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Most PSIPs are currently struggling to meet project timetables and contain cost overruns due to work stalled by undelivered materials or services by contracted vendors and other reasons.
This article seeks to highlight the basic principles of procurement from a project management point of view. Although there is bias towards public infrastructure procurement, some of the principles are applicable to procurement of goods and services in other generic industries as well.
Procurement can be defined as the acquisition, whether under formal contract or not, of works, supplies and services.
It ranges from the purchase of routine supplies or services to formal tendering and placing contracts for large infrastructural projects by a wide and diverse range of contracting authorities.
Background and Recognised Challenges
In the next coming few years, Zimbabwe is likely (yes – it’s a question of probabilities!) to embark on significant capital infrastructure investment programmes to address deficits and bottlenecks in the energy, roads, rail, water, health and other public infrastructure sectors.
It is a recognised fact that delivery of these projects will be a challenge to the Government, contracting authorities and the construction industry in general. As a result, we are likely to see more and more foreign companies/consortiums coming in to bridge the funding gaps and technical expertise in order to deliver this necessary infrastructure.
Such huge infrastructure spending will be subject to intense scrutiny by infrastructure owners, the public, the regulators, and the private sector.
Therefore, there is a clear need for rational and transparent approaches on how they are procured.
It is very important that the procurement function is discharged honestly, fairly, and in a manner that secures best value for money.
Contracting authorities must be cost effective and efficient in the use of scarce resources while upholding the highest standards of probity and integrity.
If the procurement function is perceived to be transparent, it could be the panacea to unlocking the much needed private sector funding.
Procurement Strategy
The procurement strategy identifies the best way of achieving the objectives of the project and value for money, taking account of the risks and constraints leading to decisions about the funding mechanism and asset ownership for the project.
The following factors that influence the procurement strategy should consider the project objectives – for example, to build a 200km-long dual carriageway highway with a capacity 6 000 vehicles per day.
Constraints – such as budget and funding; the timeframe in which the project is to be delivered and exit strategy.
Project complexity – such as undertaking the project in an already built-up urban environment.
Cultural factors – such as considerations about the workspace environment that will best support the way people work.
Risks – such as late completion of the project; innovative use of materials, inclement weather, changing regulations, the contracting authority’s capabilities to manage a project of this type and the length of operational service required from the completed project.
Procurement Routes
Procurement route delivers the procurement strategy. It includes the contract strategy that will best meet the contracting authority’s needs.
An integrated procurement route ensures that design, construction, operation and maintenance are considered as a whole.
It also ensures that the delivery team work together as an integrated project team.
I will discuss briefly the most common procurement routes that serve to meet the primary functions of a contract.
Traditional Forms of Contract
Under this strategy (also known as a separated project coalition), the contracting authority enters into separate agreements between the architect/ designers and main contractors.
The “traditional” form of procurement is still the most popular route, being widely recognised as an appropriate method by many contracting authorities, design team members and contractors. This strategy’s main advantage is that it is straightforward to implement, with clear lines of responsibility between the various parties to the contract.
Its downside is that, the contractor is selected after the design is fully developed and hence offers little scope for harnessing the expertise of the contractor.
There is also conflict of interest between the role of consultant as designer and the role of consultant as project manager and site supervisor.
These are major weaknesses in cases where innovative solutions are required and where the need to complete the project on time and within budget is required.
Integrated Work Packaging
Integrated procurement strategies combine two or more work packages such as design and build, or design and build with procurement and/or project management responsibility.
These arrangements offer flexibility, enable contractor input from an early stage, introduce value for money and minimise future variations.
They also enable incentivisation and dealing with conflict in a proactive manner. Integrated work packaging comes in different forms which include:
Prime Contracting – Using a single contractor to act as the sole point of responsibility to a contracting authority for the management and delivery of a construction project on time.
This should be within budget (defined over the lifetime of the project) and fit for the purpose for which it was intended, including demonstrating during the initial period of operation that operating cost and performance parameters can be met in accordance with a pre-agreed cost model.
Private Finance Initiative – This is where the contracting authority contracts to purchase quality services with defined outputs from the private sector on long-term basis. This includes maintaining or constructing the necessary infrastructure so as to take advantage of private sector management skill incentivised by having private finance at risk.
Design & Build – Using a single contractor to act as the sole point of responsibility to a contracting authority for the design, management and delivery of a construction project on time, within budget (taking account of whole-life costs) and in accordance with a pre-defined output specification using reasonable skill and care.
The main advantages of this form of contract strategy is that the contracting authority is dealing with one point of responsibility (the contractor is responsible for his designers and subcontractors) as related to both design and construction of the project. In so doing, it eliminates the risk of delay claims from the contractor, which emanates from “design repeats” and delays in the production of construction drawings.
The main weaknesses though are that the contracting authority has less control over the design process, and once the detailed designs are approved, he has little flexibility in modification of the design during construction.
Emerging Strategies – New strategies seek to move away from adversarial contracting towards collaborative working.
These strategies seek to align contracting parties’ objectives by use of incentives, use of new agreements, contracts and greater requirement for good project management.
Joint ventures – where the contracting authority and the contractor form a joint entity to deliver the project.
An example of such an arrangement is that between the Zimbabwe National Roads Authority and Group Five of South Africa to rehabilitate the 820km, US$206,6 million Plumtree-Bulawayo-Harare-Mutare highway.
Partnering – where high collaborative or integrated team working arrangements are put in place to deliver a project.
Various partnering forms such as alliancing, term partnering and project-specific partnering have been successfully adopted.
Partnering agreements and conventional contracts might be complementary, but there are essential differences between the function of a contract and a partnering arrangement.
The former gives rise to contractual obligations strictly between the contracting parties, and ideally is couched in terms of certainty which, in the event of dispute, can be tested in the courts.
Clear wording of the contract and adherence to sound administrative procedures are essentials.
The latter seeks to establish collaborative working between all key players committed to putting the project first, invokes trust and fairness, and operates as a project management tool.
Public Private Partnerships – A PPP is an agreement between the public and private sectors with the purpose of delivering a project or service traditionally provided by the public sector.
It involves the use of private finance and expertise in major and complex capital projects where there are significant ongoing maintenance requirements. The public sector is able to pass down to the private sector some, if not most of the risks involved. The private sector is considered to be in the best position to take on such risks – an important factor in measuring whether the introduction of private finance has delivered ‘value for money’ to the taxpayer. In such concessions the contractor designs, builds, operates and maintains the works for an agreed period before transferring it to the contracting authority. PPP negotiations are usually complex and involve multiple stakeholders and advisors.
Adopting the right procurement strategy will ensure that the contracting authorities get the best possible value for money because the process is transparent, there is an audit trail and it minimises the possibility of disputes and litigation.
In addition the chances of delivering the project within reasonable time scales are significantly increased hence benefiting the end user/customer.
- Paul Nyamutsaka is a Project Management Professional and a Chartered Engineer based in Ireland. He is a professional member of the Project Management Institute of Zimbabwe (PMIZ). Send your views & comments via email; [email protected] website link www.pmiz.org.zw
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