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THE PROCUREMENT ROUTES AND CONTRACTUAL ARRANGEMENTS FOR RESIDENTIAL PROJECTS IN THE UK

Executive Summary

The study provided a clear concept about procurement strategies of the construction industries in UK. In this context, Traditional procurement strategies have followed to generate the best design for residential projects of Luxe home organization. Additionally, the government guidance regarding residential projects has been evaluated from the construction playbook. In the 2nd task of the report, a procurement strategy and contract strategy have been provided for the client lakhs homes company. The aim of the second task is to give a suitable strategy for the company so that a loan from HBF can be secured for the development of the construction project. In this report, the main focus was given to procurement and contract strategy and the factors that impact contract strategy. A suitable recommendation on procurement strategy has been given and the contract strategy has also been mentioned here discussing all the related factors.

Table of Contents

Executive Summary. 2

Introduction. 4

Background of the topic. 4

Discussion. 4

Task 1. 4

Overview of the procurement cycle. 4

Criteria for a successful project based on the case study. 5

Factors that influence the selection of the Procurement routes 5

Analysis of different procurement routes. 6

Selected procurement routes for this study. 6

The rationale for the selection of that route. 7

Policies for construction project 7

Task 2. 8

Knowledge of procurement strategy and contract choice. 8

Selection of procurement strategy. 8

Factors impacting contract strategy. 9

Process of proposing and selecting. 9

Recommendation. 10

Conclusion. 11

Reference List 12

Introduction

The term procurement route can be further explained as the procedure of buying goods and services. Different designs and methods will be revealed in this study in the field of construction projects in the country UK. The construction industries in UK have gained huge attention by the citizens through their residential construction project works. The study will further shed light on a secure funding method or opportunities for professionals while the construction of new buildings. The role of construction professionals and consultants will be further discussed in this study to provide a clear vision of the criteria for arranging home loans from HBF.

The aim of the report is to give recommendations on procurement strategy and contract strategy for the most appropriate procurement method to provide loan criteria for HBF. The report further tries to give suggestions on maximizing the providers of loan criteria of the founder for the successful finishing of the design, construction, and monitoring of the project. The focus of the report will be creating a procurement strategy and contract strategy and discussing the agreement between the developer and the contractor, allowing the discussion of the meaning of contract strategies and the factors that impact contract strategy. It also tries to analyse the process of proposing and selecting and the way the right contractor is selected.

Background of the topic

The current scenario has successfully mentioned an individual from the organization LuxeHomes from England, UK, seeking a secure home loan to conduct a residential project. Luxe Homes can be known as a famous real estate agency in England that is responsible for providing top-class service to local sellers, buyers, Tenants, and Landlords (Piroozfar et al. 2019). Therefore, the organization Luxhome is required to obtain a home loan for the further development of the project. The term HBF mainly stands for “The Home Builders Federation” and they mainly belong to the region of Wales and England. In this context, construction professionals play an important role to provide the best suggestions for procurement planning to the client of the Luxehome organizations. Additionally, the consultants for construction or residential projects can design and execute a proper structure for the building along with the proper guidance and advice. On the other hand, it can be observed that SAM Ltd is one of the famous consultancies in UK and every employee of that organization are highly skilled to provide the best quality guidance to their consumers. The consultant of SAM’s Ltd has been doing business cooperatively with many well-known organizations , hence they will assist the client from Luxe Homes to obtain HBF loans for the residential project. In this context, it can be observed that 80% of new homes were constructed in England after taking loans from HBF.

Figure 1: The construction sector of UK

(Source: Piroozfar et al. 2019)

Discussion

Task 1

Overview of the procurement cycle

The organization Lux Homes has a limited conceptualization about the procurement plans and cycle for conducting Residential projects. Hence, construction professionals should provide an idea of the procurement cycle. The procurement cycle can be further explained as the process of transition or procuring goods. Hence an effective procurement cycle includes an appropriate payment process for goods and services (Tezel et al. 2020). The procurement life cycles can be divided into a few steps such as Identifying the goods or services. Listing of suppliers. signed contacts in a legal way with chosen suppliers and finalizing the project. The initial stage of procurement mainly deals with the goods and services. Goods can be further divided into internal or external, hence both of them also join with the budget planning for the project. Residential projects required a good design, materials quality, effective engineering and skillful workforce. In the next phase, it is required to list out the suppliers of raw materials for residential project in UK. This phase is crucial for the project holders and also necessary to build a strong relationship with reputable vendors.  For the procurement cycle the next phase is funding and in this study the organization Luxe Homes should follow some criteria to obtain loan for their projects.

Figure 2: Product procurement cycle

(Source:Tezel et al. 2020)

Criteria for a successful project based on the case study

The residential project with proper procurement planning is required high level assistance or guiding. In this context, the primary criteria for funding for a project, Hence Luxehomes is required to accomplish all criteria for sanctioning loans for the project. Now a days HBF is concentrating on the SMEs. If HBF supports the small builders through funding , those SMEs will definitely serve the government sectors, hence it can be considered as a mutual benefit (Stopps et al. 2021). The policies of HBF also depend on a few factors such as National, local and demand side practices. On the other hand HBF targeted all the emerging National policies, therefore companies like Luxe homes also showed interest to work collaboratively on different projects. HBF also contributes to different steering groups and provides essential guidance to them. The success of the project only depends on a perfect procurement planning and also safe criteria funding by HBF. In order to meet the criteria of HBF group, the organization Luxehomes should run their business legally with proper documentation in UK. According to the “National planning policy Framework”, the government authorities have been paying attention to developing a “local development plan” (Canet et al. 2022). As a result an evidence based planning can be observed regarding implementing housing at the locality. In order to obtain loans from HBF, the construction professionals have been suggesting to know more about the government policies and procedures.

Figure 3: Housing in Construction Output in UK

(Source:Canet et al. 2022)

Factors that influence the selection of the Procurement routes

Clients’ requirements can be considered as the top priority for the procurement process and it should be appreciated by the UK market. Therefore, the organization Luxehome is required to take a proper procurement strategy which can be considered as one of the fundamental contributors to the residential projects. In that case, most appropriate strategies includes cost, time and quality, hence utilisation of these strategies can help industrialists to make decisions for the business.In  the initial phase, following factors are influencing  the procurement routes such as external factors, characteristics of clients, project characteristics, alternation in project, costing and risks. This kind of residential project can be influenced by multiple factors such as technology, commercial, political, legal and social (Brown 2018). The characteristics of the client and position of the organization within the contemporary market can be considered as another influential factors. Cost issues can be considered as a huge factor for the delay of the project because firms may face a shortage of capital while conducting their projects. In that case, the government of the UK has established a “Home Builders Federation” to financially support these SMEs. Timing  or time frame is another influential component for accomplishing the project before the given time. In that case the entire team of the organization is mainly responsible for delivering good quality work before the deadline.

Figure 4: Project procurement plan

(Source: Brown 2018)

 Analysis of different procurement routes

There are various types of procurement methodologies are present to satisfy the consumers and also meet the objectives of the project. Different types of procurement strategies are “Traditional procurement”, “design and build”, “management contracting”, “partnering”, “measured term” and “construction management”.

  • Traditional procurement

It is one of the common methods utilized by various organization and  the most suitable way to convince all types of clients. Traditional methods can be further utilised for experienced and non experienced companies (Ronald  and Lennartz 2019). Traditional procurement methods can easily solve a complex project along with cost certainty and time predictability.

  • Management contracting

 The particular strategy is more suitable for designing complex building structures and it also provides a clear developing brief to the contract holders. Therefore, this process is not suitable for inexperienced consumers . In this context, cost certainty has been demanded before initiation of the project. This process leads to hiring a contractor and also a designer for this project, hence the contractor should be paid for managing the project properly.

  • Design and build

This particular process only includes contractors and they are mainly given responsibilities to develop a suitable design for the residential project. This strategy can be recommended for both experienced and inexperienced clients. Some clients wanted to stay away from the project, in that case the contractor can handle maintenance and design the building in an efficient way( Li et al. 2019). Design and Building procedure also incorporates desire of cost and fast tracking of the on going projects.

Figure 5: Process of Construction project execution

(Source: Ronald  and Lennartz 2019)

  • Measured term

In this case, the client has a regular work schedule with the contractor, hence it can be used for small projects (Caramizaru and Uihlein 2020.).  The term can be further defined as the construction of buildings usually within one to three years. Hence, the entire value of the project is always dependent on the terms and conditions. Due to the small size of the project , the measurement has been done with the concept of individual order.

  • partnering

Many countries have been promoting the collaboration approach for construction or residential projects. Henceforth, alliances between two parties are highly related with the partnering procurement concept. The further argument can claim that , partnering process brings some safety and quality to the project.

Selected procurement routes for this study

After analysing the given case study, it can be strongly highlighted that “Traditional Procurement” planning can be considered as one of the most suitable methods for construction purposes. Therefore, a tripartite managing strategy can be further observed in the traditional procurement process which encompasses Contractor, client and consultant. The method has the capability to generate various designs for a single project. In the primary phase, clients contact a well known consultant and discuss the budget  regarding the project (Zepter et al. 2019). Then consultants should be given permission to build a design or planning for the construction project, along with the cost control strategy. In the next phase, contractors are responsible for submitting tenders for the appointed project. Contactors also take care of a few following factors such as materials quality, workmanship and the activities of other members present within the project.

Figure 6 : Traditional Procurement Planning

(Source:Zepter et al. 2019)

The rationale for the selection of that route 

The utilisation of traditional procurement methods can be taken as most effective because industrialists have been using it for decades. Industrialists have been well known about the success rate of traditional procurement methods, hence it is easily reliable for contractors and clients. In the 20 th century, contractors , consultants and other members have agreed to utilised advanced technologies while forming a design for residential project work. While the traditional method is combined with digital infrastructures, it can be assumed that the result will be impactful for the industry of UK (Law et al. 2019).  Apart from that, the work can be executed with upgraded quality and clients generally contain greater control over the entire project. On the other hand, traditional methods are tender based hence clients can easily obtain a cheaper price in comparison with other methods of procurement. Hence, it can be stated that the traditional route is the easiest way for the adaptation process by the individuals.

 Policies for construction project

The  construction playbook of UK is mainly concentrating on the refurbishments of projects such as schools, hospitals , and major government projects. After analysing the sustainability issues, the construction industries have decided to alter their strategies as soon as possible. The construction playbook has given the concept of using experts for conducting the construction projects. Some  policies and procedures of construction project palaybooks are as follows,

  • Sustainable arrangements for contract projects after analysing the future effects.
  • High Quality and standard design for the construction project. Utilisation of most modern equipment for construction.
  • Foster long term contracting activities and business partnership between two parties.
  •  Paying attention to financial factors and also controlling  activities of suppliers for the difficult time of the construction sector (Montalbán-Domingo et al. 2019).
  •  Taking initiatives to achieve net zero emission of carbon in our atmosphere by the year 2050.
  • Enhancing social values along with innovation and modernised approaches for construction.
  • According to the “Building safety act” 2022, accountability and safety should be maintained during construction of residential substances and the act is also concerned about the lifecycle of buildings.

Figure 7: The construction Playbook

(Source: Montalbán-Domingo et al. 2019)

Task 2

Knowledge of procurement strategy and contract choice

A procurement strategy alludes to the procedure applied to implement a building project from the beginning planning stage to finishing and occupation by the users of the building. This is generally created during the planning stage of the procurement life cycle. One of the principal objectives of the strategy is to evaluate the level of delivery options and recognize a recommended delivery structure (Peng et al. 2020). While, on the contrary, a contract strategy includes the choice of organizations and contractual policies that are required for the implementation of the particular project.

The choice of appropriate procurement strategy and contracts needs the knowledge of:

Selection of procurement strategy

In the past, housing in the UK has been provided predominantly as site-based construction with changing standard contracts of support. Various researchers identified that creating criticality of construction schemes has a huge impact on the procurement strategies and types of construction contract strategies (Eriksson et al. 2019). As the procurement strategy is implemented, it may need adjustments to the data requirements, program, design, and the way it interfaces with the program of construction. Also, there are a few primary routes for strategic procurement. These are traditional contracts, designing and building, management, contract, PFI, and so on. Selecting an appropriate procurement, strategy for construction can be an extremely included decision that is impacted by different elements. At the time of recommending the clients like Luxehome, the most appropriate strategic procurement strategy, some of the elements need to be considered.

Having discussed the primary objectives and limitations of the building project, recognized the risks, wisely decided on the preferred allocation of risks, and identified the degree of criticality of the project, the strategy of procurement can be chosen (Kadefors et al. 2021). The procurement strategies are mostly concentrated on the options such as diminishing the expenses, reducing the risks, and expanding naturally. According to current surveys, 78% of the CPOs over the world have recognized cost diminishing as the most optimum priority of procurement strategies. The organizations and the project managers can select to concentrate on a single area or more than that, depending on the requirements of the business.

Among all the procurement strategies, the most suitable strategy for this context will be total quality management. The reason for this is procurement strategy is depending on strategic choices and makes sure that the infrastructure deliveries are done in a manner that increases the value created for society. For the investment in quality infrastructure, the procurement processes need to be late towards creating wider value in regard to economic, ecological, and social advantages (Trammell et al. 2020). Also, the best option of Luxehomes will be to focus on behaving commercially and implement the theme of enabling innovation. The advancements of the competencies in public procurement can assist provide sustainable, innovative, and standard infrastructure investments. It also allows the acceleration of the investments in infrastructure that are critical in the context of prices of COVID-19 and also anticipated to play a huge role in the recovery of the economy.

Also, the national procurement strategy of the UK government also suggests on using different areas and themes. Another reason for choosing this procurement strategy is that the OECD countries are more focused on choosing proposals that give value from both financial and qualitative domains (Hong et al. 2018). Investments in quality infrastructure also need transparent and efficient administration of procurement operations, involving contract management (OECD, 2022). This can assist create a wealth of information for the stakeholders and give opportunities for proper usage of this information. Executing a balanced relationship of the contract is basically significant for holding contractors responsible for the specifications of the project and professional standards. It is also accountable for creating a robust and visible process for re-negotiations of the contract and dispute resolution to represent changing conditions.

Figure 8: “Mechanisms used by OECD countries to identify proposals”

(Source: OECD, 2022)

Factors impacting contract strategy

Developing an efficient contact strategy that supports to objectives of the client and allocates risks to the most appropriate way to control them is crucial for delivering the project within the stipulated time and budget with expected standards. This can be specifically critical on large or critical project management jobs where the SC can be sustained and accountability for performance may also fall down through the suppliers (Bernal et al. 2019). In addition to that, there are different needs for third-party contracts such as collateral warranty, and so on that may impact the contract strategy of a construction project. On the contrary, a general issue is that even though the first and 2nd levels of the SC are linked with the contract in the chain developers, their contractual liabilities are reduced until the suppliers do not perform their obligations. It is significant, therefore, for all the parties to make sure that the rights and obligations exist to all the parties including the agreement. Other factors, that may impact the contract strategy of construction projects, involve

Process of proposing and selecting

Tendering is an approach to inviting bidders and contractors for large projects. It is generally implemented by government institutions. The primary objective of the tendering process in construction projects is to reduce favoritism and corruption in rewarding the parties of the construction firms. It is a written document that includes the details of the construction project to be followed throughout the project implementation (Xu et al. 2019). The tender document assists in a detailed procedure that helps the buyer choose the qualified and attracted suppliers depending on a few contract criteria. A tender process in the UK needs to be continuous enough to make sure that the acquisition of the team is achieved through VFM (“Value for money”). However, it is in the interest of MOD as well as the tenders to keep the cost of the tenders reasonable. The tendering process in construction projects includes several stages and these are:

  •   (Miller and Lehoux, 2020).

Recommendation

The further recommendations, that can enhance the quality of the residential construction process are

  • .

Utilisation of graphics and other software to construct best designs for clients.

After considering all the factors that influence the contract strategy or the procurement strategy chosen for this case, JCT Lump sum  contracts have been selected here as this is the most widely applied contract, specifically for creating construction. A lump sum is all the areas of the project that are pre-decided and explained in a fixed scope of operation (Salami et al. 2021). Lump sum contracts are simple to use, easy financing and have clear paperwork, and hence, will be easier for the UK gov to control. This contract will help Luxehomes to get its HBF criteria fulfilled. The expenses are also known and visible to the client and the contractor is capable to manage the anticipations. Apart from that, the JCT standard form will further be used to recommend a contract strategy for Luxhome company for achieving the loan of HBF.

DescriptionTender process, expenses, and paymentRisk profileVariantsSummary
 roles . link between parties   tender process cost to tender expenses and payment after tender risk associated to the principal Risks associated to the contractortenders can be necessary to give a schedule of rate of a lump sum.
ScopeDesignTimeAdministration

Table 1: Contract strategy

(Source: Self-made)

Conclusion

The discussions made in the total report gives clear evidence of the type of procurement strategy and contract strategy that will be implemented by Luxehomes company for securing a loan from HBF towards the development of the new construction project. From the discussions made above, it is evident that the company will use a procurement strategy of TQM. This is one of the most emerging program strategies widely used by the OECD countries because of its involvement with both financial and quality factors in the project. Apart from that, the contract strategy, following JCT contracts in the UK has also been given here.

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