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How construction industry characteristics affect the procurement of a…
How construction industry characteristics affect the procurement of a building construction project
Market and Structure
Features
Customer-drivin
g: Customer-led the market decisions require high transparency
Non-price competition
: Competition is more than price including quality and experience
Size of Enterprises
: Mostly Small and Medium-sized (SME)
Compliance
: Formal and transparent tendering rules are widely used
Inter-relationship
Determines
-> The Tendering Method
Transparent and standardized tendering methods are widely used in the market
Traditional methods such as Design-Bid-Build (DBB) are widely adopted for the control and the transparency
Procurement assessment focuses on quality/experience rather than just price
Tendering rules may be adjusted in consider of SMEs' risk-bearing capacity
Operation and Organisation
Features
Fragmentation
: Design, construction and supply chains will not affect others and to be independent
Multi-tier pyramid structure
: There is a Hierarchicy, upper is main contractors and lower are subcontractors
Power imbalance
: Main contractors get more power than subcontractors during makeing the contract terms
Winner Curse
: The bid winner with low price may face to over-costing
Inter-relationship
Requires
→ Subcontract Management & Contract Design
Subcontract management
: Refined subcontract contract and payment method
Route
: Construction management is used for increase subcontract coordination
Transparency
: Clear pricing to reduce misinformation
Leads to
→ Risk Allocation & Cost Control
Risk allocation
: Design & Build (DB) could move the design andconstruction risk to contractors
Cost controling
: Fixed-pricing contracts are used to decrease risk from price competition
Contract protection
: Liability and indemnity terms are used in the contract to mitigate the risk of low profits.
Project & Economic
Features :
Uniqueness
: Different project has different design and special technical needs
Transient
: Project- teams are dismissed after the project is completed
Uncertainty
: Cost , time and construction are unpredictable which create high risks
Long cash flow cycle
: Subcontractors get the cash slowly
Inter-relationship
Increases
->Coordination and Risk Management Demand
Route: Design and management, achieving integrated coordination of design and construction
Team management: coordination mechanism need to be centralized in order to temporary teams
Assessment: Risk identification and mitigation measurements are needed for different projects
Affects
→ Project goal priority
Contract management emphasizes time efficiency over the certainty of prior cost
Emergency clauses in the contract to deal with project uncertainties
Need
→ Cash Flow-Oriented Contract
payments are typically linked to the achievement of project milestones.
performance bonds and contractual provisions are designed to safeguard subcontractors’ cash flow
Procurement Routes
Design-Bid-Build
For Client-led market / SME market / Need of transparency
Key procurement rules:
Design and construction are carried out as separate phases, and the client retaining full control over the design
Standardised, transparent tendering procedures
In the progress, milestone-based payment terms are used
Design and Build
For Low profit / Power imbalanced / Winner Curse
Key procurement rules:
A single contractor needs to take care for both design and construction simultaneously
Fixed-pricing contracts have a limited range of price adjustments
Defects responsibility period will be extended
Construction Management
For Fragmentation / Multi-tier pyramid structure
Key procurement rules:
Direct contracts are used between client and subcontractors
Construction Manager has coordinator role only, with no construction liability
Clear subcontract pricing and transparent payment arrangement
Management Contracting
For Decreasing project risk / transient teams / time efficiency
Key procurement rules:
Contractors are leading project coordination ,but the client can also control the designing of the project
Faster construction method ,design and construction phases are doing meanwhile
Contract structured by actual cost recovery
Design and Manage
For One-time special project / High uncertainty
Key procurement rules:
Integrated design and management teams
Agreed cost benchmark with shared financial outcomes
Conduct regularly risk assessment review and adopt adjustment methods