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1 – 10 of over 22000
Article
Publication date: 5 March 2018

Andrei Yakovlev, Olga Balaeva and Andrey Tkachenko

This paper aims to measure the cost of procurement because public procurement procedures prescribed by legislation not only enhance transparency and competition but also entail…

Abstract

Purpose

This paper aims to measure the cost of procurement because public procurement procedures prescribed by legislation not only enhance transparency and competition but also entail certain transaction costs for both customers and suppliers.

Design/methodology/approach

These costs are important to the efficiency of the procurement system. However, very few previous studies have focused on estimating procurement costs. This paper proposes a methodology for public procurement cost evaluation.

Findings

This paper shows how procurement costs can be calculated using a formalized survey of public customers. This methodology was tested with a representative group of public customers operating in one region of the Russian Federation.

Originality/value

The authors formulate the policy implications of this paper, as they relate to the improvement of public procurement regulations and argue that this methodological approach can be applied in other developing and transitioning economies.

Details

Journal of Public Procurement, vol. 18 no. 1
Type: Research Article
ISSN: 1535-0118

Keywords

Article
Publication date: 16 March 2015

Mohammed Rajeh, John E. Tookey and James Olabode Bamidele Rotimi

Within construction procurement, transaction cost economics offers a mechanism to understand “unseen” costs associated with the pre- and post-contract work. Pre-contract, these…

2114

Abstract

Purpose

Within construction procurement, transaction cost economics offers a mechanism to understand “unseen” costs associated with the pre- and post-contract work. Pre-contract, these include costs related to information gathering and procurement. Post-contract they include activities of contract administration and enforcement. The purpose of this paper is to estimate the magnitude of transaction costs (TCs) for different procurement systems used in construction projects in New Zealand. Specifically estimating the relative values of TCs for Traditional and Design-Build delivery systems for the purpose of comparison.

Design/methodology/approach

This study develops a conceptual model for the relationship between procurement systems and TC. The model was operationalized and developed into a questionnaire. A cross-sectional sample approach was deployed, involving pilot and survey questionnaires, and results verification through “real world” cases. Data were sought from construction professionals in management, design and operations (i.e. project managers, architects, engineers, quantity surveyors, and procurement officers). TCs were measured using time-spent conducting procurement-related activities as a surrogate for cost. Professionals evaluate their time-spent in procurement activities using a Likert scale 1-5, comparing the Traditional and Design-Build delivery systems. Data were triangulated with “real world” cases to test and explain the developed model. The test included validity and reliability, path analysis, regression analysis, factor analysis, and structural equation modelling (SEM). The primary analytical technique used was SEM to yield information on goodness-of-fit, model development and comparison, and confirmatory strategies. SPSS Amos 21 statistical software was used for data analysis and model development.

Findings

The results suggest that procurement systems have indirect impact on TCs. The relationship between procurement system and TCs is fully mediated by costs of information, procurement, administration, and enforcement. Applying the developed models (the Traditional and Design-Build) to “real world” cases, it was found that TCs in the Traditional system amounts to 18.5 percent of the annual salary cost of a project manager (as an indicator quantum), while in the Design-Build system, it amounts to 14.5 percent of the annual salary cost of a project manager. TCs were calculated using regression equations based on factor loadings in the Traditional and Design-Build models.

Practical implications

This study applies new theoretical model for the link between procurement system and TCs, investigating and empirically demonstrating the influence of procurement system on TCs in construction. It also offers a new plausible explanation for the factors influencing TCs in procurement. The study emphasizes “in-house” TCs from the perspective of the professionals. The findings have practical implications on construction business practice due to their robust empirical nature and theoretical framework, which might enhance the performance of the construction industry.

Originality/value

This study contributes to the procurement selection in construction, by introducing a new conceptual model for the link between procurement system and TCs. It has extended the current practices for procurement selection by estimating TCs for the Traditional and Design-Build systems for comparison.

Details

Engineering, Construction and Architectural Management, vol. 22 no. 2
Type: Research Article
ISSN: 0969-9988

Keywords

Article
Publication date: 8 August 2016

Geraldine Arbogast Rasheli

The purpose of this paper is to examine the transaction costs involved in managing procurement contracts in the public sector, particularly at the lower and higher level of local…

2197

Abstract

Purpose

The purpose of this paper is to examine the transaction costs involved in managing procurement contracts in the public sector, particularly at the lower and higher level of local governments from the clients’ perspective.

Design/methodology/approach

The paper uses new institutional economics, specifically the transaction cost approach. A multiple case study design was used, in which five local government authorities (LGAs) were selected from the Kigoma and Tanga regions of Tanzania. Interviews with heads of procurement management units, focus groups and secondary sources were used to collect information for lower level LGAs.

Findings

Very high information, negotiation and monitoring transaction costs were revealed at the post-contractual stage for higher levels of local government in all cases. Transaction costs were associated with institutional problems, lack of financial resources and attitudes towards accountability, transparency and competition. It was also found that lower levels of local government are faced with very high transaction costs for all procurement stages due to a lack of procurement contract management capacity among ward and village procurement project committees, low levels of support from higher level LGAs, a lack of simple Swahili-standardised documents and guidelines for lower level procurement contract management which reflect current legal issues and the lack of a legal framework for procurement at the lower level of local government. These costs are associated with poor accountability and a lack of competition, transparency and efficiency throughout public procurement chains.

Research limitations/implications

There is no estimate for quantitative approaches, because it is was difficult to measure transaction costs associated with accountability, transparency and efficiency.

Originality/value

The paper contributes knowledge on qualitative levels of transaction costs for procurement contract management for both higher and lower levels of LGAs from the clients’ viewpoint.

Details

International Journal of Public Sector Management, vol. 29 no. 6
Type: Research Article
ISSN: 0951-3558

Keywords

Article
Publication date: 18 July 2016

Nunzia Carbonara, Nicola Costantino and Roberta Pellegrino

– The purpose of this paper is to develop a decision model for choosing the tendering procedure in PPP that minimizes the transaction costs borne by the public sector.

1559

Abstract

Purpose

The purpose of this paper is to develop a decision model for choosing the tendering procedure in PPP that minimizes the transaction costs borne by the public sector.

Design/methodology/approach

A conceptual model that relates the procurement procedures described in the EU legal framework to launch PPPs and the transaction costs, considering the level of information managed by each procurement procedure has been developed. The authors use this conceptual model to develop propositions about the impact that specific project- and country-related factors have on the choice of the procurement procedure that minimizes the transaction costs.

Findings

The application of the proposed model to the case of the Italian highway “Cispadana” shows its usefulness in orienting the public authority’s choice between the different tendering procedures, taking into account project- and country-related factors.

Research limitations/implications

The present study fills the gap existing in the literature on transaction costs of PPP projects and the procurement procedure used to launch those projects by developing a model that relates the level of transaction costs with a set of key factors, namely the level of information managed during the tendering process, the number of bidders, the project size, the project complexity, and the institutional environment.

Practical implications

As for practitioners, the main contribution of this study lies in offering a tool for supporting the public authority in the decision-making process about the tendering procedures in PPPs without imposing the selection of a specific procedure.

Originality/value

The approach developed provides a new tool to support the contracting authority in the design and choice of the tendering procedures in PPP.

Details

Engineering, Construction and Architectural Management, vol. 23 no. 4
Type: Research Article
ISSN: 0969-9988

Keywords

Article
Publication date: 18 September 2023

Stephanie Sheamar, Gayan Wedawatta, Maheshi Tennakoon, Roshani Palliyaguru and Maxwell Fordjour Antwi-Afari

Cost overrun is a significant issue in construction, an undesirable feature the industry has long been associated with. Poor procurement practices are often blamed for subsequent…

Abstract

Purpose

Cost overrun is a significant issue in construction, an undesirable feature the industry has long been associated with. Poor procurement practices are often blamed for subsequent cost overruns in construction, especially with conventional procurement methods leading to outrageous cost overruns. The purpose of this study is to review the features of the new models of construction procurement (NMCP) and assess their potential to reduce cost overruns in construction projects.

Design/methodology/approach

A literature review was conducted to identify the issues of procurement leading to cost escalations. Primary data were obtained through exploratory, semi-structured interviews using a case study approach.

Findings

Clients’ lack of knowledge was highlighted as a key issue in procurement that interlinks with many factors causing cost escalation. The findings suggest that the features contained within the NMCP, such as early contractor involvement and collaboration throughout the project team, have the potential to make a positive contribution to addressing cost escalation in construction.

Research limitations/implications

The primary research was undertaken as an exploratory study and presents the contractor's perspective. Further research is therefore suggested, with multiple organisations representing all key stakeholders in a construction project, including clients, consultants, sub-contractors and suppliers.

Practical implications

The study recommends awareness of the NMCP be raised throughout the industry, and simplified information must be made available to help widen uptake of these contemporary procurement methods.

Originality/value

Addressing the dearth of research concerning the use of NMCP within the industry, this study makes a niche contribution to the body of knowledge on construction cost management by illustrating the potential offered by these new procurement methods for addressing cost escalation. For an industry where collaboration is accepted with reservations, this case study demonstrates how novel collaborative strategies such as open book costing, project bank accounts and shared pain and gain mechanisms can be implemented as part of the procurement strategy and how such strategies can contribute towards minimising the cost escalation inherent in construction projects.

Details

Journal of Financial Management of Property and Construction , vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1366-4387

Keywords

Book part
Publication date: 7 June 2013

Spencer Henson, Steven Jaffee and Oliver Masakure

The chapter contributes to on-going debates about the inclusion of smallholders in export value chains for high-value agricultural products. Specifically, it investigates the…

Abstract

The chapter contributes to on-going debates about the inclusion of smallholders in export value chains for high-value agricultural products. Specifically, it investigates the factors driving the procurement practices of exporter of fresh fruits and vegetables in sub-Saharan Africa, and specifically sourcing from smallholders. A survey is undertaken of exporters of fresh fruit and vegetables in sub-Saharan Africa. The resulting data are used to estimate econometrically the propensity of exporters to source from smallholders, and the intensity of sourcing among those exporters who do procure from smallholders. Explanatory variables include firm and market characteristics, supply chain costs, type of product, availability of alternative sources of supply, and judgments regarding the performance of smallholders and other sources of supply.The propensity to procure from smallholders is found to be negatively associated with being a small exporter and the performance of medium- and large-scale producers. Exporters are more likely to source from smallholders if they have their own production capacity and smallholders are judged to perform well. The requirement of customers to comply with private food safety standards is found to have no significant effect on the propensity to procure from smallholders. Conversely, compliance with private standards has a strong influence on the intensity of sourcing from smallholders. Exporters judging smallholders to perform well are more likely to source intensively from smallholders, but to source less if they judge their own production to perform well. High fixed costs tend to be associated with lower intensity of sourcing from smallholders. The results suggest that compliance with private food safety standards does not drive the exclusion of smallholders from export value chains; indeed, conversely, the requirement to comply with such standards is associated with greater intensity of sourcing from smallholders. Smallholders evidently play a key role in the defrayment of risk by exporters in that many exporters combine their own production with smallholder procurement. Costs of procurement from smallholders, however, remain an issue. Evidently, the fixed costs of smallholder supply chains increase appreciably with the intensity of sourcing. The research reported here provides a new perspective on the inclusion of smallholders in export value chains for horticultural products. The incorporation of smallholders into these value chains is seen as the outcome of the procurement decisions of exporters. Contrary to much of the discourse in this area, the results suggest that smallholders can and do compete in export value chains for horticultural products even in the context of exacting food safety standards.

Details

Nontariff Measures with Market Imperfections: Trade and Welfare Implications
Type: Book
ISBN: 978-1-78190-754-2

Keywords

Article
Publication date: 17 September 2018

Rema Sawan, Jwen Fai Low and Andrea Schiffauerova

Material procurement constitutes a large share of the overall cost of construction projects. Understanding the factors influencing the cost of quality (COQ) in the procurement

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Abstract

Purpose

Material procurement constitutes a large share of the overall cost of construction projects. Understanding the factors influencing the cost of quality (COQ) in the procurement process could help identify opportunities for lowering quality cost without compromising quality. The paper aims to discuss these issues.

Design/methodology/approach

In this paper, a COQ model for the construction material procurement process is developed using the traditional prevention–appraisal–failure (PAF) approach. Using data from a $4bn aluminum smelter construction project, the authors conducted a simulation of the COQ model to evaluate various quality assurance policies.

Findings

This paper confirms that raising the prevention cost leads to a drop in failure cost as well as COQ for the project studied. While the authors are unable to provide blanket recommendations as the results are derived from a single project case study, it does suggest that construction material procurement processes would benefit from a higher prevention expenditure. And for certain cases where the authors observe a deviation from the traditional Juran’s model of COQ – the high appraisal cost in the procurement process – reduction of appraisal expenditure may in fact be more beneficial than its increase.

Originality/value

The research results suggest that appraisal expenditure should be tailored to each purchase order in order to maximize the total benefits. Additionally, this paper presents the first COQ model developed for the construction material procurement process. Another unique feature of the model is its inclusion of supplier-side costs, which are excluded in the conventional COQ analysis.

Details

Engineering, Construction and Architectural Management, vol. 25 no. 8
Type: Research Article
ISSN: 0969-9988

Keywords

Article
Publication date: 1 March 2014

Per Molander

The single-most important parameter of a public procurement system is the threshold above which the framework applies. The optimization problem consists of finding a reasonable…

Abstract

The single-most important parameter of a public procurement system is the threshold above which the framework applies. The optimization problem consists of finding a reasonable trade-off between the gains from public procurement and the administrative costs associated with procurement rules. In the present study, based on a sample of central and local government procurement operations in Sweden, an optimal threshold value in the range of 5,000—6,000 EUR is computed based on the requirement that the average gain should supersede the average cost. If a larger proportion of procurements is required to gain from the regulation imposed, a threshold value of 20,000—25,000 EUR should apply. The general conclusion is that there are strong arguments for maintaining procurement rules below the European Union threshold.

Details

Journal of Public Procurement, vol. 14 no. 2
Type: Research Article
ISSN: 1535-0118

Article
Publication date: 30 January 2007

Ruerd Ruben, Dave Boselie and Hualiang Lu

The paper seeks to understand the conditions that motivate Asian supermarkets' choices for vegetable sourcing through wholesale procurement or preferred supplier systems.

8646

Abstract

Purpose

The paper seeks to understand the conditions that motivate Asian supermarkets' choices for vegetable sourcing through wholesale procurement or preferred supplier systems.

Design/methodology/approach

Insights from transaction cost theory are used to analyze the evolution of fresh produce procurement regimes by supermarkets in Bangkok and Nanjing.

Findings

Trade‐offs between higher production‐cum‐investment costs (i.e. fixed investments, variable production costs and economies of scale) with expected savings in transaction costs (governance and opportunistic behaviour) are registered that could hinder contractual delivery.

Research limitations/implications

Transaction costs play an important role in shaping procurement regimes. Information, negotiation and monitoring costs are high in early phases of market development, but may be reduced when retailers establish direct and contractual relations with selected producers. Such preferred supplier arrangements may be helpful to reduce risks related to delivery frequency and product quality, but require substantial investments that only become feasible when opportunistic behaviour is adequately controlled. The nature of supplier‐buyer relations alters in a number of subsequent phases from chain optimisation to integral chain care.

Practical implications

With the establishment of large‐scale supermarkets in Asia, buyers need more information about the quality of products and the creditworthiness and reputation of sellers and therefore increasingly rely on contractual delivery relationships. For preferred supplier regimes, scale economies and enforcement of mutual trust are key issues to establish stable relations.

Originality/value

The shift from wholesale purchase towards preferred supplier regimes in emerging economies involves large investments that can only be met if governance costs are reduced.

Details

Supply Chain Management: An International Journal, vol. 12 no. 1
Type: Research Article
ISSN: 1359-8546

Keywords

Open Access
Article
Publication date: 10 July 2023

Moses Muhwezi, Henry Mutebi, Samuel Ssekajja Mayanja, Benjamin Tukamuhabwa, Sheila Namagembe and Robert Kalema

Procuring relief products and services is a challenging process for humanitarian organizations (HOs), yet it accounts for approximately 65% of relief operations’ costs (Moshtari…

1941

Abstract

Purpose

Procuring relief products and services is a challenging process for humanitarian organizations (HOs), yet it accounts for approximately 65% of relief operations’ costs (Moshtari et al., 2021). This paper aims to examine how procurement internal controls, materials and purchasing procedure standardization influence information integration and procurement performance.

Design/methodology/approach

In this study, partial least square structural equation models and multigroup analysis were used to analyze data collected from 170 HOs.

Findings

Procurement internal controls and material and purchasing procedure standardization fully mediate between information integration and procurement performance.

Research limitations/implications

The study focuses only on HOs. Since humanitarian procurement projects take place over a period of several years, it is difficult to capture the long-term effects of information integration, procurement internal controls, material and purchasing procedure standardization and procurement performance. In this regard, a longitudinal study could be undertaken, provided that the required resources are available.

Practical implications

Procurement managers should implement information integration practices within acceptable procurement internal controls and standardize material and purchasing procedures to boost procurement performance.

Originality/value

By integrating information through procurement internal controls and standardizing material and purchasing procedures, procurement performance in a humanitarian setting can be systematically optimized.

Details

Journal of Humanitarian Logistics and Supply Chain Management, vol. 13 no. 4
Type: Research Article
ISSN: 2042-6747

Keywords

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