The procurement strategies for the Olympic Stadium and the Aquatic Centre for the London 2012 Olympic Games

von Plessen, Dirk

The procurement strategies for the Olympic Stadium and the Aquatic Centre for the London 2012 Olympic Games

Art - Architecture / History of Construction

Summary

The International Olympic Committee announced on the 6th July 2005 that the Games of the 30th Olympiad in 2012 will take place in the city of London.
This study aims to determine whether the procurement strategies chosen by the ODA are the right choice for delivering the two main venues in the Olympic Park in time, on budget and to the required quality. In order to answer this question, the approach of this study is to undertake extensive research in the subject area of construction procurement and to identify best practice in making procurement decisions for a project. In particular, the procurement strategies chosen by the ODA will be researched and their shortcomings identified. Based on this theoretical framework, the author will be able to undertake a systematic analysis of the decisions made by the ODA to procure the two most prestigious venues in the Olympic Park. As a main part of this analysis the author will conduct semistructured interviews with key people involved in the Olympics and with experts of MSc Management in Construction - the industry.

Excerpt

Nomenclature

ODA

Olympic Delivery Authority

CLM

CH2MHill, Laing O'Rourke and Mace

OGC

Office of Government Commerce

NAO

National Audit Office

LOCOG

London Organising Committee for the Olympic Games

Introduction

The introduction of this thesis details the background information to the subject area,

my motivation for the study and the research objectives. It also defines the limitations

and the significance of the study and finally, an overview of each chapter is presented.

1.1

1 0

Background information

The International Olympic Committee announced on the 6

July 2005 that the Games

of the 30

Olympiad in 2012 will take place in the city of London.

Three years later, a lot of preparation work has already been done to get London ready

for hosting the world's most prestigious sporting occasion. Over 192 buildings have

been demolished, one million cubic metres of soil excavated, two six kilometre

tunnels and 200km of cabling are completed, and most of the contractors for the new

sporting facilities are appointed.

The Olympic Park will be at the centre of this large development project and spans

two million square metres of the Lower Lea Valley in East London. Most of the new

build venues and sporting facilities will be sited here; amongst them are the two

flagship venues the Olympic Stadium and the Aquatics Centre.

At the heart of the park will be the Olympic Stadium. The brief for the stadium

published by the Olympic Delivery Authority (ODA) outlines the venue as a

spectacular 80,000-seat arena for the Olympic and Paralympic games, which is to be

designed to host the athletics competitions and the opening and closing ceremonies.

The masterplan for the stadium calls for the conversion of this structure into an

athletics-led venue with capacity for 25,000 spectators after the games.

Graphic No 1-1: The Olympic Stadium for the London 2012 Olympics (Building 2008)

The Aquatic Centre, to the southeast of the park, contains two 50m pools and a 25m

diving pool with seating for approximately 20,000 people. After the games, the

capacity will have to be reduced to 3,500 seats and the centre's facilities made

available to the local community. The building will then have to house a new health

and fitness centre as well as facilities for nearby sports clubs.

Graphic No 1-2: The Aquatic Centre for the London 2012 Olympics (Building 2008)

The construction and operation of these sports facilities for the Games will be

undertaken by the London Organising Committee of the Olympic Games (LOCOG).

The delivery of the venues in time, within budget and to the required standard,

however, is the responsibility of the Olympic Delivery Authority (ODA). The ODA is

a non departmental public body and acts in essence as the delivery organisation for all

the construction activity.

1.2

1 1

Motivation for the study

The rather difficult task which the ODA is facing is to deliver the above-mentioned

facilities to an immovable deadline, to stay within budget, and at the same time to

deliver the venues with astonishing design and build quality. These are the main

criteria against which the success of this project will be measured.

Additionally, this enormous project is exposed to great political pressures and

regulations. EU & National regulations for procuring the venues apply and

commitments such as `Value for Money' are to be considered by the ODA when

making its procurement decisions.

With this in mind, the ODA have decided to procure the Olympic Stadium and the

Aquatic Centre under the Design & Build route.

For both venues the ODA has

announced to use the New Engineering Contract (NEC) target cost contract.

Based on these procurement decisions and on the comments made by Tessa Jowell,

the Olympics Minister, that the main schemes in the Olympic Park will not be design-

led a debate has started between leading architects and the ODA. The argument is

about the role of the design in the procurement of the Olympic venues and the way the

ODA goes about selecting its preferred contractors.

Jack Pringle, the RIBA president, states that the use of Design & Build contracts

would compromise the quality of design (Building 2006). He openly criticised the

ODA strategy for the use of Design & Build contracts and said that "It is important

that the process is not contractor-led, the crude old Design & Build...let's not

sacrifice games excellence on the altar of the crudest form of reliable delivery"

(Building 2006). Jack Pringle further argues that the ODA is acting too cautiously and

by putting risk factors ahead of design at this early stage does not show a great deal of

confidence (Building 2006).

In addition, Lord Rogers declares that the Design & Build contracts will lead to

venues without design flair. He claims, "Every Olympic Stadium I can think of went

through a design-led procurement process and I don't know why London is not doing

the same. There is no proof that Design & Build contracts are cheaper in terms of

value." (Sherwood 2006)

The other unpopular decision made by the ODA was to scrap the shortlist of

contractors for procuring the Olympic Stadium and to go with only one bidder. The

original plan for procuring the stadium was to select a preferred contractor via a short

list of 3 to 6 bidders, which would help the ODA to work out the design and scope of

the project.

However, the ODA decided not to go with this shortlist. Many consultants argue that

this procurement decision will not only lead to a compromised design for the stadium

but also to raising costs due to the absence of competition.

When looking at the procurement process for the Aquatic Centre a similar situation

can be found. Despite the fact the ODA entered into a competitive dialogue with a

short list of three contractors, two of them have abandoned the negotiations before any

tenders could be submitted, leaving the ODA again with only one bidder for this

project.

Matthew (2006) supports the above argument concerning costs by saying that it is

unimaginable that London will not deliver the Olympic venues and infrastructure in

time. He suggests that the real risks faced by the ODA are cost, quality and

functionality and says that "Cost escalation is one of the biggest single risks.

Experiences of other games and similar events indicate that as time progresses,

increasing volumes of resources have been applied to overcome obstacles and costs

have risen accordingly." For that reason, not having any competition in terms of price

and quality seems to be a controversial decision in what is regarded one of the largest

and most complex construction projects in the UK.

An auditor of the National Audit office (NAO) also shares the concerns about rising

costs for the infrastructure spending in the pre-games period and says that uncertainty

remains over price inflation and how much contractors will charge for the construction

of the venues (NCE 2007). The Public Accounts Committee report, published in April

2008, agrees with the above and suggests that contracts should have been awarded

based on effective competition between suppliers (NCE 2008).

This debate about rising costs is not unfounded under the light of the development of

the total budget for the Games in the recent past. The overall budget for the Olympic

Games submitted with the bid to the International Olympic Committee (IOC) was

£2.4bn, back in 2004. The figure then rose to £6bn just one year after the games were

awarded to London in 2005. In December 2007, Tessa Jowell has announced the final

figure of £9,325bn.

These spiralling costs are also reflected in the development of the budgets for the

individual projects. At the bidding stage for the Olympic Games in 2005 the Aquatic

Centre was estimated at £73 million. Two years later the budget figure rose to £215

million. Balfour Beatty, as the sole bidder, then submitted costs totalling £230 million

and now the cost is agreed at £242 million. The Olympic Stadium was originally

priced at £280 million in London's bid document in 2005. In 2007 a final figure of

£496 million was announced and only a few months later this estimate has risen to

£525 million.

These debates and cost developments have paved the way for this dissertation. The

scope of this study, the hypothesis and the main research objectives are outlined

below.

1.3

1 2

Scope and aim of present work

It is clearly apparent from the above paragraphs that in the Pre-Olympic phase (2005-

2011) the construction of the Olympic venues will be at the centre of public attention,

and scrutiny. Construction industry practices will be placed under the microscope in

the time leading up to the Games, especially the ODA's developed and introduced

strategy for procuring the infrastructure.

The study aims to determine [hypothesis] whether the procurement strategies chosen

by the ODA are the right choice for delivering the two main venues in the Olympic

Park in time, on budget and to the required quality.

In order to answer this question, the approach of this study is to undertake extensive

research in the subject area of construction procurement and to identify best practice

in making procurement decisions for a project. In particular, the procurement

strategies chosen by the ODA will be researched and their shortcomings identified.

Based on this theoretical framework, the author will be able to undertake a systematic

analysis of the decisions made by the ODA to procure the two most prestigious venues

in the Olympic Park. As a main part of this analysis the author will conduct semi-

structured interviews with key people involved in the Olympics and with experts of

the industry. Both the literature review and the interviews will help to achieve the

main research objectives of this study, which are summarised below:

x Obtain a better understanding of construction procurement and the key

areas affecting the project success

x Identify best practice in selecting a procurement method and to make out

the pitfalls and the shortcomings of the procurement strategies that are

used for both venues

x Understand why these procurement decisions were made and identify if

best practice was followed by the ODA during its procurement process and

if the pitfalls of the chosen strategies were counteracted

x Determine if the chosen procurement strategies fit the client & the project

1.4

1 3

Limitations of the study

Despite the above objectives it is understood by the author that whilst the procurement

strategy is an important determinant for project success, other factors, such as

construction performance, client-contractor relationships, transaction cost and supply

chain management will also play an important role in delivering these projects within

the set parameters. Such factors could not be taken into consideration due to the

university guidelines that apply to the scale of this study.

1.5

1 4

Significance of the study

The significance and importance of this study cannot be underestimated, as this study

will effectively test the procurement decisions made by the ODA. The author feels

that it is important to question the approach to such projects taken by the government,

especially when a large amount of taxpayers' money is spent. Recent national and

international examples that have experienced underperformance and as a result have

wasted large amounts of public money are the Quebec Olympic Stadium, the 2004

Olympics in Athens or the Scottish Parliament building in Holyrood. It is therefore

believed that this study will help to increase the understanding for the procurement

decisions made by the ODA and to establish their effectiveness in helping to deliver

the two main venues successfully. This has not been done before for these two

projects.

1.6

1 5

Chapter overview

1.6.1

3 4

Literature review

In order to answer the research question the author will conduct a literature review of

current knowledge on construction procurement in the first part of the thesis. Basic

terminologies as well as current ideas in procurement are discussed and the available

strategies are explained. Furthermore, the author clarifies the theory behind the

procurement-strategy selection process and how the best strategy can be selected. This

is then followed by a detailed review of Design & Build, competitive dialogue and

target cost contracts. These are the main elements of the procurement strategies for the

Olympic Stadium and the Aquatic Centre. The author will investigate their

effectiveness, shortcomings and critical success factors. The findings of this review

will assist to build the theoretical framework for the further research in this study.

1.6.2

3 5

Methodology

The research method used in this study is semi-structured interviews with people

involved in those projects and experts of the industry. The fourth chapter gives

information about why the author has decided to use this method as the instrument for

gathering essential data, what the characteristics of this research method are and how

the sample will help to answer the research question. The chapter also highlight why

other methods have been discounted.

1.6.3

3 6

Data & Results

In the fourth chapter the author will present the results of the empirical investigation.

This presentation comprises of an interview summary, which will be substantiated

through selected interview participants quotes.

1.6.4

3 7

Analysis and discussion

This chapter will analyse the results from the interviews, discuss the likely

consequences of procurement decisions made by the ODA. This analysis will address

the main research objectives and allow for conclusion to be drawn in the final chapter.

1.6.5

3 8

Summary and Conclusions

In the last chapter a brief statement of the original problem is given. It will be

concluded whether or not the procurement strategies chosen for the Olympic Stadium

and the Aquatic Centre will contribute to the successful delivery of these projects.

This is followed by an answer to the essential question: "What has been achieved?"

and a short discussion of the future.

Literature review

2.1

1 6

Introduction

Sooner or later, every client to the construction industry will be confronted with the

decision of how best to procure a project in order to minimise delay in commencement

and completion, minimise risk, reduce disputes and disruption, obtain value for money

and deliver the project within budget constraints and to set quality standards.

Over the past years researchers have attempted to define procurement strategies

depending on the type of client involved and the characteristics of the project.

Masterman (2004) provides a good background on this subject and says that although

the determination of an appropriate procurement strategy is not the only reason for

good project performance it is a significant contributory factor to achieve a high level

of project success. Bower (2003) also argues that because of the fact that risk

allocation, project management requirements, design approach, and the involvement

of consultants and suppliers are very much linked together with the chosen

procurement strategy, the decision on which strategy to choose has a major impact on

the timescale and the overall cost of a project.

Despite the fact that Walker (1995) maintains the view that it is the relationship

between team members and their subsequent performance that is the most significant

factor in determining project success, the majority of research suggests that the

decision of what procurement strategy to use is a crucial one to make considering the

effect it will have on the following stages of the project.

Based on the above, it can be said that the procurement strategy chosen by the

Olympic Delivery Authority (ODA) for the two main venues in the Olympic Park will

have an impact on the successful project delivery. By choosing these strategies the

ODA have set the stage on which the project must play out.

Initially, the author will step back a little from the research question and establish the

basic terminology of construction procurement.

2.2

1 7

Terminology of construction procurement

Procurement in construction generally embraces all those activities undertaken by a

client seeking to construct or refurbish a building. The literature, however, is

somewhat inconsistent in terms of the terminology it uses to describe procurement in

construction. It is variously referred to as method, path, strategy or system. For that

reason, it needs to be clarified what exactly is meant by these terms in the context of

construction procurement and how they will be used by the author for the purpose of

this work.

A typical construction project passes through a number of phases, from inception

through to completion, with the inception phase commencing immediately after the

client decides to construct a building. According to Masterman (2004) this inception

phase is concerned with establishing a framework for successful project completion,

the so called "project strategy".

The formation of a project strategy entails weighing up the benefits, risks and

financial constraints that are attached to a project (JCT 2008). These will affect the

choice of contractual arrangements. Masterman (2004) adds to this definition and says

that developing such a project strategy is also concerned with carrying out a detailed

assessment of the client's characteristics, the client's overall needs and objectives and

also identifying the risks inherent in the project and the best environment to manage

the design and construction.

This environment is created through the selection of an appropriate procurement

strategy or procurement system, which in turn is made up of three elements. The main

element is the procurement method or route, which is then complemented by the form

of tender and the type and form of contract (Hanif 2007). All of these are depicted in

the below Graphic No. 2-1.

Graphic No. 2-1: Elements in a Procurement Strategy or System (Hanif 2007)

Procurement Strategy / System

Procurement method

/ route / option

Form of tender or

contractor selection

Type of contract &

Form of contract

Management Contracting

/Constr. Management

Design & Build

Traditional

(design-bid-build)

PFI

Prime Contracting

Single stage tendering

Lump sum contracts

Measurement contracts

Cost reimbursement

contracts

Target cost contracts

Two-stage tendering

Competitive Dialogue

Negotiation

Framework Agreements

Graphic No. 2-1: Elements of a procurement strategy or system (Hanif 2007)

In order to finalise the discussion about the terminology the author would like to add

that McDermott (1999) argues that the term procurement system should include not

only the method used to design and construct a building but also the cultural,

managerial, economic, environmental and political issues that might be generated by

the decision to procure a project.

Whilst Masterman (2004) agrees that those aspects surrounding the procurement

system are to be considered when making the choice of what system to use he

contends that those surrounding aspects should not be part of the procurement system

itself, but rather a component or sub element of the project strategy. He substantiates

this argument by saying that "the sub elements do not have the ability to change the

procurement systems themselves but effect the way in which the systems should be

selected and used" (Masterman 2004).

The author agrees with Masterman on this point and for the purpose of this work will

adopt his view and treat the procurement system itself as the method of implementing

the project and the sub elements as the factors that will influence the choice of what

system to use.

In the following the author will therefore examine the impact and importance of those

sub elements, which are the characteristics of the client organisation, its involvement

in the procurement process and the understanding of dealing with the risks inherent in

a construction project. These are fundamental to the selection of the most appropriate

procurement system and its elements later on in the process.

2.3

1 8

Client identity and characteristics

The client, as the sponsor of the construction process, can be defined as "the

organisation, or individual, who commissions the activities necessary to implement

and complete a project in order to satisfy its needs and then enters into a contract with

the commissioned parties" (Masterman 2004).

Clients to the construction industry, however, exist in a very broad spectrum ranging

from experienced clients who procure construction work on a frequent basis and

understand the industry, to very small and inexperienced clients who are likely to only

ever build once in their lifetime. Naturally, the client's level of experience and

understanding will have an impact on the procurement process and different clients

with different characteristics will require different approaches as to how their projects

are procured.

The literature on this subject can be summarised as consentaneous and the

identification of the client characteristics is widely accepted as an essential step at the

beginning of the project in order to make an informed choice from all available

procurement options. Already in 1984, Cherns and Bryant recognised the importance

of identifying the real client and pointed out that failure to exercise caution in this

respect can cause major difficulties for the project's performance.

The Scottish Parliament building in Holyrood acts a contemporary example for this

and shows what can happen if a proper identification of the client is not carried out. It

also acts as a reminder of the fact that clients do not always fit the chosen procurement

method. The Holyrood Project was delivered 3 years later than scheduled, and with a

final price tag of £414 million, ten times the originally estimated cost.

Whilst the client on this project was more than willing to become involved in the

project it was characterised as a very inexperienced political client with little

familiarity to either construction or the sponsorship of major construction projects

(Fraser 2004). In addition, the project was not only large in size but also highly

complex and of non-standard design. Despite those characteristics, the procurement

method used was construction management, where most of the risk lies with the

client. One of the important conclusions from the public inquiry into the failure of this

project was that there was no procurement strategy document prepared and no

reasoned analysis supporting the adoption of the chosen procurement method and in

how far it would fit the nature of the client. As a consequence, "there was no

systematic assessment of the risks implicit in the chosen procurement route and how

best to manage those risks" (Auditor General of Scotland 2000, Para 3.20).

This negative example shows that the client's experience and its ability to participate

in the procurement process are factors that determine the success of the chosen

procurement method in terms of achieving a high quality building, keeping in control

of the budget, and finishing on time.

In order to ensure that these factors can easily be established at the outset of a project

researchers like (Duffy 1992), (Galbeith 1995), (Masterman 2002), or (Naphiet and

Naphiet 1985) have attempted to define certain categories of clients. However,

Masterman (2004) recognises that such categorisations will not be exhaustive enough

to capture all various forms and subspecies of clients. He concludes that "the

characteristics of clients that are most likely to be relevant to the implementation of

construction projects, and more particularly to affect the choice of the most

appropriate method of procurement" are the type of client and its experience.

The two main types of clients that were identified are the public and the private client.

The characteristics of these two types differ mainly as a result of the source of funding

and the legal framework they operate in, which in turn affects their likely approach

and attitude towards project procurement.

The second important characteristic is the level of the client's experience of

implementing projects in the construction industry. In support of the argument made

by Masterman (2004), Moorledge (1987) also recognises this as a critical

characteristic because of the effect it can have on the client's behaviour during project

execution. Especially in case of megaprojects like the Olympic Games it is necessary

to understand the anatomy of such projects in order to be an effective player in the

project development (Flyvberg et al 2007). The main characteristics that are to be

established in order to determine the level of experience of the client team are:

x Knowledge and understanding of the construction industry and its

established procedures

x Regularity of involvement with the construction industry and in particular

with large infrastructure projects

x The expertise of client team in the overall management of construction

projects

x The ability to generate an all-inclusive brief with prioritised objectives in

terms of cost, time and quality

x The ability to be constructively and consistently involved in the project

from start through to completion

In addition to the above characteristics it needs to be mentioned that organisations are

complex bodies, and it is therefore necessary to determine the organisational

arrangements in order to refine the profile of the client. It was suggested by Handy

(1985) that the organisational arrangements and culture of any client establishment is

determined by its history and ownership, size, the technology it uses, its goals,

objectives, environment and people.

2.4

1 9

Client needs, requirements and project objectives

Notwithstanding the importance of knowing the client's identity as a basis for

choosing a suitable procurement method, it is the client himself who is able to

influence the project outcome by the actions it undertakes whilst procuring a

construction project.

The role of the client is an important one to be considered in the context of

construction procurement because it is the client who provides the most important

perspective on the project performance and whose needs must be met by the project

team (Latham 1994).

Moorledge et al. (2006) found that especially for large and complex projects, like the

Olympic Games, the overall outcome is often determined not only by the skill and

quality of the project team, but also by the active involvement of the client body

during the whole project, particularly during the initial stages of the procurement

process. One of the key tasks is the client's statement of what is required or, in other

words, the formulation of the project brief. An accurate and definitive statement of

requirements will not only enable the choice of the most appropriate procurement

system but also aid the control of all construction activities (Masterman 2004).

Masterman argues that "too often, an early decision is made on building projects to

appoint a team of design consultants rather than a single unbiased adviser, with the

result that a procurement system is often chosen by default rather than design."

Many detailed studies and reports were produced over the last three decades, such as

Bennett and Flanagan (1983), Hewitt (1985) or The University of Reading (1988) that

have endeavoured to determine typical client requirements. It was found that time,

cost and quality still remain the main focus of construction clients. Also Masterman in

his study in 1994 attempted to prioritise the needs of clients and concluded that "there

is little reason to doubt that quality, cost and time remain client's primary objectives".

Importantly, he pointed out that the specific definition of these criteria will vary from

client to client and project to project and it is their accurate definition that sets the

stage for all subsequent activities of the project.

It is therefore considered important to briefly highlight the considerations that need to

be given to these three criteria by the client and how they affect each other.

An important task the client has to fulfil in order to enable a successful project

delivery is the provision of funding. Financial parameters need to be clearly set down

from the start and as accurately as possible by the client. Only then can the objective,

to complete the project without exceeding the available budget, be met. This involves

having a clear understanding of the funds required and any budget constraints, which

in turn will give guidance of how best to approach the project in terms of its

procurement and what time and quality levels are realistic.

However, before the client can make its decision on what time objectives are realistic

it has to carefully look at the project at hand. If the client is faced with an immovable

deadline then the complexity of the design and an early contractor involvement to

advise on design and construction logic must be considered. Failure to do so will

evoke a direct relationship between time, cost and quality, where the cost will spiral

because works have to be speeded up at a later date or the quality has to suffer

because design compromises have to be made to meet the deadline.

Despite the fact that cost is often the main driver during the development of a project,

quality is the main expectation (Abraham and Farrell 2003). Again, it is the client who

has the greatest control over the design quality of the project, as he chooses the

procurement method, appoints the consultants and sets the design standards. His

leadership is required to ensure that the briefing process is carried out effectively to

avoid a situation where the building produced is not fit for its purpose, despite being

on time, within budget and well constructed (Wardrop 1996).

2.4.1

3 9

Prioritisation of the client needs

The aim of the procurement system is therefore to balance these primary objectives.

Very often clients commence projects stating that all three variables are of the same

importance. Masterman (2004) states that these three primary objectives are

interrelated and conflicting in such a way that the achievement of all three at the same

time, at the same level and at the same project is next to impossible. The focus of a

client on only one key criterion will therefore have an effect upon the other two

(Construction Excellence 2004). Such a prioritisation will normally have an impact on

the choice of the most suitable procurement system. The below Graphic No. 2-2

visualises this aspect.

Tension Triangles

The tension between time, quality and cost is illustrated in the top diagram.

As more of any one element is demanded, lines to the other two become stretched.

Thus, in the diagrams [1.2.3.] a decision has been taken to reduce the timescale, to

lower the cost or to increase the quality. This results in increased pressure on the

remaining two criteria in each scenario, as their threads are lengthened.

(Fun

Quality

ctionality, performance or appearance)

Time

(speed or certainty of completion)

Cost

(Price level or cost certainty)

Quality

Time

Cos

Quality

Time

Cost

Quality

Time

Cos

Graphic No 2-2: Tension Triangles (University of Nottingham 2008)

Walker's (1996) findings agree with the above and he adds that at least one of those

main three objectives, if not two, will need to be sacrificed to some extent, and

individual clients will need to weigh each of the criteria to suit their own

organisation's particular circumstances and the project's technical, commercial and

other characteristics.

The weighting of each of those objectives will therefore vary from project to project

and from client to client, but the exact weighting needs to be accurately identified and

clearly determined in order to select a suitable procurement system.

It can be summarised that researchers are unanimous on the subject of the client role

and the fact that the effectiveness of a client in developing the project brief and

defining and prioritising the above described main objectives will heavily influence

the project outcome.

2. 3.

2.5

2 0

Project Risk

Projects involve commercial risk. This is one of the most significant defining

characteristics of projects and project strategies. Researchers, unanimously, recognise

the critical relationship between risk and cost as an important one to be understood by

the client before making any procurement decisions.

Construction projects unavoidably involve certain risks and these risks can be

categorised into physical works, delay and disputes, direction and supervision,

damage and injury to person and property, external factors, payment, law and

arbitration (Abrahamson 1984, Bruni 1985). The client will have to decide where the

liability for those risks lies and to what party they are allocated. Is the risk to be with

the contractor, the designer, the consultants or the client itself? It is in the nature of

every contract to allocate risks and to make one party financially liable should a risk

occur. This is why risk becomes a commercial concern and the chosen type of

contract, within a certain procurement system, will ultimately dictate the financial

implications and the degree of the commercial risk for the client.

It can therefore be said that in the same way the definition and prioritisation of the

main project objectives impacts on the selection of the most appropriate procurement

approach, the required allocation of risk influences the choice of what procurement

method and contract structure is the best fit (Murdoch 2005).

When trying to determine the most suitable allocation of a risk it is in fact the

formulation of the most suitable response to that risk that is sought. Here, the client

has a range of possible options, which are the transfer, retention, avoidance or

reduction of risk. The most important responses in the context of construction

procurement are the transfer to the contractor or the retention of the risk by the client.

Publicly financed organisations' are generally very risk adverse and clients have been

extremely shy of retaining risks. As such, risks have been transferred to the contractor

by default rather than assessment.

The author feels that this is an important point to mention and a question that is to be

answered when assessing the procurement decision made by the ODA for the two

flagship venues. Passing every risk to the contractor is, as a general principle, not

sensible, especially those risks that are difficult to assess (Murdoch 2005). This is

because contractors usually include contingency amounts in their tenders as a means

of pricing the uncertainty of whether or not a particular construction risk might occur

and to what extent it can be controlled (Bower 2003).

For that reason, transfer of risk is not always in the best interest of the client. In

particular on large infrastructure projects such as the Olympics risks should not simply

be transferred by default. The construction of the venues for reasons of size and

innovation alone, combined with the time constraints, attracts many risks. These can

cause the costs of the whole project to overrun significantly. These risks can only be

acknowledged and their impact reduced through careful identification (Flyvberg et al

2007). This will ensure that risk is allocated to the party that is best suited to manage

it. Such an approach to risk will support the selection of the most suitable procurement

system and will guarantee that risk is dealt with at the minimum cost to the project.

2.6

2 1

Procurement Method Selection

Now that the important role of the client during the initial stages of the project has

been discussed and the basic principle of risk management put into the context of

construction procurement, the author will turn to the selection of the most appropriate

procurement method, which is an important element of the procurement system.

Its selection is effectively a decision-making process. This chapter is concerned with

the question of how this decision should be made to suit the client's needs and

objectives and the author will explore the practice and theory behind this decision-

making process.

2.6.1

4 0

The selection of a procurement method in practice

It is argued by Masterman (2004) that the decision making process in practice

"usually begins with very little understanding of the decision situation, a vague notion

of possible solutions and very little idea of how to evaluate them and choose the most

viable solution".

Moreover, he suggests that the selection in practice features a complex process that

often takes considerable time to complete and is influenced by a number of parties. He

adds that the way in which many clients and their advisors select their procurement

method can be haphazard, ill-timed, and lacking of logic and discipline. This poses the

question, how can a strategy be chosen and what are the principles of best practice in

procurement method selection?

Across the literature on this subject, the necessity is stressed to carry out the selection

process before a contractor is appointed. In other words, the timing is seen as

important. This is to ensure that an unbiased selection of the most appropriate

procurement method can be made. Whilst this seems to be a very logical approach,

Masterman, in a study where he surveyed sixty-two clients, found that twenty-three

percent of the clients did not follow this recommended and logical practice. Due to the

fact that most of them were experienced clients he concludes that many clients do not

seem to have recognised the importance of this process in the past.

The actual procurement method selection then starts with the identification and

evaluation of all available options and the evaluation of their suitability for the project

at hand. It is this step in the selection process that requires an independent approach to

ensure that the later selection is not biased and that the project criteria are matched to

the characteristics of the most suitable procurement method.

Nutt (1984), Mintzberg et al. (1976) and Hickson et al. (1986) examined more than

200 projects and clients and Masterman (2004) builds on this research by identifying

five distinct categories of system identification and evaluation. These are the

analytical search, consultative search, historical evaluation, intuitive evaluation and

policy compliance.

Examining all the clients involved in this study he found that only one-quarter have

carefully analysed and established the project criteria in order to match them with the

characteristics of the most appropriate procurement method. Primarily public clients

had used historical evaluation and policy compliance for this part of the selection

process. Masterman (2004) suggests that this indicates an insufficient understanding

of the selection principles resulting in a reliance on past experience. He follows that

when such experience or policy compliance is dictating the selection process then

often little consideration is given to changes in the project typology, the client's own

needs or the current state of the construction market. The decision is then biased.

Considering the above findings and the importance for public clients to obtain value

for money Masterman (2004) poses the question as to how this requirement can be

satisfied when using a non-analytical examination or no examination at all.

The author therefore recognises this as an important point that would need to be

investigated in relation to the Olympic Stadium and the Aquatic Centre. The literature

on this subject confirms that, especially for temporary public clients like the ODA, the

selection of a suitable procurement method should be carried out in an objective and

disciplined manner.

2.6.2

4 1

The selection of a procurement method in theory

In order to make a disciplined and objective selection and to stay within the

framework of the project strategy and project brief, researchers agree that several

theoretical project assessment criteria should be considered by the client at the

identification and evaluation stage. Some of the typical project assessment criteria that

the author identified across the literature and their relation to the main 3 project

objectives are listed in the below Table No 2-1.

Main project objectives

expressed within the project brief

Related Assessment Criteria

acting as the key determinants for the selection of the

most appropriate procurement method

Cost

related Assessment Criteria:

x Certainty of final cost

x Value for money

x Lowest possible tender

Cost & Time

related Assessment Criteria:

x Ability to change design

x Risk Management: Transfer,

Elimination, Avoidance, Minimisation

of risk

x Complexity of project

Time

related Assessment Criteria:

x Minimum design and construction

period

x Certainty of completion date

x Early Start on site

Quality

related Assessment Criteria:

x Innovation

x Appearance

x Functionality

General

Related Assessment Criteria:

x Responsibility and involvement

x Accountability

x Management (i.e. single point of

contact)

Table No 2-1: List of "key determinants" for procurement suitability and their relation to the

main project criteria time, cost, and quality

Many theoretical models have been established based on the above criteria to aid the

selection process. Masterman (2004), however, suggests that the early models from

HM Treasury's Central Unit on Purchasing (1992), Mohsini and Davidson (1989) or

Birrell (1992) are only very basic means and can only act as a `primer for discussion'.

Nowadays, the selection process has become more and more complex as a result of

the increasing technical complexity of projects, the need for speedy start and

completion, and the continuing proliferation of different methods. This has led to the

development of more sophisticated and systematic approaches of system selection and

researchers over the years have attempted to develop more systematic approaches for

the procurement method selection (Masterman 2004).

Examples are Skitmore and Marsden (1988), Franks (1990), Bennett and Grice

(1990), the Construction Round Table (1995), (Chan et al. 2001), (Cheung et al.

2001), (Luu et al. 2003) or the model included in the OGC Procurement guide (2007).

Masterman (2004) carried out a trial based on the model of Skitmore & Marsden to

establish which procurement system should have theoretically been used on the

projects that were part of his study. He found that two-thirds of the choices he

examined were to some degree inappropriate and did not match with the outcome of

the theoretically assessment.

Although this finding was heavily conditioned by Masterman he concluded that a

large amount of clients adopted an incorrect approach. The method they chose was not

the best fit to their main project objectives.

Despite the objections raised by Moorledge et al (2006), who argue that there is no

such thing as universal "best practice" in construction procurement it is suggested by

Masterman (2004) that the above models are definitely helpful for identifying the

procurement systems that would not be suitable for a particular project or client. Their

application can assist in narrowing down the choice of systems that clients should

consider. This view is shared with other researchers who confirm that despite the fact

that these theoretical models cannot make the decision for the client they can act as a

very good tool of assistance when evaluating the available procurement methods. This

is because they give a good indication of the weaknesses and strengths of all available

methods.

Avoidance of using such tools means that clients have to rely on their own expertise

or the knowledge of external consultants and have to trust that such sources have a full

understanding of the characteristics of all available options. Masterman (2004) and

Skitmore and Marsden (1988) highlighted that this is not the case and found that the

knowledge of many consultants on the available procurement methods is incomplete.

In addition, Galbraith (1995) suggests that especially experienced clients tend to drive

the process with their knowledge about what has worked in the past and are therefore

influenced more by experience rather than by project specific factors.

Details

Pages
Type of Edition: Erstausgabe
Year: 2014
ISBN (PDF): 9783956363511
ISBN (Softcover): 9783954893928
File size: 748 KB
Language: English
Publication date: 2018 (June)
Keywords: Olympic Stadium Aquatic Centre London 2012 Olympic Games

Author

Dirk von Plessen (Author)

The procurement strategies for the Olympic Stadium and the Aquatic Centre for the London 2012 Olympic Games

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Author

Dirk von Plessen (Author)