Introduction to building procurement

273 Pages·2011·1.502 MB·English

by  Brian Greenhalgh, Graham Squires

Introduction to Building Procurement
To my wife, Sheila, for her constant support, love and encouragement,
Brian.
To friends old and new, Graham.
Introduction to Building
Procurement
Brian Greenhalgh and Graham Squires
This edition published 2011 by Spon Press
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada by Spon Press
270 Madison Avenue, New York, NY 10016, USA
This edition published in the Taylor & Francis e-Library, 2011.
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Spon Press is an imprint of the Taylor & Francis Group, an informa business
© 2011 Brian Greenhalgh and Graham Squires
The right of Brian Greenhalgh and Graham Squires to be identified as authors
of this work has been asserted by them in accordance with sections 77 and 78
of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in any
information storage or retrieval system, without permission in writing from the
publishers.
This publication presents material of a broad scope and applicability. Despite
stringent efforts by all concerned in the publishing process, some typographical
or editorial errors may occur, and readers are encouraged to bring these to our
attention where they represent errors of substance. The publisher and author
disclaim any liability, in whole or in part, arising from information contained
in this publication. The reader is urged to consult with an appropriate licensed
professional prior to taking any action or making any interpretation that is
within the realm of a licensed professional practice.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Greenhalgh, Brian.
Introduction to building procurement / Brian Greenhalgh and Graham Squires.
p. cm.
1. Building materials --Purchasing. 2. Building--Estimates.
3. Construction industry. 4. Building materials industry. I. Squires, Graham.
II. Title.
TH435.G66 2011 690.068--dc22
2010029251
ISBN 0-203-88506-6 Master e-book ISBN
ISBN13: 978-0-415-48215-8 (hbk)
ISBN13: 978-0-415-48216-5 (pbk)
ISBN13: 978-0-203-88506-2 (ebk)
Contents
List of figures vi
List of tables vii
Foreword ix
1 Introduction and nature of the construction industry 1
2 Clients of the construction industry 21
3 Historical development of building procurement systems 37
4 Roles carried out in a construction project 55
5 Tendering and payment 71
6 Separated procurement systems 94
7 Project-specific procurement: overlapping roles 110
8 Project-specific procurement: integrated roles 132
9 Long-term relationships: partnering 154
10 Long-term relationships: framework agreements 171

11 Public-sector projects 191
12 The selection of building procurement systems 206
13 Future trends 237
References and further reading 253
Index 257
Figures
1.1 Time, cost and quality relationship triangle 9
1.2 The supply of building projects 12
1.3 An increase in supply of building projects 13
1.4 Perfectly inelastic supply of building projects 15
1.5 Demand for building projects 15
1.6 A shift in the demand for building projects 17
1.7 Market equilibrium in the supply and demand for building projects 18
2.1 Categories of clients in the construction industry 25
2.2 Allocation of risk between client and contractor 31
3.1 Construction KPIs 52
5.1 Sample page from a bill of quantities 90
5.2 An example of a priced activity schedule 92
6.1 The traditional procurement system in simplified diagrammatic form 95
6.2 RIBA plan of work 98
6.3 The two-stage procurement system in simplified diagrammatic form 105
7.1 Management contracting relationships 112
7.2 Construction management contractual relationships 123
8.1 Contractual relationships in a design and build project 137
8.2 Contractual and functional relationships: package deal 145
8.3 Contractual and functional relationships: EPC/turnkey 147
8.4 Typical structure for a BOT project 148
8.5 Contractual and functional relationships: develop and construct 149
9.1 The partnering triangle 154
10.1 Example of framework agreements 171
11.1 Structure of PFI procurement 197
12.1 Standard m odel of decision-making 207
Tables
1.1 International building output growth 2002–8 3
1.2 Stages in a building project 5
1.3 Stages and action stages in a building project 6
1.4 Actions required during the stages of a building project 8
1.5 The time, cost and quality relationship 10
2.1 Example of construction output data 26
2.2 Example of a simple risk register 34
3.1 Trends in methods of procurement in the 1980s (by number of contracts) 43
3.2 Trends in methods of procurement in the 1980s (by value of contracts) 43
3.3 Trends in methods of procurement in the 1990s (by number of contracts) 48
3.4 Trends in methods of procurement in the 1990s (by value of contracts) 48
3.5 Trends in methods of procurement in the 2000s (by number of contracts) 49
3.6 Trends in methods of procurement in the 2000s (by value of contracts) 49
3.7 List of key performance indicators issued by M4I in 2000 51
4.1 The RICS formal cost estimating and cost planning stages in context
with the RIBA Plan of Work and OGC Gateways 59
4.2 Roles in a construction project in various procurement routes 69
5.1 Uniclass building elements and work sections 89
6.1 Key similarities and differences between competitive dialogue and
negotiation 107
8.1 Ranking of design and build proposals 139
9.1 Procurement options under the PSPC suite of contracts 168
9.2 Benefits and advantages of partnering approach 169
11.1 Hierarchy of pre-qualification assessment 192
11.2 Nine success factors for a successful evaluation system 193
11.3 Projects and programmes reviewed in the OGC Gateway process 194
11.4 OGC Gateway process review stages 195
11.5 Step-by-step guide to the PFI process 196
11.6 The benefits of partnering 202
12.1 The procurement process 213
12.2 Appropriateness of procurement routes to client objectives 215
12.3 Weighted selection model for choosing an appropriate procurement
system 217

Foreword
As this new text makes clear in its opening paragraphs, the construction industry
is very important to an economy, and the data and facts referring to the UK could
equally apply to many high-income economies. Indeed in most European countries
and American states construction activities now account for approximately 5 to 10 per
cent of a nation’s GDP and are typically responsible for the employment of millions
of site labourers and professionals. Obviously these figures are sensitive to the general
pattern of economic activity. For example, the £30 billion cuts in UK public spending
announced in the first coalition budget in June 2010 (the week this foreword was
written) could seriously jeopardise the volume of construction output seen in 2011
and beyond, especially as the government procurement arm, the Office of Government
Commerce, was merged into the Cabinet Office as part of a cost-cutting efficiency
drive in the very same budget!
The central point made by this historical commentary on the current economic
climate is that to make sense of it, at any point in time, requires economic literacy, and
part of this inevitably means that you need to appreciate the nature of the economic
transactions that underpin each and every new order for a constructed product. As this
Introduction to Building Procurement makes transparent, the world of construction
is complicated by the initial negotiation between client and contractors, as no two
jobs are quite the same and as a consequence the quality of a project, the time it takes
and the cost involved are often unknown variables at the start of the procurement
process. As the authors perceptively state at the very beginning of their text: ‘From the
client’s perspective the investment is unpredictable in terms of delivery, budget and the
standard of quality.’
From my position as a construction economist the two subject areas appear
inseparable, but as you can see there is too much to each specialism to fit comfort-
ably into one tex t. As a comprehensive work on procurement, however, you will
find it difficult to better what is offered in this book. The breadth of experience
that it draws on is certainly unique, and together the authors have provided a
detailed and clear exposition of construction procurement. The text began its
life when Jack Masterman was studying for his PhD in the early 1990s; Brian
Greenhalgh subsequently recognised from his significant experience in the industry
and academia that this needed to be revised and extended to take account of the
various developments of the twenty-first century. Graham Squires, at the other end
of his career, contributes an energy and sense of purpose to help bring the long