Procurement at the Contractor's Detriment
Procurement of viable construction projects is by far one of the most challenging aspects within the construction industry, be it for the principal contractor like us or the individual sub-contractor like our mechanical and electrical partners. A contractor must always be willing to tender to stay in favor with clients, architects, QS's etc. and Astral Ltd would never turn down a viable tender and will always be as competitive as possible. However, it is a strong resounding feeling within the industry, certainly on the contractors side, that the procurement process could be improved for both the client and contractors benefit.
There are many ways to procure a construction project and each have different risk weightings to the contractor, according to one RICS report the traditional method of procurement is still greatly favoured within the industry. Although this method has been tried and tested, it is believed to be the method that puts the most risk on the contractor and inevitably is a large contributing factor to why a construction project fails. As described in a report produced by the CIOB the traditional method of procurement is "the separation of design and construction using a lump-sum contract". Basically a client will employ a team whom will produce a tender package (drawings, specification, schedule of works and if the contractor is lucky a bill of quantities), this tender package will be sent to numerous contractors, usually ranging between 3-5, who will then proceed to bid for the works by pricing each item individually, the contractor is usually given around 4 weeks to carry out this bidding process.
As mentioned above, the traditional method is tried and tested and has been known to work...sometimes...rarely. The CIOB carried out a survey in 2010 and found 83% of participants believed that "suicide bidding" is a real thing, this statistic alone is terrifying, it simply means contractors will bid for work to keep their order book alive, with the hope that they will claw monies back throughout the contract, via perhaps variations or something alike. This is not good news not only for other contractors who will not stand a chance at winning the project and therefore will have wasted time and money, but also the client who will be employing a contractor who perhaps does not have the resources to complete the works on time, and could potentially cost the client a great deal of money in the future.
Other potential failings of the traditional method of procurement could be seen to be as follows:
- Contractor cost, tenders are asking for more and more from the contractor with PQQ's being sent out which are in excess of 50 pages long, asking questions the client already knows the answer too because the contractor has worked for that client many times. It is important for the client to do their due diligence to ensure they employ the correct contractor...but should this be at the contractors cost before they even win the project? Clients are not only asking for these intensive PQQ's to be filled out prior to tendering, but also for detailed programmes, method statements, references, accounts and the list goes on, all before the contractor has even been narrowed down. Again it is understood that the client must ensure the contractor is able to carry out the works within a certain period of time, and has the professional capabilities to do it in a certain manner, as well as the financial backing, but should this be at the contractors cost before they are considered for employment or should this process be carried out once a contractor is narrowed down?
- Corruption, I personally attended a "group visit" the other week, which is where the client organizes competing tenderers to visit site as a group to save the client from having to do more than one visit. I find this distasteful for several reasons, but the main reason was reinforced whilst I was there, all contractors had worked with each other in the past, what is to stop them from talking to each other to bid as high as possible and agreeing who would win that particular contract? I am in no way saying this happened on the occasion that I am referring, it is just a real possibility.
- Contractor risk, the contractor will be fixed in to a lump sum contract based upon the tender they submit, of course there will be opportunity for variation if there is an unforeseen problem, but these variations are generally decided by the contract administrator...who is generally employed by the client. An example as to how this can be detrimental to a contractor is if a supplier or sub-contractor decides they do not want to honour their quotation, what choices does the main contractor have if the CA will not approve this as a variation? The contractor will have to pay the additional cost to the supplier or sub-contractor, at their cost.
What is written here may be negative towards the traditional method of procurement, but the purpose is designed to give a positive outcome. As a main contractor we would like clients to keep an open mind to procurement, perhaps focus on selecting the right contractor earlier, straying away from the competitive tendering option, and focus more on a negotiated method. Involving the contractor earlier in the design phase thus bringing the contractor in as a team member as opposed to an object to squeeze as much output as possible without payment. Certainly traditional method of procurement will always have its place in the construction industry, but perhaps it is time to break the tradition and bring in more effective, less risk associated methods of procurement, that will not only benefit the contractor but also the client.