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It is a process of buying products, the services or any other facility at a best possible price as compared to market. This process makes sure that the buyer purchases his required items without compromise on quality and standards. There has been time delays, extra cost and other disadvantages in number of contraction projects due to different reasons, but still there is no change in the construction procurements methods since last twenty five years (Smith and Love, 2001). The type of the procurement method to be used on a specific project depends on the nature of the problem and on the requirements of the client in the project (Love et al., 1998). Following three types of procurement methods are reported to be important considering the construction projects. The report discusses the most commonly used procurement methods used in construction industry, and their positive and negative factors.
This is a mutual cooperation between the public sector organization and private company that is sponsored by private companies or the government. It gives a better chance to both the stakeholder’s to learn from each other. This method is used in UK’s labor market to a greater level due to its extra positive affects (Treasury, 2000). However there has been other arguments as well that highlight the negative factors of PPP and suggest that this method should be replaced for UK’s market especially in rail service (Ruane, 2000). A study has been conducted to find the positive and negative factors of using PPP (Li et al., 2005). These are mentioned here.
This method is also known as design bid build. It is the most commonly used method for the procurement in construction work. A coordinator of the project has to be appointed having engineer’s or architect’s background, who is made responsible for the project progress and cost management. The design work is usually different than the construction part of the project in traditional procurement technique. Designing and cost management is done by consultants; contractors are made responsible for carrying out the whole execution part of the project. The tenders are advertised to select a competent contractor; however depending on the potential and the experience of the contractor they may also be hired without advertising the tenders. It is assumed that the design is selected by the consultants, but they still have no liabilities for the selected design, special terms are agreed on this issue. The traditional procurement is used where there is sufficient time before the start of the project, the designer and consultants are appointed separately, the cost of the project to be decided before the start of the project and quality of the project is necessary (Masterman, 2003).
Three types of contracts can work under the traditional procurement; these are lump sum contracts, measurement contracts and cost reimbursement contracts. In lump sum contracts the total amount of the project is determined before the starting of the project. This contract requires the documentation to be complete in all respects before the advertisement of the tenders. The measurement contracts are applied where it is not possible to calculate the total amount of work to done, therefore the total amount is calculated at the end of completion of the project and agreed by both the parties. The measurement contract is also known as re-measurement contract. This method increases risk on the end of the client as they are not certain about the amount of cost and time required of the completion of the project. The measurement contract is best for small projects only. The cost reimbursement contract uses cost of labor, plant, overhead cost and profit; all these costs are added individually. This is also known as cost plus contract. This type of method has three types of profits i.e. In “cost plus percentage fee” the contractor is paid a percentage of the prime cost of the project, and there are no benefits for the extra efficiency in the work. A fixed fee is charged to the contractor in “cost plus fixed fee”. The fee is varied between the prime cost and the estimated cost in “cost plus fluctuating fee”(Blanc-Brude et al., 2006).
This method is also known as design and builds procurement method. The contractor accepts the liability of all the design in a project in design and constructs procurement. The level of responsibility of the contractor is mentioned clearly in the contract of the project. This method decreases the risk from the end of the client. The liability of the contractor can also be shared with client that is totally dependent on the type of the project to be performed in the organization. This type of procurement is a team work of the design and construction firms, and that can retain up to one project or for long term cooperation. It has been the reported that the application of design and construction procurement has increased to certain as compared to other methods (Ling, 2004).
There are number of positive and negative factors associated with the design and procurement contracts, these are as follows.
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