systems can also be seen as a way of coping with the growing fragmentation engendered by attempts to adapt the separated system to the growing complexity and more demanding quality of realisation criteria of contemporary construction through greater coordination. This coordination takes place externally to the actual value-adding processes of design and construction through the emergence of actors specialising in such mediation. The value adding processes themselves are not re-integrated. Bowley (1966 chap 16) advocated integrated routes as her solution to the problems of the British system generated by the reliance on separate responsibility for design and construction. Considerable movement has occurred in this direction. Many firms offer complete building systems to meet particular industrial requirements, while a number of integrated design and build firms compete successfully to meet more demanding client requirements. Predictions of future developments suggest a bright future for such routes. However, it is not clear from the aggregate data how much of this shift is towards the hybrid type which was considered above be more of a separated route. Many of the competitors in the market are what Rowlinson called the fragmented type. What is clear at present, is that few now believe that integrated routes of themselves can solve the main problems of the industry because of the problems they have in coping with the inherent uncertainties of the construction process.