Procurement – in the globalizing context

Citation

Davidson, C.H. (2009), "Procurement – in the globalizing context", International Journal of Managing Projects in Business, Vol. 2 No. 3. https://doi.org/10.1108/ijmpb.2009.35302cab.001

Procurement – in the globalizing context

Article Type: Procurement From: International Journal of Managing Projects in Business, Volume 2, Issue 3

Introduction

This review looks at procurement in the context of the globalization of the construction market, and how procurement experience does or does not fit with the opportunities or constraints of this new market. The review is based on selected papers presented at the Information and Research for Reconstruction (i-Rec) “Building Abroad” Conference[1], where procurement explicitly or implicitly underpinned many of the presentations, notably those describing building in developing countries.

The underlying premise is that procurement decisions establish the framework for every subsequent operation in the complex process leading from the perceived need for a building or construction project, to its actual materialization and use. Procurement strategies and tactics are currently evolving within the confines of national boundaries as the search for better value-for-money gains in urgency; however, it is not clear which of these trends are, can or should be applied in the international contexts of conventional or humanitarian projects.

The following review draws on extracts from some of the conference papers to highlight this search for indicators for the future approaches to procurement.

What is procurement all about?

Procurement, of course, is difficult to define and more difficult to carry out properly. According to Love et al. cited by Oyegoke et al. (2008) “procurement is an organizational system that assigns specific responsibilities and authorities to people and organizations, and defines the relationships between the different elements of construction in a project.” Procurement is therefore all about organizational design.

Procurement is, nonetheless, difficult to define, because the one term covers – at one and the same time – high-level up-front strategic decisions about whether, when and how to launch a building or construction project, but it also includes the matter-of-fact contracting for professional and technical services and products.

Procurement is also difficult to carry out properly, even in national contexts, if only because of the inherent complexity of the building and construction sector (an extremely heterogeneous “multi-industry,” which includes divers participants with their divergent interests, values and hidden agendas). Globalization adds to this complexity of participants and of their environments – cultural, economic, social, and technical. Viewed globally, international procurement typically implies that:

• •

  the participants are more specialized and teams more interdisciplinary;

• •

  the mechanisms of international financing are very complicated;

• •

  the work is not synchronized and is spread among different localities;

• •

  collaboration is required between teams having different ways of working and different work cultures;

• •

  mechanisms are required to adapt to differentially changing market and economic conditions;

• •

  sophisticated ways of assessing risks are required; and

• •

  novel procurement strategies have to be considered (Lizarralde and Davidson, 2008).

For example:

About 200 houses were recently built in Natreg, a township located in Cape Town […]. At first glance there is nothing important about this project. However, it is managed by an Irish NGO and funded by a multinational construction company. It is promoted by a local community-based organization. Roof trusses for the houses come from Durban, the architect is German, the urban planner is Indian, the construction inspectors are Cuban, the project evaluator is Canadian (Anonymous, 2008).

According to Oyegoke et al. (2008), procurement routes can be categorized as:

• •

  designer-led competitive tender/lump-sum/conventional, either sequential or accelerated;

• •

  design and build/package deal either direct, competitive or develop and construct;

• •

  design and manage, either by contractor or consultant; and

• •

  designer-led construction works managed […] either management contracting or construction management.

These authors add:

• •

  categorizing procurement route[s] is increasingly becoming more complex because of their [modus] operandi which in principle are fragmented;

• •

  the behaviors of the market, most especially the shift in demand and supply capacity, dictate the trends in procurement; and

• •

  the industry structure supply chain encourages collaborative working arrangements […].

Oyegoke et al.’s study concentrates on trends in procurement in the UK. Nevertheless, it can be seen as providing a “benchmark” for coming to grips with the higher levels of complexity that exist at the international level; the fragmentation, market behaviors and supply chain management are even more difficult to predict there, let alone control.

Within the contracting aspects of procurement, and in particular supply chain management, proactive approaches to purchasing can lead to many economic and logistic advantages stemming from stable buyer-vendor relationships; these advantages potentially benefit all project stakeholders and are not limited to the principal actors of the purchasing agreements (Santos and Jungles, 2008).

Regarding supply chain management in more detail:

Traditional practices of supply chain management tend to contract with multiple suppliers even for the same material or component. […] Poor communication was often a fundamental weakness in the interface between the buying firm and its supplier, it undermined the buying firm’s efforts to achieve increased levels of supplier performance (Zuo et al., 2008).

In the specific context of post-disaster reconstruction projects, establishing and managing a supply chain is doubly fraught with problems, stemming, for example, from the different ways of doing business (Zuo et al., 2008) between the buyers (off-shore non-governmental organizations (NGOs) – who may not even be familiar with the complexities the building) and potential vendors (local small and medium enterprises who are used to certain ways of doing business – perhaps based on a “handshake” plus an appropriate “kickback”).

Indeed, as von Meding et al. (2008) write:

Unfortunately, NGOs do not possess a good track record when it comes to the implementation of reconstruction projects […]. The urgent need to do something within a short space of time is not conducive to good sustainable housing reconstruction nor is the tendency of donors to set short timeframes for the disbursement of emergency funds (citation from Barakat, 2003).

These authors go on to suggest that strategic project management requires a dynamic competencies framework to be established, which can be used by NGOs, both for assessing their own resources and those with whom they must work – given the inherent difficulties of fast-tracking in unfamiliar environments. Value improvement (a related concept) has to be applied to human resource quality and capacity. In the case of reconstruction in Aceh after the 2004 Tsunami:

[…] the qualification and capacity of human resources involved in [the] project delivery process represent the most important precondition to be fulfilled before applying value improvement methods. […]. It is a critical factor in Aceh reconstruction […]. Local contractors are the ones who would have to be given the real attention and support in this respect (Marzuki and Fauzan, 2008).

Qualification of human resources can also be applied at the direct level of providing sustainable improvements for communities by the communities themselves. A case study in the fringes of Hanoi shows that:

The […] project demonstrated that the resulting [community] participation could be highly profitable for the authorities compared to the traditional approach of government supply and maintenance. […]. A sustainable service, however, needs specific consultant-support in engineering and management to support the work undertaken locally. The Lai Xà case showed that local training in basic management […], combined with an educational campaign, can create capacities to manage and maintain a low-tech community service without important input from the authorities […]. While the role of international firms is not limited to construction anymore, capacity-building for supporting community initiatives will be an efficient option to avoid the repetitive wasting of international capital investment (Beauséjour, 2008).

Public-private partnership

The emerging trend to adopt integrated design and construction through public-private partnerships (PPPs) was reflected in a number (20 percent) of the papers presented at the conference. For example:

[This] research [studies] the influence of procurement on the performance of integrated design teams […]. It is conclusive regarding the influence of procurement on team efficiency. It demonstrates that traditional procurement processes reinforce socio-cognitive barriers that hinder team efficiency. It also demonstrates how new procurement modes can transform the dynamic of relationships between the client and the members of the supply chain, and have a positive impact on team performance (Forgues and Koskela, 2008).

These authors’ research was based on case studies in Canada and Great Britain; it is therefore legitimate to raise the question: is this finding applicable: to international projects in general; and projects in developing countries, in particular, remembering that PPP has been defined as: “a long-term contractual arrangement between a public sector agency and a private concern, whereby resources and risk are shared for the purpose of developing a facility” (Jeffries et al., 2008 citing Akintoye et al., 2003).

Are integration and continuity possible in a globalized market?

This whole question of integration is central to any discussion of strategic procurement for projects to be constructed with participants coming from different countries, bringing with them their different attitudes, experience and approaches. It is also central when one searches (in an attempt to find a nucleus around whom to constitute the wished-for integration) for a coordinating “client,” particularly in post-disaster reconstruction projects.

It is worthwhile raising here the question about the inevitability – or not – of integration as “the way forward.” Katsanis and Davidson (1996) argued ten years ago (and also in several subsequent papers) that integration was not the only model to represent trends in building. Indeed, they found that in North America, for instance, there were indications suggesting “hyper-specialization” – where small independent firms:

• •

  developed in-depth skills for specific market niches, keeping up-to-date with the latest innovations in their focused fields; and

• •

  forming virtual firms when market opportunities opened up (modern communications technologies obviously play a key role in supporting such an approach).

Cannot lessons be learnt from this alternative worldview for the future organization of the building process in an international context?

Colin H. Davidson

“Building Abroad” was the title of a Conference on the Procurement of Construction and Reconstruction Projects in the International Context, organized by i-Rec and by GRIF (The IF Research Group), held at the University of Montreal, October 23-25, 2008. The superscript reference numbers in this review refer to the papers in the proceedings selected here and which are available at: www.grif.umontreal.ca/pages/conferencegrif2008.htm