Report on Procurement Methods for Construction of Foodstores

1.0 INTRODUCTION

The board of directors of foodco seeks for guidance in organising and putting together the construction of either 25 new stores or converting the same number of existing stores into a new brand, cheapco, to rival discount stores collapsing their business and expand across the UK within five years. The client has set their requirement of using one design and replicate them for the 25 new buildings to obtain an identical layout. They have also identified 25 existing stores that are in dire need of structural and aesthetic improvements. These requirements have set the quality levels at the right time and within budget in conformance to the standards of high project performance.

The report has identified the strategies of the client’s objectives and selected procurement criteria using (NEDO, 1985) to establish a profile of the clients’ requirement.  The performance of the Traditional, and Design and Build Procurement methods examined to derive a suitable method to assist the client in their principal goals. (Love, et al., 1998)

Clients need to accept that no construction project is risk-free. Risk can be managed, minimised, shared, transferred or accepted and not ignored. (Latham, 1994) The selection of an inappropriate procurement methodology is the primary cause of project failure, so the characteristics of projects must be carefully analysed together with the expectations of the client. (Smith & Morledge, 2013)

The recommendations of the report considered books, journals, articles and other scholarly information related to procurement and arrived at a conclusion that would enhance the clients business.

1.1 PROCUREMENT STRATEGY.

In this modern era, procurement is organised and delivered as part of the mainstream business operations of progressive companies. The companies can then mirror their corporate strategies and targets to satisfy their overall strategy. (Turner, 1990) Because of this view, the primary and secondary strategies of Foodco needed to be identified to be able to assess their risks and benefits in achieving a high level of project performance.

1.1.1    Primary Strategy

The primary strategy of Foodco as identified is as follows;

• To build a new brand of Supermarket- cheapco to rival discounts stores that are damaging their business and if successful, expand across the UK within five years.

1.1.2 Secondary strategy

Additionally, identified the secondary strategy as follows;

• Construction of 25 brand new stores with one design which is identical in layout or;
• Convert existing 25 foodco stores which are in dire need of renovation with structural and aesthetic issues 

1.2 PROCUREMENT ROUTE SELECTION CRITERIA

In selecting an optimum procurement route, multiple criteria as suggested by (Love, et al., 1998), (NEDO, 1985) was adopted to derive a suitable procurement method. The criteria are as follows;

• Speed in design and construction
• The certainty of price and the overall cost of the project
• Flexibility to allow for variations in design
• Product Quality
• Complexity
• Risk allocation or avoidance
• Responsibility for the completion of the programme, price, and the design and construction
• Price competition
• Disputes and arbitration

CHAPTER TWO

2.0 PROCUREMENT METHODS

There are several different Procurement routes for the client to select from, and each type of Procurement method has its advocates and inherent strength and weaknesses. (CIOB, 2010)

Four key methods of procurement that are generally accepted and currently practised. (Lupton & Stellakis, 2019)

1. Design-bid-build /Traditional
2. Design-Build
3. Management
4. Collaborative, or Integrated

Historical data in the UK indicates that traditional approaches have a numerical dominance of being used in the construction industry (Smith & Morledge, 2013). The conservatism of professional institutions has also contributed to this phenomenon; however, in recent years, there has been a significant upsurge in the use of the design and build approaches. (Smith & Morledge, 2013) because of this view, it is understandable why the client wanted an overview of the traditional method, but the design and build critically analysed as an alternative.

2.1 TRADITIONAL PROCUREMENT

(Turner, 1997) generally, describes traditional procurement as the method where the client has a contract with;

• Consultants, whether in-house or outsourced, for the design and cost consultancy services.
• A contractor to construct a building
• Subcontractors through security guarantees.

Turner further added that the contractor, in addition to his contract with the client, would or maybe in contract with:

• domestic suppliers and subcontractors
• client-nominated or named suppliers and subcontractors
• a third party through security guarantees requirements for funding, purchasing and tenancies.

Client

Principal Advisor

 

 

 

Design Team

Main Contractor

 

 

 

Employer waranties

Subcontractors and suppliers

 

 

Third-party guarantees

 

Figure 2.1 Contractual relationships for traditional procurement adopted from (Turner, 1997)

The mode of procuring construction under the traditional procurement are as follows (Davis, et al., 2008);

• Lump-sum contract – where a single lump sum is determined before the works begin.
• Re-measurement contracts – usually used when the type of work can be reasonably described but not the amount.
• Cost reimbursement contract – used when the risk of the works is very high to reimburse the contractor the actual cost of the works (JCT, 2019).

2.1.1 Characteristics of Traditional procurement using selected criteria

Characteristics of the traditional procurement have been summarised from (Turner, 1997) to conform with the selected criteria from chapter 1.2

• Speed in design and construction

The overall period of design and construction, with design, often being completed before construction makes the process longer.

• The certainty of price and the overall cost of the project

High level of price certainty of construction contract because of the reliable designs completed by tender stage.

• Flexibility to allow for variations in design

Full Designs developed at tender stage, but variations on this can be adapted by accelerated, parallel activities of design overlapping with construction

• Product Quality

The quality is as set out by the clients’ team, and with proper monitoring of the contract requirements, the quality level specified should be obtained.

• Complexity

The traditional system is very well-known, tried and tested in the UK and another part of the world. However, experience clients have found the system unsatisfactory for complex, large projects where the certainty of completion on the programme is a high priority.

• Risk allocation or avoidance

The client takes risks for incomplete designs which the contractor takes financial risks for the development. Usually considered a shared risk for both parties.

• Responsibility

The involvement of specialist subcontractor will dilute the contractual responsibility of the main contractor; otherwise, there is a clear responsibility for design and construction.

• Price competition

Selective competitive tenders are possible.

• Disputes and arbitration

Separation of design teams from the construction teams means during the development of the project until the tender stage may lead to the establishment of adversarial attitudes. 

2.1.2 When to Consider Traditional Procurement

(Davis, et al., 2008) has outlined the situations where traditional procurement can be employed:

• The programme allows for sufficient time;
• Consultant designs are wanted;
• A client wishes to separate the design and construction.
• Price certainty before the start of construction
• Product quality is wanted; and
• A balance of risk placed between the client and constructor.

2.2 THE DESIGN AND BUILD AS AN ALTERNATIVE

The design and build have also come to be known as drawings and specification contract with designing and specifying as well as construction by the contractor, and with the contract price as a lump sum. (Turner, 1995)

Alan Turner 1997 categorised the components of the design and built system as follows;

• Establishing the need to build
• Establishing the client’s requirements
• Selecting and inviting tenderers to bid
• The contractor or contractors preparing their proposals for design, time and cost
• Evaluation and acceptance of a tender which then becomes a contract
• Design and construction of the works.

The client will have a contractual relationship with the contractor and obtain the services of consultants to generate their requirements. As shown in figure 2.2, the contractor will also engage the services of consultants to prepare their proposals. (Turner, 1995)

Figure 2.2 Building contract relationship (Turner, 1995)

Client                               Contractor

 

Consultants                          Consultants

Functional and communications

Building Contracts

2.2.1 Characteristics of Design and Build using selected criteria

Characteristics of the traditional procurement have been summarised from (Turner, 1997) to conform with the selected criteria from chapter 1.2

• Speed in design and construction

The design combined with and overlapping construction stage provide structures more quickly from conception to completion, particularly during the site phase.

• The certainty of price and the overall cost of the project

The contribution of the contractor’s knowledge of buildability can be beneficial in programme and price to both client and contractor

• Flexibility to allow for variations in design

The nature of the design and build contracts tends to restrict changes during construction because of the disruptive and relatively high price to the contractor and client.

• Product Quality

The quality may be as offered by a contractor or more probably, as specified to a smaller or large degree by a clients team and possibly developed by a contractor.

• Complexity

One accountable organisation integrating design and construction expertise.

• Risk allocation or avoidance

Very client bias as the contractor carries the risks for his design with his contract price.

• Responsibility

The client obtains single-point responsibility from one organisation – contractor

• Price competition

Competition between contractors on both design and price may be advantageous to a client.

• Disputes and arbitration

The tendering cost of unsuccessful tenderers considered, and the NJCC code for design and build recommends that unsuccessful tenderers cost reimbursed.

2.2.2 When to consider the design and build

Design and build considered when a: (Turner, 1997)

• the building is functional rather than prestigious
• the building is simple rather than complex, is not highly serviced and does not require technical innovation
• brief for scope design is unlikely to change
• firm price needed in advance of starting construction,
• the programme accelerated by overlapping design and construction
• the single organisation is required to take responsibility and risk for design and construction.

CHAPTER THREE

3.0 PROCUREMENT DIFFERENCES FOR BUILDING A NEW STORE AND THE RENOVATION OF AN EXISTING STORE

Location

The location of a building is very crucial as it forms part of its identity within its landscape. However, economic considerations are significant when deciding to build a new store or renovate an existing store. When its current area does not generate any economic benefits, then building a store at a location that would attract the target the market makes economic sense.

Timing

Depending on the type of renovation to be carried out, an existing building will still be in use whiles construction continues, providing income to the company. A new building can only be in use when completed, but an unforeseen circumstance beyond the contractor’s control like excessive rainfall may delay the completion date of the new building. 

Cost

There are many cost savings in renovating an existing building like the structural design, foundation, demolishing and the professional fees associated with them. New buildings have all those cost elements in them, making them costly. On the other hand, building in replicas at different locations may save the cost of designs and greater competition among tenders because of the ease of construction.

 Speciality

Some forms of renovations limit the number of contractors clients have to select. Historical buildings renovation requires the use of contractors that are specialised in that field. Though the sentimental value of the building would be maintained the cost in obtaining such services can be very expensive.

Sustainable Construction

The construction of new building allows for the incorporation of very sustainable and environmentally friendly materials. New low energy consumption technologies that will reduce the carbon footprints into the atmosphere when building a new store.

Innovation

Producing building designs from an old building gives less room for innovation than an entirely new land. Aesthetics can be done in a broader range to enhance and make a strong point of competition.

Less Maintenance Cost

A new building has new elements which are not likely to be replaced over an extended period. An example is the purchase of a brand-new car compared with a used one. The cost of maintaining the used one is going to be higher than the brand vehicle.

Partial Deconstruction

Renovating an existing store with structural defects can result in the demolition of a large section of the building. This phenomenon can lead to a higher cost than initially planned.

Modern technology

New build benefits from the introduction of smart electrical systems in their concepts for a specific purpose to improve the operations of the building.

 

CHAPTER FOUR

4.0 NOVATION

A novation is a tripartite agreement by which an existing contract between A and B discharged, and a new deal is made between A and C, usually on the same terms as the first contract. (Needham-Laing, 2006) Novation is similar to the design and builds procurement except that the client selects the design team and later moved to the Contractor. The Novation procurement option is a client bias as the contractor receives all the design risk transferred from the design team (Waters, 1997)  

Innovation is essential when; (Ng, et al., 2006)

• The completion time of the project is necessary.
• There are no extra funds allocated to the project with a fixed budget.
• A specialist is required to draft designs and technical proposals.

Figure 4.1 Source: (Ng, et al., 2006) Process in a design, novate and construct a project

(Barnes, 2008) stated that the construction industry has two types of novation currently for circumstances where a consultant is moved from a client to design and build contractor, which are;

• Switch Novation which occurs when the agreement between the consultant and the client terminates when the design and build contractor is appointed, and then the consultant switches to make a new agreement with the contractor. (Designing Buildings, 2019)
• Novation ab initio, in which the consultants are transferred from the client to the contractor, using a legal arrangement that implies the consultants had worked for the contractor from the inception of the project. (Anon., 2019)

4.1 ASSOCIATED RISKS OF THE NOVATION PRINCIPLES

(Griffith, et al., 2012) outlined the following as the key themes that affect practitioners base on their experiences in the use of the design and build novation:

• The effects of dual loyalties on consultants’ post-contract design and communication routes. Contractors believe that some consultants have the distinct problem of understanding that they do not work for the client at the post-contract stage once novation has taken place.

• Consultants are working at risk. 

Some consultants work to produce pre-contract information without pay. They are then automatically novated to the contractor when the project goes ahead. Contractors believe it possesses severe problems at the construction process.

• Unrealistic time pressure for the consultants
• Drip-feeding of tender information;

Contractors are drip-feed with slow and interrupted information at the tender stage, making it increasingly hard for them to produce tenders that have explored the risk issues.

• Risk and value engineering. 

Novation impact negatively on value engineering exercises and considered a risk element by contractors who do not have experience of the novated consultants.

Depending on the experience of the pre-contract design

CHAPTER FIVE

5.0 RECOMMENDATIONS

Building new stores with the same designs mean that the project is not complicated, and to achieve an identical layout also makes it more functional than prestigious. The characteristic of the design and build and the situations to use them, as stated in chapter 2.2.1, and 2.2.2 makes it more efficient if the client decides to consider the construction of 25 brand new stores. For an inexperienced client, one organisation responsible for the design and construction will ensure accountability and the avoidance of risk. This method also ensures that the client gets value for money as the replication of design at different locations ensures competition among tenders. The use of novation can improve on the quality of the design.

Using the traditional procurement route for this strategy would not benefit the client as any delay in completing the buildings would result in further deterioration of the client’s business by the discounts stores.

Should the client decided to convert existing 25 foodco stores, then the use of the traditional procurement would be ideal. The existing stores are likely to have different requirements that make this strategy very complicated. The aesthetic level of a building is subjective and to achieve a quality product, the client must have adequate control over the designs before tendering. The tendering process would enable them to appoint a contractor to have the capacity and are capable of undertaking the renovation. The traditional procurement may be the longest route, as stated in chapter 2.1.1, but the renovation carried out while the clients business is operational. The design and build place the risk onto the contractor, but in this instance, the full extent of renovation not clear, so it is not fair to share the risk among the client and the contractor.

CHAPTER SIX

6.0 CONCLUSION

Having outlined the characteristics of the traditional and, the design and build procurement methods, the former which distributes the risks evenly between the client and contractor is ideal for the procurement of existing buildings. The design and build method have features that are ideal for new builds and also provide quality of the design through a novation. However, if the client were to seek further guidance in choosing a procurement strategy, the renovation of the existing stores is highly recommended. This strategy will quickly move along with the clients business and with the proposed procurement method, the quality levels at the right time and within budget will be achieved.

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