PROCUREMEI{T

SYSTEMS
&
TECHNOLOGY
TRANSFER
Ed. Dr. T.M. Lewis
 PROCUREMEI{T
SYSTEMS &
TECHI{OLOGY
TRANSFER

CIBW92 Procurement Systems

Symposium

Edited by
Dr Timothy Michael Lewis
Departrnent of Civil Engineering,
The University of the West Indies, St Attgustine
Trinidad & T'obago
 Proceedings of the International Symposium of the
Working Commission

CIB W92
(Procurement Systems)

In association with
CIB W63
(Affordable Housing)
CIB TG36
(Quality Assurance In Construction)
CIB TG23
(Culture In Construction)

JANUARY 14 _ 17
rf
2002

TRINIDAD &
!- !t
J'.*_ ú. TOBAGO

Organiscd by:
The Department of Civil Engineering, International Council lor
The University of the West Indies, Research and Innovation in
St. Augustine, Building and Construction (CIB),
Trinidad and Tobago Kruisplein 25g,
West Indies 3014 DB Rotterdam,
The Netherlands
 This edition published by:
The Engineering Institute, The University of the West Indies,
St Augustine, Trinidad & Tobago

O 2002 The Universit¡' of the West Indies

Printed and Bound in Trinidad & Tobago by

Express Printing Ltd, Pon of Spain, Trinidad & Tobago

All rights reserved.

No part of this book may be reprinted or reproduced or utilized
in any from or by any electronic. mechanical or other means
without permission in writing from the publishers.

t
I
1
rl
PROCUREMENT
SYSTEMS &
TECHNOLOGY
TRANSFER
Ed. Dr T. M. Lewis
 ll Tables of Contents

Table of Contents by Paper Titles

Table of Contents by Paper Titles.....,........ ll
Table olContents by Authors ............ tv
Foreword ....
Preface...
Target pricing in Partnering Projects..........
Public-Private Partnerships in project procurement
Analysis of Behavioral Parameters in Partnering
Public-Private Partnerships for Infrastructure Development...................... 4
Design Programming............ ........................53
The Quality of Design in Design and Build Contracts in Ire1and............,..69
Pro-active Building Management.. ...............89
The performance concept in road construction..............,.,.,...................... l0l
A Comparison of Construction Contractual Arrangements....................., I I I
Procurement strategies for complex projects .,,,'.121
Re-engineering Construction Procurement... ...................., l3l
Construction Procurement Systems.......... ...,...................,. 147
From 'Procurement System' to 'Delivery System' .........,..169
Towards Achieving More Effective Construction Procu.rement Through
Information.... ...................... 179
A Comparative Study of Safety in Culture the Construction Industry of
Britain and the Caribbean. .......................... 195
Reducing the lncidence of Claims and Disputes in Construction Contracts22 I
A Scenario-Based Approach to Research into Construction Claints ........235
Supply Chain Management... )l<
Constructability in Higher Education Buildings in Portugal, ..,...,.,.,........263
The Difficulty in Implementing Performance Specifications in the
Construction Industry....
Performance Contracting for Accelerated Innovation and Eflìciency ......289
Public-Private Partnership Projects in the UK ..........,.,.....297
Strategic Risks and their Communication in Project Management...........3l7
Identification of Critical Risks in Indian Road Projects...........................339
Stadium Australia........ ........ 355
The Interdependence of Procurement Strategies and Organ i zalional Culture

Transformed Culture And Enhanced Procurement.. ..........383

Innovative Delivery Systems For Municipal Infrastructure Projects ln South
........................ 403
Achieving Best Value in Construction.................... ..........417
The Impact of the Tendering Contract on the Opportunities for Contractor
Innovation.......
Face-to-Face Communication in Construction ,,.'.'...'..'.,.,. 441
Problems of Trust and Control in Client-Contractor Relations .....,..........45 I
Trust in Construction.. ......................... 46 r
 lll
Ethics ofHong Kong Surveyors - in an Organizational Context"""""" 471
Project Leadership's Influence on Costs of Human Errors 485
Effects of Cultural Differences on Project Participants' Co-Operative
Behaviour in Construction Projects...'... ................. 497
Improving Technology-Transformation In Construction Industry By
Understanding Culture's Infl uences 513
Global Cultures: Convergent Divergence? 531
Strength from Within 541
Knowledge Sharing: A Softly-Softly Approach. 555
Optimal Sequencing ofInformation Flow on Fast-Track Projects"""""' 577
Evaluation Criteria for Business Process 591
web-Based Procurement by the International construction Industry and the
North-South Transfer of Wealth and Technology. .........'."""""""""""" 607
Minimizing the Risk of Construction Nonperformance """""""' 623
Capability Alignment: the Impact and Effects Of Corporate Culture on it
Training......... 639
A Rating System for AEC E-bidding that Accounts for Rater credibility 665
on the Economic characteristics of construction Procurement Systems 689
Building Services: A sub-optimality in procurement decision making "" 7tr
The Sustainability of Vernacular Built Heritage 727
A Model For Supporting Inter-Organisational Relations 743
'777
Index Of Contents BY KeYwords...
lv Tables of Contents

Table of Contents by Authors

Marcus Ahadzi & Graeme Bowles

Amarjit Singh
Mike Vorster, Anthony D. Songer & Herb Morgan ............41
Christopher J. Marsh, & Morledge, Roy 53
Joe G. Gunning 69
Michael Pitt, 89

F. de Siervo, F. Ravetta & P. Ravetta.. t2l

John E. Tookey, M.D. Munay, C. Hardcastle and D.A. Langford........... l3l
Michael D. Munay, J.E. Tookey, D.A. Langford & C. Hardcastle..........l47
Bob Hindle & George Mbuthia 169
David M Jaggar, Andrew Ross, Peter E D Love & Jim Smith .................179
Steven J. Peckitt, A.l. Glendon & R.T. Booth. 195
David Yates ........22t
Steve Scott & Richard Hanis 23s
Stuart D. Green, Robert Newcombe, Marylin Williams, Scgtt Fernie &
Stephanie Weller ............... 24s
Maria Helena A. C. Campos & José M. Cardoso Teixeira 263
Dean T. Kashiwagi
Hans Westling 289
Akintola Akintoye, Eamon Fitzgerald & Cliff Hardcastle 297
Deepak Bajaj 317
Satyanarayana N. Kalidindi & A.V.Thomas.. 339
Marcus C. Jefferies & R. Gameson 355
G. Girmscheid, & A. Hartmann 371
Motiar Rahman, Mohan Kumaraswamy, Steve Rowlinson & Ekambaram
Palaneeswaran 383
P D Rwelamila& Iyaloo Nangolo 403
David Greenwood........................ 417
Tony Sidwell & Dedi Budiawan....... 427
Mats G. Holm 44r
Anna Kadefors... 451
V/illiam Swan, Graham Wood, Peter McDermott & Rachel Cooper........46l
Anita M.M. Liu & Jess K.W. Ng......... 47t
Per-Erik Josephson............... 485
Florence T.T. Phua....... 497
Wilco Tijhuis 5r3
Richard Fellows & Anita Liu 531
George Ofori & Teo Pin s4t
Scott Femie, Stephanie Weller, Stuart D. Green, Robert Newcombe &
Marylin Williams 555
 v
Koshy Varghese & P.S. Ramu.....'.'..... 577
Alshawi, M., Gichuiri, J. & Goulding, J'.....,'....'..,.'.' 591
Malcolm Munay & Panos Zagaretos 607
Dean T. Kashiwagi 623
Jack S. Goulding, M. Alshawi & G. Aouad 639
Martin A Ekström & Hans C Bjömsson.. 665
Chen-Yu Chang & Graham Ive...............". 689

(
,

i
VI Tables of Contents
 vll

Foreword

About the CIB

cIB is the International council for Research and Innovation
in Building and Construction and is the international
association providing a global nefwork for international
exchange and co-operation in research and innovation in
building and construction. CIB supports improvements in
building processes and in the performance of the built
environment,

The CIB programme covers technical, economic,

environmental, organisational and other aspects of the built
environment during all stages of its life cycle. cIB addresses
all steps in the process ofbasic and applied research,
documentation and transfer of research resulls, and in the
implementation and actual application of them in practice'

CIB members are organisations and individuals active in the

research community, industry, government and education who
nominate experts to participate in a network of over fifty
Scientific Commissions. Through these, over 5000 experts
worldwide from about 500 organisations exchange the latest
information, initiate collective R & D projects, organise
workshops, seminars, symposia and conferences and publish
proceedings, technical analyses, state ofthe art reports and
practice recommendations.

Working Commission W92 of the Council for Research and

Innovation in Building and Construction was established in
1g89 and the following aims and objectives established for its
work:
o To research into the social, economic and legal aspects of
contractual arrangements that are deployed in the
procurement of construction projects.
¡ To establish the practical aims and objectives of
 contlactual atangemenrs within the context of
procurement.
a To report on and to evaluate areas of commonality and
difference.
a To formulate recommendations for the selection and
effe ct ive implementation of pr oject procurement systems.
o To recommend standard conventions.

Since its inception in 1989 the Commission has organised

many Symposia and collaborated with other Working
Commissions. Recently such events have been held in
Montreal, Canada; Gavle, Sweden; Chiang Mai, Thailand;
Cape Town, South Africa; Santiago, Chile and last year at the
CIB World Building Congress held in Wellington, New
Zealand.

In addition to publishing numerous proceedings the

Commission in 1999 produced a state of the art report on
construction procurement entitled: Procurement Systems: A
Guide to Best Practice in Construction, published by E & FN
Spon.

For this symposium, W92 agreed to associate with two other

CIB Task Groups and one other Working Commission. W92
has been associated with TG23 on previous occasions. Task
Group TG23 was established in 1997 to focus specifically on
the issue of culture in construction procurement and as a result
the following terms of reference were established for its
investigative work:
o To identiÛ and define concepts of culture in the
international construction industry and to carry out
research into their manifestations and effects;
o To discus and develop appropriate methodologies for the
study of culture in construction;
o To examine and, where appropriate, adopt methodologies
used in other disciplines, with special reference to the
Social Sciences, for researching culture in the construction
 lx

industry worldwide

Working Commission W63 was established in 1993 to focus

on research into ways to provide affordable housing world
wide. The relationship between affordable housing and
procurement issues is obvious.

Task Group TG36 grew out of the Working Commission W88

with the aim of determining and promoting best practice in
construction, with a focus specifrcally on quality assurance
issues. Again, the associations between quality and
procurement issues are clear.

Symposium Background
This Symposium in Trinidad and Tobago was designed to
bring together researchers and practitioners from many pafts of
the world in order to share their research and knowledge on
different aspects of construction procurernent.

It was decided in consultation with staff of the Department of

Civil Engineering at The University of the West Indies that the
theme of the Symposium should be to report, review and
speculate on constructiorr procurelnellt as a mechanism to botll
provide and facilitate technology transfer especially between
nations of different economic, political and social status. This
tlreme was to encolnpass, inter alia, topics such as strategic
and emergent issues in procurement, organisational learning,
cultural issues, developrnentally oriented procurement systems,
sustainability, partnering and use of e-commerce in
construction procurement.

Trinidad and Tobago, being located in the Southern Caribbean

and a founder member of CARICOM, the English speaking
West Indian economic and trade alliance, was felt to be ideally
placed to explore these issues as it trades with North America,
Europe, South America and Australasia including Japan and is
thus subject to many different approaches to business and
commerce. The choice of Trinidad and Tobago for this
symposium v/as further enhanced by the fact that it is within a
region in which most of the countries are considered to be less
developed or developing, and are thus in need of timely advice
on modern procurement practices.

Additionally, due to its tropical climate and being in a region

of the world subject to hurricanes and tropical storms, risk and
its management are of prime concern for the built environment
both physically and psychologically for the population for
which it provides the necessary support infrastructure.

With over 50 papers making up the proceedings and more than

60 delegates from around the world participating, the
opportunity for knowledge transfer will be high, and the
transfer of knowledge may be the precursor for the broader
transfer of technology, one of the prime issues being focused
on. This symposium should provide the ideal opportunity for
the international research community to exchange experiences,
and information on progress that has been made ánd to further
develop the research agenda for international construction
procurement, as well as to sharpen the focus of attention on
cultural issues, affordable housing and quality assurance.

Finally we would like to thank the Department of Civil

Engineering at The University of the West Indies, St
Augustine, Trinidad & Tobago for making the Symposium
possible. We would also like to thank the technical and
organizational committees led by Dr T. Michael Lewis for
their hard work and dedication in making this event possible

On behalf of CIB W92, Joint Coordinators, Professors David

Jaggar and Steve Rowlinson.

The Coordinators of TG23 are Dr. Richard Fellows and Dr.

David Seymour. The Coordinator of TG36 is Prof. William
Maloney, and the Coordinator of W63 is Dr. Kenneth Walsh.
 xl

Preface
The University of the West Indies was founded in 1948 at the
Mona campus in Jamaica. The St Augustine campus, in
Trinidad, which was formerly the Imperial College of Tropical
Agriculture, became part of the University in 1960. The Cave
Hill campus, in Barbados, was established in 1963. The
University is an autonomous regional institution supported by
and serving 15 different countries in the West Indies.

The Departrnent of CivilEngineering, which is in the Faculty

of Engineering, offers a degree programme that is fully
accredited by the Institution of Civil Engineers together with
postgraduate degrees by taught progralrmes and research. The
Department also provides industry and practice witlt
continuing professional developmellt courses and works
closely with other regional bodies on civil errgineering related
problems especially concerning the built environment, rratural
disasters and transpoftation issues.

The Mission of the University of the West Indies is to unlock

West Indian potential for economic and cultural growth by
high quality teaching and research airned at meeting critical
regional needs, by providing West lndian society with an
active intellectual centre and by linking the West Indian
community with distinguished centres of research and teaching
in the Caribbean and overseas.

The University of the West Indies recognises that as a regional

university supported by the West Indian peoples, and as the
sole organ equipped to meet local requirements and to relate its
own developmental programmes to them, it should give
priority to regional needs.

The Department's willingness to take on the organisation of

this Symposium was based on a recognition that there should
be synergistic benefrts to be obtained from the interaction of
the representatives of the local industry with the internatioltal
research community.
This book represents the culmination of more than a year's
effort and includes the papers presented at thejoint
Symposium held in Trinidad & Tobago from 14-17tr'January,
2002. The symposium brought together researchers and
practitioners from around the world to share their experiences,
knowledge and research findings on issues involving
procurement, culture, quality and affordability.

In order to focus on the theme of the Symposium papers were

invited addressing the following aspects:
¡ Developments in procurement strategies especially
those involving partnerships and alliances bringing
together multi- national participants.
¡ Projects involving private finance initiatives,
especially in a global context
o Culture and its managemellt within complex
projects especially involving diverse organisations.
¡ Development and application of techniques as an
aid to more effective construction procurement
including:
o Bench marking
o Value management
o Total quality management
. Reengineering
o Buildabiliry
o Risk management
o The impact of procurement strategies on the
environment and sustainability.
o Information and communication issues in
construction procurement.

A particular focus set for the Symposium was the use of

construction procurement as a catalyst to enhance learning and
understanding in terms of how we do things, why we do things
and what improvements can be brought about.
 xilt

All papers have been refereed to high acceptance standards by

an international panel. They have been grouped by their main
focus into twelve technical sessions
o Public-privatepartnerships
o Contract procurement systems
o Contract performance issues
o Innovativeapproaches
o Cultural issues
o E-commerce in construction
¡ Design Issues
¡ Claims, safety and issues
¡ Dealing with risk
o Ethics and trust
o Information and evaluation
¡ Economics and sustainability

Acknowledgements
I would like to express my sincere gratitude to the members of
the organizing committee for their help and guidance in
making this symposium into a reality. These thanks go
especially to the staff of the Departrnent of Civil Engineering
and the Engineering Institute for accepting the challenge and
contributing to the effort to make this symposium a success.

MichaelLewis
St Augustine, Trinidad & Tobago, 2001
 I crB-2002

Target pricing in Partnering Projects

Examining the Effect of Integrated Project Teams and
Target Pricing in Three Pilot Projects
Ola Læclrer & Tore I. Haugenl

Abstract
In Norway there is a trend in organizing the building process with
focus on better integration ofthe different parties and use ofnew
procurement methods. Our experiences started with the research
project "The Integrated Buitding Process 1996 - 1999" where we
ãeveloped and tested different partnering models in several small
scale building projects. These experiences have led us into a number
of other development projects using different elements of partnering
models with procurement based on negotiations, target pricing and
incentives.

In our recent studies we have evaluated three pilot construction

projects, two small road projects and one railway crossing point, all
inuôluing a tunnel and a roadbed. One of the projects was classified
as a research project and based on a negotiated contract, one contract
was based on competitive bidding among pre-qualified contractors
and one contract was made between two separate divisions within the
same public agency. The goals in these projects have been to create
better integration and co-operation between the clients, the extemal
consultants and the contractor. This integration should be leading to a
better result with respect to total costs and quality' The contracts
between the public clients and contractors have been based on an
agreed target price with incentives linked to the final costs' We were
involved in order to evaluate the co-operation between the parties.

The evaluation is based on reports from interviews and discussions

with the project participants. The results from the evaluation are
presented in internal reports, only intended for the participants in the
projects. Our main impression is that the project participants had a

I
Norwegian University of Science and Technology, N-7491 Trondheim,
Norway
2 Target Pricing - Lædre & Haugen

share of positive experiences that was predominant to the share of

negative experiences. The participants chose better and more cost
effective technical solutions during both the programming and
production period, and they considered the partnering models as
inspiring. At the same time there was a potential for an optimization
ofthe procurement methods and project organizations used.

Our studies confirm the general intemational understanding of the

success-factors for partnering in construction projects:
¡ Teambuilding - creating an integrated team based on trust
and with a common workplace
o Risk analysis and better planning in the early stages
¡ Efficient project management with clear definitions of roles
and responsibilities combined with good leadership
o A change from comprehensive formal communication and
documentation between the project partners to well
structured, but more open and informal communication

Keywords: Partnering, Integrated Project Teams, Incentive

Contracts, Mutual Trust.

Introduction
Since the late 1980s we have seen the development and use of
different partnering models in the construction industry. This
has been a primary management strategy for improving
organizational relations and project performance (Li et al.
2000). The driving forces for this strategy have been studies
based on the concepts of total quality management (TQM) and
business process re-engineering (BPR). These studies of the
construction industry have documented an industry with low
productivity and efficiency at a project portfolio level.

To increase productivity and efficiency in the construction

industry, a strong focus has been set on better integration of
the client, architects, engineers, general contractors,
subcontractors and suppliers in one integrated project
organization. The different parties are normally independent
frrms and organizations, with separate goals and objectives and
 3
crB-2002

different operation procedures. Typically problems that occur

are lack of communications and co-ordination leading to
changes and alterations during the process. This again causes
dispultes, rising costs, reduced performance and reduced
quality.

Liet al. (2000) gives a thorough international overview of the

background for partnering in construction since the late 1980s,
different partneiing definitions, status and future regarding
research in this area. Future studies are recommended to
emphasize on the identification of performance measures and
critìcal success factors, development and test of partnering
models and processes, and the formation and selection of
partnering strategY.

Compared to the international arena, the development of

partnering models in Norway started in the early 1990s' Our
experi"nc-"s started with the research project "The Integrated
Aiilatug Process 1996 - 1999" (Ilaugen 1999), where we
develofed and tested partnering models in different small scale
building projects. Our basic findings (Bølviken 2000)
regarding the establishment of a successful integrated
organization are:
¡ Focus on the Process
¡ Common goals and objectives
o Mutual trust - openness
o Knowledge transfer between the parties
o Teambuilding
o Project management - routines
o Commitment from top management
o Rules for conflicts and sanctions

These frndings coffespond well to the different views on trust

in the partnering literature' This is discussed by Thomassen
(l999jwho especially refers to Barlow (1997) giving six
èlements of successful partnering (in order mentioned); a) the
need for trust; b) the "right personalities"; c) openness in
communication d) organizational culture and organizational
 4 farget Pricing - Lædre & Haugen

learning e) teambuilding and f¡ the role of management.

Our first experiences related to partnering and integrated

project organizations has led us into a number of other
development projects using different elements of partnering
models with procurement based on negotiations,target pricing
and incentives. The first development of partnering models
was done in the private sector. Today in Norway we see a
growing interest for partnering models used in the public
sector, both for infrastructure projects, in health care and
education. There are initiatives for using Public-Private-Co-
operation (PPC) in a few infrastructure projects, and several
public projects are involving various kinds of BOOT-contracts
(Build-Own-Operate-Transfer). This is not only a trend in
Norway, we also see this trend in different Scandinavian
countries (By & Boligministeriet 2000), (Barok 2000).

In the first pilot projects we tried out some very simplified and
idealistic contract models, focusing on the elements and
process in creating an integrated project organization. These
simplified contract models and procurement methods can only
be used in research projects where there is a strong focus on
success and commitment from all the participants.
We are therefore in the process of developing new
procurement and contract models for project partnering in
construction, taking into account legal issues, risk, conflict
resolution etc.

For the three pilot projects discussed in the following, three

new contract models based on agreed target prices and
incentives has been developed.

Case Studies of the Three Pilot Projects

In our recent studies we evaluated two small road projects and
one railway crossing point project, all involving a tunnel and a
roadbed. The projects have some comparable aspects:
 5 crB-2002

. Key personnel from the clients and the contractors share site
offices with canteen, telephonist, computer servers' printers
and so on.
o The length ofnew roadbeds are ranging from 1000 to 2000
meters.
o The tunnels have lengths ranging from 100 to 300 meters.
o Contract sums between 30 and 50 mill. NOK.
o The contractors participated in the programming teams
o The clients participated in the designing ofthe contractors'
working plans.

Goals ønd Obiectives for the Pilot Proiects

The goals for the three projects were almost identical. After
translation from Norwegian the wording would be like:
The two parties, the public client and the generøl contractor,
have a common interest in creating an integrated project
organization and a goal ofachieving a better total proiect
perþrmance. The basis for the work will be a contract with an
agreed target price and incentives for both parties.

Objectives for a better total project performance:

o Produce better technical results/solutions
r Improve the project economy for both parts
. Optimize the use of resources in the project

Objectives for an integrated project organization:

o Mutual confidence in the relationship between the client and
the contractor
o An inspiring and pleasant working atmosphere
o Mutual transfer of experiences between all parts in the project

The goals for the three projects focus on co-operation and use
of resources. We were mainly involved in the projects to
evaluate the co-operation, but it was not possible to do so
without regarding the use of resources.

The Contrøct Model

The characteristic ofthe target price contract used in the three
6 Target Pricing - Lædre & Haugen

projects is the formula

K=F*S+(M_Sy2

Where: K: contract sum

F= the contractors preset profit
S= actual laid-down costs of the contractor (and
eventually of the client)
M = target price, i.e. pre-assumed laid-down cost

The proportions of F and M are set after tender competitions

and/or negotiations. The target price formula offers
economical incentives to both the client and the general
contractor, and basically both parties will benefit from making
the S as low as possible. If S also includes the laid-down costs
of the client, both parties are rewarded when the extent of tasks
for the client in the project is reduced.

One of the projects was classified as a research project and

based on a negotiated contract based on existing standards
(NS3430). In the second project a specially designed contract
was signed after competitive bidding among pre-qualified
contractors. In the third project two separate units within the
same public agency had the role as client and contractor. They
signed an agreement based on an incomplete and brief project
description.

Research Methodology
We interviewed participants from both the programming and
production period of the three projects. All the interviews were
based on an interview guide, with some slight revisions from
project to project. The questions were qualitative focusing on
the following topics:
o Individual background and competence
¡ Teambuilding - agreement on common goals and objectives
¡ Contractual allocation of responsibility and power
o Communication and involvement
 7 crB-2002

a Documentation and written communication

a Partnering structure and management
a Feedback and openness
a Trust and co-operation
a Learning and knowledge transfer
a Shared risk
o Overall results regarding technical and economical
performance

Written reports from the interviews have been sent to each of

the respondents for verifìcation. This has been the basis for a
neutral intermediate reporting back in separate workshops,
with following discussions that led to clarifications of various
disagreements. The respottdents were very positive to this
feedback and the discussiotls.

The feedback was given on a very practical level in order to

get a more thorough discussiotl and involvement from the
parties. We saw that our findings were used in the ongoing
project development processes. In this way our work represents
actiou research. The results from the studies were finally
reported in internal reports the summer of 2001 .

The respondents were allowed to speak free and easy, so the

interviews were affected by their personal interests.
Furthermore, it is not necessarily the procurernent methods or
integrated project organizations that caused the experietrces of
the respondents.

Quantitative Results
For a number of the topics the respondents were asked for a
quantitative value from I - 7, (neutral is 4) compared to a
traditional construction project. We obtained the following
histograms:
8 Target Pricing - Lædre & Haugen

Are your expectations regarding the project integration satisfied ?

(Scale l-7 where I is worst, 7 is besl and 4 is neutral)

20

15
n= 42 at
l¡
f0
î.:5,12
zf 5
o = 0,81
0
1234567
Charecter

Your engagement in this project compared with other projects?

20
15
n= 42 oo
l: 5,35 E
z
f0

a = 0,79
0
1234567
Character

Co-operation and results in this project compared with earlier projects?

20
n 40
i 5,08 ¡b15
E10
o 0,87 zs
0
1234567
Character

In what degree are your point ofview and professional utterances regarded in this
project compared with other projects?

20
n= 43
o 15
Í.= 5,44 .ô
E 10
o = 0,90 z
¡
5
0
1234507
Charactôr
 9 crB-2002

How good hæ the communication and co-operation with the other project
participants been? (n is big because the participants was asked to give a characler to
each of the other participanls)

150
n=309 100
I = 5,31 !
o
E
o= l,l2 z
! 50

0
1234567
Character

In order to fìnd standard deviation and mean value we used the

following formulas:

n lx2 - (lx)2 lx
o2= X:-
n (n-1) n

Our histograms shows that the characters are mainly normally

distributed, with an average bigger than 5. The trends indicate
that the respondents have experienced a high degree of
satisfaction compared with other projects as far as
expectations, engagement, communication and co-operation is
concerned.

Qualìtatíve Results
The Effect of the Partnering Models:
o
The effect from the use of partnering models varied in the
three projects. In the first project the management
personnel did not notice any dominating effects, but the
foremen and their workers at the site really did. In the
second project the management personnel did notice big
effects, while the foremen and their workers did not. In
the third the client had decided to have a peripheral role,
so both parties experienced the effect.

Positive Experiences:
o Theoretically, all formal project routines were described
I 0 Target Pricing - Lædre & Haugen

in the various contracts. Practically, the participants had

to adjust the project management routines as time went
by.
o Both parties tried to find technical solutions that were
more cost-effective and better for the total project
organization, not only for one single party in the project.
The target price contract was the basis for creating the
win-win situation. Focus was moved from the project
economy of the single parlies to the totalproject
economy.
o The projects benefited from the participation of the
contractors in the programming work,
¡ The contractors contributed with improved technical
solutions, plans adapted to the production and
communication of the plans throughout the project
organization. The target price was considerably reduced
in the three projects, as the contractors proposed technical
solutions differing from the ones in the original plans.
o The participants found the partnering model inspiring, as
they used their experience and competence regarding
technical solutions during the programming and
production period.
. The continuity in the project organizations was high since
key personnel from the clients and the contractors
participated in both the programming and production
period.
Sharing site offìce facilities makes it easier for the project
participants to communicate and to have less formal
information and documentation in the project.

Possible Traps and Moments to Remember:

The consultants must be involved in the project organization.
They have no natural incentives in the target price formula, but
their participation is necessary when the contractors suggest
changes of the technical solutions and original programming
plans.
o Good was defrned as sufficient quality. Potential
 11 ctB-2002

expenditure cuts are cashed out, and the financial savings

were not directly used to improve the product quality. The
future o\¡/ner must have the opportunity to participate in
the integrated project organization.
o Both parties have to review the program and
specifications thoroughly to find any disagreements from
the initialtechnical and functional specifications. In all
cases they reported that more time should have been spent
on planning in order to examine risks and possible
changes during the production period.
¡ Even though the right arrangement for a partnering
process are made, the co-operation will be dependent on
the personal skills and former experiences of the project
participants. The co-operation will benefit from a
continued focus otl creatiou and maintenance of
partnering Processes'

Summing Up
Relating the results and findings in the three pilot studies to
our previous work on paftnerirrg issues, we sullt up the
following success factors (Bølviken, 2000):

Focus on the process

There is a need for continuous focus on the goals and
objectives for the partnering processes. Evaluation with
interviews and workshops has positive effects, it will always
be beneficialto make the participants aware of actual
improvements.

Common Goals and Objectives

The economical incentives in the target price formula led to
common goals for the parties, which encouraged co-operation
leading to optimization of technical solutions and expenditure
cuts. The discussions were more focused on technical issues
than on economical issues. At the same time the parties spent
less time on arguing about mistakes that had occurred, and
 12 Target Pricing - Lædre & Haugen

more on spotting future problems

Mutual Trust and Openness

The traditional roles of the client and the contractor are not
forgotten even though the parties are co-operative. Mutualtrust
and openness makes it easier to discuss both positive and
negative incidents at the project. The positive potential of the
target price contract is dependent on the participants' personal
willto show mutualtrust and openness.

Knowledge Transfer Between thç Parties

On a long term basis all parties will benefit from knowledge
transfer, and get an understanding ofeach other's aspects. The
possibilities of mutualtransfer of experiences will be best
exploited if the necessary arrangements are made. Knowledge
of processes connected to programming, production and
maintenance will effect the participants' performance.

Teambuilding
There are several ways to establish an integrated project
organization. Sharing of site offices and social gatherings were
arrangements that contributed to teambuilding in the projects.
The feeling ofbeing part ofan integrated project organization
helped the participants to focus on the common goals and
objectives.

Project Management Routines

The client and contractor must not become allies with a front
against the future project owner, the interests of the future
owner must be taken care of. Simultaneously, it must be
possible to make decisions in situ. Documentation concerning
changes and economical development must be continuously
updated. Successful partnering demands clear definitions of
roles and responsibilities combined with good leadership.

Commitment from Top Management

The top management of both the client and the contractor have
to show commitment to the principles of partnering. At the
 13 crB-2002

same time the top management must give the sufficient

decision-making authority to the participants from the
integrated proj ect organization.

Rules for Conflicts and Sanctions

A target price contract should have clear specifications of
technical and functional quality. Clear contract specifications
will prevent later unpleasant surprises and discussions between
the involved parties. Precise specifications of sanction
possibilities and rules for managing conflicts contribute to
clarification ofthe roles ofthe project parties.

With regards to the wording of the agreements, payment

routines, risk sharing and organization, the three projects we
have evaluated are different. At the same time they have
similarities that have led to co-operation between the parties,
and presumably an increase of both efficiency and
productivity.

Acknowledgements
We would like to thank Veidekke asa, Vegdirektoratet and
Jernbaneverket Utbygging for their initiative and the support of
the research work.

Inþrmation on the ll/eb

More information about the projects can be found on the
following web addresses:
www.trekantsambandet. no
www.ve gvesen. no/vestfold/prosj ekter/start. stm
www j ernbaneverket. no/prosj ekter/vestfoldbanen/nykirke
www.veidekke.no =>prosjekter:>referanseprosjekter=>samferdsel=>nykirke

References
BAROK 2}}},"Samspill - Satt i sYstem",
www.ebanett.nolBAROK, Oslo, December 2000.
Bølviken, T. "Erfaringer med samspill og konkurranse i
14 Target Pricing - Lædre & Haugen

byggeprosj ekter", In Proceedings, NIF-kurs, "Samspill og

nye kontrakstformer", Trondheim 2001 .
Erhvervsfremme Styrelsen, "Partnering - et sludie af nye
samarbejdsþrmer i byggeriet", www.
Efs. dk/pub I ikationer/rapporter/byggejartneringrapporlin
dex.html, Copenhagen, May 2000.
Haugen, T.1999. "The Building Process: challenges in a
changing environment.", In Proceedings, Chalmers 1999
" C ons truct ion Economic s and Organizat ion", Department
of Management of Construction and Facilities, Chalmers
University of Technology, Göteborg, Sweden.
Thomassen, A 1999. "Assessing partnering: why trust is
important",,Ir Proceedings, Chalmers I 999 "Construction
Economics and Organization", Department of
Management of Construction and Facilities, Chalmers
University of Technology, Göteborg, Sweden.
"Byggeriets Fremtid - Fra Tradßjon til Innovasjon",By &
Boligministeriet 2000, København, ISBN. 87.907 04-32-0.
Li, H., Cheng, E. and Love, P. "Partnering research in
construction ", Engineering, C onstruction and
Architectural Management, 7, 7 6-92.
t5

Public-Private Partnerships in project

procurement
Can the UK initiative offer developing countries some
useful lessons?
Marcus Ahadzil & Graeme Bowlesl

Abstract
The UK government launched its Private Finance Initiative (PFI) in
1992 as part ofa strategic rethink for the procurement ofnot only
major infrastructure projects such as roads and bridges but also for
such services as IT, accommodation and libraries for schools etc
through private sector participation in the form ofPublic-Private
Partnerships (PPPs). This paper briefly outlines the basic principles
underlying the UK initiative and examines through a survey, the
signifTcance of institutional structures and policy frameworks in
pushing forward such an initiative. At the same time a survey was
conducted on Ghana, a developing economy' using the Ministry of
Roads and Highways which is in the process of experimenting this
procurement strategy. The essence was to establish whether the
enabling environment existed to successfully promote such a strategy.
The conclusion was that though the manpower resources exist within
this public sector organisation, there is the need to develop
comprehensive institutional structures and policy frameworks for such
a strategy to succeed.

Keywords: developing countries, private finance initiative,

procurement, public-private partnership, UK, Ghana

Introduction
Infrastructure financing can be grouped into two broad
categories - services such as water, sanitation, etc the direct
beneficiaries of which are readily identifiable and can
therefore be readily financed through user-charges; and the

I
Heriot-Watt University, Department of Building Engineering and
Surveying, Edinburgh, EH I 4 4AS, UK (email : lr4. K.Ahadzi fl¡hrv. ac. uk)
16 Public-Private Partnerships - Ahadzi & Bowles

provision of such services as drainage, schools, roads, whose

charges may be difficult to pass directly on to the beneficiaries
(Kim 1997). The problem however is that national budgets
derived from revenue and taxes alone cannot meet the rather
huge investments required to either build most of these public
infrastructures or renew the decaying ones without critically
sacrificing those other vital areas as welfare, health and
education. Estimates by the World Bank indicate that within
Asia alone, demand for infrastructure investment for the period
1995-2004 will amount to US$1,262 billion (Ong and Lenard,
2001). These huge demands for infrastructure development is
attributable to the fast population growth especially within the
urban settings of the developing countries. Cities such as
Lagos are expected to grow in population from a mere I '0
million in 1950 to24.4 million people by 2015 (Financial
Times, 2001a). Iain White (2001), writing about Delhi, painted
a vivid picture of the typical chaotic conditions on the roads in
most of these fast growing cities - 'a two-lane highway
reconfiguring itself into five-lanes of chaos with every one
giving way to the might of lorries and buses and nobody tøking
notice of pedestrians'. Similar pressures are being put on such
other public sector facilities as education and health.

In the UK for example, total civil procurementfor 1997-1998

was î.12.9 billion (HM Treasury,200l). However, following
the success of the privatisation policies embarked upon in the
1980s, it became apparent that involving the private sector
would inject the needed capital into public infrastructure and
help exploit the fullrange of private sector commercial and
creative skills. This opened the door for the new strategic
rethink in public procurement - the Public Private Partnerships
(PPPs) through the Private Finance Initiative (PFI). Within the
developing countries also, the high demand for infrastructure
development coupled with the pressures on national budgets is
making governments move towards encouraging the private
sector to invest in infrastructure projects in the forms of Build
Operate and Transfer (BOT), or its other variants. A number of
these projects have reportedly run into problems along the line
 17 ctB-2002

(Wells, 1999 ; T am, 1999). In Ghana, discussions started since

1995 on a number of build and transfer road projects. To date,
none ofthem has yet taken offeffectively'

As part of a study of the PPP procurement strategy with

emphasis on the management of host country risks, this
preliminary review examines how the institutional structures
and policy frameworks of the UK initiative are effectively
enhancing the process. Drawing lessons from the UK study, a
study was conducted on Ghana using the Ministry of Roads
and Highways and its agencies - an organisation in the process
of embracing such a procurement strategy. The essence was to
establish whether the appropriate frameworks and structures
exist to promote this sort of strategy.

The UK Initiative

T he prínciples, p o licy frømewor k and ínstìt utÍonal

structures
The basic principle behind the UK's PPP initiative is to
transform government departments from being owners and
operators ofassets into the purchasers ofservices from the
private sector over concession periods that may last l0 - 30
Public sector
Sewice payments Drocrrfer
from Gov't Dent
Oper¡ting or scnicc
Funding from Pilblíc seclot cootr¡ct p¡id for
procxrer/lhe Advisers,
Gov't Dept over conlr¡ct lifc
opetalot etc 3'd Pany revenue
(capital and
or âssel nroceeds
revenue) Ooerator

Consaruction/supply contract Const./supply Funding

p¡id fo¡ ovor the contract ¡grccmcnt
construction/süpply
Conlraclol Contractor/ Funding
Advisers Srrnnlier banks,
Silpplier
shareholdcrs

A capital åsset procurement A PPP Drocurement

Figure l. Capital Asset Procurement vs. PPP Procurement

Source: PFP (1996) Risk qnd Reward in PFI Contracts
l8 Public-Private Partnerships - Ahadzi & Bowles

years. In this respect, the emphasis is on 'what' and not 'how'

the services are to be provided through the use ofoutput
specifications (PFP, 1996). Figure I provides an illustrative
distinction between the PPP form of procurement and Capital
Asset procurement.

During the early stages of the initiative, the Treasury as a

policy would not approve any capital projects unless private
finance options had been explored. This was meant to
maximise the scope for and use of private fìnance unless for
whatever reason private finance was not possible. It is not
surprising therefore that a whole range of projects have been
procured across a spectrum ofsectors including health,
education and transport (DETR, 2000; Ahadzi & Bowles,
2001a). To date, contracts for over 400 projects in estimated
capital value of f l7b have been concluded (Financial Times,
200rb)

The process however has not been without difficulties. Ahadzi

and Bowles (2001b), identified the tendering and the
negotiation stages as the key areas where delay are mostly
experienced resulting in huge costs to both bidders and the
public sector organisations. To avert these problems, a number
of structures were set up along the line to provide relevant
guidance. The first of these was the Private Finance Panel
(PFP) composed essentially of part-time members drawn from
both the public and private sectors supported by seconded full-
time executives - the Private Finance Panel Executives
(PFPE). These bodies were later replaced in 1997 by the
Treasury Taskforce (TTF) with a two-year mandate to provide
strong inputs in developing highly skilled departmental
procurers capable of procuring their PPP projects without
much central support through the departmental Private Finance
Units (PFUs). The TTF has curently been replaced by
Partnerships UK (PUK) - a public private body set up to build
up f I billion in equity and debt to promote PPP projects in
addition to continuing the roles played by the TTF (Building,
t9 crB-2002

teee).

At the local authority level, The Public Private Partnership

Programme (4Ps) was established in 1996 with specific
emphasis on aiding local authorities procure projects
successfully. In addition to the above structures, the National
Audit Office (NAO) and the Treasury Parliamentary
Subcommittee regularly review the concluded PPP deals to
confirm how well the departments managed the procurement
process.

Research methodology and outcome

This preliminary study was conducted through questionnaire
survey followed by structured interviews. Questionnaires were
sent out to 64 parficipants within the contracting, consulting,
financing and client organisations in the UK the list was drawn
from the 199718 PFI Report Yearbook containing organisations
and key individuals involved in the PPP procurement process.
The response rate was 45%. A sample of questionnaires was
also sent to 20 participants in Ghana's Ministry of Roads and
Highways and its agencies and the response rate of 42%o

As shown in figures 2 and 3 the results of the UK survey

strongly brought to the fore the significance of establishing the
appropriate structures responsible for providing the necessary
guidance and training to enable the PPP procurement process
move smoothly.

ilt
3ta
ffi

ß ttu!n tE*

dr SFgti gA
?01 aDf dot

T.l ...r..a.rlt tx 1ú M tÁ 0Á ðta ota

d 6po.ìd.ü
'(

Figure 2. Significance of Figure 3. Experience level

guidance from the treasury required of professional
taskforce staff
20 Public-Private Partnerships - Ahadzi & Bowles

On the level of academic qualification and experience required

ofstaff, a relevant first degree plus 5-10 years ofexperience in
project procurement was thought to be adequate. The private
sector respondents however appeared to lay more emphasis on
higher qualifications with some preferring postgraduate
qualification for those engaged in the PPP procurement
process. The likely implication is that the private sector may
increasingly be engaging more skilled professionals and thus
developing greater in-house capabilities than sections of the
public sector in handling the procurement processes - a
situation that may inevitably result in imbalances especially
during the negotiation stages. In fact the view held by some of
those interviewed was that the public sector needed to sharpen
its negotiating skills as this area is a key decider in reaching
early financial close.

The results of the Ghana survey did not show the existence of
laid down policy guidelines towards private finance. Again
only a small proportion of the respondents weie aware of any
institutional structures at the national level directly responsible
for project procurement through the private finance strategy,
an indication that if it was there at all then its impact was not
being felt. However, the requisite manpower resources exist
within the sampled organisation in terms of educational and
professional qualifications whose skills may only need
sharpening towards this form of project procurement. The
outcome of the Ghana survey is indicated in figures 4-7.

Concluding remarks
This study has revealed the importance of institutional
frameworks and structures backed by the appropriate policy
guidance and training from the centre in addition to having
quality staff at the departmental levels in effectively promoting
the PPP procurement strategy within the UK' What the Ghana
survey has revealed however is that though the requisite
manpower resources exist within the sampled organisation, a
situation which may be similar to most developing countries,
there is the need to establish the relevant institutions tasked
2l cIB-2002

with the responsibility of formulating and disseminating the

requisite policy and guidelines including staff training in the
relevant skills.

Eß
laa 33!a

t2*
a7x
ß*

0ta 20T tota l0'Ú t0f

L .l r..t..¡.t|.

Figure 4. Existence of a Figure 5. Existence of departmental

national body responsible for policy guidelines towards private
private finance. finance

ara. 20 tr.
0r
10.10 t.. ßtt
07t t00*
¡.10 vr!

und.r t Va. ü tox tof

0r 20!a 40* 00tú 80ra f ol r..¡.¡d.rlr

Figure 6. Respondents' Figure 7. Respondents' opinion on

experience in privately financed the adoption ofprivately financed
projects procurement strategy

One other lesson from the UK initiative is that it is not targeted

at mega project only. It covers a whole spectrum of projects
some as small as IT facilities for high schools at the local
council levels, the renovation and continuous maintenance of
primary and high school facilities and street lighting. It is these
small project areas that countries of the developing world may
better be placed to develop in order to build up the local
capacity for the bigger projects. A caution however is not to
take too many projects on board at a go under the illusion that
payments are to be spread over a long period as these become
debt for the future.
22 Public-Private Partnerships - Ahadzi & Bowles

References:
Ahadzi, M. & Bowles G. (2001a) The Private Finance
Initiative: the procurement process in perspective.
Proceedings ofthe 17th annual conference of
ARCOM, Salford. (forthcoming, September 200 I )
Ahadzi, M. & Bowles G. (2001b) Public Private
Partnerships in UK's infrastructure development: the
macroeconomic perspective. Proceedings of the lTth
annual conference of ARCOM, Salford. (forthcoming,
September 2001)
DETR, (2000). Government Department's Construction
Plan. Construction Annual Statistics 2000 pp 96'134.
Financial Times, (2001a). Cut offfrom the world. March l0
ltt.
Financial Times, (2001b). Built to last at aprice March 23/24.
HM Treasury(2O0l) Modern Government, Àlodern
Procuremenf. http://porch.ccta. gov.uli/treasur-v-
Kim, K-H (1997). Housingfinance and urban
infrastructurefinance. Urban Studies vol34 no 10 pp
1597-t620
Ong, H.C. and Lenard, D. (2001). Can the private finance
be applied in the provision of housing.Proceedings of
the I't International Conference of Researchers in the
Built Environment.
PFP(1996). Risk and Reward in PFI Contracrs. Salford
March 2001.
Tam, C.M. ( 1 999). Build-operat e lransfer model for
infrastructure development in Asia: reasons for the
successes andfailures. International Journal of Project
Management Vol. 17 No. 6 pp 377 -382.
V/ells L.T (1999) Private Foreign Investment
Infr as tr u c tur e : Mana ging no n- c o mm e r c i al r i s lcs .
Private infrastructure development conference
23 ctB-2002

proceedings. Sept 3th-10tlt 1999. Rome, Italy.

White,I. (2001). Take me too the river,The Guardian
Magazine,UK. 19th May 0l p32
25

Analysis of Behavioral Parameters in

Partnering
Amarjit Singht

Abstract
This paper presents results of a study undertaken to determine the
influËnóes ón various behavioral project management parameters
due

to the use of partnering. The detailed and mathematical analytical

hierarchy pro".tt (AHP) is used to calculate a value for each
parameter. The parameters considered are Commitment' Clear
'Expectations,
Communication, Courage, Excellence, Responsibility'
Siaring, Synergt, Trust, and Understanding and Respecl' Use is
made olthe consistency index and consistency ratio. Comparisons
are made between partnered and non-partnered projects'
Surveys
were sent out to public, military, and contracting agencies. Statistical
analysis is subsequently done on the scores to make sound evaluations
of the influen.., ãf purtn.ring. It was found that partnering
positively
affects the behavioràl parameters. Some parameters are improved
substantially and signif,tcantly while some are not improved much'
However, there is an improvement registered for all the parameters,
thereby contributing to project success'

Keywords: behavioural parameters, partnering, analytical hierarchy

process, surveys

Introduction
Ir is documented in literature that partnering results in fewer
schedule delays, fewer claims, and reduced litigation, but little
has been done on management behavior analysis' A study [1]
was undertaken at the university of Hawaii to check whether
the overall perceived benefits of partnering had a positive
influence on management behavior.

I
University of Hawaii at Manoa
 26 Analysis of Behavioral Paranteters - Singh

The basic concept of partnering is to maximize the

achievement of project goals. It does this by improving
working relationships and communications, and promoting
synergy and trust. Emphasis is on cooperation, dedication to
common goals, and the respecting of each others' values; an
atmosphere and culture is created where owner and contactor
are at ease with each other [2].

Objectives
The study partially aimed to achieve the following:
l. Determine the management behavioral parameters on which
partnering has had the most and least impact.
2. Determine whether perceived benefits vary for different
demographics, such as level of management, years of
experience, and level of education.

Research Methodology
Questionnaires were circulated to contractors and public
agencies. Among public agencies were the, U.S. Navy Civil
Corps of Engineers (at PearlHarbor),lJ.S. Army Corps of
Engineers (who were the originators of the concept of
partnering), and Hawaii Department of Transportation. All
questionnaires were circulated in Hawaii only. The questions
elicited responses on a Likert scale for the ten fundamental
parameters. Responses were weighted for importance
according to Saaty's Analytic Hierarchy Process (AHP) t3l.
The weighting method was checked for consistency using
eigenvalues and eigenvectors, as recommended in the AHP
method, before being applied to the scores.

The numerical values of the ten fundamental project

parameters were recorded. Elementary calculations of nrean
and standard deviation were undertaken. Then, ANOVA was
27 crB-2002

undertaken for pertinent demographics. The results are

provided and discussed.

The Questionnaire
Thirty-seven questions were asked in the survey. This was an
original survey prepared specially for this research. These
questions were designed to satisff meanings pertaining to the
ten fundamental project management parameters, Some
questions contributed to more than one parameter.
Respondents were asked to assign a score to these questions
for partnered vs. non-partnered projects' The survey can be
obtained in Michel (1996) [1].

Target GrouP and SurveY ResPonse

Respondents included vice-presidents, project managers,
contracting officers, and project engineers from public and
private agencies. A total of203 surveys were sent out, of
which 104 were returned. Only 99 returned surveys were
responsive.

The number of responsive responses returned are as follows:

U.S. Navy Corps of Engineers - 16%
Construction Contractors - 2l%
U.S. Army Corps of Engineers - 26%
Hawaii Department of Transportation - 36%

Upper management respondents were 2gYo,while project level

respondents wereTIYo. Overall, 80% of the respondents had
college degrees in engineering;20Yo did not have engineering
degrees. Of those having education, master's degree holders
numbered 1 1 % ; B. S. degrees, 82%o; Ph.D'' s, lo/o; high-school
diploma, 5%. Those having more than 27 years experience
werc l|%o;those between 19-27 years, 21%; l0-l8years,34o/o;
l-9 years, 29%o. Those having worked on more than I I
partnered projects were 7Yo; 5- I 0 partnered proj ects, 1 I %;
28 Analysis ofBehavioral Parameters - Singh

fewer than 4 projects, S2%o.

The sample was stratified - in that all major sectors of the

construction industry were covered. Owners and contractors
were both engaged, thus permitting a complete study to be
undertaken. These samples were easily available in Hawaii.
These factors contributed to this particular sample being
chosen.

The sample size and percent of responses is significant for

95o/o confidence, allowing a sampling error of 6.87%

Definitions of Variables
The ten fundamental parameters important to project
management and the partnering process are (in alphabetical
order) Clear Expectations, Communication, Commitment,
Courage, Excellence, Responsibility, Sharing, Synergy, Trust,
and Understanding and Respect. These are defined below:

l.Clear Expectations: Paftners must understand each others

expectations; goals must be clearly understood resulting in a
common vision and shared mission.

2. Commitment: Partners must desire to assist the other person

achieve goals; partners freely go beyond the call ofdufy to
support each other; timeliness of actions and decision, for
RFI's and resolution of disputes, are important [4].

3. Communication: Information must be transferred

effectively, as a cohesive team; information exchange and
other discussions must be open and honest at all levels, based
on mutual respect; there is lesser animosity; passing blame is
avoided.

4. Courage: Partners must be able to confront and resolve

conflict; participants rnust be free of fear when tackling
29 ctB-2002

problems and disputes; partners feel free to innovate, and

openly exchange ideas without recrimination.

5. Excellence: Parties adhere to the higtrest standards of

performance and conduct. Paftners invest their special talents
into the relationship without making unnecessary
compromises. The partners must have a clear vision and focus
on total quality.

6. Responsibiliry: Partners are accountable to each other; they

recognize the consequences oftheir actions and decisions.
They also agree on measures for mutual accountability.
Partners refrain from finger pointing.

7. Sharing; Sharing is undertaken for common goals; they

share concerns, problems, needs, and ideas; they also share
risks, setbacks, and rewards; discussions on the uncertainties
ofproject life are cooperatively addressed.

L synergv: Diverse resources and knowledge of the partners

creates a relationship that is stronger than the sum of its parts;
parties join their ideas together for the betterment of the
project. Parties work as a team rather than individuals.

9. Trust: Partners rely and depend on one another; they have

confidence in each other. Information is freely shared.
Parties honor agreements and have faith in one another. There
are no hidden agendas .

10. Understanding and Respect: Partners value each others'

contributions;they have learned to empathize; they know each
others capabilities and limitations. They deal honestly; they
understand the internal policies and procedures ofeach other.

Analytic Hierarchy Process (AHP)

The assigning weights for a variable for importance and
30 Analysis ofBehavioral Parameters - Singh

priority is usually a value-driven. AHP, however, allows the

modeler to break down a complex problem and assign weights
systematically. Saaty (19S0) created a nine-point scale that
can be used to determine how much more important one
variable is to another [3]. These weights were assigned to
questions within each parameter' For instance' if there were
five questions comprising the parameter of Trust, then these
five questions were weighted among themselves, The score
for Trust was therefore only obtained after the internal
weighting had been done. No external weighting was done, in
that the ten fundamental project parameters were in no way
weighted against each other.

Example of the AHP

There were fìve questions pertaining to Trust. These were
A. Parties actions are consistent
B. Parties actions are predictable
C. Parties honor agreements
D. Parties trust each other while making decisions
Parties have faith in the accuracy and completeness of
information.
A matrix was set up as follows:
A D E
A I 5 Us 1t3 I
B 1l 5 I U5 U3 1

C 5 5 1 2 5
D J J 112 1 J
E I 1 lls 113 I

For Row A, this means that Question E is equally important as

Question A; Question D is l/3 as important as Question A;
Question C is l/5 as important as Question A, and Question B
is 5 times more important than Question A. Of course, the
diagonal will have values of one, since a question compared to
itself has an importance score of unity. The assignment of
weights, at this stage, is a partially subjective exercise'
3l crB-2002

Saaty then recommends the calculation of the geometric mean

He equates this vector of normalized geometric means to the
normalized eigenvector of the largest eigenvalue from the
above matrix.

The calculation of geometric means for each row is shown

below:
RowA: (1*5*l/5tl/3*1¡l/5 =0'8027
Row B: (1/5*l *1¡5*1¡3*¡l/5 = 0.4217
RowC: (5*5*l*12*5¡l/5 =3.0171
Row D: (3*3*l/2*14¡ll5 = 1.6829
Row E: (1*l*l/5*l/3*1¡l/5 = 0'5818
SUM = 6.5062

So, the normalized weights for each question are:

W4 = 0.802716.5062 :0.1234.
Wg :0.421716.5062 = 0'0648
Wç :3.017116.5062 = 0'4637
Wp =1.6829/6.5062 =0'2587
We :0.581816.5062 :0.0894

Now, consistency of the weights can be checked. To do this,

the maximum eigenvalue of the matrix must be determined.
This is easily done and found to be 5.38 Saaty then
recommends the calculation of a consistency index, CI, where
CI = (l.max-n)/(n-1) Eqn. (1)

In this equation, l,max is the maximum eigenvalue of the

matrix; n is the order of the matrix. Thus CI = (5.38-5)/(5-1):
0.095. A Random Index, RI, is extractcC using scales
developed at Oak Ridge National Laboratory for matrices of
order I to 15, and provided in Saaty (1980) [3]. The
consistency of the weighting scheme is calculated by a
Consistency Ratio, CR, where
32 Analysis of Behavioral Parameters - Singh

CR = CI/RI Eqn. (2)

If CR <=0.1 then the weights have been consistently assigned,

else not. For a 5th order matrix, such as we have here for
Trust, the RI is looked up as 1.22 flor the 9-point weighting
scale being used. The CR = 0.095{l .22 = 0.077 which is less
than 0.10. Hence the weight allocation system is consistent
and acceptable. Consequently, the assigned weights are
retairied in the analysis that follows.

Results for Fundamental Project Management

Parameters
Values for all the ten fundamental project management
parameters were calculated using the AHP weighting system
described above, The results for partnered and non-partnered
projects are given in Table I and2, respectively.

Tabte 1: Scores for the Fundamental Project Management

Parameters for Partnered Projects (in descending order of
score
Proj ect Management Parameter Mean
Score
Clear Expectations 7.87
Commitment 7.62
Communication 7.57
Sharing 7.46
Couraee 7.45
Understandins and Respect 7.34
Trust 7.24
Synergy 7.02
Responsibility 6.96
Excellence 6.76

For partnered projects, Clear Expectations and Commitment

were rated highest, whereas Responsibility and Excellence
scored the lowest. For non-partnered projects, Commitment
-t -t ctB-2002

and Excelence scored the highest, while Responsibility and

Excellence scored the lowest. In both cases, Commitment is
scored high, while Responsibility is scored low.

Table 2: Scores for the Fundamental Project Managernent

Parameters for Non-Partnered Projects (in descending order of
score
Project Management Parameter Mean Score
Commitment 6.08
Excellence 6.04
Trust 5.98
Communication 5.92
Clear Expectations s.90
Understanding and Respect 5.82
Sharing 5.78
Courage 5.17
Responsibility 5.46
5.46

It is visibly apparent, that all parameters record an

improvement in their score for partnered projects. In an
ANOVA done between the scores of Table 1 and 2, we see that
there is a statistically significant difference between the mean
scores ofpartnered projects and non-partnered projects.
Significance is valid for a:SYo.

Improvements on Parameter Scores

Some parameters score greater improvements than others for
partnered projects. The relative improvements are listed in
Table 3, in descending order of degree of improvement. We
fìnd that Clear Expectations, an important parameter for
understanding project goals and each others' policies and
procedures, is significantly enhanced. Next, Courage is greatly
increased. This means that partners are more free and open in
their dealings with each other and do not fear recrimination
from the other. Obviously, this results in greater cooperation
and greater good-will. We see that Synergy, which was at the
34 Analysi,s of Behavioral Paranteters - Singh

bottom of the list for Non-Parlnered projects has a increased

Table 3: Relative Improvement for the Fundamental Project
Management Parameters for Partnered Projects over Non-
Partnered Projects (in descerrding order of improvernent)

o/
Project Management /o
Parameter Improvement
Clear Expectations 33.3%
Courage 29.1%
Sharing 29.0%
Synergy 28.6%
Comrnunicatiott 21.8%
Responsibility 27.4%
Understanding and Respect 26.1%
Cornmitrnellt 25.3%
Trust 21.0%
Excellence 11.9%

by 28.6%. This nleaus that partrters are beginnirrg to make use

of each otlrers' resources and talettts; they are beginning to
realize the contributious tllat each can make; there is obviously
greater team-work and greater sharing of ideas. Sharing itself
has seen a29Yo increase in its score. The overall average
increase in scores is approxiniately 25Yo. This is taken to
imply that the overall behavioral perfonnance is irnproved
25%.

Whereas Excellence registers an increase in its score for

partnered vs. non-paftnered projects, the relative increase is
not that much. One rnight have hoped that the quality of the
finished product would improve with partnering, bLrt that is not
seen to be as well manifest as other parameters. Neither, then,
is the overall professional conduct raised impressively high.
This might mean that partnering can do little to improve the
physical quality of work and professional standard of conduct.
Partnering is good as a dispute resolution tool, improving
management characteristics by 25Y0.
35 crB-2002

ANOVA on Demographics: Partnered vs. Non-

Partnered Projects
One-way ANOVA tests were done to see whether the
differences between Project Management Parameters are
significantly different for paftnered projects in comparison to
non-partnered projects for the different demographics
considered. The demographics for which evaluations were
made are:
Organization (Public and Private)
Levelof Management (Upper and Lower)
Total Project Experience (For different Years of
Experience)
Experience in Paftnered Projects (From Few to Many)
Levelof Education (No Education to Ph.D.)
En gineer/l.lon -E n gi n eer.

It was sought to determine here whether these different

demographic groups scored paftnered projects differently from
non-partnered projects. The outcome would decide whether
differences were due to chance or could be expected every
time partnered projects were executed.

Table 4: Illustration of ANOVA for Clear Expectations by

Organization

Partnered Non-Partnered
Projects Proiects
Contractors 8.r0 5.5 1

HDOT 7.50 s.82

U.S. Navy Corps of 8.09 6.04
Engrs.
U.S. Army Corps of 8.08 6.24
Engrs.
:
F-statistic 89.99; F? = 5.99; ?:5%. Conclusion: Difftrences
in mean scores are Significant.
36 Analysis ofBehavioral Parameters - Singh

Table 5: ANOVA Results for Partnered vs. Non-Partnered Projects, by

for Each ect Parameter

è
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(l)()
(l)()
(t) (t) v7 cA Z
ÒoE
E9E
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S : Significant Dffirences Exist in Scores; N : Dilerences in Scores are

Not Significant
 ? %Ê U)
\¡
ilÞ
c^t
0aG
Ès
Þ-
Engineer/ Level of Partnering Total Level of Organization Groups Ro'
Non- Education Experience Experience Management v:!
Engineer *È
ìß
ss
G

S N S S N S Responsìbilþ F

(^
G.
S S S S S S Shøring
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S N S S N S Synergy L
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ô
S s S N S Understanding f-
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and Respect o s
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 38 Analysis of Behavioral Parameters - Singh

A sample explanation of these ANOVA results for the

parameter Clear Expectations tested by Organization is given
in Table 4. The partnered and non-paftnered projects are the
treatments, while the organizations are the blocks. The
summary of significant and non-significant results are given in
Table 5. Results show that Clear Expectations,
Communication, Courage, and Sharing are significantly
irnproved across the board for all groups. Thus the
demographics of all groups state that the above parameters are
improved with statistical significance for partnered projects.

Excellence is perhaps the only pararneter that is not

significantly improved for the rnost paft for the groups
considered. The other parameters of Commitment,

Responsibility, Synergy, Trust, and Understanding and Respect

are fairly improved for most groups, with statistical
significance.

When data was arranged by different Levels of Management, it

was seen that the different rnanagement levels perceíved no
significant differences or irnprovements to the parameters of
Commitment, Excellence, Responsibility, Synergy, Trust, and
Understanding and Respect.

Conclusions
As in the definition of partnering, partnering hopes to make
better partners in construction contracting. Good partners will
trust each other more, have mutual understanding and respect
for each other, share resources and ideas and enjoy synergy
among themselves. Good partners are honest to each other, do
not hurt each other economically, are committed to each other
and business goals, have the fearlessness (courage) to speak
openly to each other in a productive, non-hostile atmosphere,
and bear their responsibilities dutifully.
39 ctB-2002

The study partially reported here, discovered that partnering

has improved all ten fundamental project management
parameters. Generally, there is a significant improvement for
partnered projects over non-partnered projects. The relative
overall improvement can be stated at 25%. Statistical
significance of the improvement is recorded for 95%o
confidence.

The different groups thought that there was no significant

improvement for Excellence. However, parameters such as
Clear Expectations, Courage, Sharing, and Synergy showed
remarkable i mprovements (more than 28Yo). Communicati on,
Responsibility, Understanding and Respect, and Commitment
exhibited improvements more than 25%o.

Acknowledgments
Major portions of this paper were published earlier for the 2nd
Intnl. Conf. on Construction Project Management, February
1998.

References
Michel, W. (1996). "Assessment of Partnering's Impact in the
Public and Private Sector of the Hawaii Construction
Industry by Examination of the Fundamental Elements of
Partnering." M.S. Thesis, University of Hawaii at Manoa.
CII (1991). "In Search of Partnering Excellence." Special
Publication I 7 - I, Construction Industry Institute.
Saaty, T. L. (1980). "The Analytic Hierarchy Process:
Planning Priority Setting, Resource Allocation." McGraw
¡1,//, NY.
Cook, E. L. and Hancher, D. (1991). "Partnering: Contracting
for the Future." Journal of Management in Engineering,
Vol.6(a).
4l

Public-Private Partnerships for Infrastructure

Development
Case Study of the 895 Connector Project
Mike Vorsterr, Anthony D. SongeÉ & Herb Morgan3

Abstract: The economic and social impact of appropriate

infrastructure development and the associated needs throughout the
world are well documented. Public-Private partnerships as
procurement methods are increasingly being implemented throughout
the U.S.

Route 895 or the Pocahontas parkway is a major transportation

initiative for infrastructure development in the State of Virginia. The
public-private partnership project represents a fundamental change in
infrastructure procurement from publicly administered design-bid-
build to privately controlled design-build. This paper discusses a
unique academic partnership created between a State Highway
department, private development contractor, and â university to
document and formalize lessons learned using public-private
partnerships for infrastructure development of the Pocahontas
parkway.

Usefulness of the academic partnership results includes enhancing

knowledge among infrastructure stakeholders for establishing
sustainable procurement and project delivery mechanisms which meet
new economy demands and providing a framework for frindamental
and formalized changes to existing structures of project procurement
and delivery.

Keywords: Public-Private partnerships, Pocahontas parkway,

infrastructure development

I
David H. Burrows Professor of Construction, Charles E. Via Jr. Dept. of
Civ. Engrg., Virginia Polytechnic Inst. and State Univ., Blacksburg,
24061.V A. E-mail: [email protected]
t Assoc. Prof., Charles E. Via Jr. Dept. of Civ. Engrg., Virginia Pol¡echnic
Inst. and State Univ., Blacksburg, 24061.VA. E-mail: [email protected]
3
Project Director, FD/MK
42 Public-Private Partnerships - Vorster et al

Introduction
The use of privatization as a delivery method for public sector
infrastructure projects is welldocumented (Ashley 1998 et. al,
Songer, et. al.1997). U.S. privatization projects are
increasingly being used by State highway departments as a
procurement mechanism to meet critical public transportation
needs in a more timely fashion than traditional procurement
processes. As privatization continues to increase, it is
important to document the process. This paper describes an
academic partnership modelto collect, analyze, and document
the privatization process for infrastructure projects in the U'S.
Specifrcally, the paper describes the Virginia Department of
Tiansportation project under investigation, the academic
partnership, and current lessons learned from the on going
project.

Project DescriPtion
The Public-Private Transportation Act (PPTA) of 1995
authorized public entities to enter into agreements for project
development to acquire, construction, improve, maintain, and
operate transportation projects within the State of Virginia.
Projects may be solicited or unsolicited proposals from private
sector organizations. The provision for unsolicited proposals
encourages interested firms to seek out financially viable
projects and actively pursue the projects to satis$ the specific
transportation needs ofthe State.

In joint venture company of Fluor Daniel Inc. and

1995, the
Morrison Knudsen (FD/MK) submitted an unsolicited proposal
to finance, develop, design, and construct the 895 connector
project for the State of Virginia. The project selection process
was completed with negotiations of a comprehensive
agreement between VDOT and FD/lvIK in the summer of 1998.

The 895 Connector project is the first project implemented

under Virginia's PPTA. It is a 4lane,8'8 mile user-pay
43 ctB-2002

tollway connecting the Chippenham parkway at I-95 with I-295

near the Richmond, VA airport. The project, which includes a
high-level bridge over the James River, combines steel, precast
segmental, and cast in place segmental structure types. Project
complexity requires spanning an existing railroad, freeway,
active navigation channel without interfering or disrupting
operations. The completed project will include the longest
span bridge built in the U,S. using the Design-Build. A
detailed technical description of the project is found in
Showers, et. Al., 1999.

Given the uniqueness of the procurement process and size and

complexity of the project, a novel approach for a project
lessons learned model was created. The model, is an academic
partnership between the university, public agency, and private
development contractor to create and implement a method of
collecting, analyzing, and documenting lessons leamed during
the project. The learning model developed and discussed in
this paper provides a method for capturing project lessons
during the project as compared to the often-used retrospective
case study model.

Academic Partnership
The Academic Partnership was established with the specific
objective of improving the planning and execution of complex
design build public-private infrastructure projects by ensuring
that experience gained on all phases ofthe Route 895
Connector Project is documented and carried forward to future
projects.

The Academic Partnership consists of

o The Virginia Department of Transportation
o FD/I4K LLC
o Virginia Tech

The academic member of the Partnership - Virginia Tech,

44 Public-Private Partnerships - Vorster et al

provides faculty members to conduct periodic interviews of

key project personnel, study materials produced and review
progress so that they can;
l. Record current processes.
2. Document lessons learned.
3. Analyze and review results
4. Make recommendations to improve future performance.
5. Report and present findings.

While recommendations made could be of value to the project,

the primary emphasis is on the learning needed to improve
future performance.

Learning Process

Implementíng the Pørtners h¡P

The principal investigators appointed in terms of the academic
partnership agreement befween VDOT, FD/lvfK and Virginia
Tech conducted their first interviews with key project
participants soon after VDOT and FD/lvlK finalized the
comprehensive agreement, established the Pocahantos Parkway
Authority and commenced operations in the field. Initial
interviews focused primarily on experience gained:
l. By FDA4K in identiffing the project as both technically
and economically viable in terms of their business
objectives and the Public Private Transportation Act.
2. By FD/lt4K and VDOT in negotiating the comprehensive
development agreement, the design build contract, the
fixed lump sum price and the fixed contract performance
period.
3. By FD/lvlk, VDOT and the financial community in
agreeing the covenants, conditions and securities needed
to secure project financing in the private bond market.
Subsequent interviews were held as convenient to the progress
of the work. In the early stages, these focused on the technical
and administrative aspects of design as well as pre-
construction activities such as regulatory requirements, right of
45 ctB-2002

way acquisition and utility clearances. Later interviews

followed the project through the field construction and, when
appropriate, through the completion and hand over phases.

An early and significant challenge was to develop the

relationship between experiences, lessons and
recommendations for improvement. f'he conceptual
framework used is based on the following definitions with the
interrelationships, processes and flows shown in Fig. 1,

Can you Things you do

implemen
Actions Do you
ber?

Recommendat xperiences

T ings you you

do ber

Can yo Lessons Can you

improve? learn?
Things you learn

Figure l. Learning Model

Actions: the "things we do" to carry out the work, complete

our tasks and achieve project objectives.

Experiencesl the "things we remember" - these flow from

what we remember and, while some may be forgotten, the most
important will be remembered if captured in a timely manner.

Lessons: the "things we learn" - these are based on our

experiences, they represent a high level ofdistillation and
understanding with any number of experiences supporting one
or more lesson.
46 Public-Private Partnerships - Vorster et al

Recommendations: the "things \¡/e can do" - lessons are of

little value if they can not be implemented and if they do not
lead to improvements in the "things we do" in the future.

The interviews focused on actions taken and experiences

gained. It was important for both interviewer and the
interviewee to distinguish between valid experiences upon
which lessons could be based and the emotion of the moment.
Time was an ally in this matter and interviews were scheduled
after a reasonable period for reflection and understanding.

Lessons learned were discussed with interviewees from time to

time but were, in the main, developed by the principal
investigators. They repeatedly asked themselves the question
"What can we learn from this experience to improve
performance in the future". It was seen to be necessary for
lessons to be based on one or more experiences, be timeless
fundamental and applicable under many conditions. Allvalid
lessons learned should lead to at least one recommendation.

Representing Results
The relationship between experiences, lessons and
recommendations was carried to the final format used to
present findings and develop a database oflessons learned and
recommendations, An example of the format covering one set
of experiences, lessons and recommendations concerning the
technical aspects of the comprehensive agreement is given as
Table l. This is presented here for illustrative purposes only
and, while the recommendations presented are certainly valid,
they are better seen in the context ofthe full report.

The Academic Partnership was established with the specific

objective of "improving the planning and execution of

Table l' Outcome Representation Format

41 crB-2002

Lesson

Project identification L-1.1

Things we learn - Based on our experiences, timeless,

fundamental and applicable under many conditions' A
lesson learned should lead to a recommendation.

The long range planning done by the DOT is the principal

source of information regarding potential PPFDB
projects.

Experience Recommendation

Project identifi cation E-l.l Project identification R -l.l

Things we remember - sPecific to Things we must do to improve

a given event, Process, time and performance and increase or
location. decrease the probability ofthe event
occurring.
The project was identified from a
review of the VDOT 6 year Plan. Keep informed as to the DOTs 6
It was clearly a required. year plan to identify projects that
transportation link that could can be structured as a PPFDB
relatively easily be isolated for toll proposal. These projects will
lrrllection purposes. Traffi c . Be definable in a manner
studres had beerr dolle and were where revenues can be assessed
positive, the IS had been . Most likely have some long
completed and aPProved. The lead items like the EIS comPlete
local community wanted the road Have institutional and Political
built yet funding in the medium to support that can be strengthened
long term was unlikelY. and certainly maintained

complex design build public-private infrastructure projects by

ensuring that experience gained on all phases ofthe Route 895
connector Project is documented and carried forward to future
48 Public-Private Partnerships - Vorster et al

projects." This is clearly a work in progress, Much has, and

will continue to be done.

Preliminary Outcomes
Much of the work to record experiences, develop lessons
learned and make recommendations for the early phases of the
project has been done and it is possible to report on four
preliminary outcomes at this time.

Developing the technicøl concePt,

The importance of early technical decisions has been
repeatedly emphasized by many authors (Gibson 1994,
O'conner 1996, Russel1992),. This in nowhere more
important than on design build projects of this nature. Early
technical decisions on matters such as roadway geometry and
bridge structural systems establish boundaries for much of
what follows. These boundaries can be severely restricting if
the early conceptual decisions follow a more conventional
design-bid-build process and do not perrnit the optimization
possible through true design construction integration.

The early active involveme¡rt of all members of the design

build team in all aspects of the technical concept will result in
a true and fundamental integration of design and construction
expertise. The detail decisions that bring the technical concept
to fruition will create additional efficiencies but none will have
the same level of impact.

In addition, involvement builds commitment. An early

involvement by all members in the technical concept builds
commitment to the concept and to the success of the project as
a whole.

Establíshìng the lump sum price.

Establishing and agreeing the fixed lump sum price for a major
49 ctB-2002

privately financed project is no trivialtask. VDOT, as the

public agency responsible for the provision of transportation
infrastructure in the Commonwealth of Virginia, was clearly
involved. So too was the financial community who needed
assurances that the project could be designed and built for a
sum that would not exceed defendable traffic revenue
forecasts. Estimating standards and norms for highway
construction in Virginia are based almost entirely on unit rate
design-bid-build contracts. Under these conditions the design
is complete, the scope of the contractor's services is defrned
and there are established procedures for adjustments to the
contract price for changed conditions and the like. Not so on
projects of this nature. Design information does not exceed
that needed to establish the technical concept, the seope ofthe
contractor's services is defined by their total project
responsibility rather than by the narrow confines of a single
contract or bid item. Furthermore, adjustments to the contract
price are all but impossible.

Two mindsets clearly need to change. First, contractors must

develop the skills needed to make, defend, argue and commit
to cost estimates based on conceptual designs and incomplete
information. This is not easy in an industry where detail unit
rate estimating for narrowly defined work items is the norm.
Second, owner organizations and others that review, evaluate
and accept bid prices must accept that norms established when
information is complete and scope is narrowly defined do not
and can not apply to a situation where the technical concept is
all that is available to fix the price for total project delivery.

M øintain g c rít¡c al mo me nt um.

in
Substantial pre engineering work necessary to fix the roadway
alignment, obtain regulatory approvals, define right of way and
identi$ utility clearances must be done in order to prepare and
present the development proposal. This work is halted once
the proposal is presented and remains on hold for a substantial
period while the comprehensive agreement and financing plan
 - Vorster et al
50 Public-Private Partnerships

are negotiated. Momentum in these critical early activities

is
thus lost and much of what could be achieved in schedule
compression falls prey to delays in contract negotiation'

A mechanism must be found to maintain momentum in pre

engineering activities while contract negotiations are
unã.r*uy.-It would be a great advantage if the negotiating
parties côuld agree an early development contract permitting
defined pre engineering work to continue during negotiations.
The owner would make funding available with repayment due
when the comprehensive agreement is finalized' If the
agreement is not finalized and if the project does not go ahead,
tñen the work undertaken under the early development contract
would accrue to the owner who would realize its value when
the project is constructed at some future date'

Meøs uríng design Progress.

Integrating design and construction is the key to success in a
design build project. This integration has two dimensions'
Firstl the design must take account of construction means and
methods and seek to maximize efficient construction
processes. Second, the flow of design information must
support the construction schedule and thereby maximize
continuity and rhythm in the performance of the work'

Traditional methods of measuring design progress and,

particularly, design percent complete, can not be used to
ànrur" a timely flow of design information to construction'
Simply put,85Yo completion in a design package is of little
value if the missing 150lo cover the work needed to start
construction. This is not an unusual occurrence as we often
design "from the top down" while we invariably build "from
the bottom up". Metrics to ensure that design progress is
consistent with the construction schedule must be developed'
Much can be achieved by focusing on the ordered flow of
required design information as the principal measure of
progress in design.
5l ctB-2002

Conclusion
The academic partnership created between VDOT, FD/lvfK,
and Virginia Tech on the Pocahontas Parkway project provides
and excellent model to document and formalize lessons on
emerging procurement methods such as public private
partnerships. The 4 phase learning model created for the
project consists of actions, experiences, lessons, and
recommendations. This model provides a formalized structure
to capture and analyze project data. A database presentation
format was presented. Preliminary outcomes of the project
include developing the technical concept, establishing the
lump sum price, maintaining criticalmomentum, and
measuring design progress.

REFERENCES
Ashley, D. et al., (199S). "Evaluating Viability of Privatized
Transportati on Proj ects", J o ur n al of I nfr a s tr uc t ur e
Systems, ASCE, 4(3), 102-110.
Gibson,8., et. Al. (1994). "Analysis of Pre-Proiect Planning
Effurt and Success Variables for Capital Facility
Projects", CII publication SD-83.
O'conner, J., et. Al (1996). "Improving Industrial Piping
through Vendor Data and Package Unit Processes", CII
publication RR 47-l l.
Russel, J., et al. (1992). "Benefits and Costs of
Constructability: Four Case Studies ", CII publication SD-
83.
Songer, A.D., Diekmann, J., and Pecsok, R., "Risk Analysis for
Revenue Dependent Projects ", Journal of Construction
Manage ment and Ec onomic s, CIB, I 5 (4), 37 7 -3 82, 1997 .
Showers, J, et. al., "Design of the Route 895 Bridge over the
James River", TRB paper No. 01-2360'
53

Design Programming
Implications for Procurement
Christopher J. Marsh,r & Morledge, Royt

Abstract
The current trend in construction procurement is to find an
arrangement that delivers superior levels of time, cost and value for a
specifrc construction project. In doing so, clients have begun to favour
arrangements that overlap design and construction activities, in the
assumption that overlap savings will deliver cost and time beneftts.
This assumption is based upon the notion that concurrent design and
construction can be used.

However a review of previous research shows that design

programming and design management are currently of both poor
quality. Furthermore, the ability to programme design, and therefore
establish the correct overlap with a construction programme, is not
understood.

The paper explores the issues surrounding the subject ofdesign

programming and relates this to current problems in construction' It
puts forward a methodology for establishing a suitable time period for
design.

Keywords: design programming, technology clusters, concurrent

design, design management, procurement programming

Introduction
Current sources used to establish design programmes are out-
dated, namely NEDO (1983 and 1988), although these

I
Marsh, Christopher J - Centre for Operations Research, Building Services
Research and Information Association, Bracknell, England (e-mail:
c hr i s t ophe r. mar s h@b s r ia. c o. u k)
2
Construction Procurement Research Unit, The Nottingham Trent
University, Nottingham, England
54 Design Programming- Marsh & Morledge

documents give overall times, the detailed build up of the

required time must be established, to ensure the design and
construction overlap is comparable to the procurement
affangement. Knowledge bases within the supply chain need to
be captured and introduced at the appropriate time for efficient
and quality decision-making. Therefore, the most important
element in any design programme may not be the overall
duration of the activity, but rather where it occurs in the
specific sequence, together with the specific nature of the
activity.

Due to the scope and complexity of design, the research

concentrated on "institutional" steel framed industrial
buildings, varying in size from 1,000m2 to 12,000m2 and
generally complying with the RIBA Section Class 2 of
buildings.

Synopsis
Savings in time can be achieved by overlapping the design and
construction phases, and non-traditional procurement routes
allow this to be more easily camied out. Most procurement
guides reiterate this point, showing graphical representations
on how design and construction can be overlapped (Masterman
1992,Tumer 1990 and RICS 1996). What these authors fail to
recognise when showing the overlap is the class of building
involved. Sub-programme issues affect overall programme
times within the procurement stage. For example steelwork is
limited by available section sizes in the market place and the
fabrication time required.

The strength of any model of a design system lies in the ability

to apply to all levels, as each element of a building is a sub-
system requiring its own design and procurement process as a
self-contained item (Murdoch and Hughes 1992). Good
management, and therefore good programming, must identi$
these elements and the information sources, normally from the
55 crB-2002

specialists, and co-ordinate their timely input. The timing of

this input by a specialist is critical (Gray 1997 and NEDO
1983). Designers and suppliers of specialist services should be
brought in at an early stage in the design process as their
expertise in advising on the best solution would ensure that
their own contribution could be fully integrated into the project
design and construction programme at the appropriate time
(British Round Table 1994), By not appointing the specialist in
time, usually caused by the chosen procurement route, a hiatus
in design can occur (NEDO 1988). Therefore the design
programme and programme route are inseparable and must be
considered together

Gray (et al1994) and Reading (1996) have put forward mutual
observations regarding technology clusters, Both recognise
that a building is built up from a series of elements that can be
gathered into lumps, based upon the technology and
performance criteria of the various elements.

Reading (1996) states that a typical building can be divided

into 7 such clusters, namely:

l. sub-structures 2. structure 3. envelope

4. service 5. horizontal 6. vertical
core/risers/plant surface finishes surface finishes
7. entrance and vertical circulation spaces

Reading (1996) states that by organising the project into such

clusters, the correct information from specialists and
consultants can be input at the correct time and level.

The RIBA Architects Appointment (1983) breaks the

architects work into the stages shown in the Table below

If the fee
stages are proportional to the man-hours required to
complete the phase, then the framework for a design
programme exists. It is interesting to note that the stages break
down into fairly equal units suggesting that each phase of
56 Design Programming- Marsh & Morledge

design takes a relatively equal amount of effort and therefore

time.It should also be noted that if production information is
not carried out until stage F and G, theoretically any overlap
between construction and design cannot commence until T5%o
of the design phase has been completed.

Work Fee Total

stage nronortion

A-C l5% 15 outline proposals

- sketch plans
scheme desrgn
D 20 35
- sketch plans
20 55 detail design
E
- working drawings
production information
FG 20 75
- workins drawines
HJKL 25 100 slte superyrslon

Research carried out by Nicholson and Naamani ( 1992) into

commercial buildings showed there was little relationship
between fee income and cost of providing the required services
for a specific project. Their researcli showed that projects
between values of f 1-3 million showed a steady level of staff
costs of Ê30,000 (1989 prices).lt can be reasonably assumed
that man-hours also remain constant. If this is so, then it is
assumed that design programmes remain constant for a given
type of building, regardless of its size.

Part of the reluctance or non-use of design programming is due

to the nature of the architects contract with the client. There is
no requirement in the standard RIBA Appointment (1986) for
the architect to programme their work, other than to 'prepare
an outline timescale'. Section F of the Architects Job Book
(RIBA 1983) states that architects should develop a register of
drawings and schedules required for the project. The
interesting point about this is it is recommended to occur at
Stage F of design, that is, after detail is completed.

Preparation of design must be directed towards facilitating on-

57 ctB-2002

site progress, as construction is directly affected by design

coherence and timely communication of information.
Therefore the compatibility of both design and construction
programmes needs to be established from the outset of
construction. The NEDO reports (1983 & 1988) found there
was a direct correlation between the speed of a project and the
flow of well co-ordinated design information. Therefore the
components of a design programme must not only establish the
overall feasibility of an overlap, but also ensure the model of
individual pieces of information are co-ordinated in a timely
manner.

This aspect of information delivery is currently becoming more

complex due to the involvement of specialist contractors.
Therefore the design programme does not merely have to deal
with the consultant's information outputs, but be able to co-
ordinate and state the requirements of the specialist's
contributions. Continuity of design is severely affected by
timing of appointments, research shows site operations were
severally affected by delayed documentation due to
inconsistent sequencing of design and specialist
input/information (NEDO I 988).

Research Application
Primary data was gathered through the extensive analysis of 40
projects (later reduced to 7 for detailed analysis) produced by
the in-house architectural department of a major Plc property
developer. These were analysed in detail for design programme
attributes and methodologies. The project time sheets were
evaluated to show the patterns of time spent, with detailed
design and schematic design being shown separately. The
results were surprising. All of the projects showed the same
time period patterns, together with sub-patterns of unique time
peaks.

Two time patterns emerged from the data (Diagram 1)

58 Design Programming-- Marsh & Morledge

general pattern - the time taken for design showed the same
general pattern for all projects. Scheme design formed a typical
asymmetrical distribution curve, showing a middle period of
intense activity, together with a secondary activity just prior to
the commencement of the working drawings. The working
drawings section also showed an asymmetrical distribution
curve, which was characteristically larger than the first and
was also the mirror image. The working drawing curve
commenced with high period activify, which was then
followed by a generaldeclining levelof man-hours input over
the remaining project tirne.

sub-pattern - a distinguishable sub-pattern was evident in both

of the two design curves. These are evident from the isolated
periods of sudden activity, followed by a diminished period of
activify. Ones occurring within the scheme design were mainly
caused by alternative design solutions being explored. The
frequency of these patterns was normally affected by changing
client requirements and re-designing caused by external
factors. These same factors were also one of the major reasons
for the often-long periods of zero activity. Planning
permissions and client indecisiveness of the required product
were the two most common cited reasons.

As Diagram 1 shows, the design activity is clearly divided by

the extended frenzied activity ofconcept deign and the periods
of intense detailed design. This period is characterised by
intense design clusters, representing the major key stages in
each proìect. All project reviewed showed this same intensity
of sub-phasing. The overlap time between scheme and detailed
design is another key indicator. Projects showing expedient
construction had minimal overlap.
An analysis of the scheme design showed certain trends within
the data. These were compared with overall trends for building
construction and show that there is a direct relationship
between speed of construction and building size.
59 ctB-2002

Diagram 1 - showing typical design programme times

areas ofintense design

activity, representing
key design programme
periods

man-
hours

o, ¡- (Ðr c)r l-
rrrrrrr
project week schemedesign
I
detailed design

Scheme design periods were analysed in order to identi$ if

this same trend was evident. It was believed that larger
buildings would take longer to design due to the inherent
number of variables that would be applicable as the building
size increases.

The results were surprising, showing a wide distribution of

results that appeared to be independent of both building size
and value. The application of a polynomial trend curve showed
a fairly even distribution curve averaging between 1000 to
1750 hours to produce the working drawings. This curve
reached its peak at a building of approximately 5,500m'floor
area. At first it was believed this was caused by an optimum
60 Design Programnting-- Marsh & Morledge

time to produce the drawings that was directly related to office

size and other variables. However detailed analysis showed
this curve was related to other factors, mainly the time taken
on site for supervision and the overlap between design and
construction.

Adjusting for external works drawings, the number of

drawings produced for each project remained constant, circa
l0 drawings for externalworks and 20 drawings for building.
The output of a larger number of projects show design output
per drawing does vary from 20 to 35 hours per drawing, with
ih" au..ug" being 30 hours. This is in line with the BDP (1982)
document that shows the typical time taken to produce a
drawing is 20 hours, plus 40% for adrninistration time' This
would give a total of 28 hours.

The seven projects were analysed for drawings that were

common for all buildings. From this analysis 27 drawings were
identified as both being common and to be the most influential
on the design programme. Their influence was two fold - either
through the sequence in which they were developed or through
their required development in order to allow another area of
design to be realised. Certain drawings were found to be
facilitators of infonnation to allow concepts to be developed,
i.e. wall sections had to be developed in order to check
elevation dimensions and interrelationship between support
steelwork and external cladding materials.

Time taken in the scheme and detailed design stages show

discrepancies when compared separately but show remarkable
consistency when compared together. This is mainly due to
differences in design methodology, i.e. sketchy design
requiring translation vs. analytical designs that are able to be
used for direct development of details. Certain architects
produced sketch designs ofsufficient quality and scale that
allowed direct use as a working drawing. Therefore although
produced in the scheme stage, resulting in a longer period, the
working drawing period was shortened due to lack of rework
 6t crB-2002

by a technician

3500
Ø
L
3000
f 2500
o 2000
:E
(o 1 500
o 1 000
F 500
0

,f"" .r&*" ,"". -f" -f" ¡$ *S

"-tt
Building Size ft2

Diagram 2 - showing design time trend line for a series of

projects

The ability to implement concurrent engineering successfully

relies on the ability to have compatible design, procurement
and construction programmes. However it is not possible to
have totally concurrent programmes as the project must
commence with design. Therefore some stepping of
programmes is inevitable. An analysis of time taken in design
prior to construction (Table l) shows an interesting pattern of
similarity, Koskela (et al 1996) and Ibbs (1997) have stated
that construction in concurrent projects could not start until
27Yo or 40o/o,respectively, ofthe overall design period had
elapsed. An analysis of the actualdesign programme showed
no similarity between projects or evidence of being affected by
any major project variable. However when the combined times
of scheme and detailed design are considered a fairly
consistent ratio of 45 - 50% becomes evident.

In industrial building design steelwork deliveries are the most

criticaltime in both construction and procurement
programmes, as it provides the framework for all other
62 Design Programming- Marsh & Morledge

building elements and normally has the longest lead in time for
materials. Of the seven projects identified in detail, three
projects had steelwork ordered at The 20Yo period, while three
others commenced at the 27 - 35 % stages (Table 1 refers).
However these three later projects were multi unit's projects,
and realistically times would be longer for multiple buildings.
Although subjective, it is a sensible conclusion thatthe 20o/o
design stage is a clear milestone.

Table 1 - analysis of percentage of time taken prior to

construction commencin
Percentage of time tâken prior to Steelwork
commenccnrcnt of construction tender

proj ec detai I combined week no.

t
A t3% 27% l8
B 36% 50% averages 44
c 28% 45% detaìl 29%o 20
D 36% 5t% combined 45% 20
E 260/o 46% 27 3
units
F 32% 50% 35 5
units
G t8% 59% 35 3
units

The notion oftechnology clusters appears to be very relevant

to the aspect of design programming. The study of man-hour
input shows that design was carried out in a series of linked
clusters. These clusters appear in the same sequellce,
regardless ofdesign solution or specific project factors.

The seven clusters identified by Reading (1996) have been

mapped on the developed design programme. The programme
shows the clusters are indeed self contained within the specifìc
design stages and therefore this readily lends itself to major
aspects of design management. Design programming can be
approached not as a whole entity, but as a series of linked
steps, most of which are self-contained by their function, unity
of time and means (Koskela et al 1995).
63 crB-2002

The developed man-hours graphs together with the

programmes of drawing production were then compared
against the stages of the RIBA Plan of Work (1983) to test the
relevance of the criticised document. The resulting design
programmes were then broken down into the respective RIBA
design stages. The results of the comparison are outlined in
Table2. The developed figures show little consistency with
RIBA guidance within the Plan of Work. A heary
inconsistency is displayed between the RIBA document and
stages A-C and D.

Table 2 - of time on various work

wi# RIBA Project
Recommended Actual Percentage of Time Taken
FtãÈd Percentage A B C D E F G average

l{ic,{ 15 5 5 5 J 7 3 14 6
Dr#,ti;! 20 l0 7 8 13 l3 l5 13 il
Eijüffi 20 43 53 49 62 53 56 5t 50
20 15 l0 7 l3 14 t2 l0 t2
H:K'i 25 27 25 30 l0 t4 l5 25 2t

Architects typically spent 35-40%o of their time on management

issues rather than design. This figure is backed up by BDP
(1982) document which states that the following percentages
should be added to any calculated design times for the
administration / management duties:
l3olo recommend as addition for checking time
l4Yo recommended as addition for general administration
130lo recommended as addition for scheduling

The total percentage therefore shows that architects are

expected to spend upfo 40Yo on non-design duties. This is
probably a leading problem in programming in that it is largely
a management issue, rather than planning a tangible output.

A provisional design programme has been developed based

upon the analysis of the collective data.
64 Design Programming- Marsh & Morledge

The result ofthe research has identified 9 key stages ofdesign

development that were common to all projects.
l) concept proposals - initial concepts based upon pure design
principles, typically the most creative part of the design.
The specific duration of this sequence typically only took
between 3-6 Yo of the total design man-hours, but the
specifìc time period varied considerably, The affect of
planning regulations and clarity of brief were influencing
factors.
2) 2D concept check - the site was specifically laid out with
the initial concepts cross checked to ensure the logic of the
building design and site layout were comparable
3) 3D concept development - this stage develops the concept
into sketch 3D drawings where both elevations and floor
plans are cross-assembled to determine the overall logic and
feasibility of the design.
4) 2D horizontsl co-ordination - with the specific building
design developed in the last stage, the site is specifically
laid out and the feasibility of the building design is checked
against site constraints
5) 2D dimensionøl co-ordinatioz - tliis stage commences the
working drawing stage with the layout of properly
dimensioned and drawn plans of floors, elevations and
cross-sections. These are laid out to scale taking into
consideration actual construction arrangements and
dimensions.
6) 3D dimensional co-ordination - at this point the design
programme becomes complex due to the multi sequence of
differing design programmes. Sufficient information is
produced at this point to allow structural, civil and certain
major elements to become designed in parallel.
7)finíshes layout - this stage forms one of the largest area in
which time is spent within the programme. The frnishes
layout includes different forms of drawing for detailed
joinery drawings, to schedules of finishes, through to
conceptual drawings for contractor-designed elements
8) component layouls - most programmes showed that these
65 crB-2002

type of drawings were produced at the later stages of the

design programme, but were not specifically sequential.
Their detail and number produced was directly related to
the specific requirements of the design.
9) construction supervision - although not specifically design
orientated, the last stage is the on site supervision of the
executed design. It is also one of the largest areas in which
an architect's time is spent.

Table 3 - Design Programme

Staqes

lnitial Secondary Drawing

Concept Concept Production

I 2 3 4 5 6 1 I 9
concept 2D 3D 2D 2D 3D fìnishes component supery¡se
proposals concept concept horizontal dimension dimension layout Iayout
co-ordin co-ordin. co-ordin.

Prograqrle Timç
7 2-3',v" 4-7'.Y" 2-4' l0-20'v" 15-250^ l5- s-10Y" l7-
25./. 30"/"

engineering
commences engrneenng
detailed design
commences
constructlon commences
/procurement overlap

The sequential ability of the design development is upheld by

comparison of the actual times taken within the project
programme studies. It showed that parallel working by more
than one individual only occurred during the later stages of the
design programme where sequencing of design is possible.
This occurs after stage 5 where grouped sets of unrelated
drawings are produced.

Conclusion
Design management was cited as being one of the most
important areas for programming as nearly 40%o of an
architect's time is spent within a pure management role.
66 Design Programming- Marsh & Morledge

Current design programming is inadequately being carried out

by the industry. The result is projects which are being built
with an undue influence of poor design management. Sub-
programmes of the procurement stage limited the possible
overlap between construction and design, '¡¿hich is a key factor
in proper procurement selection.

Acceleration of the design programme may be detrimental to

both the concept and detailed design stages. The result may be
an inferior built product, which is a disservice to all parties
involved within a project.

The developed design programme begins the process of

developing a framework for further research and development
of a useable programming technique. It further allows the
establishment of correct fees for a given project as the fees
stages have been clearly identified. The developed programme
has made considerable progress in identif,ing key design
stages and the percentages oftime taken for each stage.

Bibliography
British Round Table, 1994. Controlling The Upwards Spiral,
London, The Business Round Table
Eldin, 8.,1991, Management of Engineering/Design Phase,
Journal of Construction engineering and Management.
Vol. I 17 no.l
Gray, C., lggT,lterative Design - Essential or Poor
Management, Journal of Architectural Management,
September 1997
Ibbs, C.W., 1997, Quantitative Impacts of Project Change :

Size Issues, Journal of Construction Engineering and

Managemenl, September 1997
Koskela, L, Lahndenpera, P., & Tanhuanpaa,Y.,1996,
Sounding The Potential for Lean Construction,
Birmingham, Proc e eding from Fourth Annual C onþrenc e
of the International Groupfor Lean Construction
67 ctB-2002

Masterman, J.W.E., 1992, An Introduction to Building

Procurement Systems, London, E & F Spon
Murdoch, J., & Hughes, W., 1992, Construction Contracls -
Lqw and Management, London, E & F Spon
NEDO, 1983, Faster Buildingfor Industry, London, National
Economic Development Office
NEDO, 1988, Foster Buildingfor Commerce, London,
National Economic Development Offi ce,
Nicholson, M.P., & Naamani, 2.,7992, Managing
Architectural Design - A Recent Survey, London,
Construction Management and Economics, volume 10
pages 479-487
Reading Construction Forum, 1996, Value for Money,
Reading, Reading Construction Forum and The Reading
Production Engineering Group
zuCS, 1996, The Procurement Guide, London, Royal Institute
ofChartered Surveyors
Royal Institute of British Architects, 1983, Architects
Appointment , London, Royal Institute oi British
Architects
BDP - Building Design Parlnership ,1982, Planning The Work.
Forecasting Production Information - Architect NBA
Stages F and G, In-house Document, Building Design
Partnership, unpublished
Turner, 4., 1990, Building Procuremenl, Basingstoke, The
Macmillan Press ltd.
 69 ctB-2002

The Quality of Design in Design and Build

Contracts in lreland
Joe G. Gunningr

Abstract
This paper presents the results of a survey of Clients, Consultants,
Contractors and Sub-contractors, to investigate their views on the
quality of design on projects which were procured through the Design
& Build method. A postal questionnaire and structured interviews
were used, and the sample was limited to the island of Ireland.

The majority of respondents were of the view that design quality is

influenced by the procurement method, and that Design & Build
produced the lowest design quality of all procurement methods.
Many suggestions were put forward to explain thip, including rushed
decisions, lack of effective briefing, poor communication and cost
cutting for short term gain. However, the definition of "good " desiglr
itself provoked controversy.

The paper concludes with a series of recommendations for improving

the quality of design in the Design and Build process, emphasising
functionality, adequate time and budget, effective briefing and
subsequent communication, and an ethical, partnering approach from
all stakeholders to a Design & Build project.

Keywords: Design & Build, Quality, Ireland.

Introduction
The construction industry has been the subject of many
revie\üs, none of which reflected well on its performance.
These criticisms are mostly well founded and are a good
indication that a change in approach is indeed necessary. All
I
School of the Built Environment, University of Ulster, Jordanstown, BT37
OQB, N Ireland
70 Quality of Design - Gunning

were critical of the results being achieved and each report

recommended changes in procurement arrangements'
However to a large extent they were ignored, primarily
because of their lack of direct legislative effect.

Directly or indirectly, Design and Build re-emerged in the

early 1980's to answer some of these criticisms. The main
benefits offered are single point responsibility, speed and
savings in cost. According to Cox and Thompson (1998)
Design and Build developed in the 1980's from being a novelty
to as much as 40Yo of all new building work, Rowlinson
(1986) has highlighted the difficulty in accurate evaluation of
the market share of particular procurement methods' Bennett
et al (1996) suggested that23o/o of the market for all new
construction work is Design and Build. This decline highlights
its shortcomings, and the growth of public private partnerships
in the supply of construction.

A developing approach to Design and Build is the hybrid

method ofNovation as discussed by Morledge (1996)' This
sees the client employing a design team to advance the brief to
a stage of development much further than is normal, and then
invites the contractor to accept the novated design team into
their organisation. This system now accounts for fifty percent
of the total Design and Build market; however it has not
achieved a high satisfaction rating with clients as a survey
carried out by Bennett et al(1996) established that it only
achieved twenty-eight percent of client objectives' Another
hybrid is the Develop and Construct method used by notable
clients such as the Ministry of Defence, Tesco and the
Norwich Union. However, this is deemed by Ashworth &
Hogg (2000) to limit the potential for buildability
improvement, which is often an added benefit of Design and
Build.

One area of Design and Build that is heavily criticised is the

subject ofdesign standards. It is an issue that gets a
7l ctB-2002

substantialamount of media coverage and not all of it

complimentary. The importance of this topic can be best
explained by the fact that a client will measure a project
against a set of principles - namely time, cost and quality.
Design plays a key role in all three and to get the best results in
terms of time, cost and quality means to get the best design
achievable. Design and Build offers one possible means to
achieve the best design solution, and also allows for change in
the client's needs.

Buildings in the United Kingdom have tended to cost more and

take longer to design and build than those in other major
economies. Consequently the integration of design and
construction within the Design and Build process provides an
opportunity to take advantage of modern technological
developments and avoid the disruption caused by the
separation of the two activities. This should be able to provide
buildings with a more consistent acclaimed level of appearance
and quality, coupled with the other advantages of this one stop
service offers.

It is interesting to note that the 1996 report from the Centre for
Strategic Studies in Construction ['Designing and Building a
world-class industry'], does not identiS high levels of
functionality or quality as a benefit when using this method of
procurement. This result undoubtedly reflects the prevailing
attitude among architects, that design and build is most
suitable for simple uncomplicated projects, and the belief that
the aesthetics and quality of the finished product when using
this method is lower than that achieved by other systems of
procurement. Architects tend to support the view of Pevsner
(1943) that the term "architecture" applies only to buildings
designed with a view to aesthetic appeal.

The fact that aesthetic design quality has not been widely
considered as an important issue in procurement selection can
be exemplified by the fact that "quality" appears only twice in
72 Quality of Design - Gunning

the index to the definitive text on Procurement Systems by

Rowlinson and McDermott (1998)' Even these two
appearances deal more with ISO 9001 and TQM than true
design quality. Buildability does not appear even once as an
indexed factor. Songer et al (1996) also found that aesthetic
design quality or buildability did not appear in the ranking of
success criteria on Design and Build projects by 137 building
clients in the UK and USA.

The Advantages of Design and Build

In the guidelines for major projects issued by the Treasury
Central Unit in Procurement in 1992. 'Design and Build was
recognised as having clear advantages in terms ofcost and
time certainty, offering a single point for project responsibility
and, if things should go wrong, for damages recovery"

When compared to other procurement routes prolects

undertaken through the design and build route tend to be
completed in a shorter time period. A contributory factor for
this is the considerable overlap which can be incorporated
between the design and construction phases in design and build
projects as well as improved communications between the
various members of the project team, the integration of the two
basic functions ofdesign and construction and the
improvement in buildability and the use of contractor's
resources resulting from this latter characteristic. (Masterman,
te92).

In a dispute as to any alleged defect between the employer and

contractor, it is the latter who then has the problem of fault
allocation as between, architect, engineer, subcontractor and so
on. The basic theory highlights the fact that, under the
affangements of design and build, the contractor holds full
responsibility and therefore, there is no one else to blame for
such defects. A high level ofprice certainty also pertains,
assuming no significant client changes.
 t) crB-2002

Figure I
(The lndustry Today, 1996)

tr Traditionally Procured
Projects
I Design-Build Projects

0102030405060

It is believed that the increase in design and build contracts in

the last 20 years can be partly attributed to the advantage of
offering a single point of responsibility. It was quoted in
Building, (17 July 1987) that the traditional procurement route
is seen by many clients as:
' ...A horde of squabbling consultants, suruounded by a sea of
disorganised contractors, sub contractors and suppliers, with
the client left to sort out the problems andfoot the bill'.

The Possible Pitfalls of Design and Build

Although the advantages of the design and build procurement
route have been emphasised, it is important to mention several
disadvantages which may influence the client's decision on
which procurement route to select. Comparison of tenders,
which are based on different design alternatives, is frequently a
fundamental problem.
The client's preparation of their project 'requirements' is a
prime example of where a difficulty may arise. The client's
requirements must be set out very clearly and precisely in
order that no ambiguous circumstances are allowed to present
74 Quality of Design - Gunning

themselves. These requirements are best conveyed through a

performance specifrcation. Preparing such a document is
àiffìcult, as it requires the client to specif the criteria that
must be satisfred. This is a far greater task than simply
specif,iing particular materials and workmanship to be used'
Consequently, the quality of design produced by the design
and build procurement route depends greatly on the quality of
the performance specification. The client usually finishes up
buying a building that is yet to be fully designed.

Additional problems may arise when the client wishes to alter

the design during the construction process. client's variations
are often diffìcult to incorporate into the contractor's design,
construction and programme schedule. The client is often
likely to be charged excessive rates for any changes, because
of the lack of a bill of quantities upon which to value the
variations. Turner (1995) has criticised the vague allocation of
design responsibilities in this procurement method. Ashworth
& Hogg (2000) indicate the potential for extending design
liability beyond " reasonable skill and care" to include "fitness
for purpose". Aesthetic design quality is rarely considered'

Structure
The research programme took the following structure:
o The collection of primary data to corroborate key points
through questionnaires and structured interviews on the
topics of;
l) The meaning of 'good' design
2) Influential stages of a project programme on design
quality
3) Design quality under design and build
4) Effect of procurement method on design quality
. Analysis of primary data collected, and comparison with
secondary data
o Determination of conclusions and recommendations
based on the data Presented'
75 ctB-2002

Design Quølíty
Once a client's requirements for a proposed building are
defined there is a need to analyse the alternatives of satisfuing
these requirements. This is where the design phase of a project
first begins. Thus when the requirements or brief are put
forward the designer has this as his goal. The search is for a
physical solution to a series ofperceived and generally
understood problems. However occasionally these are not
perceived comectly and consensus within the team may be
diffrcult to achieve,

Building design decisions must address amongst other things,

existing technology, materials, finance, time and human
resources. In building design attention must be given to the
primary driver of design, the client. Before design work
begins the context, objectives and constraint¡ ofthe client and
his organisation must be considered.

The concept that buildings should be viewed as systems is

central to defining design. The purpose of good building
design is the optimisation of the architecture supporting that
system. Modern buildings are often highly complex systems
and contain many elements that are linked together to create a
completed project. Thus it can be seen that it is the
arrangement of these elements in geometric or spatial form and
operational relationships that comprises the architecture of a
building. It is at the early stage in the lifetime of a project that
there is a need to draw together the functions that will impact
on design.

The main problem is defining quality is that the meaning of the

words can be very abstract. In particular situations it can have
a different meaning for different people. Thus for some people
quality may involve "goodngss", "expensiveness", "having
class", or "satisffing". These interpretations are however
imprecise and are at best an example of how abstract a
76 Quality of Design - Gunning

definition of quality may be.

People have different perceptions of design quality, due to

their own particular interests. Therefore to define "design
quality" in the constnlction industry, the characteristics of the
industry must be considered. Design quality is often used to
signify or express the "excellence" of a particLrlar building or
project. 'lhe many definitions of quality may not be applicable
to each pro.ject. Two popular definitions of building quality
are; "A d),ttamic process v'ilhin v'hich each party Ío thaÍ
process cottþrms to lhe requiremenfs of the project, resulting
in the sati.sfuction of client ex¡teclalions" and "The successful
integratìort of the conrporrenls and praclices Íhat comprise a
project, reflecled in llte resoluliort of a cliettl's expecÍaliorts
through conþrmortce to reclttirentcnÍs ".

In the words of Egan ( 1998), qLrality must be fundamental to

the design process. However, lte goes on to elrphasise that
"defects and snagging need to be designed out before work
starts on site." In other words, he does not really value the
aesthetics ofdesign, shorving great enthusiasm for
standardisation and a "right first tirne", Zero defects approaclr
This view is shared by many in the construction industry, but
not by architects.

Survey Results
The majority of responses to questionnaires distributed were
received within three weeks of distribution. Generally it
appeared that respondents had carefully considered the
questions, and in a few instances there were invitations to
discuss the topic further. The data as presented is specific to
group and a further breakdown was possible in the consultant
group between architects and quantity surveyors, to give an
uuderstanding of any biases that may exist and point out areas
of agreement/conflict between professions or groups.
77 crB-2002

Influences on Design Qualíty

Respondents were asked which stages of a project programme
are the most influentialwhen design quality is considered. The
initial stages of a project were seen to be the most influential
when design quality is considered with production information,
and tenders were second. From this data it is important to note
that detailed design was placed fourth, which suggests that the
important qualitative decisions are taken prior to this stage of a
project.

T¡ble 1 to the
Number Returned V"
Sent Comnleted
Client 25 7 28
Consultant
Architect l5 6 40
OS l5 5 32
Contractor 25 8 32
Sub contractor 20 4 20
Total 100 30 30

Respondents were asked to rank given elements according

to their influence on design quality. They were to be
ranked in order, and indicated that functionality is the
most important influence on design quality, with lifecycle
costs the least significant.

The most notable feature of these results is the importance

placed on functionality; also of note is that architects
place aesthetics as the most influential element in design
quality, the opposite of the other three groupings. This is
not surprising; also of note is the far lower level of
importance that contractors and sub-contractors attach to
life cycle costs compa¡ed to the other professionals. The
increasing importance of lifecycle costs and building for
the long-tenn, now an important factor for many clients,
78 Quality of Design - Gunning

has not yet been fully realised by contractors and sub-

contractors.

Figure 2. Weighted Influence of Elements on Design Quality

by Complete Sample

100
90
80
70
60

3
2
l0
0
4os6o¡/bs capÍa/covs ùna (,'ocyclo Funchnaru
b Buib cosrs

Elements of Design Quality

There was a general consensus among the respondents on three

ofthe factors adversely affecting design quality,
. All groups identified lines of communication as being
unsatisfactory
o Short timescales had a negative impact
o Cost cutting was seen as directly affecting design
quality

Design Quality under Design and Build

A most critical question is the definition of design quality.
The response to the questionnaire identifies that there is a lack
of consensus among the participants. Indeed there are some
notable differences between the various groups ofrespondents
79 ctB-2002

as to what specifically constitutes design quality

The architects among the groups gave various definitions

ranging from the poetic to the practical. In contract quantity
surveyors were more specific in their appraisal of the question.
Here the definitions were based more around familiar terms
and examples. Again, there is the specific lack of a clear
consensus as to what design quality actually involves.

Figure 3. Weighted Influence of Elements on Design Quality

by Group

ã
.E
d 3 trCllents
c
5 lArchltect3
E 2
.9 trQuantlty Surveyors
3 1 OContractorr
lSub.ContrscloE
4os'âet/cs
"t"""ooro ""ro
"rrr)\^ "]l;"rrro,
Elements of Design Quality by Group

Contractors and sub-contractors among the respondents took

the view of satisfuing the clients' expectation. On analysis this
group has come closest to the theoretical definition that the
quality experts put forward. Their instinctive need is to satisff
clients because as Latham, (1994) points out"without clients
there is no industry " (although this should apply to
professionals in equal measure).

On the question of influential elements in design quality there

is a clear view that the most important is functionality. The
picture painted is another corroboration ofthe client objectives
identified by Walker (1996) where, in the preparation of a brief
by the client, the functionality aspect should be ranked highly.
Analysis however indicated that there are areas of conflict.
80 Quality of Design - Gunning

These differences are more to do with professional influences

than objective reasoning. In the view ofthe architects
surveyed the element of aesthetics is uppermost, whereas in the
view of the contractors it is placed third. For the sub-
contractor the element of capital costs is the most important
and this group equates quality wiTh'expensiveness' .

The perception by both quantity surveyors and contractors that

lifecycle costs are of more importance is in contrast to the view
given by architects and sub-contractors. The close
involvement of these two parties (quantity surveyors and
contractors) in the post contract stage of Design and Build
projects may be the reason for this lack of consensus.

Timescales for design would appear to be an irnportant factor

to which insuffìcient consicleration is given according to the
respondents. This may stem from the need of a client who is
financing a project to have his outlay returned in the shortest
possible time, and to get onto site at the earliest possible
juncture. However it could be argued that in doing so the issue
ofdesign quality is negated and consequential losses due to
design problems may arise after completion. That these would
involve potential costs to the client that may outweigh any
benefits he gained in cutting the design time short.

As Harkin & Gunning (1999) point out, quality is not

something that can be specified into design in the way that
materials are specified. Quality cannot be inspected into the
design process or produced simply by compliance with ISO
9001. Lawson (1997) declares that there are no optimum
solutions in design. Quality, in the words of Pirsig (1974), is
both subjective and objective. Design quality needs to be
managed sympathetically, with regard for more than efficiency
and utility, and this applies particularly to Design and Build
projects - where these two parameters usually dominate.
81 crB-2002

Effect of Procurement Method on Design Quality

Respondents were requested to indicate if procurement method
has an effect on design quality. The results are presented
below:

Table 2. affected Procurement Method

Client A QS C SC Total
Yes 6 6 3 2 20
No 0 0 0 4 0 4
Undecided I 0 2 0 I 4
Other Opinion 0 0 0 I I )
Total 7 6 5 8 4 30

The table endorses the view that design quality is influenced

by procurement method, with 67% of the respondents saying
that the procurement route chosen for a project will have an
influence on the design quality of the finished development,
with only l3olo expressing the view that it would not.

Respondents were invited to indicate if design quality was

better or worse under Design and Build. The results are
presented below:

Table 3. better or worse under and Build

Client A OS C SC Total
Better 0 0 0 2 0 2
Worse 6 5 J 2 J t9
Neither I I 1 2 0 5

No response 0 0 I 2 I 4

That only two of the respondents, or 6.5o/o of the sample, came

out in favour of Design and Build (with 63 '5% saying that it
was worse), forces home the view that design quality is poorer
under this procurement method. This is a serious problem and
one that will have to be addressed if Design and Build is to
maintain and increase its share of the procurement market.
That the professionals of the construction industry should have
82 Quality of Design - Gunning

such a negative opinion of design quality under Design and

Build needs to be worked on at all levels in the supply chain.

The use of novation may be seen as a means for the client to

pass on more of the risk than is equitable whilst still expecting
the same level of commitrnent from the contractor. The'design
and dump'mentality of contractors to novated Design and
Build is in many respects understandable. For the contractor
the benefit of his involvement in the later design process is
removed as the client seeks a guaranteed price and programme
for preliminary designs with which the contractor has had no
involvement, but must still bear responsibility.

Bennett etal (1996) also established in their research that

Design and Build has a poorer performance in terms of
meeting clients' quality expectations than traditional
procurement methods. "Only 5026 of design build projects met
clients'quality expectations, contpared fo 60% of traditional
projects". However, Bennett's report is somewhat ambiguous
or contradiclory on this issue, and suggests that "lower targets
for quality are often set for design and Build projects". It also
found that "the tougher the client's quality requirement, the
more likely is a successful outcome".

The qualitative statements of the respondents describe a

procurement route that is less than satisfactory where design
quality is concerned. Architects amongst the respondents
speak of fragntenlalion', 'too many masters and coolcs',
'dfficulty in ntonitoringfinaldesign and detailing', 'poor
communication'. These descriptives point to problems and
dissatisfaction in this area. There is a particular problem with
quality where novation is used.

Most quantity surveyors amongst the sample, along with

conÍractors and sub-contractors, hold the vi.ew that it does
result in poorer design quality. The argument that they put
forward ranges frotn "lack of continuity" to "cullíl,g corners
 83 ctB-2002

for short term cost gain" to "fficts on durability" and "rushed

decisions". These are persuasive arguments as to why design
quality is worse. In supporl of these arguments the results of a
research interview suggest that where it becomes a choice for a
contractor between cost and quality, then quality will
inevitably lose out. The interviewee considered that the
contractor will seek to maintain his profit level at the expense
of quality. Indeed Hyett, (1997) further supports this where he
claims that the contractor will manipulate design to maintain
profitability again at the expense of quality. Architects tend to
judge the quality of all buildings more harshly than
contractors.

Conclusions
The meaning of good design has been defined as follows.. "Zåe
successful integration of the contponents and practices thaT
comprise a projecl, reflecÍed in lhe resolution of a client's
expeclations through conformance lo requirentents".

The most influential stages of a construction project

programme upon design quality where Design and Build is the
method of procurement are the earlier stages. This
encompasses the pre-planning phase and covers the areas of
inception and sketch design up to and including outline design.
Functionality is regarded as the key requirement to satisfying
client expectations, but an appropriate level of aesthetic quality
must be achieved in doing so.

This research has identified several factors in the process of

Design and Build that have a negative impact on design
quality.
o Poor communication amongst the parties to Design
and Build contract.
o Insuffrcient time to analyse and consider design.
o Imprudent cost cutting of budgets.
o Difficulty in comparison of tenders based on
84 Quality of Design - Gunning

incomplete design.
a Clients' reduced ability to control design quality

The findings of this study concur with the conclusions reached

by Bennett et al(1996) and with corroboratory evidence from
various published authors and texts as indicated. Bennett et al
found that only l0lo of clients rated quality as their top priority,
and only l0% viewed it as important. Architects are alone in
the construction industry irr having aesthetics as their top
priority.

This conclLrsion does not exclude the fact that Design and
Build mav in some insta nces nroduce sood desisn. Ind eed it
has been established that Design and Build rnay well produce
buildings and design quality of a high stanclard iu particular
situations. However the conclusion of this report is that,
based on the empirical evidence presented, Design and Build
does not generally result in good design. The irlplications of
this conclusion for the Design and Build sector are for all to
see. Without the best designs being achieved, clients will look
to other methods of procurement to satisfy their needs. Unless
these issues are addressed the efforls of the last twenty years
will be wasted. An opporlunity to progress Design and Build
to the leading edge of procurement should now be grasped by
the industry.

This study has lirnited itself to the assembly of ernpirical

infornration within Ireland and the compilation of a supportive
literature review. It does not claim to be an exhaustive study
of the topic. The reasons for implying that its conclusions are
valid is based on the prirnary research presented and the
argurìrents cleveloped with the supporl of secondary data.

Recommendations
Procurement procedures remain a dynamic activity; the
construction industry will continue to evolve and adapt its
 85 ctß-2002

procurement systems to meet the changing and

challenging needs of society and the circumstances under
which the industry will find itself working. There is little
doubt that Design and Build has developed into one of the
preferred procurement options of the industry to-day. It
is expected that in the future building designs will become
increasingly complex, costs will continue to escalate,
projects will increase in size and clients will continue to
make even greater demands upon the industry. As a result,
the proliferation of procurement systems will continue.

It has however been suggested that as human behaviour is

unlikely to change dramatically, clients will continue to choose
the procurement systems they use from a narrow range of the
numerous methods that are likely to be available in the future.
Should this forecast prove to be correct, it will become even
more important that clients are made aware of all the available
procurement alternatives available, and make their choices by
the use of more sophisticated methods of selection than are
currently utilised.

The entrepreneurs of the constructio¡l industry are always

seeking out new ways of satisfying the increasing demands of
clients. The area of communication within the Design and
Build sector should be researched in detail. Tlrc irnporiance of
this issue is identified many times in this study. The fact that
poor communication was identifìed as a factor Ieading to poor
design also suggests that where there is a problem with one
aspect of a project, then the others must be affected also. In to-
day's information age, problerns of communication should not
occur. However as one research interview revealed: "Every
single problem in the construction industry is on the join, the
joining of people, of companies, of materials and of process".

The challenge for Design and Build is to maintain and improve

its strength in delivering buildings on time and within budget,
86 Quality of Design - Gunning

whilst learning how to be more innovative and stylish. In other

words Design and Build should become more broadly and
genuinely design-led. After all; Certainty of Price, Time and
Functionality + Design Flair: Satisfied Customers.

Further research and development into the areas outlined

is required if the construction industry is to sell more of
its products and improve efficiency and profit levels,
within the wide range of Design and Build procurement
systems. The notable absence of consideration of design
quality in the body of research into procurement systems,
needs to be rectified quickly.

Acknowledgement
The author wishes to acknowledge the contribution by M
Shortall to the preparation of this paper.

References
Ashworth, A, Hogg, K (2000). Added Value in Design
and Construction. Pearson Education Ltd., Harlow,
UK,
Bennett, J, Pothecary, E, Robinson, G (1996). Designing
and Building a llorld Class Industry. The Centre for
Strategic Studies in Construction, University of
Reading, RGl 5AQ UK.
Cox, A & Thompson I (1998). Contractingfor Business
Success. Thomas Telford, London UK.
Egan Sir, J (1998). Rethinking Construction. The Report
of the Construction Task Force to the DETR. HMSO,
London UK.
Harkin, F & Gunning, JG (1999). Evaluating Quality in
Construction. Journal of Financial Management of
 87 ctB-2002

Property and Construction. Vol4 No 3.

Hyett, P (1997). Narrow Objectives of Design and Build.
Architects Journal,UK lgth Feb 1997.
Latham, M (1994). Constructing the Team - Joint Review
of Procurement and Contractual Aruangements in the
United Kingdom Construction Industry. HMSO,
London.
Lawson, B (1997). How Designers Think; The process
Demystified (3'o Ed). The Architectural press.
Masterman, JWE (1992). An Introduction to Buitding
Procurement Systems. E & FN Spon, London.
Morledge, R (1996). The Procurement Guide. The Royal
Institution of Chartered Surveyors London,
Pevsner, N (1943). An Outline of European Architecture.
Pelican, London, UK.
Pirsig, R (1974). Zen, and the art of Motorcycle
Maint e nanc e . Y antage, Random House, London, UK.
Rowlinson , S (1986). An Analysis of the performance of
Design - Build Contracting in Comparisonwith the
Traditional Approach. Unpublished phD Thesis,
Arundel University, UK.
Rowlinson, S & McDermott, P(l999). Procurement
Systems - A Guide to Best Practice in Construction.
Routledge, London UK.
Songer, AD Molenaar, KR and Robinson, GD (1996).
Selection Factors and Success Criteria for Design-
Build in the USA and lJK. Journal of Construction
Procurement,Yol2 No 2.
Turner,. DF (1995). Design and Buíld Contract practice
(2no Ed) Longmans Scientific & Technical, Harlow,
UK.
Walker, A (1996). Project Management in Construction.
(3'o Ed) Blackwell Science, London
88 Quality of Design - Gunning
 89 ctB-2002

Pro-active Building Management

Improving the quality of airport terminals.
MichaelPittr,

Abstract
This paper summarises the current position with airport design and
suggests that efficient use offacilities cannot depend upon
shareholder retum alone but must be based on national interest and
effrciency demonstrated through external benchmarking. The paper
suggests that facilities managers must be aware of the expectations of
the airlines and passengers and the indicators used in the assessment
ofperformance. The paper outlines the reasons that influence an
airport's decision to upgrade or replace its terminal facilities.

Keywords : Airport, Design, Facilities Management, Performance.

Building Concepts
Although many different configurations exist for airport
passenger terminal buildings virtually all can be placed into a
few primary categories based on their geometrical
characteristics. Two major passenger terminal building
concepts have emerged in today's new, major and high volume
airports. These may be defined as follows:
a. centralised passenger processing terminal building
with finger piers as at the proposed second Bangkok
international airport or Schiphol Airport in
Amsterdam.
b. centralised passenger processing building connected
by people mover system to satellite buildings airside as
at the new Kuala Lumpur International Airport or
Denver in the US.

I
Heriot-Watt University, Edinburgh, Scotland
90 Pro-active Building Management - Pitt

Although different types of passenger terminals exist, this

paper concentrates upon the finger pier type such as that at
Changi Airport in Singapore.

Expansion of terminal facilities is required to meet seemingly

ever-increasing numbers of passengers in the aviation industry.
This has meant that more air-bridges and finger piers have
been required. This can be achieved through either new
construction or alterations to existing structures. As a result
extensions of existing finger piers are quite common. Walking
distances and overall travel time must also increase as
distances between check-in and departure gates also increase.
Over time the standard of service offered to passengers will be
affected. Subject to there being no land constraints there is
potential to ever increase the distance that must be walked or
over which baggage must be transported. This raises the
question as to whether a maximum viable size exists for
passenger terminal buildings.

Terminal Size Determination.

This paper concentrates on nine factors which are seen as
essential to the determination of the size of airport terminal
buildings.

llalking Distance - This factor has a direct bearing on

optimum size and takes into account both user psychology and
the human scale. The maximum walking distance
recommended by the Intemational Air Transport Association
(IATA) is 300 metres unaided. Beyond this a moving walkway
or other people mover system is recommended. Other localised
bodies have their own recommendations. In the UK BAA have
a policy of no greater than 250 metres unaided with an overall
journey of 650 metres being permitted where a maximum of
30Yo is unaided. Singapore's Land Transport Authority
suggests a maximum walk to a bus stop of 300 metres.
9l crB-2002

Level of Service F'or Passengers - It is important to determine

the level service that can be sustained at any specific capacity
level. It may for example be easy to sustain a high level of
passenger service at 1000 passengers per hour but only a low
service at 1500 passengers per hour. This is a strategic decision
which should be made in advance of design and operation. It
may be that different levels of passenger service are acceptable
at different times. Hence in general a higher level of service
will translate into a lower capacity for a terminal building of
given size.

Perþrmance Standards - Most airport owners or aviation

authorities set themselves targets for the purposes of measuring
performance. In the general area of facilities management the
benchmarking of various organisations against others
continues to be a matter of much discussion. In airport
management the two most important measurements of
performance success tend to be the time it takes passengers to
clear the airport upon arival and the time it takes for baggage
to be delivered.

Trffic Peaking Characteristics - it was mentioned earlier that

a trade-off may be necessary in terms of service to enable
capacity to equal demand for passenger throughput. Efficient
use of facilities is dependent upon avoiding the tendency for
passenger throughput to peak. A constant throughput of
passenger numbers allows efficient use of all facilities with no
reserve capacity being required. A tendency towards regular
peaks means that for much of the time the facilities are being
left idle whilst still representing a cost.

Transþr Volume - This factor will affect the need for capacity
in certain areas. A higher transfer volume will mean a greater
need for airside facilities such as circulation space and transfer
counters but a proportional lesser need for landside facilities
such as check-ins and baggage claims. Minimum connection
times become of greater importance with growing transfer
92 Pro-active Building Management - Pítt

volume

Hubbing - Efficient hubbing is best performed from within one

terminal and certainly one airport. In the UK British Airways
have experienced considerable problems from being unable to
hub at Heathrow in is entirety (Pitt,200l). The need to move
passengers between terminals does not allow for efficient
transfer times

Uncertainty of Demand - many factors affect the future

demand for air travel both on a global and local scale. These
factors include economic crisis, volatile transfer traffic, the
continued relevance of hubbing in the light of longer range
aircraft and the significance of airline alliances. These factors
and others mean that it may be prudent for an airport developer
not to overbuild (Wai & Teck,2000). Consideration may be
given to constructing flexible buildings in a modular form
which can be modified in the light of unforeseen factors.

Sophisticated and Costly Airport Systems - some systems

become so complex that the maintenance and redundancy
back-up costs become prohibitive. Much like the size
constraints mentioned earlier , technolory too can be a
restraining factor in the size to which airports can grow'

llayfinding - the larger the airport the greater the need for
effective and clear wayfinding.

Defïning Optimum Capacity

It can be seen that optimum capacity is a subjective concept.
The cosmopolitan origins of passengers on long haul air
journeys are less likely to be prepared to tolerate crowded
unpleasant public areas. In simple terms what the average flier
will not tolerate will simply not do. This is of course far too
simple a definition as the tolerance level of the holidaymaker is
famously more (even though they may not know it) than the
93 ctB-2002

business traveller

According to Blow (1991) the maximum capacity of a terminal

with finger piers designed for hubbing is around 30 million
passengers per annum with 50 gates, Wai and Teck (2000)
point to the six fingered pier terminal as being the optimal
design in terms of efficient aircraft and passenger movements.
They conclude that the optimal capacity for a six frnger pier
terminal is around 25 million passengers per annum. This
capacity figure can only increase if trade-offs are made in
performance related issues.

Airport Performance
Much has been learnt about the design and construction of new
airports as the massive expansion in air travel continues.
Modern airports such as Changi in Singapore provide a better
and more efficient experience for travellers than some of the
more cramped facilities that are found elsewhere in the world.
The location of the airport is often a major factor in its
efficiency. The contradiction between the need to invest in
airports and the form of ownership was identified by Pitt
(2001). The need for some airports to answer to shareholders
and not governments has led to the peculiar situation where
privatisation has been a company success but a national
failure. Airport design advancement has been fast and achieved
largely in the last twenty years meaning that many airports
across the world and particularly in the UK require
replacement and/or relocation. In order to demonstrate the
efficiency of airports both the airport owners and the airlines
use performance measurements. These measurements are only
meaningful if they are benchmarked against other similar
facilities. It is for example virtually useless to compare London
Gatwick with London Heathrow and conclude that their
performances are similar as they are both to some extent
outdated facilities in the same ownership. What is needed is
benchmarking external and internal to the country and to the
94 Pro-active Building Management - Pitt

company

An Aírport's Multí-Customer Base

Airports may be defined as multi-customer based facilities in
two distinctly different dimensions. Firstly, Airlines
themselves are interested in monitoring the performance of
airports to ensure that overall operations are efficient and cost
effective but also that the passenger receives a good service
from the airport airline and any combination of the two (for
example : the provision and manning of check-in desks)'
Airlines are acutely aware that when a passenger flies regularly
the choice might be airport first and airline second.

Maintaining a presence at a popular airport might be seen as

essential by a network carrier such as British Airways. This
ability for passengers to decide to fly from different airports
represents the second dimension of an airport's customer base.
It may be a decision to route through Amsterdam instead of
Heathrow or to fly from Heathrow instead of Gatwick. In any
event maintaining competing airports in different ownership is
essential for competition to operate effectively. The extent to
which an airport is ready and able to respond to the results of
any benchmarking exercise is strongly dependent upon the
form of ownership (Pitt,200l).

As the requirements of the airport's customers are essential to

its continued viability airports must be familiar with the latent
grading that is adopted through research undertaken by airlines
and the ratings placed upon airport performance by
organisations such as the ICAO and IATA.

Aírlínes
The performance measurements used by an airline are often
tools to bring shortcomings to the attention of airport staff.
Very often the problem will be one over which the airline has
no control. If airports want to avoid the exposure of
 95 ctB-2002

weaknesses within their built facilities or management thereof

they must be aware of what is being studied by the airlines and
deal with these matters before they affect the competitiveness
of the business. One of the main problems presented to airpofts
is the difficulty in responding to the differing needs of the
different types of airlines that are emerging (Pitt & Brown,
2001). Tables 1 and2 below shows the customer service
effectiveness measures that have been put in place by Aer
Lingus the Irish national carrier and the resource utilisation
measures used. These measurements are different to those
undertaken by some other carriers but serve to illustrate the
fact that airlines study airports and the interrelated, mutual and
collaborative services that are provided.

Passengers
As much as airlines can move from airport to airpoft so
passengers can choose a departure point, In the case of levels
of service IATA has developed a framework which pennits the
comparison of airports and sub systems through the use of
common terminology. Table 3 below shows the category
definitions from A to F.

Many airports, such as the new Hong Kong International

Airport are designed to meet level C standard as it denotes
good service. The fact that the aim of one of the world's
newest airports was to achieve only level C suggests that a
compromise was reached between expenditure a¡rd service

The level of attainment on this scale is an indication of the

likely overall experience that passengers will gain at any
airport. The decision to achieve a certain level of service is a
strategic one.
96 Pro-active Building Management - Pitt

Table I : Customer service - effectiveness measures

Dimensions \#hv? How - Aer Linsus
Design relate problems to correlate customer feedback -
marketing with make it relevant and ensure it is
reference to conflicts fed back to source in this case
between desirability check-in as well as marketing
and feasibility
Performance are the frontline use customer relations
agents delivering as information to monitor
the organisation performance. Use an outside
thinks they should agency .

be? staffappraisals - a function that is

so people orientated that it is
essential. The staffneed to know
what is expected and ifthey are
oerformins
Reliability if we are capable of establish metrics - e.g.
delivering what % of throughput of passengers per day,
the time is there a amount of passengers dealt with
short fall? per staff member, complaints per
1000 pax, oá ofcheck-in errors
that caused delays,
Cost staff should be aware it is important that the cost
Reliability ofproviding value for passengers are paying overall is
money i.e. delivering noted. Likewise it is important
the specification. that staffknow the importance of
yield.
Delay are queuing times too measure queuing times in
long or could we minutes not amount of people.
have them longer.
Duration how long is exchange study the actual exchange. It may
- could it be be possible to speed it up if more
shortened and/or re- attention was paid to transaction
engineered? timing particularly during
training
Timing what percentage of establish standards and review if
reliability time is a recognised these are not being met e.g. no
standard delivered? queue plus transaction time to be
longer than 5 mins. Feedback
from customers regarding
specification will show what is
acceptable.
97 crB-2002

Table 2 : Resource utilisation - effi measures

Dimensions Whv How - Aer Lingus
Machinery/IT it is necessary to see ifthere monitoring by staff to see
Equipment is downtime for the IT the rate of systems failure
equipment. This could
impact on capacitY.
Labour emphasis is put on "softer" it is the main expense
elements. However it is because it is fundamental
necessary to maximise to the specifrcation.
available labour. It maY be However closer attention
possible to provide the has to be paid to
same level of service with productivity
less staff. as an organisation the
balance has got get closer
to 50/50 in customer
satisfaction versus
resource utilisation.

Table 3 : Level of Service Framework

A Excellent level of service; condition of free flow;no
delays; excellent level of comfort.
B High level of service; condition of stable flow;
acceptable delays; high level of comfort'
C Good level of service; condition of stable flow;
acceptable delays; good level of comfort'
D Adequate level of service; condition of unstable flow;
acceptable delays for short periods of time; adequate
level of comfort'
E Inaclequate levelof service;condition of unstable flow;
unacceptable delays; inadequate level of service'
F Unacceptable levelof service;condition of cross-
flows; system breakdowns and unacceptable delays;
unaccePtable level of comfort.
NB : Level of service C is recommended as the minimum design objective as

it denotes good service at a reasonable cost. Level ofservice A is seen as

having no upper limit.
(Source AACC/IATA, I 990,5)
98 Pro-active Buildíng Management - Pitt

Construction of New Facilities

Airports can influence their positioning on any benchmarked
scale by cutting passenger numbers but the reality is that this is
not usually possible in the airport business. Making decisions
on new facilities must come as the norm or the industry
benchmark is significantly above that at the subject airport.

Decisions to upgrade or replace airport facilities will depend

upon the following factors :
L Benchmarking outcomes
2. Form of ownership (Pitt,2001)
3. The extent to which the airport is publicly
perceived as being outdated.
4. Changing customer needs (Pitt & Brown,2001).
5. Environmental issues
6. Political pressure both internal and external
7. Economic climate in country of origin
8. Any other industry changes

Conclusion
The time has been reached on the world stage where many of
the world's major airports are outdated. Modern construction
techniques and design concepts have pushed the capacity and
performance levels of new airport terminal buildings to new
heights (Pitt, Wai& Teck, 2001). The barriers to the renewal
and upgrading of airports are many. Some of these such as
forms of ownership are government created, others are simply
due to the growth of the air transportation industry itself.

References
AACC/IATA (1990). Guidelines For Airport Capacity -
Demand Management 2nd Edition.
Amaratunga, D & Baldry,D. (2000). "Assessment of facilities
managerrent performance in higher education properties"
99 ctB-2002

Facilities. Vol. I 8 No.7/8 293 1301.

Blow,C. (1991). Airport Terminals. Butterworth : Oxford.
Brown, A, Hinks, J, & Pitt,M. (1999). "The role of the FM in
the delivery of capital building projecls" RICS Cutting
Edge Conference. S¡ Johns College Cambridge. Sept 1999.
Kaplan,R.S & Norton,D.P. (1996). The Balanced Scorecard.
Harvard Business School Press: Boston Mass.
Pitt, M. (2001). "Strategic Direction in the Airport Business -
Enabling or Diabling?" Facilities. Vol 19. No. 3 / 4.
Pitt, M. & Brown, A.(2001). "Developing a strategic direction
for airports to enable the provision of services to both
network and low-fare carriers". Facilities Vol 19 No. 1 / 2.
Pitt, M, Wai, F.K. & Teck, P.C. (2001). "Strategic
Optimisation of airport passenger terminal buildings"
Facilities Vol l9 No's 9/10.
Wai, F.K. & Teck, P.C. (2000). "Optimum size for an airport
Passenger Terminal Building With Finger Piers". Journal
of Aviation Managemenl No.1 ,
100 Pro-active Building Management - Pitt
101 crB-2002

The performance concept in road construction

A follow-up of a real project
Pär Falkr & Bengt Larssonr

Abstract
The environment and the basic conditions of the Swedish civil
engineering sector are changing. To be able to meet the new
expectations on quality, sustainability and eff,iciency, the sector has to
develop new procurement methods and new production technologies.
The Swedish National Road Administration (SNRA) has taken an
initiative to initiate a number of innovative pilot road projects. One of
these projects has the aim to refine and develop the performance
concept, which differs from traditional Swedish procurement mainly
through the change from extensive technical specifications to
requirements on road performance. This will also lead to expanded
time for conffactor responsibility. A group consisting of experts
within the SNRA and private technical consultants has designed the
procurement documents in the pilot project. The aim of this paper is
to investigate if the designed procurement documents contains enough
degrees of freedom for the contractor, in other words if it gives
increased possibilities for the contractors to apply new methods and
new technology.

Keywords: Performance concept, procurement documents design,

public performance procurement

Introduction
The Royal Swedish Academy of Engineering Sciences
presented in 1998 a report investigating the structure ofthe
Swedish civil works sector. The report "Knowledge
development within civil engineering: Civil Works in Focus"
stated that the Swedish civil works sector needed development

I
Department of Building Economics and Management, Chalmers
University of Technology,SE-412 96 Gothenburg, Sweden
t02 Perþrmance Concept- Falk et al

with regards to efficiency and knowledge. Furthermore the

report proposed a selection of measures to develop the sector
and to improve the above mentioned areas. The measures were
to be applied in pilot projects such as partnering projects and
performance procurement projects. The majority of these are
infrastructure projects to be procured by SNRA (Swedish
National Road Administration, from here on referred to as the
SNRA). The SNRA is the public procurer of civil works and
Sweden's largest client within the sector. Therefore the SNRA
has a sector responsibility appointed by the Swedish
Government. The sector responsibility means that the SNRA,
amongst other issues, carries the responsibility to put efforts
into R&D, and it is from these causes natural that these pilot
projects is procured and ordered by the SNRA.

This paper aims to evaluate if the performance concept applied

to a pilot project facilitates the possibilities to develop skills
and efficiency within the sector, thus if the procurement
documents contains enough degrees offreedom for the
contractor to take in consideration. The procurement
documents rvas finished in late Junq 2001, which implies that
the study focuses on the documents and what can be found out
through studying the process. This paper is a part ofa larger
study that will follow the pilot project throughout the
construction and further on into the usage/maintenance stage.
Interviews with contractors have not yet been done.

The Performance Concept

In Sweden the performance concept has been studied and
applied on real-life projects since the mid 80's. The prompter
has been Professor Torsten Grennberg (Luleå University of
Technology, Sweden) who in an SNRA publication 1995
defined it as "The performance concept contract is a contract
where the client describes the product trffic space in terms of
measurable performance requirements and the contractor
choose the technical solution. The contractor is responsible for
103 crB-2002

that the traffic space will be well-functioning during a long

time".

The performance requirements can be looked upon as

qualitative obj ectives whereas procurement documents
traditionally have consisted of mostly quantitative
specifìcations. In an approach to visualise the existing range of
procurement specification levels a figure has been designed:

2
Level of speciñcation

Figure l. The existing range of procurement specifrcation levels'

The positions I and 2 describes the extremes, the high level

specified procurement with detailed specifications on materials
localisation and executions (2) and the refined performance
concept procurement with only qualitative objectives and no
specifications on materials and executions (l)'
Traditionally the SNRA has procured constructions very close
to (2) which according to the report by The Royal Swedish
Academy of Engineering Sciences does not facilitate
development of the sector in the way that procurements close
to (l).

Development within Construction

Based upon the work of David M Gann and Ammon J Salter
(2000) it can be seen that "government regulatory and
procurement policies have a strong influence on demand and
play an important role in changing the direction of
technological change". Assuming that this thesis also is
applicable on the change of contractual forms a model can be
used to understand what parameters influences the design of
the performance procurement document.
104 Perþrmance Concept- Falk et al

Regulatory and
lnstitutional Framework

Project

Project
members

Technical Support
lnfrastructure

Figure 2. Model describing what influences development within

project-based activities (modifted model based on Salter A J. and
Gann D M.,2000).

One way to look at it is that the client has to deal witli the
regulatory and institutional framework to design the
procurement document in a way that it lies within the laws and
policies set by the Government and the stakeholders whom it
concern. Contractors then have to be able to use a well-
functioning infrastructure for technical support to come up
with innovative technical solutions and try them against the
regulatory and institutional framework. The latter is not funher
discussed in this paper since it is focused on the procurement
document design.

Previous Performance Procurement Projects in

Sweden
In Sweden there have been test activities in the field of
performance concept contracts since the mid 80's. The
105 ctB-2002

performance concept has been applied to road projects of

various sizes and levelof complexity. A uniform image of the
results is therefore hard to compile. On the other hand the
opinions shows a similarity, both concerning advantages and
drawbacks. The opinions on what would be the advantages
indicate that the performance concept is a way to reach the
areas of improvement that The Royal Swedish Academy of
Engineering Sciences appoints.

The participants ofprevious projects states that the

performance concept leads to efficiency concerning both time
and economy, furthermore it requires increased knowledge
within the contractor's organisation. They also state that the
bureaucracy is decreased and that prerequisites for technical
development are provided.

The drawbacks can mainly be derived from the lack of

experience to work this way. The procurement documents are
said to be indistinctively formulated and the existing ground
conditions have not been sufficiently described. When
interviewing the project manager of one of the projects, which
is accepted to be very successful, he appoints the relay of
requirements to be the key factor in designing a distinct
procurement document. The requirement relay is the chain of
methods needed to handle a performance requirement (fig 3).

Performance Measuring Report¡ng Result

requirement method method treatment

Figure 3. The performance requirement relay

Case study - Regional Road 610 Southwest of

Sweden
During the year of ß99 a suitable project was found and the
project manager procured a consultant to design the
performance procurement documents. Simultaneously a group
106 Performance Concept- Falk et al

of technicalexperts and procurement advisors within the

SNRA was formed to support the design. The first meeting was
held in March 2000.

The road project contains construction ofan about l0 km long

stretch divided into two parts, where one is to be procured
traditionally, with detailed specifications, and one according
to the performance concept. The project is regarded to be a
fairly simple construction with low risk concerning ground
conditions,

The process of designing the procurement document can

generally be described as in fig 4 below.

Mnó 00 Mù 00 lræ D0 Auo 00 od 00 Hou 0O

hroduc'l¡m cnd Pêrformoncc Technlcâl lssu6 gedçsblied Conccpluol Rov¡sod
presor{dlon ol desqilions ând lield docwnls crcptuôl
lhe prciesl ond hcerìt¡ve exanhatlons llrìlshed dæuments, tlmo
the pad¡cipar*s fûmulglions schedde lq
fiocúehenl

Dec 0l Jcn 0l rêh nl Âtrll ûl Mrv 0l JUE tl

Fhcrchl issuês, Procwom6nl Rcv¡sions ol thc Rev¡slons d the Fhal tov¡sim D¡stribut¡on ol
dêhÕds on documents documents and dæuneris and and relh¡ng ol lhe [email protected]
blds ßleredlor nwrelqr¡nglor nil relãr¡ng for the docunenls dæumeds for
cons¡dããllon êonsi¡lãal¡on cmsidãal¡on lcnd?r

Figure 4. Issues discussed on the procurement document design

meetings.

When participating in the meetings the most obvious

observation has been that the attitudes towards the
performance concept have changed. In the beginning ofthe
process the work was influenced by scepticism mainly towards
the fact that a great deal ofthe responsibility for the project
was shifted from the client (the SNRA) to the contractor. The
scepticism depends mainly upon the widespread distrust in the
contractors' skills. Throughout the process the project leader
was able to change the attitudes and convinced the group that
t07 ctB-2002

there will be no development without taking risks. This was

also simplified by the low amount of risk in this specific
project.

Description of the Designed Procurement

Documents
The documents are designed with the starting point in the work
plan, which is a prerequisite to allocate funds within the SNRA
to the project. The work plan is also settled legally, and must
be followed throughout the project. The work plan consists of
background and motives for construction, a rough road stretclt
and a design proposal, consequences ofthe proposal
considering land usage, environmental issues etc. Furthermore
a plan for land acquisition has to be made and before the work
plan can be settled a public consultation has to be done.

The procurement documents are constructed with performance

requirements on the pavement and the body of the road. There
are two bridges within the stretch which are treated
traditionally, where contractors submit proposal sketches for
approval. The safety issues are mainly treated traditionally
whereas the contractor receives a plan for marking and signs,
but for safety in terms of i.e. drainage and flatness of the
surface there are performance requirernents.

The performance requirements are distinctively illustrated arld

there are measuring methods attached. The contractor will be
responsible for the performance requirements throughout a 7-
years period of time after the road is opened for traffic. The
contractor will also be responsible for the maintenance during
this period. There are incentives attached to the requirements,
and measurement results within and at the end of the period
will decide whether bonuses or reductions will be at hand.

The location of the road is roughly settled through the work

plan, but there are degrees of freedom in terms of levels and to
 108 Performance Concept- Falket ul

some extent in horizontal directions.

Approaching roads and slipways are procured with a high level

of specification, this is to avoid inconvenience for third parties,
Additional work will be procured according to the contractor's
price lists.

Conclusions
The history of performance concept projects in Sweden has
shown that it is important to put a lot of effort into designing
the procurement documents, most of the drawbacks appointed
by actors have been that the documents have been indistinct.
Furthermore a distinct requirement relay is regarded to be a
basic condition to succeed. The examination of the fînished
documents and the observation of the process give by hand that
these parameters have been treated seriously and with
precaution. Furthermore the distribution of responsibility
through the project is distinctively defined. The conclusion is
hereby that the performance requirements have been designed
in a way that promotes the possibilities for the project to
become a successful pilot study.

According to the Royal Swedish Academy of Engineering

Sciences it is of greatest importance that the procurement
documents contain enough degrees offreedom forthe
contractors to take in consideration. The degrees offreedom
are the key to development of efficiency and skills within the
sector. When positioning this project in the range of
procurement specification levels (fig 5) it turns up somewhere
in between. The regulatory and institutional framework
increases the level of specification through the work plan.
 109 crB-2002

2
l¡Þl drpåcl¡crlion
TlË p¡ld
Putlt byr
lrËilr¡tbnd ¡rú
ReoulCqy
¡þd'
0¡ticuñ13 to fcßl¿e
púürÈalnbPãfmnæ
rcúiqEú3
Figure 5. Pilot project position in range of procurement specification
levels.

The difficulty to translate safety and environmental issues into

performance requirements also increases the level of
specifications.

Conclusively it is evident that the procurement documents

have been designed with the amount degrees of freedom
possible at the current level of experience and knowledge. The
future procurement and construction of the project will show if
this is enough.

References
The SNRA, 1995. "Byggande och skötsel pà
funktionsentreprenad - Upphandlings- och
kontraktsmodelf' . The SNRA Borlänge 1995:49.
The Royal Swedish Academy of Engineering Sciences, 1998.
" Kompetensuneckling inom s amhcills byggnad :
Anldggningar i fokus".
The SNRA, 1996. "Fyra vdgbyggen på funktionsentreprenad'.
The SNRA Borlänge, Stockholm och Härnösand.
The SNRA, 1999."Funktionsentreprenad, ombyggnad av vdg
770 delen Spångends-Totebo i Kalmar lcin" The SNRA
Borlänge 1999:l 10.
Hansson, B, 199 4 " Mo t orv dg s o m funkt ions entr epr enad,
utv dr d er in g av G amm e I s t a-pr oj e kt e t" Department of
Building Economics, University of Lund.
Kjessler och Mannerstråle AB, 199 4. " Funktionsentreprenad
Försölesprojekt. Ombyggnad av väg 713 delen Vena-
ll0 Perþrmance Concept- Falk et al

Vdderum i Kalmar lcin"

Ohlsson, lJ ., 199 4. " Funkt ions entr epr enad för dr ift o c h
underhåll av vägar och gator", Division of Construction
Management, Luleå University of Technology.
Hedin, U. Et al., 200l "Gransløtingshandling 2001-01, väg
6 I 0 de I e n Br o t orp e t - He a går d Funkt i ons entr epr enad', The
SNRA objectnr 325320.
Gann, D. M. and Salter A. J., 2000. "Innovation in project-
b ased, servic e -enhanced firms : the cons truction of

complex products and systems", Elsevier Science B.V.

 lll c I B-2002

A Comparison of Construction Contractual

Arrangements
John Christianr

Abstract
There are various fypes ofcontract in the construction industry which
include design-build, traditional, and partnering contracts. Partnering
contracts are used so that a client, an engineer and a contractor can
form a mutually beneficial contractual arrangement to complete a
construction project. In the past few years, many privately funded
partnering contracts for infrastructure projects have been completed.
This type of contractual arangement is often part of a government
procurement policy to create a build-own-operate-transfer
arrangement. There are several public-private procurement strategies
and systems available to the client. The paper reviews and examines
the public-private procurement (PPP) systems available and
comments on different contractual arrangements. The paper also
describes research which investigated the effects ofchange orders on
different fypes of contract. Construction project information and data
were collected from a total of 40 public sector projects in New
Brunswick. A local contract is described where the arrangemerlt was
changed from a privately financed contract with tolls to a contract
without direct tolls.

Keywords: public-private procurement, contractual arrangements,

public sector projects, tolls

Introduction
Contracts are used to legally bind two parties into a
predetermined agreement. In construction, there are various
types of contracts which include design-build, traditional, and
partnering contracts, Design-build contracts are a type of

rConstruction Engineering and Management, Faculty of Engineering,

University of New Brunswick, Fredericton, NB E3B 543, Canada
112 Comparison of contracts - Christian

contract where the client appoints a single firm or a consortium

of companies who are responsible for the design and
construction of the project but where the client does not form a
partnership with the consortium. In traditional contractual
arrangements the client enters into two contracts by employing
an architectural or engineering firm to design the project, and
the construction is then performed by a contractor, One
contract is between the client and consulting engineer or
architect and the other contract is between the client and the
contractor. Another type of arrangement can include the client
appointing a project manager to manage the project. Partnering
contracts are contracts where the client, engineer and
contractor form a mutually beneficial relationship to complete
the project.

Two other arrangements, at each end of the spectruln, include

the in-house owner design and build arrangement, for example,
highway maintenance and rehabilitation, where there is no
contract involved, and at the other end, complete privatization
with no transfer of ownership until after a stated period of say
25,35 or 50 years.

Partnering is the fastest growing procurement system in the

construction industry due to the demand for new infrastructure
and the limitations of available public funding. This type of
contract aims to create an efficient, better schedule controlled
and cost-effective project, with an improved quality system
and a better opportunity for innovation. Partnering has not yet
fully matured in the industry and there are questions
concerning its appropriateness for some types of contracts.
Generally, partnering means a cooperative contractual
arrangement between a client (government, owner) and a
contractor for a specific project. Other partnering
arrangements can include a contract for a time period
extending over several projects or, for example, the continuous
maintenance of a transportation system. Mutual objectives are
enhanced such as open relationships, a combined systematic
113 ctB-2002

approach to problem resolution, mutual trust, a dedication to

common goals, more effective communications, a prevention
of adversarial attitudes, the avoidance of litigation, best
practice, and through it all, a means of achieving the best value
for the owner and user.

In the public-private partnership (PPP) arrangement, the public

sector transfers a significant level ofrisk and responsibility to
the private sector over a long term arrangement. The
contractual arrangements emphasize performance based
outcomes rather than relying solely on specifications. There
are several types of arrangements which generally involve the
design-build process, but finance and operation can also be
involved. Sometimes the project financing is secured by real
user tolls rather than some form of taxation. The scope of this
paper is restricted to a general discussion ofpartnering
contractual arrangements, a description and discussion of a
specific project which intended to incorporate real tolls but
then eliminated the proposed tolls after commencement of the
project, and a small scale investigation into the link between
contractual arrangements and change orders'

Public-Private Partnerships (PPP)

Public-private partnerships (PPP) have not been restricted to
one type ofconstruction or engineering project.

PPP arangements have involved the following types of

projects:
landfill and waste disposal prisons
harbours
ports ând railwaYs
maintenance
highway utilities
hospitals schools
highways bridges
water and wastewater treatment systems airports

Other significant PPP arrangements, although not in the

 114 Comparison of conlracts - Christian

construction or engineering area, have included the following

Recreation Utilities management
Land development revitalization Property management
IT systems Health care services

There are various PPP arrangements such as:

Operate-maintain Design-build-operate
Build-own-operate-transfer Build-own-operate

In the operate-maintain contract a private operator operates a

publicly owned infrastructure for a fixed term. In the design-
build-operate arrangement the infrastructure is still owned by
the public but after the design-build contract is complete an
operating and maintenance contract follows. Sometimes the
asset is bought by a private company usually under a contract
that specifies the asset should be well maintained and operated.
A private company flrnances, builds, owns and operates a
facility in perpetuity in the build-own-operate arrangement, but
often the facility is transferred back to the public sector after a
specified period of time.

A common framework for PPP projects should be developed

which ensures common contractualterms and guidelines for
selecting advisors and consultants. The output requirements,
and the analysis and division of the risk should also be
specified.

Public-private partnerships - process

The fundamental objective of PPP is the formation of a team
from several organizations which commits to mutual goals and
thereby creates a collaborative group synergy. The goals must
be clearly and concisely stated. The PPP affangement attempts
to prevent budget overruns and schedule extensions.

Consulting engineers have sometimes felt that clients can

waste significant resources because the clients are unsure
115 crB-2002

about choosing the best procurement arrangement for a

particular project. Their decisions are usually based on their
individual experience. PPP is not a panacea for all contracts
and often traditional procurement methods will continue to be
appropriate for some projects. PPP can be cost-effective under
certain conditions when the projects are large and complex and
where it is better for the private sector to assume some or most
of the risks. If the life-cycle costs are on a small scale,
however, traditional procurement methods may still be the
most cost effective because of extra PPP costs.

The PPP process includes identif,ing the specification,

contract strategy, financial strategy and the evaluation criteria.
Following pre-qualification procedures, a request for
proposals, including the terms and conditions, is necessary, A
group must then be formed to evaluate the proposals and
consider the proposed partners, and the preferred offer, before
the selection and recommendation are made. Negotiation may
be necessary before a final award is made.

The Canadian Council for Public-Private Partnerships, in

cooperation with Industry Canada has selected and
documented 100 PPP projects in Canada. (ref. l)

A PPP Highway and Bridges Project

The Fredericton-Moncton Highway Project in New Brunswick,
Canada, is a build-lease-operate-transfer type of PPP project.
The project was initiated because the Province of New
Brunswick recognized the inadequacy of the existing Trans-
Canada Highway between Moncton and Fredericton, The need
to build and finance a new highway more quickly than would
be possible through traditional means was therefore
considered.

A "Request For Proposals" was issued in 1997 to three private

sector / developer operator proponents for the submission of
l16 Comparison of contracts - Christian

Technical Specifìcations, a Quality Management Plan, and

Financial/LegallEconomic Plans.

To finance infrastructure projects in New Brunswick, a Crown

Corporation called the New Brunswick Highway Corporation
(NBHC) was created. NBHC represents the Province in a
partnership to finance, build and operate the new highway. In
1998, it signed a concession agreement with the New
Brunswick Project Company Inc. (NBPCI), a not-for-profit
company created to manage and operate the Fredericton-
Moncton Highway as a toll highway for 50 years' The
company has representatives from the government and the
private sector developer/operator, Maritime Road
Development Corporation (MRDC).

MRDC:s shareholder companies included Miller Paving,

Dragados FCC Canada Inc., and Janin Atlans Inc. (formerly
GTMI Canada). The project included a 195 km four-lane
controlled-access highway with a total of 20 interchanges,23
overpasses and will be completed by November 2001. With a
construction cost originally estimated at over $650 million
(Canadian), MRDC implemented state-of-the-art quality
assurance and quality control methods to fulfil its mission
statement for the project.

There are also two major bridges within the contract limits' A
four-lane twin deck bridge crosses the Saint John river' The
bridge comprises fourteen spans for a total length of over I
km. The bridge consists of two independent substructures
which include piers and deck but share common foundations.
Spans vary from 56 m near the abutments to 120 m at the main
span which gives a 24.4 m navigating clearance at summer
water levels. Nearby, another bridge crosses the Jemseg river
and is similar in design and general configuration to the Saint
John river bridge, but comprises eleven spans, with an overall
length of almost I km.
ll7 crB-2002

Real tolls can be a potential source of revenue for highway

and/or bridge projects. However, the acceptance of tolls
depends on the general public and government perception.
Public acceptance of tolls can be initially important. General
taxation, or specific taxes such as fuel taxes and license fees
are more common in Canada, although tolls are used in a
neighbouring province, Nova Scotia, and on the well known
12.9 km Confederation Bridge between New Brunswick and
Prince Edward Island (also a build-lease-operate-transfer
contract arrangement). Because of the relatively low traffic
density on most highways in Canada a tolling system is only
likely to be considered a reasonable alternative by the general
public when they are linked to large scale projects, relatively
high traffic density urban highways leading to low tolls, or
very long bridge projects (replacing ferries).

The capital cost of the Fredericton to Moncton highway was to

be financed through two types of debt: toll-based debt and
lease-based debt. $540 million was to be raised in lease-based
debt, which would be paid back through the sub-lease
payments. $149.5 million was to be raised in toll-based debt,
which was to be paid back through toll revenues (estimated at
about $22 million annually over the life of the project). NBHC
and NBPCI have a 30-year operating contract with MRDC
during which time the financing is to be repaid. Under the
lease agreement, the province will have the option to buy the
highway at fair market value after 30 years, or after 40 years,
or ownership automatically reverts to the province in year 50.
MRDC is paid as the work is carried out. Payments on the
lease-based debt will not begin until two years after the total
length of the highway is open. The consortium is responsible
for all cost overruns and delays.

There was extreme pressure against the provincial government

who proposed tolls for the Fredericton to Moncton highway
project. The highway tolls became the main issue during a
provincial election and the incumbent government lost the
 118 Comparison of contracts - Christian

election. As the construction of the highway proceeded the

proposed tolling system .was eliminated and this debt was
transferred to the government. To replace the tolls the
government implemented a traffic counting system whereby
traffic volumes will be monitored and classified according to
the type of vehicle. Corresponding monthly payments will be
made to NBPCI to pay for its toll-based debt.

The guaranteed maximum price for the construction bid by

MRDC was $584 million. The total capital cost is
approximately $872 million. Annual sub-lease payments from
NBHC to the NBPCI are estimated at $58 million for 26 years
(years 5 to 30 ofthe lease).

Effect of Type of Construction Contract on

Change Orders
The effects of changes on the performance of three different
types of contracts: traditional, design-build and partnering
were investigated (ref. 2). Construction project information
and data were collected from a total of 40 public sector
projects in the Department of National Defence and the New
Brunswick Department of Transportation. It was found that
the average cost ofdesign changes was larger than the average
cost ofconstruction changes for all types ofcontracts. It is
therefore important to spend time and effort to make sure
design changes are kept to a minimum.

The classification of changes was based on the nature and

origin of the changes and whether the changes were
construction or design changes. Construction changes were
classified as:
changes resulting from unforseen site conditions, but did not
require redesign (Type 1C); and
errors and omissions (Type 2C).

Design changes were classified as

 119 ctB-2002

a changes that were made due to the update of

requirements within the original scope (Type lD);
o a change of requirements not within the original scope
(Type 2D); and
a changes in design made necessaryby unforeseen site
conditions (Type 3D).

The cost ofthe projects ranged between $100,000 and $23

million with an average cost of $5 million.
The combined project data for the research project consisted of
l0 design-build projects, 22Traditional projects and eight
partnering projects. The number and average cost of changes
for each type of contract is shown in Table l.

Table 1. The Number and Average Cost (C$) of Changes in

Each Type ofContact

Average verage
Total Number ofChanses Cost / Cost /
number Design Construction
Type of of Type Type Type Type Type Change Change (C$)
contract projects IC 2C ID 2D 3D (c$) (e)
(l) (2) t3) t4) (5) (6) (7') (8)

Design- l0 36 34 t52 t6 0 6 150 8 250

Build

Traditional 22 129 486 139 29 l0 4 050 9 000

Partnering r20 25 46 5 25 340 680

The research findings supported the premise that partnering

projects result in a lower cost when changes are required. It is
felt that this is due to the mutual cooperation of all parties
involved in the project. Further research is required to expand
the sample size and investigate in greater detail the impact of
120 Comparison of contracts - Christian

changes on partnering and other types of projects.

Conclusion
Changes are taking place in relationships and roles between
clients, engineers and contractors in design and construction.
One trend is from method to end result / outcome
specifications and another trend is in the distribution of risk
and liability in PPP construction projects.

A PPP project will not be considered a success unless the

client, contractor, operator and user consider that the project
has been successful, For success, the right situations and the
right projects are required.

There have been examples of PPP projects not working well in

the information-communication technology and health service
areas but often PPP projects can guide value-added benefrts in
cost saving, risk sharing and other improved efficiencies for
the right type ofconstruction project.

References
Industry Canada. 100 Projects: "Selected Public-Private
Partnerships Across Canada". The Canadian Council for
Public Private-Partnerships. Toronto. 2001.
J. Christian and A. Cariappa. "Change Orders, Project
Performance and Cost of Quality for Different Contract
Types ". Proceedings CSCE Conference. Vol. 3, p 309-
3 18. Regina . 1999.
 t2l clB-2002

Procurement strategies for complex projects

The Italian situation in the field of public works.
F. de Siervor, F. Ravettar & P. Ravetta'

Abstract
Design and construction of public works are evolving from mere
engineering services into complex multidisciplinary activities.

The quality concept itself is extending from the simple compliance of

a project to the specifications to a more comprehensive approach to
the project as a whole, guaranteeing technical, social, and economic
requirements in full conformity with all legal and administrative
constraints.

In several countries, although effective regulations exist,

responsibilities for their enforcement are fragmented among many
public bodies that often do not communicate between each other. This
sometimes makes it difficult to effectively apply such regulations.
Procurement strategies are a typical case: particularly for complex
projects they require time and the synergic effort ofseveral specialists
of different skill, ranging from technical to administrative and legal.

This paper presents a procurement strategy based on the above

synergy, which was recently successfully adopted in Italy for several
complex projects (over 50 million US$).

Present Situation and Current Problems

Design and construction activities of public works entail in
Italy several aspects ranging from traditional technical and
economic requirements to more recent legal-administrative
constraints and managerial issues.

Until recently, engineers' activities basically consisted in

I ingea
consulting srl, Via Filippo Carcano, 30,20145 Milano, Italy
122 Procurement strategies - Siemo et al

providing technically and economically sound designs based

on best engineering practices, acknowledged experience in the
specific fìeld, and compliance with existing standards and
regulations. Later social-economic and cultural changes
brought substantial modifications.

Awareness of ecological and sustainable development, as well

as importance of safety and health matters in civil works
construction increased, and important changes took place in
the legislative and administrative fields to adapt old fashioned
national and local regulations to the new Directives issued by
the European Communities on those matters. One could say
that in ltaly a new culture is being brought into the picture.
Civil works sector is still in a period of transition: while, on
one side, involved parties (such as contracting agencies,
contractors, and consultants) are not yet conversant with this
new culture, on the other side failure to comply with the new
regulations may cause, and has actually caused, serious effects
on project implementation.

Absorption of the new culture in the field of civil works is

likely to require much more time than originally expected. A
way to speed up the process preventing at the same time the
above drawbacks is to adopt sound management procedures
covering the entire project cycle from initial design to
commissioning and, were applicable, subsequent O&M.

This is a substantial step towards the Total Quality of the

project, that is: extending the quality concept from the simple
compliance of the project to the specifications, to a more
comprehensive approach to the project as a whole,
guaranteeing technical, social, and economic requirements in
the full conformity with all legal and administrative
constraints. Total Quality would:
o ensure the technical, economic, financial, and
administrative feasibility of the project;
. pave the way to ensure compliance with the planned
 123 c IB-2002

time schedule, budget and quality;

a foster the flexibility of design solutions, so that they be
capable to allow for those changes that might
conceivably become necessary during the economic
life of the project because of medium- or long-term
modifications of its usage;
a minimize claims and disputes between contractor and
client.

The Proposed Procedure

The following bidding and awarding procedure was developed
during the last five years of our consulting activity to several
Italian public contracting agencies in the field of large
infrastructures, e.g.: hospitals, universities, mass transport
systems, solid urban waste incinerators, etc. The higlilights of
the procedure are:
o the Guidelines of the entire procedure, to be set out at
the very beginning ofthe project cycle;
¡ tenders based on a preliminary or definite design;
. contracts awarded to the economically most
advantageous proposal ;
o restricted bidding procedures.
The bidding procedure outlined above was successfully
adopted in ltaly for several large projects including transport
infrastructures, hospitals and university buildings, with
construction cost ranging frorn 15 to 200 million US$.

The Guídelines
The implernentation of a large project involves a great number
of different activities and requires several important decisions
such as: to define the main features of the project, assess the
financial resources needed and identifu their sources, decide
which strategy to adopt for the procurement of all required
services, goods and works, determine which are the formal
approvals, permits, and no-objections to be obtained by the
124 Procurentent strategies - Siervo et al

involved local and national authorities, etc. The attentive

definition of the entire procedure is vital for a smooth
implementation of any project, more so in the Italian still
unsettled context as depicted in chapter 1. The Guidelines take
care of this: they not only state what has to be done in order to
guarantee the successful outcome of the project (this would be
a mere check-list), but also identif, who (whether a structure,
authority, organisation, etc.), should do, check and/or approve
what and with what specific responsibility; state when each
such activity should be done, in compliance with which
standards and procedures; what kind of documentation should
be set up, by whom and when.

The Guidelines are integrated with a time schedule

highlighting the cornpletion times of all activities and their
mutual relationships; they also provide tools to ascertain and
guarantee that all specified actions are being actually carried
out according to the schedule.

In Italy the responsibility for the enforcement of the several

laws and regulations related to civil works is fragmented
among many public bodies that often do not communicate
between them; this makes it difficult to effectively apply such
laws and regulations. Moreover, any modification to an already
approved procedure may jam the whole process even for a long
period of time. In such a context the early, careful and detailed
planning of the entire procedure achieved by the Guidelines
lowers substantially the project risks'

The preparation of the Guidelines for a complex project is a

demanding activity requiring time and a variety of
interconnected legal, administrative and technical skills. The
selection of the most convenient strategy and procedure for
each project implementation step as well as each chain of
activities, needs to be validated in all its aspects through a
continuous dialectic process. The team of experts in its whole
should enjoy a very good practical experience in the design
 t25 ctB-2002

and implementation of complex projects and in its related

administrative and legal aspects. Only people endowed with
such direct experience can produce effective procedures and
related tender and contract documents, and promote their
continuous updating and improvement.

The Procurement Strategy

For a long time, public works have been a ground for debate in
the Italian media, and the object of extensive, hot discussions
even out of the traditional field of experts in the subject. This
resulted in the widespread conviction that every layman can
express his judgement on the matter.

Particular criticism was aimed at those bids which are not

awarded on the sole basis of the lowest price; and this, because
of the conviction that only awards based on the lowest price
could avoid the scandals which have occurred in Italy in the
recent past. This is reflected by the recent Italian law on
public works that, except for a limited of special cases,.
compels to call tenders based on the detailed design of the
works and to award the contract on the sole basis of the lowest
offered price. In our opinion not enough attention was paid to
the fact that actually, what caused the scandals was not the
awarding method adopted, but rather the lack of specifìc
experience and sometimes professional ethics of the officials
who managed the process.

True experts in the implementation of public works prefer to

award the contract to the bidder presenting the most
economically advantageous tender, that is considering both the
offered price and other technical, managerial, and operational
aspects of the proposal. This in compliance with art. 30, clause
l, of the European Directive 93137 of June l4th, 1993 which
co-ordinates the procedures for the awarding of public work
contracts. The Directive, in addition to guaranteeing
transparency ofthe procedure and equal opportunities to all
tenderers, safeguards the client's interests much more
 126 Proau'entent strategies - Siervo et al

effectively than the lowest-price award does. In fact, when the

concept of tlie most economically advantageous tender is
adopted, only the essential features of tl-re project are
established by the design on which the tender is based (usually
a definite design) and the tender documents, and bidders are
required to propose the solutions they intend to adopt for all
other aspects. The winner will then develop the detailed design
of the project based on the solutions he proposed. Competitors
will exploit their experience and strive in looking for the best
possible compromise between quality and cost (best value for
rnoney) in order to prevail over their cornpetitors. This does
not happeu when the contract is awarded on the sole grounds
of the lowest offered price, because in this case the tender has
to be necessarily based on the detailed design of the works, and
no room is left to bidders' intprovements.

In some recent cases, a frlrther procedure improvement was

obtained by adding to the tender for the design and
construction of the works the operation ancl maintenance of
both civil works and equipment for a given period (e.g.: five
plus five years). This proved to be an effective way to
minimise the risk of biclders proposing low quality technical
solutions to cut oflèred price, thus charging the client with
higher operation and maintenance costs during tlie life of the
project.

The Restricted Bidding Procedure

To errgage in a tender to be awarded with the concept of the
most economically aclvantageous proposal requires a notable
outlay of time and resources. Iu fact, bidders shall have not
only to carefully examine the design on which the tender is
based, but also select the rnost convenient solution according
to their experience and evaluation criteria set forth in the
tender documents, and work it out to the level of detail
required. Therefore a pre-qualification should be made, in
order to admit to the tender only a limited number of selected
bidders. This leads to the adoption of the restricted bidding
 r27 crB-2002

procedure provided for in art. l, letter f, and art. 22 of the

Directive 93/37ICEE. The restricted procedure allows a better
flexibility than the open one, as it allows the client to know the
tenderers and consequently to call a pre-bid conference. In the
pre-bid conference bidders are encouraged to ask all
clarifications they could need on the tender documents, and the
client provides the necessary answers. Very often, as a result
of the conference, tender documents are improved
incorporating bidders' suggestions. The pre-bid conference is
an essential tool for obtaining high quality bids which, in their
turn, are a precondition to the good outcome of the project.

In Italy, it is usual to prepare all tender documents in their frnal

version before bids are called and the pre-bid conference is
practically unknown, making the entire procedure very much
rigid. On the contrary, the solution we have currently adopted
in the last years fully exploits the advantages granted by the
Directive 93 /37 ICEE: restricted bidding procedure, tender
documents discussed with the selected bidders in the pre,bid
conference, and full understanding of the rules of the game by
all parties involved before proposals are received. This
procedure is still rigid as far as its basic principles are
concerned (strict observance of the European Directives, full
compliance with all transparency, legality and equal-
opportunities requirements), but flexible enough during
implementation in that it allows the contracting agency to
adapt tender documents to the actual needs as they emerge
during the process. This grants a more efficient management of
the relationship between client and tenderers, allows the latter
a better response to the tender requirements, and minimizes the
risk of claims. The same flexibility applies to contract
finalisation: after the tender is awarded, technical aspects of
the winning proposal that are not fully satisfactory can be
discussed and modified so as to meet client's expectations, and
the agreed modifications incorporated into the contract.

One could say that this tender procedure brings the

t28 Procurement strategies - Siemo et al

procurement process back to its natural pattern, giving all

parties their congenial role. This is particularly important in
the Italian context were contractors have been for a long time
subordinate to clients, and their autonomy and responsibility
gradually diminished to a point where the contractor became a
mere executor, often void of any will or professional prestige.

The suggested procedure gives full importance to the

contractor's capability. Besides building the project, he is
required to exploit all his capabilities to the client's and
project's interest during the whole process. When presenting
his capabilities in the pre-qualification stage, the tenderer lays
out the base of the relationship he wants to build with the
client in case of success. During tendering, conditions are
provided to induce bidders to offer their best possible services,
making them active subjects to help the client to improve
tender documents; the bidder's skills turns into concrete facts
(technical solutions, construction methods and techniques,
work organization, etc.).

After the contract is awarded to the best bid, the client will
integrate the draft contract included in the tender documents
with the techniques, procedures and methodologies displayed
by the contractor in his proposal. These same features that
allowed that specific proposal to be ranked first in the
combined quality and cost evaluation, will become contractor's
obligations. This will make difficult for the contractor to
ascribe to the client problems that could arise during
construction, since construction is carried out by the contractor
based on his own detailed design, procedures, techniques and
methodologies. He could claim only when in a position to
prove that something went wrong due to the client's
interference, or because ofevents outside his control. Instead,
when a tender is awarded to the lowest bidder and is
consequently based on the detailed design ofthe project, the
contractor could much easily found his claims on actual or
frctitious design flaws.
t29 ctB-2002

This technique allows for various levels of involvement of the

contractor. Case by case the client, depending on the strength
of his technical organization, and nature and complexity of the
project, will decide what should be the most convenient
responsibility level to be assigned to the contractor.

Conclusions
The procedure proved successful in overcoming some
important problems affecting the civil works sector in Italy
such as: (i) the inconsistencies between the recent Italian
regulations and European Directives, (ii) the fact that the
subjects involved are still not familiar with European
Directives, (iii) the contentiousness resulting from (i) and (ii)
which hampers projects implementation, and (iv) the
inadequate involvement of the contractors which prevents them
from making full use of their experience for the project benefit.
131 ctB-2002

Re-engineering Construction Procurement

Summary of Scottish casestudy findings
John E. Tookeyt, M.D. Murray2, C. Hardcastlet and D.A.
Langford2

Abstract
Building procurement decision making has presented significant
problems for many years in both the UK and the remainder of the
world. This paper presents the final results of a2.5 year study funded
by the Engineering and Physical Sciences Research Council (EPSRC)
entitled "Re-engineering the building procurement decision making
process". The research was conducted jointly by the University of
Strathclyde and Glasgow Caledonian University in Central Scotland'
A sample of 12 case study projects ofvarious size and engineering
configurations, was used. The research was a longitudinal study,
incorporating a significant number of interviews with all the'key
players' in the construction process. The study also facilitated the
formulation and piloting of a number of novel research tools. This
paper will present a summary of all the critical findings of the study
and begin to discuss the future impact of the findings on the nature
and conduct of research in construction procurement in the future.

Keywords: procurement, case-studies, research methods

Introduction
The building procurement decision making process has þeen
recognised for many years as presenting signifîcant píobldnts
to the effective delivery of projects within the time, cost and'
quality requirement of clients. The highly fragmented,
transient, peripatetic nature ofthe construction tçam has been
highlighted as significant since it places huge responsibility on

I Department Of Building And Surveying, Glasgþw Caledonian University'

Cowcaddens Road, Glasgow, G4 0BA, United Kingdom.-1Éø)eç4lAcJJk
2Department Of Civil Engineering, University Of Strathclyde, 107
Rottenrow, Glasgow, G4 ONG, UK. [email protected]
 132 Re-engineering Construction Procurement - Tookey et al

this 'team'- albeit possibly having never worked together

before - for creating an appropriate organisational system in
order to facilitate design, construction process and successful
completion of the project (Sidwell, 1982). Frequently it is
thought that construction is unique among complex assembly
processes (i.e. manufacturing), which prevents the use of best
practices pioneered elsewhere. Indeed the need to remedy this
situation has been a key driver in developing new'Best
Practice'(e.g, M4I initiative, Construction Best Practice Panel,
National Construction Creativity Clubs etc) methods of
organising construction following the Egan report ( 1998). All
these issues are now addressed in formulating construction
teams so as to deliver projects attarget cost, within projected
construction time. Responsibility for creating an effective
construction team in an effective contract system to deliver
these requirements remains largely with the client - part of 'the
amalgam of activities undertaken by a client to obtain a new
building' (Franks, 1984) or in other words the selection of a
building procurement system.

Different generic procurement routes have been created to

satisff the diverse requirements of diverse clients. These
procurement systems (Masterman, 1992) are usually defined
as: separate / co-operative (e.g.traditional open tendering);
integrated management (e.g. D&B) and management oriented
(e,g. management contracting). Research indicates clients and
their advisors select procurement systems irr an illogical,
inappropriate manner (Masterman, 1992) - to an extent that
this failing is cited as a principal reason for poor performance
(Skitmore and Marsden, 1988). Benefits and problems
associated with each procurement system have been variously
reported upon over many years, e.g. Banwell Report (1964)
and the Latham Report (1994). A repeated theme in these
reports is criticism ofdesign and construction separation
inherent in'traditional' procurement. The Egan (1998) report
recently introduced further dimensions to the procurement
puzzle by advocating 'partnering the supply chain'. This
133 ctB-2002

attempts to integrate conflicting needs of design, construction

and supply to increase client satisfaction, reduce wastage and
costs. An irnplicit criticism remains that procurement route
selection is generally inappropriate and largely inefficient.

To optimize construction performance, it is vital to understand

all aspects of procurement. Traditional approaches to
procurement have evolved organisational structures, which
carry with theul assumed but, arguably, unproven ideas of
roles, responsibilities and communication patterns. As
procurement evolves, clarity iu role, responsibility and
cornlnunication blurs. New approaches do not benefit from
previous experience. Clearly one aspect of any procurement
process needing careful definition is selection of an
appropriate orgauisational structure as a basis ofthe
developrnent process (Turner, 1990). The task of assernbling
materials, labour and fìnance in the right place, time and order
to construct a building implies a huge amount of inforrnation
being passed among project participants. Construction teams
therefore spend a lot of time directly in some fonn of
communication, requiring highly-organised communication
since effective networks speed inforrnation flow and accuracy
(Hardcastle, 1992) - increasingly important as sub-contracting,
less skilled labour and reduced margins have increased growth
in alternate forms of procurement. These trends are justified on
grounds ofreduced costs, but recently attempts have been
made to rationalise the burgeoning supply chain so created.
This has manifested itself in the use of a system of preferred
suppliers (e.g. BAA Framework Agreernent).

Although similar in using'preferred bidders', recent PFI (and

PPP) procurement methods have created problems in structure
and communication pattern. Whichever approach is used,
communication networks are essentialto project success -
allowing organisations to work effectively. Arguably, in
traditional procurement, limited sub-contracting and
unsophisticated tcchnology allowed networks and
 134 Re-engineering Construction Prr.¡curentent - Tooke.y et al

communication patterns to evolve. This is no longer the case.

Integrating design and construction through D&B and
partnering approaches may be unsuitable for all projects. They
may be less effective than traditional methods since there is no
time to develop consistent patterns of communication. A need
remains to define elements and structure of communication
networks transferable to all project types. Recent steps taken
by large and experienced clients such as the MoD - i.e. the
'Building Down Barriers' initiative (Nicolini,200l) - could be
regarded as 'post-modern' procurement, significant of yet
further evolution in procurement systems. The selection of a
procurement system by the client largely defines the manner in
which communication takes place. Several mainstream
management authors (Conrath, 1973; Roberts and O'Reilly,
1978) argue that organisational structure is defined by the
communication that takes place. Weick (1987) particularly
notes communication's importance to the management
structure, stating'[communication] is the essence of
organisation because it creates structures'. Given that the client
in corrjunction with their advisors select the procurernent route
and its accompanying contract, this in turn creates formal lines
of communication and therefore by definition, organisational
structure. It could be argued that this is in actual fact a'quasi-
structure' since the reality of project comrnunications will tend
towards a less rigid social or'informal' structure. Indeed, the
value and impoftance of this fonn of communication to the
efficacy of the project, and ergo organisational sub-structure,
was identified by the Tavistock Institute sorne time ago
(Higgin and Jessop, 1965).

Significantly, even the criteria by which it should be possible

to objectively evaluate a'successful'project is difficult. Hewitt
(1985) established that each category ofclients (experienced,
inexperienced, public, private etc) detenrrine their project's
success by different criteria. Hewitt went on to recommend
that industry should be aware of, and fully understand, the
individual characteristics of groupings in order to assist them
r35 crB-2002

in the selection of the most appropriate procurement system for

tlreir particular project. Success refers to the extent client's
objectives, in terms of time, cost and quality are met. Time and
cost dimensions may be quantitatively measured using pre set
standards, but quality issues will be perceptual and client
determined. To achieve client time, cost and quality objectives,
this research also sought to improve the understanding of
organizational structures and the decision-making processes
associated with each methods of building procurement.
Recently Liu and Walker (1998) cast doubts on such previous
studies. They contend that variability and individuality of
project goals, measurement and evaluation of project critical
success factors (CSFs) are likely to be so individualistic that
any search for generalisable CSFs is likely to be misplaced'

Research Objectives
The research sought to deliver the following objectives:-
l. Determine how clierrt objectives are formulated and
how they influence the choice of procurement system,
2. Establish how and why procurement systems are
chosen and their relationship to embedded
organ isational structures.
3. Detennine communication pafterns resulting from
organ isatiotral sYsterns.
4. Examine the decisiolt making processes in each of the
above inter-related sYstems.

Supporting Methodology

Summary of Original Methodological Approøch

The original methodological framework for the research saw
the construction project as consisting ofthree decisional and
communication domains. These were firstly, the determination
of client objectives. Secondly, the determination of the
procurement system. Finally, determination of the project
 t36 Re-engineering Construction Procurement - Tookey et al

organisational structure. Given that these domains could be

considered to be subsystems within the project in and between
which decision and communication takes place, the flow of
information and therefore decision-making and communication
needs to be timely and effective in order to expedite
construction. Originally the research set out to use a case study
format, with sufficient industry support to provide a total of 20
cases - considered to be an adequate sample for the intended
study. The intention was to investigate procurement processes
from conception through to completion; it was recognised that
although the majority of data collection could take place in
'real time', some would necessarily have to be retrospectively
captured (particularly for pre- and early contract phases).

A number of different variables were identifred as requiring

measurement in order to fully explore the nature of the
procurement and decision-making processes taking place.
These included client objectives, selected procurement
method, the organisational paradigm, client satisfaction,
communication and decision making. A variety of research
tools were identified as being pertinent to quantiffing each of
these variables for further analysis (Hardcastle and Langford,
1996). However the reality of conducting such involved
research in such a complex area required a re-evaluation of the
most effective methods of research and indeed on the nature of
the variables to be measured. This ultimately created a
significantly revised methodological framework in which to
work in order to deliver the objectives of the original proposal.

Revßed Methodologícal Approøch Adopted

The methodological approach adopted by the study followed a
more qualitative vein than originally intended. A number of
different research tools were selected for use with each case
study. The primary source of information was via semi-
structured interviews of 'elite' members of the construction
team members of the various consultancies taking part in the
projects (i.e. the project manager, structural engineering, M&E
137 crB-2042

engineer, quantity surveyor, architect and main contractor).

This initially utilized the COMPASS communication
assessment tool (Tucker et al, 1997) that provided a useful
comparison between the various projects of six critical
communication variables - including timeliness, accuracy,
completeness, understanding, barriers to communication and
procedures. Subsequently, after the initial 'getting to know
you' interview, the researchers returned to each participant to
review the progress ofthe project and assess the
communications taking place. The nature of these subsequent
interviews became that of retrospective 'story-telling' of the
happenings on the project in the intervening period. It was
found after an analysis of the preliminary case studies that
these 'stories' followed a uniform set of typologies (see
Murray et at,2002) common across all projects. This
subsequently became a key finding of the study and the method
for utilising this finding is entirely new. By analysing the
frequency ofrepetition ofdifferent stories in each ofthese
various typologies a'footprint' was created (see Murray et al,
2002) for the project that was unique. This allowed an
objective description of each project in terms of either being a
high or low frequency of a particular project typology. In the
future it is anticipated that this technique or a revised version
of it will form the basis of many different studies. Indeed it is
expected that a follow on study is likely to be created at GCU
particularly aiming to use this analysis tool for benchmarking
purposes. The critically important aspect of this study that
makes it unique amongst its peers is the breadth and depth of
access gained into the projects forming the case studies. This
allowed the research team to review and amend the original
epistemology and adapt it in order to gain a deeper
understanding of the reasons behind the pragmatic decisions
made. The new methods developed during the project for
recovering usable data from case studies will no doubt be a
valuable tool for researchers in the future.
 138 Re-engineering Construction Procurement -.Tookey et al

Selectíon of Case Study Projects

As a result of the significant time delay between initial
submission of the research bid and the confirmation of
funding, the support gained from various client and contractor
organisations prior to the initiation of the project proved to be
difficult to capitalize upon. All of the case study projects
originally intended to form the basis of the study were either
already completed or alternatively well under way and
therefore not suitable to be researched. So as to make a start on
the research without wasting too much time securing a full set
of projects to form the study, an initialgroup of three pilot
projects were secured close together in Edinburgh, These pilot
studies allowed the research team to fully develop a set of
research tools that would be used on all the projects forming
the body of the work. The pilot projects were also useful in
that it was found that in order to be able to develop depth and
texture in the data, and also to not lose contact with the rapidly
evolving situation on site, realistically no more than 2 or 3
projects should be running concurrently, The numbers of key
personnel involved on each project and the diverse geographic
locations of their respective offices made traveltime a
significant factor. Furthermore their time on site was so limited
that interviewing at that location was unfeasible. This finding
had significant import for the study in that the originally
planned upon sample of 20 case studies became logistically
impossible to support by the research team. In order to
maintain the continuity of the highly effective research
techniques applied, it was therefore decided to reduce the
overall number of projects in the sample. Therefore a
completely new set of projects was selected instead of the
originally plan set. In the end a reasonably diverse sample of
l2 projects was secured that included a representative cross-
section of the various procurement routes available to the
modern construction client, including'traditional', D&8,
management and partnered forms of procurement. It is
accepted that the sample of projects secured is based on those
projects that were willing to participate in the study and cannot
139 crB-2002

therefore be considered to be a randomly based sample. In

view of the depth and breadth of access allowed into the
projects, this non-randomness was considered an acceptable
aspect ofthe study.

Results
A number ofkey advances can be attributed to the research
described in this paper.

Key Advance I - New Parødígm in Constructíon

Procurement
Research has shown that industry is well in advance of
academia in being able to adapt to the reality of new
construction procurement methods. This is both a new hnding
and in a very real sense a validation of the Mintzberg
contention that industry sets the agenda and academia acts as a
recording medium. An analysis of the selection criteria of
clients use in conjunction with their advisors showed that the
ClienVadvisor combination usually select'correct'
procurement method given the normally accepted standards of
'appropriate' procurement route for given client requirements.
The Masterman (1992) based analysis tool showed a strong
propensity for clients to select the most'appropriate'
procurement method (Tookey et al, 2001). Moreover, analysis
of the second and third most appropriate form of procurement
in the given project circumstances showed that these secondary
and tertiary'appropriate' methods were addressed using
additional contract clauses in the main contract. None of the
procurement systems fitted into an easily recognisable
procurement system per se. The results demonstrate a new
paradigm in the description of procurement systems in
operation today. Cumently it would seem that a'post-modem'
approach to procurement has emerged, an approach that does
not fit any of the commonly accepted procurement descriptors,
but instead adopts the 'pick and mix' approach to procurement
- procurement through'preferred modalities' of project
140 Re-engineering Conslruction Procurement - Tookey et al

delivery. Effectively clients and their advisors, create unique

contracts and procurement forms suited to the particular
circumstances in the project by taking the 'best' (i.e. most
pertinent) terms of generic coi:'tracts available (Tookey et al,
2001). This implies for researchers that it is impossible to
objectively compare the results of two projects that are
notionally procured under the 'same' system. This has
signifîcant import to the weltenschauung, or view of the world,
that should be adopted by procurement researchers in the
future, since it has opened a new territory for research' Indeed
this has highlighted the need to delineate and map this new
region. Fundamental questions have been raised:-
l) What is the 'geography' of this new procurement territory?
2) What are the perils and rewards for explorers in this new
land?
3) What are the natural resources that may be exploited in
this terrain?

This new knowledge above all others establishes a possible

future agenda for CIB W92 procurement systems commission'

Key Advance 2 - Novel Understanding of

Archítecture of cneil requirements ønd
procurement methods
The architecture of a fixed set of client requirements feeding
into a fixed, delineated procurement route - historically the
standard model for procurement research - does not exist. This
is new knowledge. Client requirements for a project do not fit
into any pattern assumed or found by previous research. No
case study projects could be comfortably fitted into any of the
pre-existing procurement 'types'. This resulted from adaptive
methods of tailoring procurement to the specifics of problems
and requirements on each project. To have attempted to
compare the results of two 'identical' procurement methods
would trivialise the impact of project specific factors in the
outcomes. Very simply, client requirements either gradually
(the incremental model) or dramatically (the quantum model)
l4l ctB-2002

evolved during the life of the project. Each procurement routes

therefore became so unique with site specific problems
requiring bespoke solutions that 'off the shelf or'one size fits
all' procurement was never an option. In each case the
procurement route 'selected' had in actual fact to be specially
created hybrid, incorporating the 'mix and match' principle
outlined above. Indeed all participants in the case study
projects reported that the original contract had been either
moderately or signiftcantly amended to reflect this trend. This
challenges the notion ofseeking to establish generic process
protocols for all projects since there is now evidence that each
project can and must establish unique protocols reflecting its
particular circumstances. Indeed, this could be seen as strong
evidence to support the notion that procurement is
metaphorically more closely related to evolution than to
replication. A model in which construction is a metaphorical
ecosystem, construction projects are food sources and
procurement systems are animals competing for food. The idea
can be expanded further to incorporate contractual clauses as
the DNA that can be amended, adapted and combined to create
an infinite variety of procurement'animals'to exploit every
possible source of food available. The relationships in this
system are dynamic, and as such Darwinian competition will
mean that certain procurement'animals'will thrive, others will
face extinction. Within each'species' of procurement, infinite
local sub-strains and variations will exist in order to take
advantage of particular conditions. As in the ecosystem
analogy, procurement'animals' will never stop evolving while
environmental change continues and possible advantages can
be achieved.

Key Advønce 3 - New Parødígm Procurement Uses

Trødítíonøl Communícøtíon Pøtterns
Communication patterns demonstrated in the projects appeared
to adopt the same accepted and understood network as the
'traditional' method of procurement. This was as a result of
expediency in the fast moving environment of each of the
142 Re-engineering Construction Procurement - Tookey et al

projects. The dilemma faced by participants was either to

òbr"-t the protocols of formal communication along
prescribed channels, or alternatively to speak to the participant
with the necessary skill set to get the job done. This second
option required the retrospective observation of the formalities
oi communication (i.e. creating the paperwork covering the
decision made or information transferred). Unsurprisingly
most participants chose to take the latter approach - producing
paperwork detailing decisions after the event in order to
rnáintuin the integrity of the audit trail associated with the
project. This scenario was most commonly played out on D&B
ðontracts in which novated consultants regularly went outwith
the reporting chain of command (i'e. through the main
contractor).

Key Advønce 4 'A New Generic Proiect Typology

'Footprint'
An analysis of the interviews in progress discovered a number
of recuning themes within the 'stories'. It was eventually
found that a total of 14 distinct typologies for stories could be
identified; these typologies could be grouped by either being
'Project generated' (i'e. specific to decisions taken on the
project) or 'Non-project generated' (i'e. external factors
imfinging on the project that could not be predicted)' A further
refinement of this concept was to classis incidents as either
being enhancing or detrimental to the project. The frequency
with which these stories were repeated throughout the project
allowed for the development of a frequency histogram or
'footprint' for each project' This was found to be particularly
useful in getting an understanding ofcritical aspects affecting
the performance of the project. Looking at the 'footprint' could
quiótcty identifu projects in which communication was the
biggest problem, or that in which supply chain management
.rããt.¿ most problems. It is felt that this technique, although in
its infancy and needing some development, could provide an
extremely useful tool for future researchers in organizational
structures and performance. This key advance is a finding that
143 ctB-2002

was not originally anticipated by the research and therefore not

an explicit research objective (examples of 'footprints'can be
seen in Murray et aL,2002)'

Key Advance 5 - Formal and informal

communícøtions
A markecl difference was found to be evident in the nature and
structtre of formal and informal communications taking place
in the construction team. To some extent this is related to key
advance (3) in that much of the informal communication was
taking place in order to expedite the unwieldy nature of the
formal communication network' There is preliminary evidence
that a higher level of formality in communication takes place
as a result of problems that are likely to result in litigation.

Key Advønce 6 - Søtísfuction & effectiveness ¡n

decßions
It was found that there was no correlation between each of the
various procurement routes examined in the research and the
satisfaction shown by participants and clients in the decisions
made. The finding here is closely related to the research
objective 4, examining the efficacy of the decisions emanating
from the various organisational structures seen.

Conclusions and Further Research

The twelve projects studied provide a microcosm of the
changing nature of relationships in the project procurement
process. The research has mapped these changes, but an insight
is that industry really reflects the changes taking place in
contractual arrangements (prime contracting, partnering
contracts etc). These new contractual forms are either attempts
to reflect the new behaviours or control the pattern ofrelations.
The research has pioneered the prospect of contractual forms
which make sense of the cunent codified contractual chaos
existing in the industry today. The research can be considered
t44 Re-engineering Construction Procurement - Tool<ey et al

to be the first step on what may be a long road towards

matching the evolution of academic understanding with the
rapidly developing ideas adopted and implemented by
practitioners. The research outlined in this report has formed
the basis of a number of successful grant applications both
nationally through ftrnding councils and locally through
university research grants.

References
Banwell, H (1964) The Placing and Management of Contracts
for Building and Civil Engineering ll/ork,IlNfSO, London
Conrath, W. D (1973), Communication Patterns,
Organizational Structures and Man: Some Relationships,
Human Factors, Vol.15, No.5, pp459-470.
Egan, J. (1998) Rethinking Construction,Final Report of the
Construction Task Force, HMSO, 1998'
Franks, J (19S4) Building Procurement Systems- A Guide to
Building Project Management, CIM, Ascot, UK
Hage, J., Aiken, M and Marrett, C.B (1971) Organization
Structure and Communications, American Sociological
Review, Vol. 36, pp860-871
Hardcastle, C. (1992) An Information Model of the
Construction Cost Estimating Process' PhD Thesis Heriot-
Watt University, UK.
Higgin, G. and Jessop, N. (1965) Communication in the
Building Industry: The Report Of A Pilot Study, Tavistock
Publications.
Latham, M., (1994) Constructing the Team, Final Report on
the Joint Review of Procurement and Contractual
Arrangements in the UK Construction Industry, HMSO.
Liu, A. and Walker, A. (1998) Evaluation of proiect otttcomes,
CM&E, Vol. 16, pp209-219.
Masterman, J.W.E. A Study of the Bases upon which of the
Construction Industry Choose Their Building Procurement
Systems. PhD Thesis UMIST 1994
Murray, M.D., Tookey, J.8., Langford, D.A. & Hardcastle, C.
145 crB-2002

(2002), Construction Procurentent Systems: Don't Forget

Murphy's Law!, proceedings of CIB W92 procurement
systems symposium, Trinidad and Tobago, January 14'17.
Nicolini, D, Holti, R. and Smalley, M., (2001) Integrating
project activities: the theory and practice of managing the
supply chain through clusters, CM&E, Vol.19, pp37-47.
Roberts, K.H. and O'Reilly, C.A. (1978), Organizations as
C o mmun ic at i on s S truc t ur e s : An Emp ir ic al Appr o ac h,
Human Communication Research, Vol.4, pp283-293'
Sidwell A.C. (1990) ProjecÍ Management: Dynamics and
P erþrmance, C}l4&E, Vol.8, pp 1 59- I 78
Skitmore, R.M. & Marsden D.E. (1988) lVhich Procttrement
System: Towards a Universal Procurement Selection
Technique. CM&E, Vol 6, pp71-89
Tookey, J.8., Murray, M.D., Hardcastle, C. and Langford,
D.4., (2001) Construction Procurement Routes: redefining
the contours of construction procurement,ECAM, Vol 8,
No. l, Febru ary, pp20-30.
Tucker, R.L., Kelly, W.R. and Thomas, S.R. (1997), An
Assessment Tool for Improving Project Team
Communications,Research Report 105-l I to the
Construction Industry Institute, University of Texas at
Austin.
Turner, A. (1997) Building Procuremen¿, 2nd Edition,
Macmillan, UK
Weick, K.E. (1987) Theorising about Organizational
Communication,in F.M. Jublin, L.L. Putnam, K'H'
Roberts and L.W. Porter (editors), Handbook of
Or gøn iz at i on al C o mmun ic at i on : An Int er dis c ip I inary
P erspective, Sage Publications, pp97 -122.
147 crB-2002

Construction Procurement Systems

Donot Forget MurPhY's Law!
MichaelD. Murrayr, J.E. Tookey', D'A' Langfordr & C'
Hardcastle2

Abstract
what can go wrong will go wrong! The rule of 'Murphy' can strike
uny unrrrp.cting project team and is best not forgotten' This is
especially'so if wõ consider the cu*ent UK construction industry
agenda fãr performance improvement through a culture of eliminating
*ãrt. (tir", money, labour, materials) and a desire for 'zero defects.'
This paper demonstrates (using 1 1 case study construction projects)
that Muiphy is alive and well on many projects and may indeed be
visiting á rit. n.ur you today. Design and construction professionals
were iiterviewed on each project and information gathered resulted in
the formation of a typology for each project. The typology indicated
both project enhancing and detrimental events, which had taken place
on .ã.n project. The typology allowed for the creation of 1l
individual project 'footprints.' The footprints are compared and
contrasted in this paper and reference is made to the procurement
route (traditional, D&B and management) used on each project' The
.on..pt, ofproject risk, unceftainty, procurement systems and project
success are also discussed.

Keywords: Procurement Systems, case-studies, Murphy's Law,

project typology, footprints, risk, success

Introduction
Murphy's law states that "what can go wrong' will go wrong"'
The ìaw's namesake, Capt' Ed Murphy, was a development
engineer who worked for the Wright Field Aircraft Lab'
Fristrated by a transducer that was malfunctioning because of

I Department of Civil Engineering, University of Strathclyde, John Anderson

Builàing, 107 Rottenrow, Glasgow, G4 0NG, Scotland, UK
tOepartäent of Building and Surveying, Glasgow Caledonian University'
Cowcaddens Road, Glasgow, G4 0BA, Scotland' UK'
 148 Don't Forget Murphy's Law - Muruay et al

an error in wiring, Murphy remarked: "lf there is any way to

do it wrong, he will". Murphy was referring to the anonymous
technician who had wired the equipment. George Nicholas,
who was Northrop Aircraft's project manager on the job,
immediately labeled Murphy's offhand remark "Murphy's
Law" (Marino, 1999). The specific callfor improvement in the
UK construction process, and thereby reduce the likelihood
and impact of Murphy, has, in recent years come from both the
'Latham' (1994) report 'Constructing the Team ' and the
Egan' s ( 1 99 8)' Re t hin kin g C on s truc t i on'. Latham chal lenged
the industry to increase productivity by reducing costs by 30%,
use more partnering arrangements between clients &
contractors and adopt less adversarial dispute resolution
methods. The 1998'Egan'report can be said to have acted as a
catalyst for change within the construction industry. Anecdotal
evidence seems to suggest that many of Latham's proposals for
improvement are only now being met as a result of the Egan's
initiatives being enacted. Egan challenged the industry to
reduce time and cost by 100á annually, defects by 20o/o per
year and accidents by 20%. Such need for change does come
against a backdrop of an industry that suffers from an 'image'
problem. Table I shows that Murphy continues to blight
projects.

Project Risk and Uncertainty in the Project

Process
No construction project is risk free. Risk can be managed,
minimised, shared, transferred, or accepted it cannot be
ignored'(Latham 1994). But contractors rarely quantifo
uncertainty and systematically assess the project risks (Al-
Bahar et al 1990). Indeed, Flanagan and Norman (1993)
recognize that the risk management in construction is poor
compared with other industrial sectors. Akintoye and Macleod
(1997) suggest this is due to contractors and managers lacking
knowledge of risk management techniques To combat this
predicament, Reid (2000) suggests that senior site personnel
should, on a daily basis, ask 'what could go wrong on this job
t49 crB-2002

today'

smith (1999) recognizes that the terms 'risk' and 'uncertaint¡r'

if used rigorously, have different meanings, but that in
construction projects the difference will have little significance
and that they are commonly used interchangeably' The
construction industry lias adopted many methods in attempting
to reduce uncertainty in the process. The use of 'apparently'
standard forms of contract is intended to rationalize the
construction process. Project planning with its associated
Critical Path Networks is another example as are the use of
8S5750 and today ISO 9000 quality procedures.

Heathrow Express Tunnel CollaPse British Library @ondon)

1994
HSE reports errors were made 'leading 3007o cost overrun and qualitY
to poor design and planning, a lack of problems with electrics, wiring
quality during construction, a lack of and sprinkler system. The Public
engineering control and most Accounts Committee said it as a
importantly a lack of safetY 'rnodel of how not to manage a
management' (New Civil Engineer major construction Project'.
(Construction News 1997).
London's Guy's Hospital (Phase 3)1997 Cardiff Millennium RugbY
Stadium
Completed 3 years and f68.7 m over Contractor Laing go f26m over
budget, blamed on failure to freeze budget due to committing to
design, signifìcant design changes, GMP while design undergoing
delays to works packages, major major changes. Row between
package contractor(s) insolvency and client and its neighbour also led
corrosion of copper pipework requiring to major design changes
f3-5m replacement cost (Contract (Building 1999).
Journal 199
Thames' Millennium F British Museum
f,l8m bridge close shortly only days A Portico was restored using
after opening after huge crowds caused French limestone rather than the
it to sway violently. Bridge is likely to more expensive British Portland
be closed for a year while f5m solution stone which matches the
is retro-fitted.(Contract Journal 2000b) courtyards existing fabric
(Buildine 1999).
Table 1 Murphy was Here!

Other techniques used to reduce uncertainty include the

 150 Don't Forget Murphy's Law - Murray et al

application of time and motion study principals to construction

and its recent predecessor developed by the Building Research
Establishment in the UK, CALIBRE (Vassos 2001). In
addition, the UK industry can be seen to have extended its
capabilities in this quest, and largely as a result of the 'Egan'
report, now embraces a 'learning culture' vis-à-vis' such
initiatives as benchmarking, demonstration projects and Key
Performance Indicators (see M4I web site). Furthermore, new
procurement philosophies such as 'Prime Contracting' (Holti
et al 2000) lean construction and Supply-Chain-Management
are all intended to eliminate wastage (time, materials, money,
labour) by denying Murphy a visit to site and thus reducing
uncertainty in the construction process.

Selection of Optimum Procurement System

(Keeping Murphy Out!)
For a number of years many UK construction clients have
demonstrated their unhappiness with the capabilities offered by
the construction industry and available procurement systems
(Contract Journal 1999). Such availability of choice does
however suggest that clients can recognise the difference and
benefits between each procurement method. For example,
property developer Hammerson UK Properties use Design
&Build for simple contracts, an amended version of JCT 80
(traditional) for contracts between f 10-15 million and anything
above this figure is procured through construction management
(Construction News 1997b). However, Hall (2000) thinks that
some clients are wasting vast amounts of money and
experiencing long delays because they are not educating
themselves on how to chose the right method of procurement.
He suggests that'too many clients are using JCT contracts
even if it is not the most appropriate'. Indeed, Cain (2000)
suggests that radical reforms taking place in the industry can
be easily blocked by clients. Cain notes that'procurement
arangements of many clients still continue to reinforce the
structural failings of the industry'. However, as will be seen
151
crB-2002

/ contract
below, the assumption that a particular procurement
is by no means failsafe'
strategy can guarantee project success

The definition of whether a project is a success

or a failure is
not always an easy one (Morris and Hough, 1996)' Indeed'
success despite being
frojects âre often termed a technical
il"f,in¿schedule and over budget. Conversely, projects may be
ahead of schedule and under budget but still be a technical
failure (Larson and Gobeli 1987)' Of more significance'
Bresnen&Haslam's(1991)researchwithal3Sexperienced
type of
clients revealed no significant association between the
performance
contract / procurement system used and project
(time, cosi, delay¡. Moreover, in reviewing many studies of
ìhis topic they argue that there is no great weight to the
argumLnt thai any one method will help guarantee
improved
are
parforrnun"e or greater satisfaction, at very best, the results
inconclusive anj ambivatent. Liu and Walker (1998) also cast
doubts on previous studies regarding the evaluation ofproject
has
outcomes ând observe that the concept ofproject success
remained ambiguously defined and can lead to disagreements
between Proj ect ParticiPants.

MurPhY Makes a Site Visit:

The cost of 'making good' Murphy's mischief can be
excessive. Table I indicates some of the heavy financial
penalties that can have an impact on companies involved
in
Much of the additional costs attributed
þrojects that go wrong.
io ru"tt projeðts involves rework' Love and Li (2000) found
projects in
that duringthe construction stage of two case study
Australia, rework arose out of incomplete and eroneous
pro¡..t iiformation. Josey (199S) in referring to the defects in
ihe"construction of a new hospital building blames 'careless
unO ,toppy working practices; and argues that
the high level of
sub"onirutting in the UK has resulted in bad buildings,
noted
dissatisfied employers and writs. such inefficiencies are
by Taywood (l'gg7)who suggests that the construction
152 Don't Forget Murphy's Law - Murray et al

industry has a particular culture in which defects are tolerated

via practical completion certificates, post-handover snagging
and defects liability periods. Such criticism of the construction
industry seems to suggest that many of the quality
improvement slogans (i.e. get it right first time, zero defects,
quality built in and continuous improvement) are indicative of
the wide use of rhetoric in construction

Case Procurement Project description

Study Method
I (pilot) Management Exhibition and Conference centre
Contractins
2 (oilot) Design & Build New Multi-storey offtce building
J Design & Build New Build ciry centre Hotel
4 Traditional 60 Bedroom extension to 4* Hotel
5 Design & Build Leisure Complex with multi-client
units
6 Traditional Conversion of 'old' city centre hotel
into retail units
7 Traditional 'Fit-Out' of completed'shell and
core' offrce buildine
8 Traditional Construction of new sports hall for a
UniversiW client
9 Construction Extension and Refurbishment
Management International Aimort
10 Traditional New Build 4.5* Hotel in ciw centre
ll Design & Build Construction of new office building
(low rise) on green-f,reld site.
Table 2 Case Study Descriptor

Research Methodology
l1 projects in Central Scotland were selected to be
representative of the various procurement routes (Traditional,
D&B and Management methods) in order to collect data for
the study. The study was longitudinal, recording events
recalled by the main project actors during the construction of
each project. These main project actors or 'Elite' members
(Marshall and Rossman, 1995) of the design and construction
 cIB-2002
153
Contractor' QS'
team (i.e. Client, Architect, Project Manager'
interviewed on a
S"*iò.t & Structural Engineers) were
number of occasions'

project incidents which

The actors were requested to recollect
or detrimental'
,n.V tágiø"d to be either project enhanc^ing
collection was
fnå Ciiticat Incident Technique (CIT) of data
(1997)
;;iFl""" gan !954),although like Hussey and Hussey
ini, ,èr"u..ñ technique was initially employed without.
using
,.ufi.ing its origins' Project incidents were recorded
up' after each
,t o.t t in¿ note taking. ihe notes were 'typed
other recollected
interview and it was ãften at this time that
(1996) also used this
data was put to paper. Sonnewald
combination with the CIT to collect data' Gabriel
"ppt"""ttì" method of data
tiôqtl also comments on this particularthat it is a'legitimate'
àoif*l,i"" (recollection) and suggests
to paper shortly
rn.itto¿, especially when stories are committed
to the case study
ater tháy were héard. After several visits
for the
projectsit became necessary to develop-a.framework
'unutyri, that
of the data (criticai incidents)- It became evident
and were a result of internal
the incidents had recurring themes
;;;j;itt"es (typologi"tl-e¡ and external events having an
'irnput, on proj"ài performance (typologies 10-14)'

a typology
It was decided to formulate these issues into
in Table 3' The
framework, the results of which are shown
p.".¿ut" Í'or establishing, into which type each incident
Notes were
would fit, was essentially a pragmatic one'
a position'
scrutinised after each inierview and allocated

fall under 'project

It can be seen that the majority of incidents
and thus the
detrimental' issues (D = project detrimental)
purpose this paper on Uúrphy's law
(It.is worth noting that
should study
iufo.ri, and liough (1987) àit"utt whether one
however' that
project successes oì failures¡' It should be noted
recollect incidents that
all interviewees were encouraged to
154 Don't Forget Murpþ's Law - Murroy et al

I 2 3 4 5 6 7 8 9 10 ll
D E D E D E D E D E D E D E D E D E D E D E
I 2l 2 t2 5 20 J t4 2 6 0 4 I 9 0 8 0 2 3 3 0 2 0
2 3 I I 0 2 2 0 0 0 0 0 I 0 0 I 2 0 I I 0 0 I
3 6 0 6 I l9 2 l6 2 l8 I 7 I l5 3 17 3 7 3 5 J 6 3
4 7 I 6 4 5 1l J 3 ll I 5 0 9 4 5 6 2 6 J I 0 0
5 t4 J t4 3 16 5 10 2 t4 I I I 1l 2 1l 4 7 0 5 0 8 2
6 ,< I l6 5 ll 6 8 0 9 l6 t4
0 J 0 2 I 4 0 9 I l6 2
7 6 0 I 0 5 I 2 0 20 0 0 0 ll 0 3 0 0 I 0 0 2 2
8 8 0 t6 8 r3 5 5 2 7 0 4 0 6 I 2l 5 I 0 2 I 4 0
9 l4 0 6 8 7 0 4 0 4 0 3 0 9 0 t2 2 I 0 3 J 6 0
l0 J J 4 I 3 I I 0 J 0 0 0 I 0 I 0 5 0 0 0 0 0
tl 0 0 I I 0 0 0 0 0 I 0 0 0 0 0 I I 0 0 0 0 0
t2 2 0 3 0 0 0 3 0 t2 0 2 0 0 0 2 0 0 0 2 0 I 0
l3 6 0 5 0 3 0 l 0 3 0 0 0 I 0 I 0 2 0 0 0 0 0
t4 6 0 2 0 6 I 7 0 t9 0 5 0 l8 I 9 I 2 0 J I 7 0
(1+ls) Location of team members (2+16) Effectiveness of team member (3+17) Teamworking (a+lS) Communication
issues (5+19) Design / detailing issues (6+20) Organisational politics (7+21) Supply-chain management (8+22) Sub-
package integration (9+23) Project location (10+24) Historical trade loyalties (Edinburgh mafia etc) (ll+2Ð Macro-
economic pressure(12+26) Building and Planning control issues (13+27) Client Internal Issues (14+28)
Table 3: Case Study Typology
155 Don't forget Murphy's Law - Muruay et al

demonstrated a successful project (E: project enhancing).

Indeed, many of these incidents recalled did in fact have an
element of 'duality' to them. Thus, a problem, which by its
nature tended to have a detrimental impact on the project (in
terms of cost, time and performance) would on some occasions
also present a window of opportunity to improve the project
process. In addition, the allocation ofa project incident
(scoring) to the typology also includes multiple listings' For
example, an incident which would be initially scored under a
design / detailing category may also have been the result of
communication and teamwork problems and would thus be
scored under all three headings.

On completion of each project, a method of visually

conceptualising the critical incidents recorded was thought
necessary. The intention was to provide both the research team
and the interviewee's with a'pictorial descriptor' of the
perceived project enhancing and detrimental qualities' The
conversion from tabular form into a histogram was used and
thereafter recorded as a'project footprint' (see Figure l).

Results and Discussion

here to conduct an exhaustive analysis of
It is not the intention
all detrimental incidents in each case study project' It can be

Project 2

20

10
d
E
l!
0
sFoco ro
c.¡
-10
Typology

Figure 1: Example of Project Footprints

 156 ctB-2002

seen from Figure I that in each case study detrimental column

the 4 highest numbered boxes have been selected (shaded). It
should be noted here that the difference in numerical terms
between each box (case study) is not under discussion and does
not form the basis for inter-case study analysis. The number of
interviews conducted on each project was not evenly
distributed as a result of difficulties in gaining regular and
continuous meetings with individual project actors. Thus, the
quantity of recalled incidents cannot be used as a measure for
analysis or indeed as an indication ofproject success or failure.
Table 2 shows a typology hierarchy based on selecting 4
commonly cited incidents (highest totals) in each project. Each
typology is discussed and reference is made to the procurement
system adopted in each project.

Communication Issues
It is perhaps not surprising that all 1projects should have
1
suffered from this problem given that it has been frequently
cited as being a weakness in construction. As early as 1965,
Higgin and Jessop showed communication difficulties existed
at several levels in the industry. Particular difficulties relevant
to this paper are fìrstly, communications in the design team;
secondly, contract related communications; finally construction
team communications. Recently Boudjabeur and Skitmore
(1996) provide details of untimely, inaccurate and insufficient
information in D&B projects. With regards to this research,
several communication diffrculties are worthy of comment.
The client in case study no,7 developed a project organogram
to be used by the project team as a communication structure
'aide-memoire' during the project. This document acted as a
buffer between the internal clients and the project team and to
smooth problems in communication roles. This was however
abandoned early in the contract (by the client) due to changes
in personnel within the client body. The majority of
communication difficulties did however involve inter-
personnel issues between project team members.
 - Murray et al
l)on't forget lrltu'phy's I'aw
151

on
problems maintaining contact
Actors (project No' 1) had teams were co-
;;;;åj;Ëts attd paradoxically even where
c-ornrnunication problems
were
located on site 1p'o1t"i Ño'6) at
problems were reported
evident. Many communì"utián
design interface(s)' The
contractor-sub-contralä'-Àttnìt""t
sub-contractor design input
tendency for projects io inuotu"
manifested itself in 'grey'
(not withstanding the õ'&B ;toi"tts)
areas of role und
fot design detailing' The impact
'"'pJ*iUiiity
jetign iniormation only becoming apparent
of such insufficient
conditions in themselves were
seen
at construction stage' Su"ch details
by the contractors for design
to generate further requests
resultant 'as built drawings' being
during constructlolt ;itlt tltt
finalised post
fftit situation in itself is endernic
"onstru"ii""' not appropriate in a culture
within the i'dustry and is clearly
;it;;;'rethinking construction' is taking place'
Management Total
TypologY Traditional D&B l
(out of I I
(out of 4 (out of 5 (out of 2
ects nro iects)
projectsL
nro i ects)
4_ 5
9
o1' 4 4
Effectiveness
Team 2 8
J .J
Design /
Detail I 6
2 J
Roles &
ities 4
2
) 0
Client I nternal
lssncs 0 3
I 2
SupplY -Chain
M 0 I
0 I
Organisation al
Politics
0
I
0
Sub-Package
1
0 I
ect Locatton 0

Table 2 : Case StudY HierarchY

of

Effectiveness of Team Members

where construction team
This category is used to emphasise
 158
ctB-2002

members have performed in a less than satisfactory

manner. It s
to some extent an extension of typology no 3 (Teamwor[ingi- -
but relies heavily on a judgmenø perãäption
which the
researchers have of the incidents cited in
the interviews. In
addition, interviewees would often apportion
blame at each
other and this has also been scored. 'it is typotogy
.r..ntiuùy
takes the view of .if only the actors had behaveíl"
manner' this problem may not have arisen. It
;; ;ñ.;, -
views
study project as being devoid of organisational, "u"h "ur"
institutional,
personal, contractual and procuremint boundaries
and
categorises the 'mistakes' made by the actors.
As noted earlier
in the paper, many of the incidents are scored
under more than
one typology and this category therefore
includes s"o.irrgs,--*"
which have also, be taken intó account under
typologiesi,2,4,
5,6,7,8,and 9.

Design Detailing fssues

Due to the nature of constructing a hierarchy
of typologies in
Table 3 it can be seen that g ofthe case study projäcts
íurr"r"¿
from design / detailing problems. However, reference
to Table
2 will show that all of the ereven pr.jects
were ir fact brightcá
with such condirions. Two projecis (i and l0) demonsfa;;-
such an issue in that they werJboth designed
'on the hoof so
to speak. Both these hotel projects were ãriginalry
t" u. gì ã"¿
2* category respectively and w"." designed as rulh. Ho*"u.r-
due to case study no 3,s project locatioi (close
to now
confirmed new scottish parliament) and òhange
in clients brief
in case study no. l0 (from backpacúers hotel
tã quality
accommodation) both these projects involved
significänt
design changes when they were upgraded
to 4* hotels. In both
cases it was reft to the contractor to chase
design inrorn,ution.-
Since b.oth these projects were used D&B
arrangements this
was to be expected. However, given the difficulties
which
developed in co-ordinating woik packages
as a result of
missing information it doei emphäsise ìie unsuitabre
nature of
D&B procurement to projects where design briefs
change
significantly from prevailing socio-e"onoiri"
conditionsl
 - Murray et al
r59 Don'tforget Murphy's Law

Roles and ResPonsibilities

have commented on the difficulty
Several construction writers
un¿ responsibilities in
projects' Bennett
l" åã,tiri"g rãt". by each
;;ì""s cond itions of en gagement'gepared etc) are
I
¿i #; RIBA' CloB' NCS
nrofessional institution lclgsÉ'
äffiü:il ;;;l
i',ui
'"iui."s
the client receives rrom
the detriment of teamwork'
each consultant. Howävåñn¿ not
the obligations to the client'
'o
these conditions standardise (1996)
Mirdoch and Hughes
between the other p';j;;;ies'
t^isses the value of teamworf
11{}ow
compromlse
"rg".ìit'"iirti"rit"LiJ"
irígt"ntution created bv terms of appointment
such confusion when he
this. Hellard (199s) ;;;;;"ntsãì to
in building are 'frequently left
notes that that those ;;;*"d
work out their own objectives''
(no'9) had instigated a project
Onlv one case study project I ities
;r#;;.;;"*t å"r"riU i n g ro les and. respon s ib.i
rlo*"u"t' given that this
äãää;";ipäni"¡p^*'' client has in many ways championed
experienced
"onu'uåtion it''" tqqs 'Egan report this should
the reforms .f"'uuno"äiy
rhe project process was
;;,.;;;surprising. such control over
not evident on any otf'"'
pto¡"tt' Actors were assumed11 Î::
job'-The main contractor tn case
their role and how to do their
ã áia o"u"iop a series of
teambuilding workshops as
;il;;". on the project' The' initial
oart of the partnerrnfiltJfãt"pftv
ect team comp leti n g the-Mvers-
i^ärr"nä o ¡i"ïi;; J ;h; p roj
and developing a communrcatron
ilö ;;t"hological test
approach, to building a team
can
orotocol for the project' This close knit nature
i"r" study no. 1l where the
#"#:*i;i'*lin in the roles and responsibilities
of the team gave aÑbiitty
project. The team on this
demanded within for this client
"'"ã"r*J,ion
worked;;;,* projects
nroiect had ""."uðrut
ü:"f#' ;î'i;';; t li amicable relationsh ips with
ñ :1"
-' - -
actors referred to not"dropprn^g
another. On ,"u"'uì'o*u'iont
that they would meet agatn
îhimñ ,f," ,nit| rt lut understood
clients) and that thev had sour
on future projects ¿;;;;";i";t
 160 crB-2002

future co-operation by accusing one another ofincompetence.

An unwritten and informal (or gentleman,s) code was thus
enacted whereby the team would sweep up any problems
which
arose due to fuzzy areas concerning responsibllities.
Interestingly some clients are frighteneá of such team cohesion
and perceive it to acting as a cartel against their best interests.
The client in project no.9 for examplè referred to the
'Edinburgh Mafia' and had comrlissioned an English project
manager to keep an eye on his interests.

Client Internal Issues

The range of client experience with construction procurement
in the eleven case study projects ranged from experienced to
very experienced. That is to say no clients were novel to this
industry. In particular, two projects were beset as a result of
llurphy adopting the guise of a client. project no. 5 involved
the contractor working under a D&B contiact for a property
developer. Difficulties arose in this client body wheì the
ownership (ergo risk) of the project changed hands at half way
through construction. In addition, the multi-outlet nature ortne
building resulted in different st¡b-clients wanting late design
variations on many occasions. The additionar coit and timã
attributes exacerbating the already politicised nature of this
project. Moreover, at least two members of the design tearn
were also acting as consultants for these sub-clients clients
and
thus wearing 'two hats' on the project. This put a large strain
on the established protocolof a novated D&B projeciand
many instances of 'grapevine' communication ìook place. It is
interesting to note that a new Kpl has been established to
monitor such client led design changes. Termed, ,change
orders' it will allow contractors to pinpoint who is to blame for
delays or cost increases in projects (Contract Journal 2000a).

Project no. 7 also presented difficulties for the project team as a

result of what may be described as inappropriaie client
behaviour. The original plan on this offce ìfit-out, project was
for the clients internal project manager to act as a buffer
 Don't forget Murphy's Law - Murray et al
161
& constructiotl
(between internal client departments and.design
with the project
ì""*l ""¿ Ue the clients 'oi" "o'o*unicator another part of the
moved.to
team. However, this *unug"' was
(an¿ no"t replaced) withthe result that the
were
"ji.",
nroiect".g-isaíion
management consultancy employed by the client
i;ilö;i"bì; i", co_ordinating all internal client change
project' these were
*ü;ä&ain, in similar to the above
ã1"V, ãft.n in conflict with one another thus
""¿
ã"Àántttuting how a power struggle within
a client
running of a project'
ãrg""ì.",i"" ãun imping" on the srno.oth of sub-optimal
a direct result
Both of these pro¡ects s"uffered as
be so surprising as
.fi"nt iru..u"nìion. Perhaps this should.not
clients want 'something
Thomas (2000) argues thàt too many
for construction's inefficient
for nothing'. He puts the blame
the feet of clients by
una Jirpuã orientated culture firmly
at
they asked for-'
r"Ëæ-i"t that they have got the industry of a regular
nãi"u"rãrher clients 'u"L u' a representative
oir"l',ur", ofuew office buildings iras criticised construction
il;;;;;o;"te design, poor infoimation' delayed handovers
work (seå Ward 2001) and thus it can
be seen
un¿ ã"f".iiue
continuous to exist'
t-ùt u of 'contractor bashing'
"rlture

SuPPIY-Chain Management (SCM)

Chain
In the wake of the Egan (1998) report'supply
of the month''
il;;g";."t (SCMfhas'become ihe'flavour weak function in
Ëg"" iJ"",inà SCH¿ as being an historically
relationships between
construction with overly conirontational
hard bargaining'we don't give them
;-r;;;.icipants. Th!make u p"ñny on this project' mentality
an inch' or 'they donlt
of great pride.
il;*", in "onrtru.tion is often a sourcq Egan and oth-tl- ..
ä.""gtt lonstruction professionals' Since construction -
SCM' it
have noted puft=i"ulu' problems in
authors
were likely in the casl
was anticipated thai such problems ^- -
it was unsurprising when SCM
ilô;;"j;.ts selected' Inieed
(Nos' 2' 3 & S) the projects
became a significant Àsue in three
did have SCM issues
i"uårlig"t"¿l Although both Project 3. & 8 far
arising, Project z U" considered the 'pinnacle' (in so
"orii¿
 t62 ctB-2002

as the word can be used in the context!) of how NOT to

organise a project for SCM,

The pre-amble to the catalogue of disasters came about through

the inability of the clients to settle on a procurement route. The
project started by being a management contract; but the
contractor was taken off the job when the project director
decided to go to a rugby international match in preference to
going to a meeting with the client! Subsequently a traditional
contract was drawn up to govern the projáct, but again this too
was superseded before finally a D&B contract was selected.
Ultimately a single decision made early in this procurement
process created catastrophic effects in the supply chain and on
the delivery of the project overall. As part of a design feature of
the building,the in situ castingof the concrete vaulted ceilings
required the manufacture and delivery of precisely detailed and
sized fibreglass moulds. These moulds also had to be delivered
on time and in the correct order to facilitate the construction
process. Only two companies tendered seriously for the
contract to supply these moulds; one was large and well known
in the industry for having a high level of expertise in the
particular speciality. The other company to tender was much
smaller with no 'name' in the area, but who did offer a
substantially lower unit cost in order to win the contract.
Unfortunately the decision was taken to select the ,low cost,
contractor to manufacture the moulds. These moulds
immediately became the critical component in the process,
without which operations on site stopped. Frequently the
moulds were delivered out of sequence, late and in too few
numbers to allow a concrete pour. As the programme slipped
behind schedule and the contractors put as many men on the
site as possible to speed up production, they could do nothing
without these moulds.

Impact of Selected Procurement System

What should be clear from the above discussion is that Mr.
Murphy makes no distinction as to which project he will visit
r63 Don'tforget Murphy's Law - Murray et al

next. Each project was beset with a number of incidents, which

resulted in some form of time, cost and quality wastage' The
procurement system adopted (and in most cases adapted and
ihus 'hybrid') did not form a boundary or shield to these
problems. Indeed, it could be argued that the adoption of a
iormal risk management framework (no project had this) on
each project *ouid not have prevented the projects being
expored to the triokery of this Irishman' What however is
evident is that each case study project investigated operated
under a named procurement route. However, the group
behaviour ofthe actors during the project process would appear
not to be determined by such formalities' For example, if we
look at Table 3 it can be seen that the most common incidents
to arise on projects involved issues involving communication;
effectivenesr óf t"u. members; design / detailing and roles &
responsibilities. Very little distinction can be made on
comparing these between the different procurement routes used
in thìs stuãy. These issues are however perhaps the key to
project ,ucô"tt and it is interesting for example that new forms
àf pto"ut"rnent (i.e Ministry of Defence Prime Contract) has
developed out ofthe behavioural research undertaken by the
Taviståck Insritutc (Holti, 1997;Nicolini et al200l). Incleecl, a
recent quote from a construction management provider can be
seen to ìend support to this thesis; 'it revolves around a
building, [service offered to a client] not getting hung-up on the
procurement method' (Paxford 200 I )'

Conclusions
(a visit
Josephson and Larsson (2001) suggest project errors
from Murphy) happen recurrently and to avoid old elrors'
people múst-learn. This emphasises a need-to collect and
àisseminate knowledge (i.e. Knowledge Management) within
and between projects and organisations. It also emphasises
the
human dimenìion to increasing the likelihood of project
success. However, although U'K. construction is making
headway with reducing repeated failures in projects (i.e KPI's,
CALIBiìE and Demonstration Projects etc) no projects
 t64 crB-2002

examined here demonstrated a culture of continuous learning.

The issues discussed in this paper have been addressed, on
occasions, quite whimsically (playing on Murphy's Law as the
root cause of project problems). Although wastage (time,
materials, labour etc) attributed to Murphy's site visits has not
been quantified in this study, the results have serious
ramifications for the construction industry. Indeed, the call for
a 'sustainable' construction industry @ETR 2000) must surely
be in jeopardy if the majority of projects undertaken in the UK
cannot meet the requirements of Egan's (1998) agenda for
change. However, let us not be complacent and regard projects
claiming to have 'zero defects' as being free from Murphy's
work. UK construction cannot benefit from projects which are
handed over 'defect free' but which huge wastage during their
construction. This is to deny Murphy's work and could be said
to be akin to 'spin doctoring' the reality of the industry.

References
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Management in Construction,Int. Journal of Project
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Building (1999) Building review: Millennium Stadium Cardiff,
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165 Don't forget Murphy's Law - Mutay et al

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Hellard, R.B (1995) Project Partnering: Principle ønd
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167 Don'tforget Murphy's Law - Murray et al

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r69 crB-2002

From 'Procurement Systemo to 'Delivery

System'
An Important Step in the Process of Construction Business
Development
Bob Hindle'& George Mbuthia'

Abstract
Building procurement has been defîned as "the amalgam of activities
undertaken by a clientto obtain abuilding" (Franks, 1990), or"the
organisational structure adopted by the client for the management of
the design and construction of a building" (Masterman, 1992). These
definitions were most appropriate while refening to the traditional
design-bid-build method, emphasising as they did the client role in
initiating and organising the process. However, there has been a
move away from the traditional building business processes and an
increasing use of alternative delivery methods for the construction of
facilities. This change has been client led, for the most part, however,
contractors have also championed the use of non-haditional systems
such as management contracting, design-build and build-operate-
transfer. These systems have had the effect ofchanging the business
perspectives of construction ftrms, from passive participants in a
prescriptive process, to proactive problem solvers who deliver
construction products.

Long accustomed to traditional consultant-led contracting,

construction companies have had to adjust their thinking to take
charge of the entire process from design to handover and in some
cases, initiating the process, ftnancing, building and managing the
finished product. This is more in keeping with the prevailing practice
in other industries where innovation springs from the supply side of
the industry in response to changes in demand.

This paper describes the shift in thinking that is needed for

construction firms that wish to 'evolve' and the effect of this

I University of Cape Town, South Africa (email prcrjcoreld]mweb'co.za)

170 From 'Procurement System'- Hindle & Mbuthia

phenomenon in terms of construction delivery. It contends that the

effect ofthese trends in construction has been such that building
procurement systems are now more appropriately referred to as
project delivery systems.

Keywords: Project delivery systems; Building procurement systems;

Business process development; Change.

Introduction
It is common cause that the principal cause of interest in the
development of alternative procurement systems in recent
years has been pressure emanating from customers / clients of
the industry. This is especially so for those frequent buyers of
buildings (experienced clients) who have become dissatisfied
with the outcome of the traditional set of services and the lack
of value for money in the resultant product. In effect, demand
side pressure rather than supply side innovation. Indeed, in
countries where the construction industry evolved in much the
same way as in Britain or who have adopted this model,
construction is thought to be a'basket case' ofan industry
(Bowley 1966, Ball 1988, Groak 1993, Egan 1998). One that
has neglected process development for more than one hundred
years, primarily because of a social structure shaped by
traditional professions with a legal monopoly to act as
gatekeepers to market entry and, in this way, to become
surrogate customers for contractors (Lewis & Cheetham 1993,
Hindle 1998b).

These role-players have resisted change, demonstrated

leadership incompetence and have stifled process innovation
(Hindle 1998a and 1998b), resulting in an industry that fits
Porter's (19S0) definition of a'Fragmented Industry'that is
'stuck'. So 'stuck' that, unlike other modern industries it is
thought to be incapable of self-development, (Bowley 1966,
Ball 1988, DPW 1997). Evidence of this is to be found in the
fact that in many countries government has intervened to form
a'Development Board' tasked with construction industry
t7l ctB-2002

development. This includes many developing countries where

they wish to build capacity, such as Kenya, Tanzania,
Malaysia, Singapore and South Africa but also in developed
countries such as Britain. Despite this, there has been very
little evidence of success (Ofori 1991), however, recent
developments in Singapore are noteworthy and in Britain
where much change is taking place by virtue of the
Governments promotion of it through procurement policy and
encouragement, resulting from the initial impetus generated by
the reports ofLatham (1994) and Egan (1998)'

Despite the severe disadvantages and barriers to development

resulting from the structure and practices ofthe construction
industry, there are some role players who could be said to be
'evolving', through the adoption of 'proven business practices'
found in other industries. In most cases, it starts with the
simple realisation that there is a customer for each project.
Such is the case of the British firm Bovis, evidenced by the
words of its then CEO Sir Frank Lampl who stated:
"If you ask me what is the basis of our success, it is the
recognition that there is a client. Without a client you are
nothing. For years the construction industry has worked as
if there wasn't a client. If they did recognise him, it was as
the enemy." Lampl (1999)

Bovis could be classified, together with a select group of other

construction firms, as'leading-edge' in terms of business
development. These firms that have 'taken-on-board' sound
business practices found in other disciplines, particularly
marketing. An example of this is to be found in the fact that
their business strategy is one of building relationships with
customers and of counting success in terms of 'repeat
business'.

The role of procurement research

Since the advent of the term Building Procurement Systems in
t72 From 'Procurement System'- Hindle & Mbuthia

the UK in the 1980's there has been much growth in the

number of alternative procurement systems but more so in the
body of knowledge. This can be evidenced by the number of
books, related journals and research papers' most emanating
from the formation and work of Working Group-W92
'Procurement Systems' in the International Council for
Building Research Studies and Documentation (CIB).
However, despite the fact that this is a very popular and
productive research area there is an impression that though
much is being written we are not finding significant
developments in the direction of the discipline. In fact, we
seem to have undone some of the earliest work because, as yet,
there is no commonly accepted definition of construction
procurement (McDermott 1999:18). Indeed, a discussion took
place at the Ching Mai conference that resulted from Green's
(1999) presentation when he suggested that the discipline
seemed to have 'plateaued'.

The growth in procurement systems theory and practice, offer

the most tangible sign that construction process development is
indeed taking place. However, there are few signs that this is
the primary focus of research in this area, an observation based
upon the apparent lack of linkage to the wider body of
knowledge of business science and proven business practices
in particular.

A demonstration of this shortcoming can be found in Cox and

Thompson (199S) who dismiss present construction
procurement theory because it falls short of proper
procurement practice, e.g., consideration of all variables in the
commercial environment to maximise purchaser's objectives
including issues of outsourcing, make or buy decision, optimal
sourcing relationships and supply chain management. This
assumes procurement decisions need to be all encompassing,
or consider matters of the environment in depth, which may
not be the case as the cost implications to the client of the
purchase will determine the level of detail (and therefore
173 ctB'2002

energy and cost) put into making the decision.

This paper offers a potential reasorl wliy this apparent lack of

cleveloprnent in procuremerrt theory may have occurred, whilst
cornmenting on receut changes in termitlology that suggests a
need to re-orientation or thinking in order to find direction.

More than Semantics?

The term 'Procuremetlt Systems' is relatively new, iu fact it is
not yet fully accepted at all levels ofthe industry (contractors
tlrink of procurement in tenns of their need to procure resources,
(Hindle 1995). Though there is evidettce to show that
'procurernent of buildings' was a term used in the mid seventies
in the public sector, it has only been in col.l'll'llol't use in British-
influenced construction eltvirontletlts fbr little more than a
decade, and one of the first to use the terrn was Franks (1984).
Prior to this date, a number of tenns were used' most ofteu
'contractual systettts' or'Contractual Methods', (See for instance
Waters 1982,arñ Ashwor1h 1983). A survey of the output of
CIB W92 rvill reveal that most of the work has beetr produced
by academics of British origin or from countries wltere the
British model and influence is found. Only receutly have
academics in the USA begun to use the tertn, notably John B
N'liller (Miller 1998). However, it would seetn that tlie term
'Project Delivery Systettrs' growing attd more has become a
more popular terur in the USA, where a business approach to
things is often the troru, (See for instattce Lourie 1997,
Kochnar & Sanvido 1999, Parsons 1999, Feniosky & Tarnaki
200 l ).

But are they describing the same thing? According to Sanvido

& Kochnar (1999), a building procurement system is the
process by which an owner buys or acquires design and
construction services for a project, whilst a project delivery
system defines the relationships, roles and responsibilities of
the parties and the sequence of activities required to provide a
174 From 'Procurement System'- Hindle & Mbuthia

facility. The project delivery system organises the various

participants into a team to deliver the intended facility, while
the building procurement system is defined by the sequence of
activities the owner uses to select the project team. Is this not
a better way for an industry to approach its systems?

Market Orientation
Clearly the orientation of the term 'building procurement' is that
of a customer or client who requires a facility and is concemed
with the process that client faces in this event. It is likely that
the term was coined by consultants who are engaged to help
customers who were faced with the protracted and daunting task
of construction. The term 'Procurement Systems' was adopted
readily by academics and consultants, particularly quantity
surveyors and architects. That the traditional professions
accepted the term so readily was, perhaps, because it helped to
reinforce their position in the hierarchic structure of the

CLIENTS

A
vtÉw

Complicated procedure for acquir¡ng product

ll,fiti|
Attended by
Consultants who Contractors are
Control the process SELECTED |ate
ln the process

Figure 1. A Procurement Systems Approach to construction

175 crB-2002

construction industry in times of change (Hindle 1995). This

can be seen in the way that most papers and books on the topic
largely ignore the role of construction firms as leaders of the
process, promoting the assumption that all procurement systems
must be overseen by the built environment professions, (See for
instance Franks 1990 and Turner 1990).

Range of products
& Property solutior
on otfer
om,¡91¡p

Qä.to'",.
,# â

ffi ,ffi
CONSTRUCTOR
ORGANISATIONS
Offer products & solutit
to customer needs

Figure 2. A Market Orientated Approach to Construction Markets

This term though, whilst it may have helped professions to

maintain control of the process, changed the emphasis from one
that described the construction process as seen by those involved
in it, to one that considered the process from the customers
vantage point. This development is contrary to sound business
practice, which holds that product and service providers, after
analysing the needs of their potential customers, market their
products and services to them and in the process develop
business process models. Such a concept requires its exponents
to think in terms of systems of delivery, rather than how the
customer engages in the market. In this way the term
'procurement systems' can be seen to demonstrate a lack market
 176 lirom 'l'rocu'entent Syste n' - Ílinclle & I.lbutltia

orienlation by the entities involved in that industry. F'igures I

and 2 demonstrate the difference between these two 'vantage
points'. When firms are able to adopt a market orientation they
think in terms of service or product 'delivery systetns' rather
than'procurement systems'.

The argument for the use of project delivery systems rather

than building procurement systerns is more than just a semantic
one, therefore, and deals squarely with the perception role-
players have of their role in the construction process.

Conclusions
In order for construction role-players to take control of their
own destiny they need to adopt sound business practices. A
complete retliink of business process is needed. This rnust
start with the adoption of marketing and 'market orientation'
This type of change is harnpered by the orientation of
traditional consultants who have promoted their way of
thinking by the use of the term 'building procurement
systems'. Adoption of the temr 'project or construction
delivery systems' would be an important step towards self-
developrnent.

It is likely that this lack of market orientation will also explain

why procurement systems development seems not to be
advancing as fast as it could or should have.

References
Ball, M (1988) Rebuilding Construction: econontic change in
the B r it i s h C ons truc t ion Indus try, Routled ge.
Bowley, M (1966) The British Building Industry:four studies in
response and resistance to change, Carnbridge University
Press.
Cox, 4., and Thompson, I. (1998) Contractingfor Business
177 ctB-2002

Success, London: Thomas Telford.

DPV/ (1997) Green Paper, Creating an Enabling Environment
þr Reconstruction, Growth and Development in the
Construction Industry, Co-ordinated by the Department of
Public Works, SA Government Printer, November.
Egan, Sir J (199S) Rethinking Construction:The report of the
Construction Task Force to the Deputy Prime Minister,
John Prescott, on the scope for improving the quality and
efficiency of UK construction, Department of the
Environment, Transport and the Regions, HMSO.
Pena-Mora, F & Tamaki, T (2001) Effect of Delivery Systems
on Collaborative Negotiations for Large-Scale
Infrastructure Projects, Journal of Management in
Engineering, April, pp I 05- I 2 1.
Franks]J. ( I 990) auiåiig Procurement Systems,2nd Edition,
Ascot: Chartered Institute of Building'
Green, SD (1999) Partnering: The Propaganda of Corporatism?
In Ogunlana, S (Ed) (1999) Proceedings of the CIB W92:
Procurement Systems and CIB TG 23: Culture in
Construction, Ching Mai, Thailand.
Groak, S (1993) Building process and technological choice.
Habitat International Vol T No5/6 pp375-366
Hindle RD (1998a) What is Wrong With the Construction
Industry? The Civil Engineering & Building Contractor,
June, pp.l0-12.
Hindle RD (199Sb) The Professions: Following the Path of the
Dinosaurs! A two part article in two issues, Proiect Pro,
July, pp 200-21, and September, pp40-41.
Hindle, RD (1995) Construction marketing systems gain
ground, SAPOA N¿ws South African Property Owners
Association, March, PP. l5-17.
Konchar, MD & Sanvido, VE (1999) A comparison of US and
UK Project Delivery Systems,In proceedings of CIB W55
& W 65 Joint Triennial Symposium, Cape Town, (CD
Rom).
Lampl, Sir, F (1999) Securing the future for BOVIS,
C onstruction Manager, May, pp 22'25, UK'
 t78 From 'Procurement System'- Hindle & Mbuthia

Latham, M (1994) Constructing the Team, Final report of the

govemmenlindustry review of procurement and
contractual arrangements in the UK construction industry,
HMSO.
Lewis, J and Cheetham, DW (1993) The historical roots of
current problems in building procurement, proceedings of
ARCOM gth annual conference, Exeter College, Oxford,
September, pp. 50-61.
Lourie, DE (1997) Evaluating Project Delivery Systems, Zåe
Building Economist, December, pp l6-18.
Masterman, J. W. E. (1992) An Introduction to Building
Procurement Systems, Cornwall: E. & F. N. Spon.
McDermott, P (1999) in Rowlinson, S and McDermott, P (Eds)
(1999) Procurement Systems: A Guide to Best Practice in
Construction, a CIB best practice book published by E &
FN Spon
Miller, JB (1998) Aligning Procurement Methods Towards
Innovative Solutions to Environmental and Economic
Needs, Proceedings of CIB World Building Congresis,
Gavle, Sweden (CD Rom).
Ofori, G (1991) Programmes for improving the performance of
contracting firms in developing companies: A review of
approaches and appropriate options, C ons truct ion
Management & Economics,E & FN Spon, Vol.9, pp. 19-
38.
Parsons, J (1999) Decisions, Decisions Pick a Delivery System
- Any Delivery System, The Project Manager, December,
pp 3-7'
Porter, ME (1980) Competitive Snategt: Techniquesfor
Analy z ing Indus tr i e s and C o mp e t i t or s, Macmi I I an, New
York.
Sanvido, V and Konchar, M (1999) Selecting Project Delivery
Systems, The Project Delivery Institute, USA
Tanah, KA (2001) Project Delivery Systems for Construction:
An Overview, Cost Engineering, Vol. 43, No.l January.
179 crB-2002

Towards Achieving More Effective

Construction Procurement Through
Information.
David M Jaggarr, Andrew Rossr, Peter E D Love2 & Jim
Smith3

Abstract
In recent years a number ofreports and studies have been carried out,
each recommending, in a variety of ways, more holistic, harmonious
and cooperative approaches to construction procurement' in order to
achieve greater benefits to construction clients, by providing the best
quality for their required projects, whilst optimising the cost and time
implications for the delivery of such projects.

As a result of pressures, led by public client bodies acting as best

practice clients, there has been a move away from the traditional,
frnancially driven competitive lump sum tendering strategies, in order
to overcome the separation of design and constructîon, with all the
various difficulties and problems such approaches bring. Today, many
contracts are based on Design and Build approaches, with partnership
agreements, either at project or strategic level, providing a more
cóoperative environment for all concerned and, equally importantly,
an environment where more effective feedback is provided, thus
facilitating action learning for the benefit of all. PFI type
arrangements are also much in evidence, due to the need to pass the
burden of funding the project from the client to the provider, allowing
for much more consideration to be given to the long term use of the
building, during its life.

Latest recommendations for government project procurement is the

I
Liverpool John Moores University, School of the Built Environment,
Liverpool, England
2
Depäftment óf Information Systems, Edith Cowan University, Churchlands,
Perth WA 6018, Australia
The University of Melbourne, Faculty of Architecture, Building and
3

Planning, Melbourne, Australia

180 More Effective Construction Procurement - Jaggar el al

use of Prime Contracting which extends the use of Design and Build,
where a single supplier is responsible for the design and construction
of the facility, to one where the supplier is required to have a well-
established relationship with a supply chain of reliable suppliers of
quality products, with the aim of providing a facility which is fit for
its purpose.

Whilst recognising that improvements have taken place and are

continuing to take place, in construction procurement, this paper
suggests that there still remains a fundamental hurdle to overcome,
that being the need to remove mistrust and uncertainty, due to the lack
of transparency in project information. A further disadvantage of such
opacity is that it creates the need for unnecessary translations of
project information to suit the needs of the various users involved in
the supply chain, from design through to hand over ofthe project.

This paper sets out to analyse the nature of construction information

and to consider what changes are necessary, including information
organisation through classification, in order to provide the necessary
information resources to facilitate effective communications between
the various contributors to the procurement process. Without such
improvements, the drive towards greater harmony and understanding
will remain largely unachievable.

Keywords: Construction procurement, partnering, information

management

Introduction
Unfortunately, there is no one perfect procurement strategy.
Each individual approach will be more or less effective in a
given circumstance, Researchers have developed a range of
decision modelling techniques in order to attempt to select a
procurement strategy, in which, in a given situation, the
benefits outweigh the disadvantages.

It is perhaps worth reviewing, at this stage, precisely what is

required of a procurement strategy. Put very simply it is an
attempt to optimise the triangle of cost, time and quality for the
181 ctB-2002

benefit of the client. Unfortunately, these three expectations

are usually competing with each other. For example, a very
short construction time may well lead to higher costs. Low
costs will usually lead to lower quality so, ultimately, a
compromise must be sought which gives the best balance for a
particular circumstance, as interpreted by the design team,
acting on behalf of the client.

In identifuing the most appropriate procurement stratery to

achieve the optimal balance of time, cost and quality, the
following criteria should be considered:
o The economic use of construction resources
o The need for the contractor to contribute to the design
as well as the construction process.
o The incentive to make production cost savings and
their subsequent control
o Continuity of work
o Risk and the assessment of who should bear it
Risk, and whether it should be retained, avoided or transfened,
is very much at the centre of any procurement strategy. Risk is
not only financial but also encompasses the achievement of the
required quality and whether the project programme of
activities is completed to schedule Current practice is to assess
risk in terms of cost, which can be used as a common
denominator to measure all risks'

Risk can be broadly classified as follows (Latham, 1994)

o Fundamental: War damage, nuclear pollution, supersonic
bangs
o Pure : Fire damage, storm
o Particular: Collapse, subsidence, vibration, removal of
support
o Speculative risks: Ground conditions, inflation, weather,
shortages and taxes

All of these risks can be transferred by the client to the

 t82 More Effective Construction Procurement - Jaggar et al

contractor. However the judgement to be made is whether the

risk is better born by the client, as he/she may be better able to
manage it, or perhaps commercially, it is likely that the
carrying of the risk by the client will prove to be a lower cost
than that included in the contractor's premium.

It is also worth stressing that, what might be seen as an

appropriate strategy concerning risk in, for example, the
United Kingdom, may be seen as entirely inappropriate in
another country, due to cultural differences.

As a result of these misgivings, the use of the design and build

method of contracting increased dramatically in the 1990's
going from a lÙYo share during the 1980's up to a 30 o/o share
of the construction procurement market in 1995 and a 4l %o
share in 1998, with traditional procurement going from 44 Yo
share in 1995 down to a28o/o share in 1998with management
contracting declining to a l0%o share, as evidenced by the latest
survey canied out by Davis, Langdon and Everest (RICS 2000)

Future procurement strategies

Unfortunately, certainly within the United Kingdom, the
construction industry still remains, in many cases, unable to
perform, in terms of delivering projects of the right quality at
the right price and at the right time. Stark evidence of such
under perforrnance has been highlighted in a recent report
Benchmarking the Government Client Stage Two Study
Document (December 1999) where, failure to deliver buildings
on time and within budget, was found to occur in over 70 % of
projects.

As a result of these failures a number of major reports have

been commissioned at Government level addressing the
problems facing the United Kingdom construction industry and
what measures are required to bring about the necessary
improvements. Construction procurement strategies make up
183 ctB-2002

the main focus of all these reports.

Thefirst major report was produced by Sir Michael Latham (199aa)

maiy of the recommendations of which have been largely ignored' It
sought the views ofcontractors and key private and public sector
clients and set out a cleør action plan, which if implemented, would
polentially make effciency savings in the order of 30% in total
construction costs over 5 years. An additional key recommendation
wqs that the government itself should commit to becoming a best
practice client.

Amongst the many recommendations the following were the most

significant:
o Legislative procedures to simplify the resolution of
disputes through mediation, reconciliation and
adjudication as discussed earlier, together with ensuring
prompt payment for work carried out' Much of this was
implemented through the introduced in 1996, of the
Construction Act.( I 996)
o The establishment of a single organisation to bring
together all sections of the industry and clients. This
resulted in the establishment of the Construction Industry
Board. It also led to the establishment of the Construction
Clients Foruln, a separate organisation, representing
clients.

o The publication of a number of guides, checklists and

codes ofbest practice concerning various aspects ofthe
procurement, desigtt and construction processes.

Following on from the Latham report was "Rethinking

Construction" ( Sir John Egan 1998). This report set out a
number of key drivers and processes which need to be put in
place to secure significant improvements in construction
performance. These are listed below:

The five key drivers identified to achieve better construction

were:
l. Committed leadership
184 More Effective Construction Procurement -- Jaggar et al

2. Focus on the customer

3. Integration ofthe process and the team around the project
4. A quality driven agenda
5. Commitment to peoPle

The four key processes needed to achieve change were:

l. Partnering the Supply Chain by establishing long term
relationships based on continuous improvement with a
supply chain.
2. A sustained programme of improvements for the
production and delivery of components'
3. Integration and focus on the construction process and on
meeting the needs of the end user.
4. Elimination of waste in the construction process.

Together with increases in:

o Predictability of projected cost and time estimates by l0%
¡ Productivity by l0%
¡ Turnover and profits by l0%

As a result of all these various initiatives ancl pressttres, six

essential requirements for all construction projects have been
proposed for the effective procurement and management of
construction (Modernising Construction 200 I ):

Contrøctor Selection
¡ Contractors should be selected on the basis of achieving
long term sustainable value for money and not just lowest
price.

Integrøted Design and Construct¡on

o Construction design should not be a separate process but
be integrated with the whole construction process so that
the design team can take more responsibility for the
implications of their design, including cost, quality,
buildability and the health and safety of those required to
construct, renovate, refurbish, maintain and demolish
buildings.
185 ctB-2002

Better Planning
Sufficient time should be given to planning before
commencing construction. This involves:
o Getting the construction sequence right'
o The assessment of risk and its management
. Carrying out value management

Project management
It is necessary to establish reliable project management' The
characteristics of good management are:
. Comprehensive understanding
o Detailed knowledge of risks
o Regular monitoring
o Effectivecommunication
Benchmørkíng
o The performance of construction projects should be
meaiured to assess whether cost, time and quality
requirements are being met. Additionally it is necessary to
learn to disseminate these findings for future projects

Faír Price and Better Val.ue

o Contractors should be remunerated in a way that
encourages them to deliver good quality construction on
time and to budget.
Inþrmøtion SYstem
o A further essential requirement to bring about better
construction performance is the development of a
comprehensive information system, underpinned by
infoimation technology, which facilitates the accurate and
rapid provision, manipulation and assembly of the
specific information needs of all those concerned in the
dlsign, construction and operation of construction
projãcts over their total life cycle, as a basis for their
effective and efficient management.

perhaps the main movement for change that comes out of all
these reports and initiatives is the move towards gteater
 186 More Effective Construction Procurement - Jaggar et al

harmony and spirit of cooperation between the various parties

involved in the procurement process and the elimination of the
adversarial culture with all the difficulties, tensions and
conflicts, that so often prevailwithin the construction industry,

Partnering is, without doubt, seen as the way towards

achieving many of the improvements reported above, if a
modern, forward thinking, innovative construction industry is
to be established.

Partnering, whether at project or strategic level, is based on

encouraging better relationships between all the parties, and
relies on the establishment of trust. It is a management tool,
intended to promote more co-operative working between the
various contracting parties involved in a construction project.
The primary objective is to establish the shared goal of
completing the work needed in a cost effective and timely
manner to the mutual benefit of all concerned.

Protagonists of partnering have identified the following

specific benefits from clients and contractors working together,
which help in the achievement of better value:
o Reduction of the need for time consuming and expensive
design changes
o Reduction of expensive disputes leading towards costly
and lengthy litigation
¡ Integration of the supply chain
o Replication of good practice from earlier projects
o Encouraging the contractor to contribute towards
developing more efficient and effective design and
construction solutions
o Improvement of project performance during its lifetime.
¡ Development of more integrated and shared information
systems, providing greater transparency and specificity
for the various parties involved.

Whether or not partnering will prove to be the panacea that its

187 crB-2002

various supporters claim, only time will tell. It is perhaps

worth pointing out that such approaches are not new and
similar arrangements and strategies have been deployed under
various pretexts over many years (serial contracting, for
instance) with limited success. Issues of probity in public
tendering tend to work against any procurement strategy that
wishes to develop a continuing relationship between client and
contractor. Once the fragile bond of trust is breeched, the
whole process can be undermined. Partnering may also inhibit
competition and restrict the entry of new firms into the market.
Ironically, some contractors may object to its universal
adoption. Whilst a contractor may win a number of projects in
a medium/long term partnering relationship, a greater number
of unsuccessful contractors miss out on these projects, which
are now withdrawn from the market place.

Partnering is, without doubt, an excellent principle to follow

but, changing the culture of the construction industry's
participants to facilitate its full support, may prove difficult to
achieve, as the culture of a large number of clients and
professional construction organisations is still to seek contracts
with the lowest tenderer, irrespective of the ephemeral delights
of harmonious relationships. Perhaps the prospect of paying
less is just too tempting to many consumers - whether it is
groceries or buildings!

On a more serious point, a recent report highlighted the fact

that all involved in construction agree that they must abandon
adversarial practices, with the exception of quantity surveyors.
Cynically, this attitude by quantity surveyors could be because
they need to perpetuate adversarial relationships in order to
¡usii¡, their éxistence.(Building 8th June 2001)

The Modernising Construction report (Modernising

Construction 2001a) has recommended three procurement
strategies for use with central government departments'
construction projects, within the context of partnering
 188 More Effective Construction Procurement - Jaggar et al

arrangements aimed at bringing about the various

improvements sought in construction performance, which are
briefly refemed to below:
1. Design and Build
2. Prime Contracting
3. Public-PrivatePartnerships

Design and Build

This approach is recommended, by the Office of Government
Commerce, within a partnership arrangement, as one of the
major ways of procuring construction projects. So, traditional
forms of procurement are no longer the only method that
government can use to procure projects.

Prime Contracting
This is seen by the Office of Government Commerce as an
extension to design and build, in that the Prime Contractor is
expected to have a well established relationship with a supply
chain of reliable suppliers. The aim is to achieve increased
quality and value for money through better consistency in the
finished work and greater use of standardisation. Again
partnering is a pivotal component of this approach.

Public-Private Partnerships
Here a supplier is contracted to build a public facility or
infrastructure such as a hospital, bridge or tunnel, or a prison
and also to be responsible for running the service the particular
facility is providing, usually over a concession period of for
example, 30 years. In this way the risks associated with
providing the service are transferred to those best able to
manage them. Again the principle of partnering, both at project
and strategic level, is an integral requirement if a successful
outcome is to be achieved.
189 ctB-2002

Further imProvements
Despite all these admirable developments, which incidentally
havé been advocated under various guises since the 1940's
(Simon lg44),(Emmerson 1962), (Banwell 1964) there is still,
in the view of the authors, a fundamental problem remaining,
which is the fact that project information reflects the product
to be established namely the building, rather than the processes
needed to achieve it. It is not capable of transposition from one
manifestation to another and therefore specifrc information
needs, at specific points in time, for specific purposes, remains
largely unachievable. It is for this reason that so much mistrust
pr*uitt within the industry, which will not be eliminated
unless there are fundamental changes in nature, form and
content of the information used to describe construction'
such limitations have also been recognised by Rowlinson et al
(2000) who suggests that, to underpin successful partnering,
there is a need for improved communication and information
flow. This view is further echoed by Lee et al (2000) who are
developing a process protocol in order to provide " a common
set of definitions, documentation and procedures, that provide
the basis to allow a wide range of organisations, involved in a
particular construction project, to work together, seamlessly"'
Kagioglou' et al (l 998).

Work by Edum-Fotwe et al (2000) has also shown that

construction is essentially an information transaction process
and that information should be treated as a resource, for use by
the various parties involved in the procurement of construction
projects.

Thus designers find it difficult to accurately model the

."rour"", n"eded in the construction process. As a result often
 190 More Effective Construction Procurement - Jaggar et al

l:
Fig Steps necessaryto bring about better construction
performance (adapted from Modernising Construction)

Better integration
ofall stages in the
Better management of construction
construction supply process -design,
chains-eg: designers, planning and
More
subcontractors, construction-to
consideration of
specialist consultants remove waste and
end users in
and material suppliers. inefficiency
design and
construction of
buildings
Develop a Ieaming
culture on projects Better Construction
and within Performance
organisations o Construction
meets user Move away from
requirements and adversarial
is fit for a specific approaches between
Better health purpose the industry and
and safety o Lower clients
maintenance and
operâting costs
Longer term over project life Experience has shown
relationships between o Greater that accepting the
clients and contractors certâinty over Iowest price bid does
to promote continuous project costs and not always provide
improvements in time, time value for money and
cost and quality. o Elimination of more consideration
waste in labour, needs to be given to
the costs and value ofa
project over its whole
life and the quality of
Partnering between clients and
the contractors
contractors to resolve problem
collaboratively, to reduce
project slippage and cost
ovsrruns and eliminate wæte
in labour, plant and materials.

In ord€r to bring about the above improvements in perfomanc€ the following is needed:
The development ofa comprehensive information system, underpinned by information technology, which
facilitates the accurate and rapid provision, manipulation and assembly ofthe specific information needs
ofall thos concemed in the design, construction and operation ofconstruction projects over their total
life cycle as a basis for their effective and emcient management.
191 crB-2002

sub-optimal solutions are produced, as the dynamics of the

construction process are difficult to identifu. Additionally,
constructors, when developing their process model from
product stated design solutions, have great difficulty in
deriving accurate and realistic solutions, especially where
competitive tendering is deployed and thus financial
allocations are established before the establishment of the
detailed process model.

However for this to happen, there have to be some parallel

developments in information systems and their management in
order to capture the opportunities ofgreater transparency
offered by the developing of more open approaches to
construction procurement. The present time is an ideal
opportunity to develop information systems which are project
related rather than developed primarily for use by each specific
contributor in the design and construction process. In the past
there have been a number of developments attempting to
provide more effective information management, ranging from
radical approaches, such as that proposed under the
Operational Bill(Forbes W S and Scoyles E R 1963), the SfB
classification system (CIB W74 Information Co-ordination for
the Building Process 1986), the British Property Federation
System (British Property Federation 1983) and civil
engineering tendering documentation (Institution of Civil
Engineers 1985) through to more cosmetic recommendations,
such as developed by the DOE (PSA 1978), the CPI
(Coordinated Project Information Committee 1987) and
Uniclass (Construction Proj ect Information Committee 199 6)'
Most of these approaches, in the past, have tended to lead to
fiagmentation and thus poor portability and have tended, as a
result, only to serve the needs of each particular interest'
Through developments such as SfB, the CPI and, latterly,
Uniclass, which allow us to organise our information through
classification, there is now a real opportunity to utilise
information technology so that a comprehensive information
system can be developed. Such developments will facilitate the
 192 More Effective Construction Procurentent - Jaggar et al

accurate and rapid provision, manipulation and assembly of

the specific information needs of all those concerned irr the
design, construction and operation of construction projects,
over their total life cycle, as a basis for effective and efficient
management.

References
Banwell (1964), Committee on the Placing and Management
of Contractsfor Building and Civil Engineering Work,
HMSO, London.
Benchmarking the Government Client Stage Two Study
Document December (1999), HMSO, London.
British Property Federation (1983). The BPF Systemfor
Buildin g D e s ign and C onstruction, British Property
Federation, London.
Building Friday 8tr'June 2001 p33, The Builder Group,
London.
CIB W74 Information Co-ordination for the Building Process
(1986). A Practice Manual on the Use of SJB The
Classification Systentfor'lroject and General in tlrc
Building Industry, CIB Publication 55. Council for
Building Research, Studies and Documentation. Ireland.
CySfB Construction Indexing Manual (1975). RIBA
Publications, London.
Comptroller and Auditor General (2001). Modernising
Construction.HC 87 Session 2000-2001. HMSO, London.
Construction Project Information Committee (1 996), Uniclass :
Un iv er s al C las s ifi c at ion for t he C ons truc t i on Indus try,
Construction Proj ect Information Comm ittee, London.
Coordinated Project Information Committee ( I 987), C ommon
Arrangement of íØork Sections for Building l[lorlcs,
Coordinated Project Information Committee, London.
Housing Grants, Construction and Regeneration Act (1996),
HMSO, London.
F T Edum-Fotwe, A Thorpe & R McCaffer (2000). Assessing
Potential of On-Line Transaction for Information as a
193 crB-2002

Resource in the Corrstrtlction Process. Jotrnal of

Construction Procurentent pp 202-219 ' IPRG Limited.
J Egan (1998) Rethinking Constructio,n' Report from the
Construction Task Force. Department of the Environment,
Transport and the Regions, London.
H Emmerson (1962), Survey of Problems Beþre the
Construction Industries, HMSO, London
Forbes W S and Scoyles E R ( 1963). The Operational Bill,
Royal In s t i tut i on of C har t er e d Surv eyor s Journal February
1963, London.
Institution of CivilEngineers (1985), Civil Engineering
Standard Method of Measurenlenr, Thomas Telford Ltd,
London.
M Kagioglou, R Cooper, G Aouad G Hinks, J Sexton & D
Sheath (1998). A Generic Guide to the Design and
Construction Protocol. The University of Salford' Salford
M Latlram (1994). Constructing the Team" Joint Review of
Procurement and Contractual Anangements in the UK
Construction Industry. Departrnent of the Environment.
HMSO, LoOndon.
A Lee, M Kagioglou, R Cooper, G Aouad (2000). Production
Management: the Process Protocol Approach, Journal of
Construction Procurentent pp 164-183. IPRG Limited.
PSA (1978) Construction Planning Unils, PSA Directorate of
Architectural Services, London.
S Rowlinson, J Matthews, F Phua, P McDermott & T
Chapman (2000). Emerging Issues in Procurement
Systems, Journal of Construction Procurement pp 90-103.
IPRG Limited.
Royal Institution of Chartered Surveyors (RICS) (2000)
Contracts in use: a survey of building contracts in use
during 1998, RICS London
g Sitnorij(tq44), Report of the Central Council for Building
Works and Buildin gs, "The Placing of Management of
Building C ontracls"", HMSO, London.
"Ì
195 ct8-2002

A Comparative Study of Safety in Culture the

Construction lndustry of Britain and the
Caribbean
Summary of the Findings.
Steven J. Peckittl, A.I. Glendon'& R.T. Booth3

Abstract
This cross cultural study of safety cultureai examines occupational
health and safety related attitudes and safety manageme_nt practices in
the construction industry in the Anglophone Caribbeaniis and Britain
using both quantitative and qualitative techniques derived from the
sociál sciences. Documentary and observational information is
combined with the results derived from attitude scales and audits of
site behaviours and management systems to produce a holistic and
triangulated analysis of safety culture.

Bandura's (1977,1986, l99l) Social Cognitive theory provides the

conceptual framework for this study, highlighting the triadic and
reciprocal relationships between cognition, behaviour and
environment. This work explores cognitive issues such as risk
perception, locus ofcontrol, accident causation beließ and safety
management responsibilities using safety climate tools. It examines
specific behavioural factors through site safety auditing, safety
management systems appraisal and interviews. It considers the impact
ofenvironmental or situational factors, such as occupational health
and safety legislation, its enforcement and societal values, upon health

I
Health and Safety Executive, St' Dunstan's House, 201-21I Borough High
St. London SEI IGZ
School of Applied Psychology, Griffith University, PMB 50 Gold Coast
2

Mail Centre, Queensland 9726, Australia

3
Health & Safety Unit, School of Engineering & Applied Science, Aston
University, Birmingham B4 7ET
a
In this study the term safety culture relates to occupational safety and health
risk management.
5
This study collected data in the following English speaking Caribbean
countries - Anguilla, Barbados, Guyana, Jamaica, St. Lucia, St' Vincent,
Trinidad & Tobago
196 Safety Culture in Britain and Caribbean - Peckitt et al

and safety performance.

Accident and ill-health data for the construction industry suggest that
the comparatively highly developed societal safety management
systems of legislation, inspection and consultation in GB have not
resulted in lower rates of death and ill health compared with the
Caribbean. This study highlights the importance of the influence of
societal culture, the construction process and local environment upon
safety culture in the construction industry. This research demonstrates
that the safety culture paradigm is notjust a catch all phrase or label
for best practice, but is a holistic way of thinking about risk
management which allows for identification of underlying causal
factors behind safety performance in complex sociotechnical systems.

Keywords : cross-cultural study, safety, attitudes, safety management

practices, Caribbean, UK.

Introduction
In most societies, the construction of structures is integral to
human activity providing, inter alia, places for shelter,
business, religious ceremonies and learning. The construction
industry procluces the huilt environment, creates employment
and generates wealth. Small businesses specialist in one of
numerous different construction related activities, dominate the
industry resulting in a competitive, complex, dynamic and
fragmented industry. The construction industry is commonly
considered to be dangerous, difficult and dirty, and is one of
the most hazardous land-based industrial activities, producing
numerous serious accidents and cases of ill health to workers
and members cf the public.

The concept of safety culture is concerned with managing

health and safety risks. The Advisory Committee on the Safety
of Nuclear Installations (ACSNI) study group on human
factors, provided one of the most quoted definitions of safety
culture: the product of individual and group values, attitudes,
perceptions, competencies, and patterns of behaviour that
determine the commitment to, and proficiency of an
t97 ct8-2002

or gan is
n/ (HSC, I 993 )'
at i on's he al th an d s afe t¡' man age n?e

Ge-ller (1gg4) proposes the concept of Total Safety Culture,

identiSingpe rsonal (knowledge, skills, abilities, motivation,
p"rtonât ityj ; b e hav io ural (comp I iance, coach ing' reco gnition,
communióation); and environmenlal (equipment, tools,
machines, housekeeping, environment, engineering) factors as
key aspects of safety culture. One of the most simple and
g.n"tul, but usefut, definitions of safety culture is aspects of
culture that affect safety (Waring, 1992)'

The aim of tliis research projectiiio was to examine health and

safety risk management in the construction industry in two
different parts of the world in order to gain a better
understanding of factors that significantly impact upon the
safety culture of this industry. This paper briefly describes
rorné k.y findings from this study, highlighting significant
attitudes, behaviours and situations that were found to impact
upon the safety culture of the construction industry in Britain
und in seven Anglophone Caribbean countries in the last
decade of the twentieth century. It examines the following
specific issues:
l) standards of construction site health and safety;
2) construction worker attitudes to health and safety related
issues;
3) construction companies health and safety management
practices;
4) societalfactors that impact upon the safety culture of the
construction industry, including legislation and societal
values.

MethodologY
Cooper (1993), Geller (1994) and Cameron(1997) advocate
the úse ofBandura's (1977) Social Learning theory for the

6
This research was supported by Aston University and the Health and Safety
Executive. The views expressed are those ofthe authors and do not
necessary represent the views of the HSE.
 198 Safety Culture in Britain and Caribbean - Peckitt et al

analysis of safety culture. Bandura's theory can be used to

model of safety culture, where safety culture is represented the
dynamic reciprocal relationship between group members'
perceptions and attitudes towards safety (cognition); their job
related actions (behaviour); and the effectiveness ofhealth and
safety management systems (environment/situation) (Cooper
and Phillips, 1995). The focus of this model can be extended
from organisations to the industry level by viewing safety
management practices as behaviours and the influence of
external influences, including legislation, economics, history
and climate as situational factors (Figure 1). This reciprocal
model recognises that the strength of each element may be
different in any given situation. Describing a safety culture as
good/positive or poor/negative equates with the possession of
characteristics identified as being effective or ineffective for
controlling occupational risks to health and safety in their
operating environment.

",r,oliliiïi't¡o,,ou
COGr'¡nio¡l
¡ttitudes;.beli9fs, þerceptiqns
sal'eti climate: åttitüde scale
' Jnterview

External
Observøble .faclors

BEHAVIOUR
ENVIRONMENT
Risk management
climate econonrics
risk taking history regulation
audit and observâtion equipment

Figure I Reciprocally determined model of safety culture

(after Bandura, 1977 and Cooper, 1993)

Combinations of psychological and ethnographic methods have

been deemed to be the most appropriate tools for examining
safety culture (Schein, 1990; Guest, et al. I 994). An
 clB-2002
19g
organisatiolt's safety management system, the prevailing
safety
cliäate and daily goal directed safety behaviour can be
in a
evaluated making it possible to assess safety culture
meaningful *uy (Cu*.t on, 1997)' Attitudes can be
measured

using a"safety ólirnate tool, while work behaviours and

situaiional factors can be assessed by a variety oftechniques
including audit, literature review, direct observation and
questionLg (see Appendix 1 for a summary the tools used for
áata colleciion). This triangulation of information sources
provides a check against observer bias and provides
verification of the emergent conclusions (Bryman, 1988)'

Cognition
Safety climate scales developed by Leather
(1987, 1988) and
Phillþs,etat.(1994)toexamineworkers,attitudestosafety-
related issues in the British construction industry are
incorporated into tliis study. In addition, an eleven-item
inter;iew schedule was developed by the first author to
examine factors that Hinze (1931) found to influence accident
rates on sitcs in the USA, including: size of working
groups;
inter-worker relations; and nature of deadlines'

Site Behaviours and Practices

A construction site safety audit tool, developed and validated
by Cooper, et at. (1991)' was used to measure aspects
of
cánstruction site safety in the Caribbean. The results from the

original British study are used as comparative data with the

Caiibbean audit scores (see Table 1). In addition to audit
and
general site observations, site safety management arrangements
iere explored during Caribbean head office and site
interviews.

Situation
and
The characteristics of the industry, regulatory frameworks'
 200 Safety Culture in Britain and Caribbean - Peckitt et al

other relevant societal factors were examined through

interuiew, literature review and observation.

In the Anglophone Caribbean, 59 sites were audited and

interviews were conducted with 153 site workers, 6l managers
and directors, and government inspectors and heads of
rcpresentative bodies. In Britain, site safety standards and
safety management auditing was undertaken on three major
contracts of the Jubilee Line Extension Project (JLEP/
Ninety-four British construction workers employed on the
JLEP, provided responses to the safety climate scales.

Rcsults

7) Construction síte safety

Th results of site safety auditing highlight similarities and
distinct cultural differences between the two construction
industry cultures. The Caribbean Region scored an average
siæ safety score of 570lo, compared with an average score of
77o/o for British sites (Table l).

T¡ble I
Mean Site Audit Results Safe for British and Caribbean sites
Audit Category British Caribbean Sample
Sample* n= 57
n=27
Housekeeping 77 78
Scaffoldine 79 45
Access 8l 7l
Personal Protective Equipment 7t JJ
(PPE)
Mean Score 77 3t
*The combined pre-intervention baseline scores from the site audits
conducted by UMIST researchers for HSE (Duff, e/ al. 1993;
Robertson, et al. 1999) provide a comparable sample of British
construction sites.

The two samples achieved almost identical average scores for

?
Not reported in this paper
201 ct8-2002

the Housekeeping category of the audit, while the Caribbean

sites produced a marginally lower average score for the Access
category and significantly lower scores than the British sample
on the Scaffold and PPE categories' Housekeeping was good
in both samples, but methods for gaining access to heights and
the provision of PPE and scaffolding are areas of cultural
difference.

Wooden scaffolding predominates in the Caribbean, while

metal scaffolding is the norm in Britain. Edge protection and
complete boarding to working platforms are rare in the
Caribbean, but are recognised standards in the British
construction industry. These results correspond with findings
of Rowlinson and Linguard (1996), who, using the same
measure in Hong Kong where bamboo scaffolding is common,
found that the scaffolding category emerges as the most
culturally influenced category on the UMIST site auditing tool
and the hardest area in which to achieve behavioural change'
Personal protective equipment provision was variable, but
generally poor in the Caribbean. Workers readily wore
protective equipment, i.e., hard hats, goggles, gloves, and
facemasks, when the contractor provided them. Ladders are
custom made out of wood on sites in the Caribbean, but factory
manufactured from wood or metal in Britain. Compared with
Britain, hazardous chemicals were not as common on
Caribbean construction sites due primarily to climatic and
economic imperatives that result in the use of different
construction designs, materials, finishes, systems of work and
techniques. The Caribbean was more labour intensive with
relatively low levels of mechanisation when compared with
Britain, and where used, plant was often poorly guarded and
maintained.

2) Safety Clímøte
'Ihe results of the analysis of the attitudinal data provided by
construction workers in Britain and the Caribbean indicates
that there is broad correspondence on the key dimensions of
202 Safety Culture in Britain and Caribbean - Peckitt et al

each safety climate. Factor analysis of the data determined

that the principal factor is the interaction between managers
and workers. The other factors identified include workers'
perceptions of risk, work experience, sense of rushing and
safety communications, corresponding with the findings of
Dedobbleer and Beland (1991).

In addition to the shared aspects of safety climate, the two

samples demonstrate significant differences. Caribbean
workers responded less positively to safety climate items
relating to management behaviours in comparison with their
British counterparts, but were more positive with respect to the
items relating to the foreman's and their ovt'n actions with
respect to safety, than was the British sample. Compared with
the Caribbean sample, the British sample recorded higher
scores on items relating to feeling rushed and that there was a
significant chance of them having an accident. Caribbean
workers scored higher than the British sample on the items
relating to risk perception, sense ofindividual control over
safety, communications and relations with their work-mates,
and enjoyment of working on site. Less than a quarter of
British workers stated that they discuss personal problems with
their colleagues, less than a halfstated that they enjoyed their
work, while two-thirds responded that they experienced
impossible deadlines and that they had to rush to finish off
work.

3) Sefety mønøgement practices

The majority of smallconstruction companies that dominate
the industry worldwide tend to have slim management
structures, with little bureaucracy and no formal saf'ety
management systems. Risk assessments, safety policies, safety
committees and documented safety management systems were
virtually absent in the Caribbean. Directors and project
managers were often unaware of their duties under health and
safety legislation, including reporting a-ccidents. Caribbean
directors stated that they did not take occupational health and
 clB-2002
203
safety legislation or international standards
into consideration
*tl.nt"n-¿"ringforworks,orpriceforsafetyitemsintheir
tenderbids.There*u,ug"n"'alabsenceofformalhealthand
in the
safety training specific to the construction industry
Cariúbean anã there was no equivalent of the British
Construction Industry Training Board (CITB)'

In Britain the effectiveness of contractors' safety management

systems varies both with size and activity (Birchall
and
íinlayron, 1996). Civil engineering contractors tend to have
more sophisticated and effective safety management systems
thandoth".o'*",cialbuildingandhousingcontractors'The
medium and small construction contractors, who dominatelhe
Britishconstructionindustry,onlyrarelyhaveeffectivesafety
management systems. In particular, the risk assessment
p.o."ir, communication of information and employee
safety
involvement is poor in many organisations. Health and
training for managers, supervisors and workers is often
lackinf, despite the existence of national training
orguni;utions. Construction managers in Britain commonly
viãw safety as a cost that conflicts with production and
therefore take little direct interest in it and ignore safe systems
of work when they feel strong programme and financial
pressures (Leather, 1987).

the
Site managers with experience of working in both
Caribbeariand Britain stated that they had to carry out a far
greater degree of control of day-to-day site activities in
the
and
öaribbearidue to the lack of engineers, skilled tradesmen
and foremen stated that there
supervisors. Directors, managers
wËre good relations on site between workers and site
rnunui"rr, stressing the importance of open communications
tended to
and tñe need to consult with workers. Site relations
with less emphasis on
U" *or" paternalistic on Caribbean sites,
across the
efficiency and speed. Both foremen and managers
workers
Caribbean stated that you had to get the respect of the
order to get them to work hard and that workers do not
like
in
pressure anã will walk off the job if shouted at or pressed to
204 Safety Culture in Britain and Caribbean - Peckitt et al

work faster or harder.

1) Industry chøracterßt¡cs
The stereotypical image of the British construction industry is
that it is a dirty, noisy, dangerous, inconveniencing activity
undertaken by hard living men, employed by unscrupulous
contractors. There is little job security, little training and
generally low academic entry requirements to the industry.
The pressures of tight work schedules are compounded by
bonus payment systems and "pay when paid" clauses. Sharp
practices of many small builders, some of which border on
fraud, perpetuate the image of the dishonest and incompetent
cowboy builder frequently portrayed in British television
dramas and documentaries.

Latham (1994) describes the British construction industry as

litigious with conflict, adversarial attitudes, fragmented
organisation and a lack of trust resulting in over 1000 writs
being issued each year. Competitive tendering, programme
pressures and the use ofpenalty clauses all set up pressures
that conflict with safety management. Time and cost pressures
result in risks being ignored and the law being broken with the
consent of supervisors and managers. The requirement for
high-speed project completion often results in poor planning, a
cost premium and an increased risk of accidents and mistakes
occurring. Competitive tendering limits the amount of
influence that builders have on designs, the degree of
innovation and investment in new technologies and prevents
collaboration between architects, engineers and builders
(Atkin, et al. 1995).

The fragmented relationships between clients, consultants,

designers, contractors and subcontractors in the construction
industry in both regions results in diffrculties such as
inadequate planning, disputes, nepotism, poor communications
and time delays. Caribbean projects frequently experience
delays due to client indecision, poor design briefs, design
changes, materials supply problems and late payment (Atherley
205 ct8-2002

and Lewis, lgg2). Adversarialrelationships, attitudes of the

work force, inefficient bureaucracies, lack of finance, low pay
and motivation, low productivity, political interference' poor
infrastructure, and skills and materials shortages are common
problems facing the construction industry in the Caribbean
with
iLewis and Mugishagwe, 1993). However, compared
Èritain there is not the same degree of adversity, 'cut-throat'
competition, imposition of unreasonable deadlines, or
litigãtion in the Caribbean. Only one of the Caribbean
companies studied had been to court over a contractual
dispute.

Project managers in the Caribbean who had experience of both

cultures stressed the slower pace of work compared with
British industry. In the Caribbean there was a lower level of
pressure on the workers and a slower pace of working' Bonus
schemes, tight time schedules, penalty clauses and litigation
were all uncommon in the Caribbean. Construction managers
with experience of both cultures stated that works of similar
size would take approximately twice as long in the Caribbean
generally, compared with Britain.

5) Socìetalføctors
The nature ofoccupational health and safety regulation and the
impact of societal culture were examined and compared'
Ocìupational health and safety legislation applicable to
construction in the Caribbean varies from country to country,
is proscriptive and rarely enforced. Only Jamaica and Guyana
haà comprehensive construction specifîc regulations, while
Trinidadand Tobago have a set of regulations relating
specifically to earthworks. Inspectors are rarely provided with
lôgal powers of prohibition and prosecution, or with adequate
teðhnical equipment, and means of transport. On the whole
they are underpaid, handicapped by bureaucracy and excessive
delâys in judicial proceedings and the low level of legal
penalties for violations.

The regulatory system for occupational health and safety in

206 Safety Culture in Britain and Caribbean - Peckitt et al

Britain is extensive and complex. The Health and Safety

Executive (HSE) is the organisation responsible for health and
safety in the British construction industry. HSE inspectors
have powers of immediate prohibition, improvement and
prosecution. Regulations forming a comprehensive regulatory
framework cover the whole construction process. In the mid-
1990s an average of 100 inspectors was devoted to inspect the
construction industry. HSE construction inspectors annually
canied out around 30,000 inspections, representing
approximately a quarter of all HSE inspections, issued around
a half of all HSE prohibition notices and conducted a third of
HSE prosecutions (HSC, 1996).

African-Caribbean people dominate the manual trades in the

construction industry of the Caribbean region. When
describing the important factors that impact upon construction
site safety in the Caribbean, African-Caribbean workers
stressed the values of freedom, love of life Çoie de vivre),
social aspects of work and the willingness to take time to do
things. Caribbean workers scored items relating to interactions
with fellow workers, communicatious on site and enjoyment of
work higher than did British workers. A prevalent attitude
expressed by Caribbean workers was that British people live to
work whereas Caribbean people work to live. British culture,
biased towards individualism and low power distance, places
emphasis on the legal system, democratic power, technology
and the work ethic (Hofstede, 1980). British workers scored
higher the items related to rushing and risk-taking, highlighting
differences in the perception of pressure and time. The
common British cultural symbol of the fierce and determined
Bulldog, contrasts with Anansi the plever spider which is a
popular cultural figure amongst African-Caribbeans, derived
from West African folk tales. Table 2 summarises key
findings from this study.

Conclusion
Comparative profiles of the two safety cultures can be built up
207 ct8-2002

combining the significant factors identified in this study. The

radar a of the
Table 2)
Construction Industry Safew Culture - Summarv of Kev Findines
CARIBBEAN BRITAIN
CoNSTRUCTION WORKER ATTITUDES
locus of control relatively high low
risk perception relatively high relatively low
communicøtions relatively high relatively low
sense of rushÍng low hieh
CONSTRUCTION SITE BEHAVIOURS
housekeeping generally good generally good
Iødders made on site - few manufactured - many
accidents accidents
scaffolds made from timber, made from metal
not used for storage often used for material
of materials storage
edge protection rare edge protection
eenerally sood
PPE þoor variable
-often complex designs,
technìques simple methods,
robust structures, common use of
limited use of technology
technologv
CONSTRUCTION ORGANISATIONS
bonus schemes rare common
søfety little proactive variable - good in civil
manøgement safety management, engineering,
systems safety seen as site poor in smaller
function for contractors, safety
foreman and often seen as a site
workers function
safeE training rare national schemes
increasing
prcssures financial and fierce finance and time
material supplies pressures
lack of specialist skills shortages
skills
dìsøute resolulion litisation rare frequent litieation
project contingency Taylorist approach
manugement approach
208 Safety Culture in Britain and Caribbean - Peckitt et al

CONSTRUCTION INDUSTRY
adversily little common
legisløtion little comprehensive
ìnspectors few many
enforcement rare common
øpprouch negotiation rule based
SOCIETAL FACTORS
resulution little influence large influence
climste tropical temperate
use of technologv restricted extensive
lifdwork work to live live to work
relationship
focus spirituality materialism
time time synchronous time sequential
risk risk averse risk takins
vulues joie de vivre PWE
Anansi smartness Bulldog spirit

safety culture of the construction industry in the Caribbean and

Britain. The data points are the key issues that emerge from
this study. Personal factors such as risk taking and locus of
control are positioned in the upper right hand third of the
diagram. Construction industry factors such as site relations,
training and safety management are located in the bottom third,
while societal factors occupy the left hand third of the diagram.

The data points are placed on a five-point scale rising from

zero atthe centre of the map. The relative magnitude of each
data point within each safety culture is derived from results of
this study. The further the point away from the centre of the
map, the greater is the influence of that factor.

Positive influences within the safety culture of the British

construction industry include relatively high levels of
regulation, resources and formal safety management systems'
Negative influences include adversity, complex subcontracting
relationships, risk taking and rushing. Positive influences in
the safety culture of the Caribbean construction industry
include a strong personal locus ofcontrol for safety, high risk
209 cl8-2002

Radar map of the construction safety cultures of the

caribbean and Britain
Figure 2
GB
rÍsk aversitY
tim e pressure (t) rìsk takìng (r)
Caribbean
^
¡¡eln rcgn latio n
pøce of work (r)

lrasl
technological fisk (r)

locus of control
adversìty and litigøtìon (r) \

job sectritY
subcontract¡ig (r)

bonus schemes (t)

t¿so 4 Íc¿s

sit¿ saÍety stqnda¡.ls

s¡te telatíons

m anagem ena stYIe taÍ¿t! mønag¿ment

tr aìn in g
(r) - reversed scored
negative aspect of salety culture
 210 Safety Culture in Bitain and Caribbean - Peckitt et al

perception and relatively slow work pace. Both industries

suffer from a lack ofjob security and training, effective quality
management and trust .

Accident and ill-health data for the construction industry are

inherently unreliable due to the endemic failure to report non-
fatal accidents, both in Britain and the CariËbean, and must
therefore be treated with caution. From available data the
accident rates for the Caribbean construction industry are
substantially less than those in the British construction industry
(Appendix 2). Between 1987 and 1991 the average fatal
accident incidence rate for employees in the British
construction industry was 9.7 (HSC, 1992). Averaging the
often-sketchy employment and accident data for Caribbean
states gives a regional fatal accident incidence rate of 1.7 for
the construction industry in 1990. The all accident incidence
rates for the Caribbean construction industry were generally
half the British figures.

Despite significant regulatory and site management efforts to

provide fall protection, fàlls account for half of all British
construction fatalities. In the Caribbean edge protection is
commonly lacking, fall arrest equipment is rare and working
platforms are not fully boarded. In the Caribbean the relatively
slow pace ofwork, sense oflocus ofcontrol over safety and
risk are cultural factors that help to explain the relative lack of
falling accidents compared with Britain. Despite the common
occurrence of unprotected drops, mediating cultural factors
reduce the potential for falls, corresponding with Hinze's
(1996) Distractions Theory and Leather's (1987) PAS Modet.
The absence of formal safety management s¡rstems was
balanced to a degree by the strong locus ofcontrol for their
safety exhibited by Caribbean workers who were agile,
avoided rushing work and also tended to be risk averse.

The Caribbean construction industry faces less technological

risk due to the comparatively limited use of chemicals,
2tl ct8-2002

complex construction techniques, plant and machinery' The

CariLbean construction industry is less adversarial, less
pressurised and less regulated than the British construction
industry. Time is less of a pressure, production related bonus
schemés are generally absent and work pace is relatively slow.
British concepts of time and risk ensure that construction
clients and contractors frequently focus too much on costs and
progress at the expense of quality and safety, resulting in
ireqient accidenti, disputes, litigation, poor quality and rushed
work.

Societal cultural biases have a significant impact upon safety

culture of the construction industry. Conceptions of time,
human relations and risk taking emerge as important societal
factors that impact on safety culture. The key to improving
risk management in the construction industry is the recognition
of the negative impact of specific cultural biases and
implementing effective measures to counter them'

References
Atherley, B. A. and Lewis, T. M. (1992). Analysis of
Construction Delays, Proc. \th International Symposium,
CIB W-65, Scotland, SePt. 1996
Atkin, B. Flanagan, R' Marsh, L., & Agapiou' A' (1995)'
Improving value for money in construction guidance for
ch-artered surveyors and their clients' London: Royal
Institution of Chartered Surveyors.
Bandura, A. (1977)' Social Learning Theory' Englewood
Cliffs, NJ: Prentice-Hall.
Bandura, A. (19S6). Socialfoundøtions of thought and action'
A social cognitive theory. Englewood Cliffs, NJ: Prentice-
Hall.
Bandura, A. (1991). Social Cognitive Theory of Self
Regulation. Or ganis at ion, B e havi our, and Human
Decision Process, 5 0, 248-287 .
Birchall, S. J., & Finlayson, H. (1996). The Application of
 212 Safety Culture in Britain and Caribbean - Peckitt et at

European Directive Safety Management Regulations to the

British Construction Industry. In L. M. Alvez Dias, & R. J.
Coble (eds), Implementation of Safety ond Health on
Construction Sites. CIB W99 1996 Lisbon. Balkema,
Rotterdam, pp.4l-52.
Bryman, A. (1988), Quantity and Quality in Social Reseatch,
London: Unwin Hyman. ¡

Cameron, l. (1997). A social learning approach to the practice

of safety management. The Health and Safety practitioner,
March, pp.26-32.
Dedobbeleer, N., & Beland, F. (1991). Safefy Climate Measure
for Construction Sites. Journal of Safety Research, 22,97-
I 03.
Duff,4.R., Robertson, I.T., Cooper,M.D., & phillips R.A.
(1993). Improving Safety on Construction Sites by
Changing Personnel Behaviour. Health and Safety
Executive Contract Research Report No. 5ll1993, HSE
Books.
Cooper, M. D. (1993). Reciprocal modelfor mensuring safety
culture, Applied Behavioural Sciences, Hull.
Cooper, M.D., & Phillips, R. A. (1995). Killing Two Birds
With one stone: achieving quality via total safefy
managemeut. Leadership ond Organizational Development
Journal, 16,3-9.
Cooper, M.D., Phillips, R.4., Robertson, I. T., & Duff, A. R.
(1991). Improving safety on construction sites by the
utilization of psychologically based techniques:
Alternative approaches to the measurement of safety
behaviour. Paper given at the Vth European Congress of
the Psychology of Work and Organization, Rouen, France.
Geller, S. E. (1994). Ten principles for achieving a total safety
culture. P rofess ional Safety, September, 18-24.
Guest, D. E., Peccei, R., & Thomas, R. (1994). Safety culture
and safety performance: British Rail in the Aftennath of
Clapham Junction Disaster. Paper presented at the Bolton
Business School Conference on Changing Perceptions of
Risk, Bolton, February 23 - March l.
2t3 ct8-2002

Health and Safety Commission (1992). Annual Report 1994/95

HSE Books.
Health and Safety Commission (1993)' ACSNI Human Factors
Study Group Third Report: Organisingfor Safety, London:
HMSO.
Hinze,J. W. (19S1). Human Aspects of Construction Safety.
Journal of Construction Division, ASCE Vol 107 No COI
Proc. Paper 14848 Sept pp'253-262'
Hinze, J. W. (1996). The Distractions Theory of Accident
Causation. In L. M. Alvez Dias, & R' J' Coble (eds),
ImplemenÍation of Safety and Health on Conslruction
CIB W99 1996 Lisbon. Balkema, Rotterdam. pp'
^Siles,
375-373.
Hofstede, G. ( I 9S0). Culture s' C ons equences. International
Differences in Work-related Values. Volume 5, Cross-
cultural Research and Methoclology Series: Sage.
Latham, M. (1994), Constructing the Team, London: HMSO.
Leather, P. J. (19S7). Safety and Accidents in the Construction
Industry: A Work Design Perspective.. llork & Stress, 1,
167 -17 4.
Leather, P. J. (l9SS), Aftitr¡des Towards Safety Performance
on Construction Work: an investigation of public and
private sector differences. Ilork & Stress, 2,155'167.
Lewis, T.M., & Mugishagwe, D.D. (1993). Operational
Problems Facing a Sample of Construction Firms in
Trinidad & Tobago, Proc. \th International Symposium,
CIB W-65, Scotland, SePt. 1996
Phillips, R.4., Cooper, M.D., Sutherland, V. J', & Makin, P.
J. (1994). A Question of Safety Climate - Measuring
Perceptions of the Working Environment' Proceedings of
the BP S I 9 9 4 Conference, Birmingham.
Robertson, L T., Duff,4.R., Phillips R'A', Weyman, A. K., &
Cooper, M. D.(1999). Improving Safety on Construction
Sites by Changing Personnel Behaviour Phase II. Contract
Research Report No. 229, HSE Books.
Rowlinson, S., & Linguard, H. (1996). Behavioural Safety
Management in Hong Kong's Construction Industry;
2t4 Safety Culture in Britain and Caribbean - Peckift et al

Success and Limitations. In L. M. Alvez Dias, & R. J.

Coble (eds).Implementation of Safety and Health on
Construction Sites, CIB W99 Lisbon. Balkema, Rotterdan
pp.28t-289.
Schein, E. H. (1990). Organizational Culture. American
Psychologist, 4 5, 109-l 19.
Waring, A.E. (1992). Organisational cultúre, management and
safety, Paper presented at the British Academy of
Management 6th Annual Conference, 14-16 September,
Bradford University.
 215 cr8-2002

Appendix L

of Measures Used in this S

Measure Originator Number of Focus Comments
Items
Attilude Scales
Cooper e/ Original Actual Caribbean and Ten non-
UMIST
Safety al. (1991) 36 26 British Manual applicable
Climate Scale Workers items
removed
Leatherts Leather t2 l0 Caribbean and Two non-
Attitude (1e87) British Manual applicable
Scale Workers items
removed
Interview Schedules
Government Peckitt 22 Caribbean
Government
Officials
Company Peckitt 19 Caribbean
Construction
Company
Directors
TU/ Peckitt t6 Caribbean TU Includes TU
Employers / Employers and Emp,
Schedule Organisation ILO,
UNECLAC
Site Safety Peckitt l1 Caribbean and Developed in
Schedule after Hinze British Manual Barbados
Vy'orkers
Site Audit
Site Safety Cooper el 24 Sites audited Some items
Audit al. (1991) in the not
Caribbean
 216 Safety Culture in Britain and Caribbean - Peckitt et al

Appendix 2

Accídent Data
The construction industry is globally renowned for its informal
employment practices and operations. In the 1990s the Labour
Force Survey of Britain estimated that 60okof nonfatal
reportable accidents in the construction industry go unreported
to the HSE (HSC, 1995). The dubious accuracy of particularly
nonfatal accident data, limits the extent to which meaningful
comparisons can be made. However, available data suggest
that there is significant underreporting of industrial accidents
and cases of ill-health under the relevant industrial health and
safety legislation in both Britain and the Caribbean.

Brítaín
On the basis of reported accident data, the British construction
industry is more dangerous than any other land-based
industrial activity except for mining. Between 198617 and
199112,85 I fatalities occurred in the construction industry.
On average five workers were killed every fortnight and a
member of the public was killed every month (HSE, 1994).
The rate of fatalities in the construction industry was six times
greater than that in the manufacturing sector and nearly l6
times the rate in the service sector. In the mid-1990s the
annual accident toll from the construction industry included
around 85 fatalities, 3000 major injuries and I1,000 over three-
day accidents every year (HSC, 1995). With an estimated 60%
under-reporting of non-fatal construction accidents, the actual
number of major and over three-day injuries is likely to be
6000 and 22,000 per year respectively for all construction
workers. British flrgures exclude road traffic accidents, which
are a significant cause of fatalaccidents to construction
workers and are included in the statistics of many countries -
e.g., USA, France, Denmark.

Falls from height account for around halfofall fatal

2tj ct8-2002

construction industry injuries to workers in Britain, the

majority of which result from treading on fragile roof lights.
Other common causes of fatalities include trapping, collapsing
or overturning accidents (14Yo), being struck by a moving
vehicle (14%) and being struck by a moving or falling object
(9%). Roofing, ground works and demolition are the activities
that produce the most fatal accidents. Inadequate training or
instruction, and inadequate supervision each contributed to
around 100 deaths between 1986187 and l99ll92 (HSE, 1994)'
Compared with other workers, British construction workers'
experience increased mortality rates from rnalignant diseases
particularly lung cancer and stomach cancer' as well as from
work-related accidents. These result from exposures to
hazardous substances and physical agents ofharm at work, and
poor diet, excessive alcohol consumption, smoking, and stress
induced by living away from horne (Dong, et al. 1995). The
number of cases of ill health caused by the industry is difficult
to gauge accurately, HSE (1994) estimates that annually:
up to 48,000 suffer from musco-skeletal problems;
up to 23,000 suffer respiratory diseases;
up to 10,000 suffer from dermatitis; and

almost 6000 workers suffer occupational deafness'

In the 1990s, asbestos-related discases are estimated to kill

between 3000 and 3500 people every year in Britain' This
figure is likely to go on rising, probably for the next25 years'
when the death rate could be between 5000 and 10,000 each
year (HSE, 1994). The long latency of asbestos-related
diseases (those for cancers and mesotheleoma are anything
from 15 to 60 years) means that these deaths are occurring
from exposures that have already taken place. Construction
workers such as carpenters, electricians, plumbers, gas fitters
and cabling installers form the largest high-risk group' This is
because of the common use of asbestos materials in buildings
in Britain for insulation and fire protection from the start of the
20th century.
 218 Safety Culture in Britain and Caribbean - Peckitt et al

The Caríbbean
In the Caribbean there is no standard method of collecting and
recording occupational accident and ill-health data. In most of
the countries studied limited industrial accident and ill-health
data were available from both Labour Departments and the
National Insurance Scheme (NIS). However, Anguilla did not
collect any occupational accident data, and in Saint Lucia data
were only available from the NIS. There were often large
differences between the two sets of data available from labour
departments and the NIS, due to differing reporting
requirements, the wider scope of coverage of the NIS and the
beneficial aspects of reporting to the NIS.

The definition of what constitutes a reportable work accident

differs between countries within the Caribbean Region. In
Guyana, employers are legally required to report all one-day
absences from work both to the NIS and by occupational health
and safety legislation. In Jamaica the Factories Act 1943
requires submission of reports of all incidents resulting in over
48-hour absences from work. Barbados, Saint Vincent and the
Grenadines, and Trinidad and Tobago require reports of
greater than three-day absences from work caused by
occupational accidents. Little information was available
concerning occupational diseases throughout the Region.
Table 3 shows available relevant Caribbean occupational
accident data.

Accídent íncídence rates

In 1990/91the fatal accident incidence rate for employees in
the British construction industry was 9.3, (HSE, 1993).
Averaging the Caribbean employment and fatal accident data
gives a regional incidence rate of 1.7 for the construction
industry in 1990, (estimated working population of the
construction industry in the Caribbean countries studied is
125,000). The variation in rates caused by one fatality in small
219 ct8-2002

population size samples is demonstrated in the examples of the

construction industry fatal accident rate for Barbados (12) and
Saint Vincent (30), in 1991. Two fatal accidents were
recorded in the Caribbean construction industry in 1991,
giving a fatal accident incidence rate of 1.6. This may be
compared with the British fatal accident incidence rate of 9.3
for the construction industry in the same year'

The all accident incidence rates for the Caribbean construction

industry were generally less than 50%o of the British figure.
From the available data, construction accidents occur more
frequently in Britain compared with the Caribbean. Electrical,
'struck by' and machinery accidents appear to be more
common causes of fatal accidents than falls, in contrast to
Britain

Table 3 Accident Numbers and Incidence Rates

Country Date Fatal Non-Fatal Notes
Accidents Accidents
Number Rate per Number Incidence
100,000 rate
Anguilla r 989 No industrial
1990 accident data
available.
l99l
Barbados I 989 I 10.75 70 642 Figures from
0 0 22 230 Labour Dept. (>3
1990
dav).
l99l I tl.76 27 318
Employment
figures Labour
Market
Information
Reoort 1990
Guyana I 989 0 0 l5 165 Assumes 9,000

I 990 I 1.6 ll t2l construction

l3 143 workers. Reports
1991 0 0
for greater than
one day absences.
NIS figures. Total
workforce
270.000
1989 0 0 68 224 Greater than two
Jamaica
0 0 40 152 day absences.
1990
Figures from NIS
l99l 0 0 126 405
assumed 30.000
220 Safety Culture in Britain and Caribbean - Peckitt et al

construction
workers
St. Lucia 1989 0 0 From National
r990 0 0 Insurance Figures,
l99l 0 0 36 t663 not recorded by
industry group. (>
3 dav)
st. 1989 0 0 23 675 Labour Mkt
Vincent 1990 0 0 l9 557 Bulletin Vol 3
t99t I 30 l5 440 1990, (>3 dÐ
Total employees:
37,782
Construction
workers = 3,380
Trinidad I 989 0 0 2 5.2 CSO Reports
and 1990 0 0 I 2.5 Trinidad Labour
Tobago l99l 0 0 0 0 Dept.Figures. (>
three day
absences.)
Britain 1988/8 109 9.9 18763 1842.9 HSE Annual
9 108 9.4 20339 1971.4 Reports.
t98919 ll0 9.3 t9377 1876.s Employees only
0 RIDDOR Reports
1990/9
I
221 ctB-2002

Reducing the Incidence of Claims and

Disputes in Construction Contracts
David Yatesl

Abstract
The topic of this paper is claims and disputes in construction, mainly
from the perspective of the client in the context of the client /
contractor relationshiP.

The causes of claims and disputes are examined from the perspective
of transaction cost economics (TCE) theory due to its focus on
contracting problems and in particular its suitability for complex,
long-term and dynamic relationships which are found in construction
contracts.

Consideration ofTCE theory in the context ofconstruction suggest

that the root causes of claims and disputes are:
o Contractual incompleteness; and consequent"post-contract"
adjustments
r Opportunistic behaviour, in particular on the part of the
contractor.

A brief casp study drawn from Hong Kong's Airport Core Programme
is used to illustrate the presence ofcontractual incompleteness and
opportunism. Measures for preventing / reducing the incidence of
claims and disputes are ProPosed'

Conclusions are drawn that the actual incidence of claims and

disputes is largely govemed by the client in determining the balance
ofhis priorities for the project and his consequent selection of
procurement system, and design and construction teams.

Keywords: Claims. Disputes. Transaction Cost Economics.

I
Department of Real Estate and Construction, University of Hong Kong'
)
(Email: tljyatcs,iShkucc.hku.h\
222 Reducing the Incidence of Claims - Yates

Introduction
From the perspective of transaction cost economics (TCE)
theory the root causes of claims and disputes, in the context of
the clienlcontractor relationship, ar e c ontr ac tual
incompleteness and opportunism (Doree 1994, Alsagoff 1996,
McDermott and Alsagoff 1996 and Yates 1998),

Contractual Incompleteness
Many contracts which take place over an extended period of
time can be described as incomplete in the sense that, at
contract formation (ex ante), the obligations of the parties
cannot be fully and unambiguously specified to take account of
all future "states of the world" which may be encountered
during contract execution (ex post).In theory, a construction
project tendered on the basis of a fully completed design (or, in
the case of design/build procurement, a full and precise
statement of the Employer's Requirements), having no errors or
omissions in tender documentation and requiring no changes or
variations during the construction phase, could be described as
a "complete".

In reality, however, in view of the complexity of the

construction process and time necessary for overall delivery,
all but the smallest of projects are inevitably incomplete. In
"traditionally" procured projects contractual incompleteness is
usually manifest in one or more of three categories:
l. At contract formation stage in the form of Prime Cost
Sums, Provisional Sums, Provisional Quantities, and
the like, all of which are "adjusted" during the
construction phase depending on the client/design
team's actual requirements.
2. A contractual mechanism - namely, the right to
instruct variations - which allows the clienldesign
team optimum flexibility in decision-making (either by
leaving decisions as late as possible and/or changing
223 clB-2002

decisions previously made).

3. Ambiguities, errors or omissions in the ex ante
contract documentation, which come to light ex post,
necessitating clarification of the client/design team's
requirements and leadingto ex post "adjustments".
(Usually classified as variations).

Opportunism
Contractual incompleteness er ante sets the stage for potential
problems ex post. When events/circumstances arise that are
not fully and unambiguously covered by the contract
provisions, one or both parties may have incentives to behave
"opportunistically" by taking actions that will increase the
costs or reduce the revenues ofthe other party.

Opportunistic behavior involves making "false or empty, that

is, self-disbelieved, threats and promises in the expectation that
individual advantage will thereby be realized." (Goffman
1969). It involves subtle forms of deceit and also includes
stronger, more blatant forms of behaviour such as lying,
stealing and cheating. The notion that, in certain
circumstances, "contractual" man will behave opportunistically
is entirely consistent with one of the basic concepts of
neoclassical economic theory, namely "the motivating force in
the economic system is self interest'" (Galbraith and Salinger
1981).

More generally opportunism refers to the incomplete or

distorted disclosure of information, especially to calculated
efforts to mislead.
ooelicits
The assumption that contractual man is opportunistic a
variety ofreactions, ranging from abhonence through easy
acceptance to an insistence that this is yet another case where
there is nothing new under the sun." (Williamson 1985)'
 224 Reducing the Incidence of Claims - Yates

TCE theory does not insist that individuals (and/or firms) are
opportunistic continuously, or even largely given to
opportunism. Williamson (1985) merely assumes that "some
individuals are opportunistic some of the time".

There appears to be a spectrum or scale of opportunism, with

nil or insignificant opportunistic behaviour at the low end of
the scale and extreme behaviour, possibly involving criminal
activity, at the top.

It may wellbe that a "reputable" contractor, in normal

circumstances on a contract that promised a reasonable margin
of profit, would be placed on the lower reaches of the
opportunism scale. However, faced with the prospect of a
signifìcant loss - due, for example, to the occurrence of an
event which is at its sole risk - the contractor, at a stroke, could
jump several notches up the scale to such an extent that it
would be prepared to spend significant additional sums of
money on legal advice and even "take its chances" with a full
arbitration.

It is theoretically possible that a claim genuinely made by one

party could genuinely be disputed by the other involving no
opportunistic behaviour by either party. In practice, however,
contractors' claims are often opportunistically inflated,
exaggerated or even spurious and clients (and their
staff/consultants) frequently respond with reciprocal
opportunism, by rejecting contractors' claims out of hand.

Case Study - Hong Kong's Airport Core

Programme (APC)
In 1989 the Hong Kong Government announced the intention
to construct Hong Kong's new international airport on the
northern coast of Lantau Island at Chek Lap Kok, together with
related infrastructure, all of which was to be completed in
1997.
225 ctB-2002

The Airport Core Programme (ACP) was an unusually large

scale and complex undertaking, the primary objective of which
was the procurement of the new airport' The ACP also
included extensive supporting infrastructure comprising
reclamation, new expressways, tunnels, bridges and a
completely new railway system connecting the new airport
with Hong Kong's central business district.

Due to the delays in obtaining agreement between the British

and Chinese Governments completion dates were modi{ied
such that the opening and full operation of Chek Lap Kok and
the airport railway took place in July 1998. The remaining
seven ACP projects together with the Western Harbour
crossing, were completed on programme in 1997 '

The following article, which appeared inthe Hong Kong

Sunday Morning Post on 8tr'June 1997, illustrates both
contractual incompletedness in the form of "design changes,
schedule variations and delays" and opportunism by the
contractor in "demanding millions to finish their contracts on
time". Reference is also made to an earlier "$1.9 billion
payout" which was evidently "paid despite little supporting
paperwork," suggesting a negotiated settlement of earlier
claims and illustrating the significant "hold up" potential on
the part of the Contractor.

Chek Lap Kok Builders n'ant 81.6b for extras

Buitding contractors on the 8i,2 billion possenger terminal at
Chek Lap Kok are cløiming on extra 81'6 billionfrom the
Airport Authority - just nine months after a 81.9 billion payout
for other added costs.
The Sunday Morning Post understands the claims, as a
supplemental agreement to the initial contract, have iust been
lodged with the authority by BCJ, the Britain-China-Japan
joint venture responsible for construction of the terminal'
 226 Reducing the Incidence of Claims - Yates

They cover design changes, schedule variations and delays

which have ørisen sincea previous supplemental payment wqs
agreed last September.

"The group got the building weather-tight just about on

schedule while getting otlter elements ahead of schedule. It is
doing a good job, but fhere is a cost to that," an on-site source
said.

BCJ consists of Amec and Balfour Beattyfrom Britain,

Kumagai Gumi (HK), Chinq State Construction Engineering
and Maeda of Japan.

In September, BCJ and AEH - the building services installer -

were paid $1.9 billion to settle outstanding construction
wrangles on the project.

The payments angered legislators who demanded that senior

authority executives give afull explanationfor them.

The wrangle recently resurfoced after suggestions the claims

were paid despite little supporting paperwork setting out a
precise cost schedulefor the delays and other problems
suffered by BCJ and AEH.

There also have been allegations the authority is being "held

to ransom" by contractors demanding millions to finish their
contracts on tinte.

The authority's corporote development director, Clinton

Leelrs, said the initial supplemental agreements were made al
an extremely high level in both the authority and the
contractors.

A second newspaper article from the South China Morning

Post of l2th March 1998 gives overall ACP data on numbers of
227 ctB-2002

claims submitted and resolved to date; the values actualiy

agreed as compared with the much higher values originally
ciaimed; further illustrating the scale of contractors'
opportunistic behaviour on the ACP.

Large contract cløíms 'rtsual'

Hefty ctaims are a naturøl part of large-scale construction
contracts, a senior fficial said.

In a written reply to Eric Li Ka-cheung, acting Secretary for

llorl<s Lee Shing-see said 20,923 claims against 152 airport
contracts had been received.

According to the Quarterly Report on the Airport Core

Programme Projects submitted to the Finance Committee, the
Airport Authority and the Mass Transit Railway Corporation
haã resolved 6,047 claims at a cost of 82'87 billion against an
original claim amount of $10.8 billion by the end of December,
leaving 14,876 claims unresolved.

"Given the scale, complexity, multiple conlructual interføces

and tight programme [of airport core projects], the number
and amount of claims submitted are not unusual," said Mn
Lee.

Deloys in the possession of sites, variations in design and

limiiations on certirted construction methods contributed to
legitimate claims'

This second newspaper article illustrates not only the nature of

the contractors, opportunistic claims strategy - whereby initial
grossly inflated/exaggerated claims are submitted which are
Jubsequently reduced significantly as part of claims evaluation
and negotiation - but that this opportunistic behaviour is
considãred by a senior government official, the acting
Secretary for Works, as "not unusual".
228 Reducing the Incidence of Claims - Yates

Measures for reducing the incidence of claims

and disputes
Contractual incompleteness and opportunism are identified as
the root causes of claims and disputes in construction.

It follows therefore that a client who perceives claims and

disputes as a problem and wishes to lessen their incidence
should proactively endeavor to:
1. limit or reduce contractual incompleteness, and/or
2. attenuate the opportunistic inclinations of the
contractor.

Limit/Reduce Contractual Incompleteness

o The singular most effective way of reducing contractual
incompleteness is for the client and his staff/consultants
to comply with accepted construction industry "good
practice" conventions. The Latham Report (Latham
1994) contains the most comprehensive "good practice"
recomrnendations made in recent yeal's. Whilst thc
report is directed at the UK construction industry, many
of its findings are applicable to the construction
industries of other countries.
¡ Issues that are ofparticular relevance are:
¡ Adequacy of client organization and briefing process;
. Choice of the most appropriate procurement system (not
necessarily the traditional approach, particularly if time
is short),
o Selection ofexperienced, reputable and capable design
consultants (particular attention should be paid to the
design and coordination of building services);
¡ Contractor selection based on quality (including
reputation and experience) as well as price.
229 crB-2002

Attenuation of OPPortunism

Reputationølføctors
Some contractors value their "claims averse" reputations'
Other considerations (that is, quality, price, and so on) being
equal, such contractors are to be preferred. The term "claims
averse" is used to describe contractors who value their
reputations for restraint in the submission of opportunistic (that
is, spurious or exaggerated) claims' In TCE terms, such
contractors perceive their "claims averse" reputation to be of
greater (long{erm) value than the potential gain to be made
irom (short-term) opportunistic claims' However, as discussed
earlier, a contractor who in normal circumstances may be
claims averse can, at a stroke, move several notches up the
opportunism scale when suddenly faced with the prospect of a
substantial loss on a particular project.

Reløtional Factors
There has been an abundance of literature in recent years on
the subject of "partnering" (for example, NEDC Construction
Industry Sector Group 1991, Uher 1994, Bennet and Jayes
1995, Godfrey 1996). Closely reiated topics are "relational
contracting" (Alsagoff and Mcf)erm ott 1994); and informal
"clan relationships" which exist between consultants and
contractors who frequently work together on the same projects,
albeit that there is no contractual tie between them (Reve and
Levitr, 1984).

Such "relational" factors and "partnering" arrangements,

wherein the prospect of future work for a contractor is almost
guaranteed (in other words, the current project is part ofan
óngoing series of projects - what Bennett and Jays refer to as
"stiategic" partnering), have the effect ofattenuating
opportunism. In TCE terms, the prospect of the future
côntracts is perceived by the contractor to have greater value
than the potãntial gain of making an opportunistic claim on the
current project. (Consequently, from a TCE perspective, the
 230 Reducing the Incidence of Claims - Yates

suggestion that similar benefits might accrue from a partnering

arrangement for a single, one-off, project - that is "project"
partnering - is illogical).

It could no doubt be argued, from a sociological point of view,

that any procedure which brings the parties together in the
early stages of the project (for example, partnering and value
engineering workshops) can have a positive influence on
working relations and teamwork, which also may have the
effect of attenuating opportunism.

Institutionølfactors
Williamson's (1985) analysis of commercial trust, which
includes trust in the context of institutional environments (such
as societal culture, trading networks, the professions and
corporate culture), as a "check" on opportunism, has
significant relevance in the construction field. As an
illustration of societalculture Williamson refers to trading
trust in Japan which "is said to be much higher than in Great
Britain." This particular cultural characteristic may begin to
explain not oniy why the incidence of claims and disputes is
comparatively low in thc Japancsc construction industry, but
also why Japanese contractors working overseas are known to
have "claims averse" reputations.

Alsagoff and McDermott (1994) in a study of relational

contracting refer to the Japanese concept of "amae", meaning
"cooperation and dependency", wherein clients, contractors
and subcontractors maintain an ongoing relationship
throughout a long series ofprojects. Any disputes, for
example, over vaguely worded contracts or the execution of
additional work, are resolved by negotiation between the
parties. An illustration is given, furthermore, of contractors
taking the initiative to accelerate the project in the clients'
interests, but at the contractors' expense, in the knowledge that
the award of future contracts will reward this cooperation.
"The overall result will be in a manner such that the short term
losses incurred are compensated in the end".
231 cIB-2002

An efficíent ønd "well-ìnformedtt Client

According to TCE theory information impactedness or the
deliberate withholding of information, to create a situation of
differential knowledge/intelligence, is a form of opportunistic
behaviour. It is advantageous for an opportunistic contractor
to have superior knowledge than the client of the true facts.

Conversely, a client who is efficient and well informed has the

effect of curbing an otherwise opportunistic contractor. A
contractor will only spend time and money on the submission
and pursuit of opportunistic claims and disputes if the
contractor is of the view that his "chances of getting away with
it" are good. A knowledgeable and well-informed client has
the effect ofreducing the contractor's "chances".

Alternatív e D ísp ute Res o I utío n

The use of certain alternative dispute resolution (ADR)
procedures, in particular those involving the appointment of an
adjudicator (or similar) at the outset of a contract - in addition
to their value in resolving disputes - can also have the effect of
attenuating opportunistic behaviour by the parties. The
presence within the project team of an experienced and well-
informed, neutral third-party, whose sole objective is the
successful outcome of the project (with minimal
conflicldisputes) often has the effect of discouraging both
parties from engaging in "one-upmanship" and spurious
conduct.

The concept of ADR techniques assumes that the parties

genuinely want their disputes resolved by alternative methods
to arbitration. However, this assumption is not necessarily
always valid. Sometimes an opportunistic contractor may
decide there is little to be gained in resolving matters
economically and efficiently. "In such circumstances realism
might dictate the full majesty of the adversarial (arbitration)
 232 Reducing the Incidence of Claims - Yates

process in the hope of the return that a wellbriefed legal

representative might deliver". (Clegg 1992).

EconomÍcføctors
The prevailing macro-economic climate has a direct influence
on contractors' profit margins, and hence their inclinations to
behave opportunistical ly.

"Virtually allwho are engaged in the construction industry are

profit-oriented. Invariably, this orientation stems not so much
from inherent avariciousness but from the basic need for
survival. Each firm must make a profit to survive, and all the
individuals involved in the quest for profit are eager to prove
their particular self-worth." (Hohns 1979),

A questionnaire-based investigation of UK contractors'

tendering strategies during the construction industry recession
in the mid-1990's demonstrated that the profit margins of five
out of six leading contractors were less than one percent.
(Pasquire and Collins 1996). The study also found that 65
percent of contractors would consider tendering at tight or
even negative margins, during such difficult times.

In such circumstances it is hardly surprising that contractors

are opportunistic. Indeed, Latham (1994) warns "when
contracts are won on a price which can only produce loss for
the main contractor, the likelihood of a contract dominated by
claims is extremely high".

Conclusions
Given the "incomplete" nature of most construction projects,
this paper suggests that claims and disputes, to some extent,
are inevitable.

The actual extent of claims and disputes, on a particular

233 c'tB-2002

project, is largely governed by the client in deterrnining the

balance of his priorities - especially regarding time and cost -
and through his selection of procurement system,
client/consultant advisers and contracting team.

References
Alsagoff, 4., (1 996), Construction Transaction Cost Confl icts:
Analysis of Dispute Triggers in Construction Contracts. In
Heath, B.C. (ed.) Proceeding,s of CIB TaskGroup l5
Research Papers: The Origin, Incidence and Resolution of
Conflict in Construction, CIB Publication No. 196.
Wrexham, North Wales: Nofth East Wales Institute of
Higher Education (NEWI).
Alsagoff, A. and P. MoDennott, (1994), Relational
Contracting: A Prognosis for the UK Construction
Industry. In Rowlinson, S.M. (ed.) Proceedings of CIB
1trt92 Symposium: East Meets llest: Procurement Systems.
CIB Publication No. 175, Hong Kong: Department of
Surveying, The University of Hong Kong.
Bennetq J. and S. Jayes, (1995), Trusting the Tcam: The Best
Practise Guide Ío Partnering in Consfuuction. Reading,
England: The Centre for Strategic Studies in Construction,
The University of Reading.
Clegg, S. R., (1992), Contracts Cause Conflicts. In Fenn, P.
and R. Gameson (eds.), (1992), Construction Conflict:
Management and Resolution. London: E & F N Spon.
Doree,4.G., (1994), Conflict as Element of Construction
Trade. In Fenn, P. (ed.) Proceedings of CIB TGI5
Meeting: Construction Conflict: Management and
Resolution, CIB Publication No. 171, I-,exington Kentucky.
London:E&FNSpon.
Galbraith, J.K. and N. Salinger, (198U, Almost Everyone's
Guide to Economics. London: Pelican Books,
Goffman, 8., (1 9 69), S tr at e gic Int e r ac t ion. Ph i lade lph ia:
University of Pennsylvania Press.
Hohns, H.M., (1979), Preventing and Solving Construction
234 Reducing the Incidence of Claims - Yates

Conlract Disputes. New York: Van Nustrand Reinhold

Co.
Latham, M., (1994), Constructing the Team. London : HMSO.
McDermott, P. and A. Alsagoff, (1996), Organizational
Governance and Transaction Costs - Case Study Evidence
of Trust, Solidarity and Conflict Resolution in the UK
Construction Industry. In Heath, B.C' (ed.) Proceedings of
CIB TaskGroup I5 Research Papers: The Origin,
Incidence and Resolution of Conflict in Construction, CIB
Publication No. 196. Wrexham, North Wales:North East
Wales Institute of Higher Education (NEWI).
National Economic Development Council (NEDC), (1991),
P artnering : C ontracting l(ithout C onfl ict. London:
National Economic Development Office (NEDO)'
Pasquire, C. and S. Collins, (1996), Competitive Tendering and
Value Within the UK Construction Industry. In Taylor,
R.G. (ed.) Proceedings of CIB W92 Symposium: North
Meets South; Developirtg Ideas, University of Natal, South
Africa.
Reve,'f. and R.E. Levitt, (1984), Organisation and Governance
in Construction. International Journal of Project
Management,2, 77 -25 '
Uher, T.8., (1994), Partnering In Construction' Sydney:
University of New South Wales,
Williamson, O.E., (1985), The Economic Institutions of
Capitalism. New York: Free Press'
Yates, D. J., (1998), Conflict and Disputes in the Hong Kong
Construction Industry: A Transaction Cost Economics
Perspective. Unpublished M'Phil' Thesis: University of
Hong Kong.
 235 ctB-2002

A Scenario-Based Approach to Research into

Construction Claims
Steve Scottr & Richard Hamisr

Abstract
Our knowledge to date of construction claims has tended to fall into
one ofa few categories. There is the anecdotaVexperience-based
approach, in which the author offers his insight into claims based on
his experience and own personal knowledge. Another approach is to
offer methodologies, and there are recent examples of papers
describing systems for resolving delay claims on construction
contracts that effectively recommend a step-by-step means of
generating what is hopefirlly a convincing solution. Some researchers
analyse claims on completed contracts to gain an insight into current
practice and to identify the main causes of claims and delays. Such
work often attempts to gain an appreciation of the extent of claims in
the industry and will typically make recommendations for
improvement. Although not strictly research, there are, of course,
those who ch¡onicle and summarise the current state of the law with
regard to construction issues and such publications clearly help
professionals to keep up to date with recent developments

In this paper, a new approach is adopted that attempts to understand

how contractors try to justify claims and how supervisors are likely to
assess them. This is done by encapsulating particular claims types
into scenarios and asking not only contractors and supervisors, but
also claims consultants, to give their views. In this way, a new insight
into the attitudes of construction professionals to claims is obtained
and common areas of agreement and disagreement can be identified.
Keywords: scenario-based, claims, claims consultants

I
Department of Civil Engineering, University of Newcastle upon Tyne,
Claremont Road, Newcastle upon Tyne, NEI 7RU, UK (email:
Stephen. scottl4)n cl. ac. r¡k)
236 Scenarío-based approach - Scott & Harris

Background
I)espite a number of recent innovations in the way in which
contracts are procured and administered, it is clear that the
circumstances that cause claims on most contracts will
continue to occur. The advent of partnering will hopefully
make negotiations more amicable regarding these issues, but
the issues will still need to be addressed. This is evident from
the Egan report (1998) which describes partnering as '...two or
more organisations working together..., devising a way for
resolving disputes. . .' This less confrontational environment
should, however, provide a more supportive setting for new,
innovative approaches to dealing with the issues.

Even on work procured using the Engineering and

Construction Contract (1995), where compensation events
effectively replace claims, the Project Manager will still have
to assess the contractor's quotations. Of course, if no quotation
is offered, ifquotations are unacceptable, or ifthere is
disagreement about whether a compensation event has actually
occurred on such contracts, the situation reverts to a'normal'
claims-type scenario. C)nly on design and huild contracts, if
the client requires the contractor to shoulder all risks, will the
need to deal with claims be substantially reduced and even
then, changes by the client will still force a reassessment of
cost and time to be undertaken. The Latham report (1994) was
supportive of both partnering and the Engineering and
Construction Contract as means of improving adversarial
relationships on site and the way in which contracts are
managed, but still recognised that the issue of disputes would
not simply disappear. Latham said: \Ievertheless disputes may
arise, despite everyone's best efforts to avoid them' and then
proceeded to recommend that an adjudication process be built
in to all standard forms of contract. Thus, the circumstances
that lead to claims will still have to be dealt with on the
majority of contracts, but new measures to enhance their
speedy resolution should be more willingly accepted in today's
hopefully more enlightened construction industry
237 ctB-2002

Research to date dealing specifically with construction claims

may be seen as falling into a few main categories. There is the
anecdotal/experience-based approach typified by Zack
(1992,1993) who offers his insight into claims based on his
experience and own personalknowledge. Another approach is
to offer methodologies, and Knoke and Jentzen (1994) and
Bordoli and Baldwin (1998) are recent examples of papers
describing systems for resolving delay claims on construction
contracts that both rely on full as-built records ofthe progress
of the work. Some researchers analyse claims on completed
contracts to gain an insight into current practice and to identifu
the main causes of claims and delays (O'Connor et al (1993),
Yogeswaran et al (1998) and Kumaraswamy (1998)). Such
work often attempts to gain an appreciation of the extent of
claims in the industry and will typically make
recommendations for improvement. The aim of the research
reported in this paper was fundamentally different to previous
work in that it attempted to understand how the protagonists
viewed some of the generic issues surrounding claims. Most
contract forms identifu the right to make a claim when certain
circumstances arise, but much is still left to the judgement of
the parties involved. Legal precedent, if available, might help
to clariff acceptable approaches, but possibly as a result ofthe
private methods of resolution of claims that have been in use
for some time, little helpful legal support was found. In effect,
the results of the present research are an attempt to recognise
an industry-accepted precedent in the absence of legal
precedent.

The Survey
The results reported here come from interview surveys based on
fully developed questionnaires, completed by 46 professionals
working in the construction industry. The interviewees
comprised 20 employees of contracting organisations, 20
employees of consulting engineers (supervisors of construction)
238 Scenario-based approach - Scott & Harcis

and 6 claims consultants. This mix of personnel was chosen

primarily to get the views of the two main protagonists in on-site
claims negotiations (contractors and consultants), but also to get
a third partv view (claims consultants).

The initial questions in the questionnaire were posed to assess

the interviewees'experience of construction and particularly of
claims formulation and assessment. From the results it could be
seen that all but one had more than l5 years experience of
construction, principally in the civil engineering sector, and that
40 out of the 46 had been dealing with claims for more than 10
years. They were thus ideally suited to comment on the issues
addressed in the survey.

The complete questionnaire addressed several areas typically

confronted when dealing with the whole cross-section of
claims types. In this paper, however, it will only be possible to
consider a small selection of the areas investigated.

Three Areas of Interest

To demonstrate the approach used, three specific areas that
have generated debate on the issue of construction claims, and
that were dealt with in the study, will be reported. They are:
i) effects of exceptionally adverse weather;
ii) the problem of early completion schedules;
iii) the issue of prolongation costs.

ì) Effects of exceptíonølly adverse weather

In most contract conditions, the contractor is expected to make
allowances for the extent of adverse weather that can be
expected at the project location and for the time of year during
which the works take place. That is, any days lost as a result
of normally expected adverse weather conditions are at the
contractor's risk. However, when the weather is exceptionally
adverse, the risk is usually shared. This means that an
239 ctB-2002

extension of time will likely be available, but without

any
recovery of overheads. The main problem with assessing any
extension of time here, is how to judge when the weather is
exceptionally adverse as opposed to simply adverse. Figure I
was used to test two alternative methods of calculating
exceptional adverse weather with the following scenario:
lltorks for the theoretical contract are canied out in
January and the follow ing w e ather delays occuned
dur ing t he foll ow in g oPerat i ons'
(a) Temperature at -4oC during concreting of the pier
foundations - 3 days delaY
(b) High winds of up to 60Km/hr during erection of the
structural steelwork with a crane - I day delay
(c) Rain of 2mmlhr during painting of the steelwork - I
day delay

The two methods of assessment were defined as:

l)
Make a comparison with the average number of days
lost to work in the last 10 years - past records show an
average of3 days are lost in January and thus a2 day
extension of time could be justified.
2) Make a comparison with the weather parameters in the
last 10 years - past records show that a temperature of
-4 C and rain of 2mmlhr is not exceptional in January,
but a wind speed of 60km/hr is' Thus an extension of
time of I day could be justified.

D¡te 5 6 'Ì ð 9 2 zsffiza nlzelzs

D¡y M T w T F rlwlr r T wlr îWM r lwlr F

rt¡rt Contret conDhtion

Figure 1: Diagram depicting exceptionally adverse weather

Despite the fact that the first method in this instance gave the
greater extension of time, contractors, supervisors and claims
consultants preferred the second method by more than 3 to l.
This is a convincing consensus on an issue which is
 240 Scenario-based approach - Scott & Haruis

fundamental to processing 'weather' claims.

ìi)The problem of early completíon schedules

Most construction contracts will speci$, a 'time for
completion' in which the works must be complete, otherwise
the client may be able to recover liquidated damages from the
contractor. The problem addressed here, and depicted in figure
2, arises when the contractor provides a programme showing
he will complete earlier than the completion date, is then
delayed by the employer (type E delay in the figure) and makes
a claim for the cost ofhis overheads for his prolonged period
on site.

Date
Planned
Clru site & set up offi.ces
Pitr fowdåtions
Erect steelwork
Paint st¿elwofk
Clä site
Smices
Efect lamp-posts & signs
Footpath paving & Suâfdäil
-A.ctual rgccifu
Clear site &. set up ofñces
Pier foundations
Erect steelwofk
Paint steelwork
Clear site
S trvic es

Erect lamp-posts & signs

F &

Figure 2: Scenario showing early completion schedule

For this scenario, the respondents were asked to say: should

there be an extension of time (T), and if so for how long;
should there be overheads paid (C) and if so for how long;
should there be liquidated damages deducted (D) and if so for
how long? The results are shown in figure 3 and, not
surprisingly , 90o/o of the contractors believed that costs should
241 crB-2002

be paid for 1 week. This view was affirmedby 60% of the

supervisors, 20o/o of whom also wanted to give an extension of
time, despite the fact that none was needed, as the work was
completed by the completion date. There were, however,40o/o
of the supervisors and 33Yo of the claims consultants who felt
that no overhead costs should be paid. Clearly the majority
view was that overhead costs should be paid, but there was a
sizeable majority who disagreed about what must surely be a
fairly common occurrence on construction contracts. Although
the agreement here between contractors and supervisors is not
so well defined, the evidence still shows a majority of
supervisors agreeing with the decision to award I week costs.
Individuals having to make these decisions may well find such
information helpful in making their own judgements.

80.0%
70.0%

oa 60.0%
oc
ctr o 50.0%
Gtt TTO,CO,DO
40.0%
ËF
oo
30.0% ETo,C1,D0
ÀL 20.0o/o trT1,C1,D0

All Supervisors

Group

Figure 3: Results of early completion schedule scenario

íií) The ìssue of prolongøtíon costs

When a delay for which the employer is responsible gives the
contractor the right to costs for a prolonged period on site,
there has always been some controversy about the level of
overhead costs that should be reimbursed. Figure 4 helps to
describe this situation and clearly suggests that the level of
weekly overheads towards the end of the contract, when the
work is coming to an end, is likely to be lower than that during
242 Scenario-based approach - Scott & Harris

the period when work is in full flow. The argument thus

concerns whether it is the level of overheads during the
extended period on site (at the end) that should be paid or
whether it should be the level of overheads being incurred by
the contractor at the time of the delaying event. Respondents
were asked to choose from:
l) Prolongation costs at the actualtime of the delay
should be payable
2) Prolongation costs at the end ofthe contract should be
payable
3) Prolongation costs at the end ofthe contract should be
payable and the contractor should prove any other
additional costs over and above these
4) Other (please specify)
Almost all the contractors (95%), all the claims consultants
and 50Yo of the supervisors chose l, with most of the rest of
the supervisors (35%) choosing 3 - the other l5olo chose 2.
Amongst the supervisors there was thus an even split between
those who would pay overheads at the 'higher' rate and those
who would either pay at the 'lower rate' or expect additional
justification to convince them to pay at anything more than the
'lower' rate. If it is accepted that claims consultants have a
greater appreciation of the ways in which claims are eventually
settled, their unanimous choice of paying at the 'higher' rate
might be seen to be meaningful. Another way of looking at
this result for the contractor would be that he should ensure
that his overhead costs are recorded and, ifpossible, agreed
with the supervisor in the expectation that he will be asked to
prove his claim for overheads at a level higher than those
applying at the end of the contract.
243

Wc€kly Costs

Oliginal Extaded
compldion completion

Conlract time

Figure 4: Contractor's overhead costs

Conclusions
The approach adopted in this research set out to understand the
views of those who deal with claims about sorne of the generic
issues that must be decided when dealing with these issues.
The initial hope was that a consensus could be recognised that
would enable professionals who must dealwith these matters
to have an understanding of the 'industry' view. Although
none ofthe areas studied produced unequivocal or unanimous
agreement, the appreciation gained still provides much more
support to contractors and supervisors than currently exists and
should as one of the respondents said,'...help me to see if I'm
singing from the same hymn sheet.'

References
Bordoli, D.W. and Baldwin, A.N. (1998), 'A methodology for
assess ing construction proj ect delays', C ons truc t ion
Management and Economics vol16, No 3:315'325'
Egan, J ., ( I 998),' Rethinking C onsftuctiorz', Report of the
Construction Task Force to the Deputy Prime Minister,
DETR.
Institution of Civil Engineers, (1995), 'The engineering and
construction contract : an NEC document',Znd ed',
Thomas Telford.
Knoke, J. R. and G. H. Jentzen (1994), 'Facilitate delay claim
244 Scenario-based approach - Scott & Harris

analysis wirh As-builr schedule database', Proceedings of

the lst Congress on Computing in Civil Engineering,
Washington, DC, USA, ASCE, New York, NY, USA.
Kumaraswamy, M.M, (1998),'Consequences of Construction
Conflict: A Hong Kong Perspective', Journal of
Mønagement in Engineering, Y ol. 1 4, No. 3 : 66-7 4
I.atham, S ir Michael, (199 4),' C ons truc t ing t he Te am', F inal
report of the government/industry review of procurement
and contractual arrangements in the UK construction
industry, HMSO.
O'Connor, J. T., Chmaytelli, A. and Hugo, F. (1993).'Analysis
of highway project construction claims', Journal of
Perþrmance of Constructed Facilities 7(3): 170-180.
Yogeswaran, K. Kumaraswamy, M.M. and Miller D.R.A.
(1998),'Claims for extensions of time in civil engineering
projects', Construction Management and Economics vol
16, No 3:283-293.
Zack Jr., G. (1992).'Schedule Games' People Play, and Some
Suggested Remedies', Journal of Management in
Engineering 8(2): I 3 8-l 52.
Zack Jr., G. (1993).'Claimsmanship: current perspective',
Journal of Construction Engineering and Management
I l9(3): 480-497.
245 crB-2002

Supply Chain Management

A Contextual Analysis of Aerospace and Construction
Stuart D. Greenr, Robert Newcomber, Marylin Williams2,
Scott Fernier & Stephanie Wellerr

Abstract
Research is reported that investigates the extent to which supply chain
management practices can be shared between different industrial
contexts. Curent recipes for learning from other industries tend to be
over-simplistic and often fail to recognise the embedded and
contextual nature of management practice. The existing literature
reveals a widespread absence ofcontextual awareness amongst those
who advocate supply chain management for the construction industry.
The industrial context of UK construction is compared to that of the
aerospace. The construction industry is highly fragmented and
localised. In contrast, the UK aerospace sector has experienced
significant consolidation as a result ofglobal pressures. These
differences h;rve fundamental implications for the way that supply
chain management is implemented in the two sectors. Semi-structured
interviews with practitioners from both sectors support the contetttion
that supply chain management is significantly more established in
aerospace than construction. The introduction of prime contracting in
the construction sector potentially provides a much more supportive
climate for supply chain management than has traditionally prevailed.

Keywords: supply chain management, contextual embeddedness,

industry structure, consolidation, prime contracting

Introduction
Supply chain management (SCM) is currently attracting
significant attention amongst construction researchers. The

I of
Department of Construction Management & Engineering, University
Reading, UK
2
Department of Psychology, University of Reading, UK
246 Supply Chain Management - Green et al

literature relating to SCM in the construction industry tends to

see SCM as a'technique' for improving project performance.
The overriding assumption is that techniques developed in
other sectors can be transferred to construction. What seems to
be absent is any critical appraisal of the extent to which the
successful application of SCM is dependent upon the wider
industrial context. This tendency is by no means unusual
within the'management improvement' literature. Concepts
such as SCM are invariably presented as best practice tools
that can be introduced at the project level irrespective ofa
broader contextual understanding. The models of SCM
presented in the construction best practice literature tend to
conform to this stereotype. The outputs from Building Down
Barriers provide a prime example (Holti et a1.,2000; Nicolini
et al.. 2001). A review ofa recent construction sector special
issue ofthe European Journal ofPurchasing and Supply
Managemenl lends further support to this assertion (Vrijhoef
and Koskela,2000 Akintoye et al., 2000; Hall et al., 2000).
Such sources reveal a widespread absence ofcontextual
awareness amongst those who advocate SCM for the
construction industry. This paper reports ongoing research that
investigates the extent to which SCM practices can be shared
between the aerospace and construction sectors. The research
is shaped by the recognition that knowledge relating to
managerial practices is frequently tacit in nature and embedded
in context (Nonaka and Takeuchi, 1995). The achievement of a
comparative contextual understanding is therefore an essential
part of learning across business sectors. The comparison
begins with an appraisal of the structural characteristics of the
two sectors.

S tr uc t ur øl díffer en c es
The UK construction sector is signiflrcantly larger than the UK
aerospace sector. On the basis of the latest available figures,
the construction industry has an annual ouþut of f69.261bn.
(DTI, 2001a) The equivalent DTI figure for the aerospace
sector is f 16.138bn. On the basis of a different boundary
 crB-2002
24'l

Aerospace Compantes
definition, the Society of British
figure of f'1824bn'
(SBAC, 2001) quote an aerospace turnover
in th.e two sectors also
;Ë;fi;;;;;;;"remplove"s way in whfclt the sector
diFfer in accordance with the
DTI (2001b) figures are
Uoun¿uri", are defined' The latest for the
1 ,400,000 for the
construction industry and 1 2l '000
SllC (2001) figure for
;õ;;; sector. rn"
"o""tponding
Of-t,400,000 employees in the
the aerospace sector it iiO,OSO.
construction in¿u't'y, iOO'b00
u" self-employed (DTI' 2001a)'
is larger than aerospace' it is
Although the construction sector
greater
more fragmented with a. much
"ä".iJ"îury r*Jifitts' According to the DTI (2001b) the
concentration of
123,445 SMEs (excluding
UK construction sector "omp,is", u
f,irms accounj fo'
,ot" iru¿"rr). Collectively' thesä -,^^-
,"mu.LuUl" 84'5%of private sector turlìover' In compartson'
private.sector SMEs within the
the DTI (2001b) fi'tïnfy 420 In
aerospace sector tStanJár¿
Ináustrial Classification D353)'
420 n11t^,-'-^
;;;;st to ìhe construction sector' these
The rematntng
for only l0o/o of aerospace emPlovees'
""""'"", The'figures from SBAC
90Yo areemploved ú;;b-I"öirrms'
are different, but neíertheleÃ
tellthe sallte story' SBAC
between l'000-1'200 SMEs in
î;óðit;;;t."res that the'eandarethat these account for a turnover
the UK aerospace sector
The relative extent of
of f,l .90bn and Zl,iil employees'
in ttie two sectors is further
consolidation/fragmentatiån
the UK aerc)soace sector' BAE
illustrated by the fact that in of
Aerosp^ace) accotrnts for 60%
SYSTEMS (formerly British
**ù; output (A i Kearney' firms 199S)' In the construction
routinelv u":oun-t
i"äítity, thË top 30 lontracting l:l- ,,
ofthe construction sector ts
only l|o/oofoutput' The struciure
dominated by srnallfrrms' In
that of a broad-based pyramid
is dominated by large firms'
contrast, tt u"rosfu"!'sector in
" more specialised than those
Suppliers in aerospace are also
levels of technological
construction, *itft Ãu"n higher
expertise is much more
expertise. Furthermåre, tecinological the
suplpþ chain than tends to be
widely spread tf'"ough;ut the
 248 Srppty Chain ÀQanagentent _ Green et al

case in construction. Within the construction

sector, suppliers
tend to compete on cost effìciency rather
than technicai
expertise, The knowledge_intensive nature
of the aerospace
sector is illustrated by an estimated annual
research
expenditure of f l.73bn (SBAC, 2001). The
comparative figure
for construction is a relatively modesi f27)M(NAO,
2001"¡.
The high technology content of the aerospace
sector combines
with a complex network of inter_dependency
to present
signifìcant barriers to new entrants. In contrast,
the
construction industry has traditionaily been characterised
by
low ba.rriers to entry. This is especiaúy-true of
the sMEs that
comprise the industry's pool of sub-coirtractors.
of further
significance is the diversirv- of the construction
inaustryt ctient
base. Every domestic and commercial properfy
owner in
uK is an'ccasionar crient of the const.uciion-industry. the
In trris
respect, the contrast with the clients of
the aerospace sector
could hardly be greater. Firms within aerospace
tend to possess
longstand ing co r r aborarive ¡er ation sh ips
wiirr r"* rriÀrriv""
sophisticated clients. The fragmentatàn
of the"".v
cãnstructñn"
sector can be seen to reflect directly the
fragrnentation of its
client base. It is contended that this sharp distinction
in
industry structure has f'ndamentar imprications
for trre way
tlrat SCM is implemented in the two såctors.

Relationship with government

The structure of firnr.s and rerationsrrips
in the aerospace sector
is a product of its unique history. It is widely
reoognised ,h;;
the aerospace and defence sector has traditiánultyãn¡oy"J
u-
privileged relationship with government
due to iis strategic
importance (4. T. Kearney, teeg; Hartley,l974;Haywaîd,
1989). Government has in the past attempted
to shelter the
aerospace industry from fluctuations in
tie civil aircraft market
through d.efence expenditure (Hayward, 19g9;
contrast, it has long been contended that the
Todd, l9SSt. i;
UK government
has traditionally used the construction
industry as an economic
regulator (Ball, lggg; Hillebrandt, l9g5;
NEOO, l97g; Wooã
249 ctB-2002

Report (1975). When wishing to expand the economy tlte

government has injected money into construction. When
wishing to deflate, the economy the government has throttled
back on construction investment. The housing sector is
especially sensitive to changes in the interest rate. Both the
aerospace and construction sectors remain subject to economic
cycles. In the case of aerospace, government has historically
acted to alleviate such cycles. In the case ofconstruction,
various British governments since the Second World War have
acted to exacerbate the economic cycle through successive
'Stop-go'policies. Hillebrandt (1985) cites the public
expenditure cuts of 1973 as a prime example. Ball (1998)
refers to the sharp deflation induced by the Conservative
governments of the 1980s as a further demonstration of the
influence of periodic state expenditure cuts on the demand for
construction work.

The fragmented structure of the UK construction industry is

primarily a direct result of the prevailing low bariers to entry
and the dominance of localised markets. Whilst its use as an
economic regulator by government may not have caused
fragmentation, it certainly has not helped. The positive side of
fragmentation is flexibility. One of the most signifrcant
strengths of the UK construction industry has been its ability to
expand and contract in response to severe fluctuations in
demand. The Egan Report (DETR, 1998) cites the flexibility of
the industry as a key strength. The benefits of a flexible
construction industry are evidenced by numerous recent
delegations from Japan seeking to learn how to cope with
fluctuations in demand. It should be noted that the much
heralded Japanese practices of SCM were predicated on the
continuously expanding market that prevailed within Japan
from the 1950s through to the early 1990s. Many Japanese
firms have found it diffrcult to adapt to the financial crises and
associated economic stagnation that have prevailed within
Japan for the last decade. It is ironic that firms in the UK
construction industry are seeking to adopt Japanese models of
250 Strpply Chain Management - Green et al

SCM at the same time as Japanese firms are seeking to learn

the benefits of flexibility from the UK construction sector.

Recent changes
Notwithstanding the comments above, government policy
towards the aerospace sector has more recently tended to give
primacy to value for money rather than strategic support (4. T
Kearney, 1998). MoD agencies are increasingly willing to
procure'off-the-shelf systems from overseas suppliers. The
UK government has recently encouraged international
collaboration in defence procurement to spread development
costs. This weakening of the government's traditional strategic
relationship with the aerospace sector has introduced fresh
competitive imperatives. The aerospace sector's reliance on
domestic government contracts has declined significantly over
the last 10 years and currently stands at only l4%o ofturnover
(SBAC, 2001). The decline in UK government contracts
highlights the current importance of export contracts in
sustaining the UK's aerospace expertise. The new climate of
international compctitivcncss is furthcr cvidcnccd by several
best practice initiatives. Examples include the Lean Aerospace
Initiative (LAI) and the Society of British Aerospace
Companies' (SBAC) Competitiveness Challenge.

It must also be conceded that there is little recent evidence to

support the thesis that government continues to use the
construction industry as an economic regulator. The prevailing
economic stability has undoubtedly alleviated the need for
crude interventions of this type. The result is that the
construction industry's collective memory of the prolonged
post-war'stop-go' cycle has eased. It is therefore the cunent
relatively stable trading environment that provides the context
for the construction industry's recent interest in integrated
SCM. The prolonged steady expansion of construction output
since 1993 provides the context for the current desire of main
contractors to form long-term relationships with their supply
251 crB-2002

chains. The advent ofthe next recession could see a rapid

return to overtly competitive behaviour and less emphasis on
collaborative SCM practices.

Global trends in aerosPace

Changes in the UK government's industrial policy towards
aerospace must be understood alongside significant trends of
consolidation and collaboration in international aerospace' Any
understanding ofthe current structure ofUK aerospace should
be predicated on a broader knowledge of the intense rivalry
between the European and US aerospace industries. Since its
launch in 1970 Airbus Industrie has been phenomenally
successful in challenging US post-war domination of the
aerospace markets. In 1970 European manufacturers produced
only l0% of commercial aircraft. They now claim a market
share of 50o/o for recent new aircraft orders. In order to meet
the huge costs of aircraft development the members of the
Airbus consortium were provided with launch aid by their
respective governments. These loans later became highly
contentious elements in a confliot betweelt tlte EU and US over
allegations of unfair competition. In response, EU
representatives have pointed to hidden US subsidies provided
by defence procurement and publicly funded R&D (Lawrence'
1999). Extensive competition between the US and EU has been
sharpened by the global reduction in defence spending
following the end of the Cold War. The European industry
remains disadvantaged by the need to serve the diverse defence
requirements of different national governments.

The period from 1970 saw significant restructuring in the US

aerospace industry, culminating in the merger of Boeing and
McDonnell Douglas. In 2001 three giant companies dominate
the US aerospace and defence industry: Raytheon, Lockheed
Martin and Boeing. In the face of extensive US consolidation,
the European aerospace industry had little choice but to
develop collaborative working practices. Despite significant
252 Supply Chuin Management - Green et al

political difficulties amongst national governments, the

European aerospace industry has in part followed the US trend
towards consolidation. The Airbus consortium finally became
a corporate entity in 2000. A further stream of mergers resulted
in the European Aerospace, Defence and Space Company
(EADS),

Consolidation in the UK aerospace sector culminated in the

merger of British Aerospace with Marconi Systems. This
resulted in the emergence of BAE SYSTEMS as the sole UK
national aerospace champion. The current interests of BAE
SYSTEMS reflect the UK's longstanding policy of facing
simultaneously across the Channel and the Atlantic (Lawrence,
1999). BAE SYSTEMS combines a20%o stake in Airbus with
extensive manufacturing facilities in North America. The
company is also engaged in a number of collaborative ventures
with US aerospace companies. Of further signifìcance is the
way that prime contractors within the aerospace sector have
positioned themselves as 'systems integrators'. This reflects the
increasing use of 'off-the-shelf systems in aerôspace projects.
The prime source of competitive advantage to sonle extent now
lies in their skills of integration and SCM.

The end result of a prolonged period of extensive global

consolidation in the aerospace industry is a realisation amongst
UK suppliers that they have to collaborate in order to survive.
In a highly competitive global market, BAE SYSTEMS and
their suppliers are locked into a relationship of mutual
dependency. This web of mutualdependency extends into a
network of complex global relationships. The unique history of
the UK aerospace industry combines with global mega-trends
of consolidation and collaboration to provide a unique context
for the enactment of SCM. Whilst the construction industry
has experienced an increasing degree ofglobalisation and
mergers (Carrillo, 1998), these remain minuscule in
comparison to the restructuring of the aerospace sector. With
few exceptions, firms within the construction industry remain
253 crB-2002

locked in a mindset of mutual competition.

Best practice initiatives

The current best practice agendas for the two sectors are
remarkably similar. Both are heavily influenced by the
collaborative managerial practices that have emerged from the
automotive sector. The Society of British Aerospace
Companies (SBAC)'s C ompe tit iveness Challenge embraces
five key areas: Supply Chain Relationships in Aerospace
(SCRIA), Lean Aerospace Initiative (LAI), People
Management, Winning Business and Knowledge Management.
The best practice agenda for the construction industry reflects
identicalthemes to those found in Competitiveness Challenge
(with the possible exception of 'Winning Business'). Neither of
the best practice agendas show any sensitivity to the
importance of context. The overriding assumption seems to be
that the principles of best practice are universally applicable.

The major clients of the construction industry have provided a

significant impetus to the best practice programme in
construction. Clients have long been dissatisfied with the poor
customer orientation of the construction industry, caused in
part by its continued fragmentation. Clients are tired of dealing
with a fragmented and adversarial industry. Advocated'best
practice' solutions for the construction industry invariably play
heavily on the concept of integration. Examples include:
integrated design and construction, integrated team working
and integrated supply chain management.

Prime Contracting in construction.

Procurement initiatives such as Prime Contrøcting and
Procure 2l are designed to overcome the problems of
fragmentation in providing clients with an integrated service.
They offer construction companies the opportunity to work
254 Supply Chain Management - Green et al

collaboratively both with their clients and supply chains.

Under these arrangements, contractors are commonly
evaluated on the extent to which their supply chains are 'in
place' and on their experience of collaborative working.
Although new to construction, prime contracting has a long
history ofapplication in the aerospace and defence sectors.
The MoD has been influential in promoting the concept of
prime contracting for the construction industry' The underlying
principles reflect the MoD's SMART procurement initiative to
realise better value for money in defence procurement.
Procurement routes such as prime contracting extend the
contractor's obligations to include design, construction and
operation of the built facility. They therefore replace the
traditionally fragmented process with the opportunity for an
integrated approach. Within such frameworks, facilities
management expertise and life-cycle costing become central to
commercial success.

Prime contracting has the potential to overcome the problems

of fragmentation in construction project delivery. However,
there has been some resistance within the construction industry
to the MoD's perceived policy of transferring unreasonable
risks onto the private sector. The entry requirements to prime
contracting are significant in terms of the additional expertise
required from construction companies. Raising the barriers to
entry would seem to satis$ the need of the construction
industry's large clients to deal with fewer, more sophisticated
construction firms.

The construction sector has seen significantjockeying for

position in recent years as firms attempt to integrate
themselves into stable supply chains to take advantage of the
emerging prime contracting market. Many firms have made a
significant investment in training in order to develop the
necessary skills of collaborative working. The rewards for
success are potentially high. The likely outcome is a
polarisation in the market place between those players who
255 ctB-2002

meet the criteria for prime contracting and those who do not'
The latter group is likely to form a significant rump that will
continue to operate in traditional ways. It is debatable whether
or not these tiends will serve the interests of small occasional
clients.

In many respects, the firms best placed to capitalise on the

prime óontrãcting market are those that have been successful in
securing PFI work. carrillo (1998) refers to the emergence of a
'super-léague' of contracting groups formed through quasi-
...g.tt to compete for PFI projects. In contrast to the SME
sectár, the PFI market is characterised by significant barriers to
entry (Ezulike et al., 1997).Indeed, the number of firms that
compete for PFI projects is strictly limited. There is already a
significant degree of overlap between the firms that are
competing within the embryonic prime contracting market and
thosã that compete for PFI work. Whilst the construction sector
as a whole has seen little consolidation, this is not true
therefore for the PFI and prime contracting markets. Providing
that a regular workflow can be achieved, prime contractors in
construcìion may be able to maintain integrated supply chains
on a quasi-permanent basis. If these conditions occur then
SCM within prime contracting in construction may begin to
approximate towards the established practices within
uèiotpu.". Such an outcome is highly dependent upon the
ability of clients such as the Ministry of Defence (MoD) to
provide continuity of work. It is further notable that the advent
òf prime contracting in construction is likely to see more
offloading of risk and responsibility onto suppliers, thereby
reflecting established trends within the aerospace sector'

Themes from the interviews

Twenty semi-structured interviews were conducted with
supplychain specialists from the aerospace and construction
,.ðtoir. Each Jector had equal representation. The research
team also conducted a review ofvarious sets of in-house
256 Supply Chain Management - Green et al

documentation relating to SCM policies. The identified themes

were then corroborated within the context of a one-day
workshop involving 11 industrial participants. Further
interviews are ongoing.

lnterviewees from the aerospace sector supported the

contention that the origins of collaborative SCM lie in the
imperatives of global competition. Within BAE SYSTEMS,
several interviewees referred to the way in which the share
crisis of the 1980s provided the platform for a revised way of
working. Collaborative working in the aerospace sector was
born from a shared sense ofmutual dependency in the face of
global competition. The construction sector has yet to
experience a comparative crisis and therefore feels little
imperative to change its long established way of working.
Whilst many interviewees cited client pressure, the need to
change was considered less than compelling. No construction
interviewees cited globalisation to be a significant issue for the
UK construction industry. Within the aerospace sector, there
was found to be a strong reliance on providin$ advice and
support to first tier suppliers. This reflects the established
ethos of mutual dependency. The Supply Excellence
Programme (SEP) would appear to be widely applied to both
internaland external supply chains with BAE SYSTEMS.
Whilst the SEP provides the dominant view of SCM, aerospace
interviewees are also focused on the issue of core
competencies. Several cited the need for continual re-
alignment in accordance with changes in the market place.

Construction interviewees were heavily influenced by the

Building Down Batiers model of SCM. However, in sharp
contrast with the aerospace sector, they tended to describe the
model they were working towards, rather than a model they
had actually implemented. Phrases such as 'we recognise the
needfor a more integrated approach' were commonplace -
even amongst alleged SCM experts. Aerospace interviewees
tended to describe SCM on the corporate level as being central
257 crB-2002

to the way in which the business operates. In contrast,

construction interviewees tended to describe SCM as an
approach that could be used on specificprojects. Several ofthe
firms interviewed had to reconcile the fact that whilst on some
projects they would be required to demonstrate SCM, on others
they would operate in the traditional mode of contract
management. Many refened to colleagues within the same
company that continued to insist on competitive tendering for
sub-contractors.

Many construction companies are organised into quasi-

independent regional business units. Such a structure has
advantages in terms of flexibility, but seriously impedes
information sharing and the implementation of SCM on a
corporate basis. Some significant national contractors do not
possess a centralised database of sub-contractors. The more
traditional firms within construction tend to see SCM to be
synonymous with the purchasing function. The scope of the
purchasing function is often limited to sourcing materials and
services at minimum cost. This tends to be done as an
independent exercise for each project. Construction
intcrvicwces directly involved in prime contracting saw SCM
as an essential means of ensuring their competitive position in
the marketplace. Others were openly sceptical of what they
saw to be the latest'fad', preferring to emphasise the need to
'talk the talk' in accordance with the current improvement
agenda. There was widespread concern that the Ministry of
Defence (MoD) has yet to fînalise the contractual basis of
prime contracting.

Conclusions
Firms within the UK aerospace sector share a much more
common view of SCM than that which prevails in the
construction industry. The Supply Chain Relationships in
Aerospace (SCRIA) initiative has been influential in
establishing a common SCM framework across a highly
258 Supply Chain Management - Green et al

integrated industrial sector, The prevailing ethos within

aerospace is that of mutual dependency. As a result of their
dominant position as national aerospace champion, the Supply
Excellence Programme (SEP) implemented by BAE
SYSTEMS would appear to be especially significant. SCM
undoubtedly serves the needs of sector efficiency by imposing
a normative framework on supply chain interactions. Such
frameworks provide a basis for the implementation of standard
integrated systems across the aerospace supply chain. BAE
SYSTEMS fully recognise their dependency upon first tier
suppliers and hence offer them a significant amount of advice
and support. The barriers to entry within the UK aerospace are
such that sustainable supply chain relationships are of central
importance in the face of intensive global competition.

The practice of SCM in construction has been found to be

much less well established than in aerospace with a signifìcant
diversity of views. Progress towards the implementation of any
normative framework of SCM within construction seems very
limited. Many respondents tend to describe the frameworks
they would like to introduce rather than systems that are
already in place. Construction practitioners also tend to see
SCM as a means of irnproving project performance, rather a
fundamental shift in the way that they do business. This same
view is also evidence within the literature that advocates SCM
for the construction industry. However, it would be a mistake
to conclude that the relative lack of development of SCM in
construction is indicative of backwardness. The different levels
of implementation must be explained in terms of the different
industrial contexts. These structural differences reflect not
only the higher technological content ofthe aerospace sector,
but also different historical relationships with government. The
imperatives of international competition have obliged the UK
aerospace industry to operate in a highly collaborative manner.
It is the shared ethos of mutual dependency that provides the
platform for effective SCM. This is the only way in which
European firms can compete with the US giants. Whilst the
259 crB-2002

UK construction industry has also experienced some degree of

consolidation amongst large firms, the industry as a whole
remains highly fragmented and localised. The construction
industry's much maligned culture of adversarial relationships is
a product of its fragmented structure.

The emergence of prime contracting in¡fhe construction sector

potentially provides a much more supportive climate for SCM
than has traditionally prevailed. Providing that a regular
workflow can be achieved, prime contractors may well be able
to form collaborative relationships with key suppliers that
approximate towards established practice within aerospace.
Such trends are already observable within the PFI market.
Major clients will undoubtedly benefit in the short-term
through a more integrated service. However, it must also be
recognised that there is a point at which supply chain
consolidation may become anti-competitive if new entrants are
not encouraged. In either case, the influence ofSCM practices
on the construction industry at large is likely to remain small'

References
A. T. Kearney (199S) The Impact of Global Aerospace
Consolidqtion on (JK Suppliers, Society of British
Aerospace Companies/A. T' Kearney Ltd.
Akintoye,4., Mclntosh, G. and Fitzgerald, E' (2000) A survey
of supply chain collaboration and management in the UK
construction industry, European Journal of Purchasing
and Supply Management,6, 159-168.
Ball, M. (l9SS) Rebuilding Construction: Economic Change in
the British Construction Industry, Routledge, London'
Carrillo, P. M. (1998) Mergers and acquisitions: the impact on
information systems and inforrnation technology,
Engineering, Construction and Architectural Management,
s(3)276-284.
DETR (1998) Rethinking Construction, Report of the
Construction Task Force, Department of Environment
 26rJ Supply Chain Management - Green et al

Transport and the Regions, l,ondon.

DT'l (2001a) Construction Statistics Annual, Department of
Trade and Industry, London.
DTI (2001b) Small and Mediunt-sized Enterprise (SME)
Statistics for Íhe UK, Depaftment of Trade and Industry,
London.
Ezulike, E. I., Perry, J. G. and Hawwash, K. (1997) The
barriers to entry into the PFI market, Engineering,
C on s Ír uc t i on an d Ar c h i t e c tur al Man a ge nt en t, 5(3) 27 6-
284.
Hall, M., Holt, R. and Graves, A. (2000) Private finance,
public roads: configuring the supply chain in PFI highway
construction, European Journal of Purchasing and Supply
Management, 6, 221 -23 5.
Hartley, K. (1914) A Market for Aircraft, Hobart Paper 57,
Institute of Economic Affairs, London.
Hayward, K. (1989) The British Aircraft Induslry, Manchester
University Press.
Hillebrandt, P. M. ( I 985) Econontic Theory and the
Construction Industry, Macmillan, London.
Holti, R., Nicolini, D. and Smalley, M. (2000) The Handbook
of Supply Chain Management: The Essentials, ClRlA,
London.
Lawrence, P. (1999) Europe vs America: strategic trade in civil
aeronautics, in Strategic Issues in European Aerospace
(Eds. P. K. Larvrence and D. L. Braddon), Ashgate,
Aldershot.
NAO (200 I ) Modernising Construction, Report by the
Cornptroller and Auditor General of the National Audit
Office, The Stationery Office, London.
NEDO ( 1978) How Flexible is Construction?, NEDO Books,
London.
Nicolirri, D., Holti, R. and Srnalley, M. (2001) Integrating
project activities: the theory and practice of managing the
supply chains through clusters, Construction Management
ond Economics, 19, 37 -47 .
Nonaka, I. and Takeuchi, H. (1995) The Knowledge-Creating
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Company,Oxford University Press, Oxford'

SBAC tjOOíl uKAerospace Facts and Figures 2000,society
of British Aerospace Companies, London'
Todd, D. (19SS) Defence Industries: A Global Perspective'
Routledge, London.
Vrijhoef, n.ä¿ Koskela, L. (2000) The four roles of supply
chain management in construction,tEuropeøn Journal
of
Suppty Man agement, 6, I 69'17 8'
P ur cha s ing- and
Wood Report (f gZS) The Public Client and the Construction
Industries, HMSO, London.
263 ctB-2002

Constructability in Higher Education

Buildings in Portugal,
Maria Helena A. C. Camposl & José M. Cardoso Teixeira2

Abstract
Recent improvement of higher education buildings in Portugal has
been conducted in the frame of European Community prograrnmes.
This implies for each project the strict accomplishment of pre-
established cost and time objectives but this has not been achieved in
a number of projects. According to our research, problems mostly
arise during the construction phase, although following several design
deficiencies in more then70%o of the case studies. Main problems are
the lack of clarity, cohesion, co-ordination and integration of design
outputs in the conditions of construction contracts. Because of the
dissociation of design and construction contracts, although aiming at
the common objective of client satisfaction, management efforts are
required to optimise project performance making use of the
knowledge ofall project participants. This paper reports the results of
our research in this problem, so far. A sequence ofprocedures on the
constructability analysis of the project life cycle of higher education
buildings is suggested through a set of workshops involving a co-
ordinator and the design team. This may help project managers to
avoid the lack of accomplishment of project objectives.
Keywords: constructability, higher education buildings, workshops

Introduction.
In the last few years, the construction ofhigher education
buildings in Portugal has been co- financed by several specific
European Union programmes in the scope of the European
Fund of Regional Development (FEDER). These programmes

I
Project manager, lnstallation Office of University of Minho, Portugal
2
Associate Professor, Department of Civil Engineering, University of
Minho, Portugal
264 Constructability in Higher Education Buildings - Campos et al

aim at the promotion and development of higher education in

Portugal(PRODEP I, il, III ) by:
o Increasing the number of students;
o Improving teaching quality;
o Bettering student social support;
o Encouraging sports among students.

PRODEP programmes are essentially focused on the extension

of higher education infrastructures by building new facilities,
enlarging and refurbishing existing ones. Eligible facilities
include administrative areas, lecturing rooms, laboratories,
residence halls, restaurants, sport areas, etc.. Candidate
facilities must obviously comply with programme objectives as
specified by the programme manager. Selection criteria are
usually specified in the programme regulations and typically
include the adequacy to strategic objectives of the programme,
the contribution for the correction of regional asymmetries and
unbalances among economic sectors, technical and financial
quality of the project, etc.. The contract usually speciflres the
project objectives, the financial support related to the project
development, the project schedule and other obligations of the
contracting organisations. The lack of accomplishment of
contract obligations may lead the PRODEP manager to cancel
the contract with the contracting institution. Therefore,
efficient cost and time management is essential to keep the
project financial support which is presently a basic condition
for the development of Portuguese institutions of higher
education.

However, the author's experience of the last l0 years or so has

evidenced that several projects have failed to accomplish
contract conditions, therefore leading to frnancial difficulties
during project execution. Main reasons for this are as follows:
o Design enors only detected during the construction
phase;
o Lack of clarity, cohesion, co-ordination and integration
ofdesign outputs;
265 ctB-2002

a Inadequate evaluation of site conclitions and ground

investigation prior to foundation design;
o Use of new design solutions with no practical
background ofconstruction technology required to put
them into practice.

In order to overcome these problems, d6signers require

excessíve project changes, contractors claim to use much more
resources than previously scheduled, project managers get too
much stress, all these leading to cost overruns and delays and a
terrible headache for the client. Actually, a PRODEP contract
implies the strict accomplishment of pre-established cost and
time objectives otherwise it may be cancelled and this brings
severe financial consequences to the promóting instftution.
Furthermore, facilities are often planned for the start of the
scholar year (say, September) in order to allocate new students,
laboratories or lectures which are forecasted well in advance
and cannot be cancelled close to the opening due date.
Moreovvr, no project can just be postponed for a year without
severe losses for the promoter, higher education institutions
being no exception. This calls for a significant management
effort although not enough has been placed so far in a number
ofrecent projects ofthis type.

Preliminary conclusions coming from the authors experience

revealed that problems mostly arise during the construction
phase of the projects, although following severaldesign
deficiencies. A survey has been conducted to a set ofprojects
recently undertaken by Universidade do Minho in order to
typiû main construction problems and to make use of past
experience in order to prevent future problems, Information
has been gathered through the analysis of contractors' claims
which invariably have encompassed extra costs for the
University and time delays for project conclusion.
266 Constructability in Higher Educatíon Buildings - Campos et al

Case studies.
Five projects have been surveyed, namely, two buildings for
technological departments, one building for a science
clepartment, one building for an art department and one
building for sports. These projects have been selected from a
larger set undertaken by the University in the last ten years and
are the most recent and probably cover the most representative
of their type. Moreover, the records of claims are well
organised which was very helpful while conducting the survey.
Main characteristics of the projects are depicted in Table l.

Table l.
Projects Building Building Scheduled Actual Final
Type Area Duration Duration Cost
('n') (months) (months) (l0u
Euros)
A Technology 9000 l0 l8 6.00
DeÞartment
B Technology 780 5 .Contract 0.30
Department rescinded
C Science 8,300 l6 t7 4.40
Depaftment
D Art 6,700 t5 Under 4.25
Department Construction
E Sports 3,500 l0 r6 1.60
Buildins

It can be concluded that in some projects, construction delays

reached over 50% ofthe initially scheduled project duration.
Moreover, contract cost deviations have been up to 30% in the
most severe cases. In each project, contractor claims have been
analysed reaching as much as 300 records for pro.ject A.
Claims have been perceived as follows:

Lack of design-site co-ordination due to poor knowledge of

site conditions during the design phase of the project. In most
cases, site surveying and investigation, ground investigation
and geotechnical surveying have not been satisfactory
performed during the design phase of the project, originating
267 ctB-2002

design solutions not compatible with site reality.

Lack of design-construction co-ordination resulting from

inadequacy of design, namely, design management operations,
design solutions, design specifications, design detailing and
design team co-ordination.

Lack of construction efficiency on site mainly because of

poor planning, deficient co-ordination of construction phases
and inefficacy ofconstruction operations undertaken by
contractors .

Lack of design-utilisation co-ordination with consequences

an possible poor performance of some part or equipment of the
building detected during the construction phase.

The distribution of the above construction problems in the

projects surveyed are shown below in Table 2:

Table 2.
Project Lack of Lack of Lack of Lack of Total
Design-sitc Dcsign- Construction Design-
coordination, Construction Efficiency Utilisation
coordination Coordination
A 20 220 50 l0 300
B I I 2
C J 42 5 50
D l5 5 20
E 6 43 4 7 60
Total 30 321 64 t7 432

Table2 shows that most of the records have been classified as

problems resulting from the lack of design-construction co-
ordination (74% of the cases), following lack of construction
efficiency (15% of the cases), design-site co-ordination(7% of
the cases) and lack ofdesign-utilisation co-ordination(4% of
the cases). In view of the above, it may be concluded that
design has not bean configured to enable efficient construction
in a significant number of cases. This is evident as new design
268 Constructability in Higher Education Buildings - Campos et al

solutions have been attempted without enough knowledge of

construction technology, standardisation has not been adopted
whenever possible, lack of co-ordination of the design team
has prevented construction planning efficacy, design detailing
and design specifications have failed to promote construction
efficiency, etc.. In order to keep project cost and time on track,
this set of problems clearly called for deeper constructability
analysis of the project team. This could be achieved by
introducing constructability programmes in design documents
usually contracted by Universidade do Minho but the way to
make it work deserved further research.

Constructability Programme.
In order to develop a constructability programme for
Portuguese higher education buildings, further information
should be collected from other prornoting institutions. This has
been achieved by means of an inquiry to a set of selected
higher education institutions, construction contractors and
design teams. The inquiry aims at identif,ing the main
constructability problems in recent construction experiences of
this type of buildings. Information will be used to establish
critical checking points of the programme. In this phase of the
research, the results of the inquiry are not yet fully available.

Meanwhile, the basic, procedure supporting the

constructability programme to be followed by design tealns
contracted by Universidade do Minho is as follows:
o Constructability concepts and objectives of the
constructability programme;
o Early appointment of the constructability coordinator for
the design phase of project development responsible for
the development of the constructability programme;
o Assessment of likely construction efficiency hazards in
view of design options of the design team;
o Search for alternative design solutions in order to
269 ctB-2002

overcome possible inefficient construction;

o Register design team action for construction efficiency;
¡ Register possible constructability residual problems.

Obviously, actions aiming at constructability should be put

into practice as early as possible in the project life-cycle,
because the chance to improve design for this purpose
decreases as the project evolves. The function ofthe
constructability coordinator is to ensure that the construction
experience ofthe design team is put into practice from the
early stages of project development. The constructability
coordinator may be someone from the design team assuming
this function, or someone from outside.

It is expected that the constructability coordinator will act

through a set of workshops with the design team so that the
above actions can be put into practice. These are sometimes
called Constructability Revisions and it has been suggested to
plan them for a set ofinstants during the design phase. For
example, workshops would take place after completion of
30yo, 60yo and 90Yo ofthe design( Hanlon and Sanvido).
However, it has been decided to adopt a more flexible
approach, planning workshops for the end ofdesign sub-
phases, as defined in design contract documents.

Accordingly, four constructability workshops are foreseen for

typical buildings contracted by Universidade do Minho:
o At the beginning of the preliminary phase.
o At the end of the preliminary design phase.
o At the end of detailed design phase, before the release of
execution drawings.
o At the pre-construction phase.

The first workshop marks the beginning of the design

process, and it will be organised into two parts:
l. The first part is a brief introduction to constructability
270 Constructability ín Higher Education Buildings - Campos et al

concepts and the aim of the constructabilify programme,

2. The second part is a thorough analysis of likely
construction efficiency hazards resulting from site
conditions (near by obstacles, public services,
topography, etc.) and ground conditions. Relevant site
investigation may be decided (for example, further
geotechnical testing). Constructability problems
resulting from preliminary design solutions, products
and materials to be used are also reviewed.

The second workshop takes place at the end of the

preliminary design phase. The conclusions of the previous
workshop are first recalled and the results of further site
investigation are analysed. An assessment is made of likely
construction efficiency hazards in view of design options of
the design team. Specifically works involving some possible
constructability problems are studied. Some examples are as
follows:
Do we have practical background or do we fully
understand the construction technology required to put into
practice this nice design solution? Can we standardise this
set of clesign objects in orcler to facilitate manufacture
without sacrificing this brilliant idea? Are we using
standard series for these design components or will we
need to produce them just for this project? Can we avoid
these small differences between our design components or
do they make sense only with these millimetre differences?
Are we ensuring co-ordination of the design team or are
we expecting things just to fit when time comes?

After the above discussion the team is encouraged to search for

alternative design solutions in order to overcome possible
inefficient construction due to problems detected. Design team
action for constructability is registered according to the
requirements of the design contract with Universidade do
Minho.
271 crB-2002

The third workshop is scheduled for the end of the detailed

design phase. This aims at veri$ing design in a sense closer to
the traditional Constructabi I ity Revisions. Records from
previous constructability action of the design team are ftrst
recalled and then a revision and final design solutions is made,
possibly with the help of checklists. Some examples of this
action are as follows:
Are we sure that our project can easily be put into
practice? Can it be done safely and in respect for
environment? Have we had enough geotechnical
information to get to the solution for foundations? Are
drawings compatible among design specialties? Are design
detailing and design specifications meaningful and
complete? Can we expect efficient construction planning
with design information released for tendering? Have we
looked for environmental and safely issues of construction
by allowing enough space for site erection and operation?

A report is expected after the above discussion and possible

constructability residual problems are registered for further
action.

The fourth workshop is a pre-construction meeting involving

the constructability coordinator and the contractor team as is
devoted to the analysis of possible construction efficiency
problems. This aims at discussing constructability problems
prior to the start ofthe construction phase, bringing together
the views of both designers and builders

Records
A formal record system easy to use and to monitor throughout
the design phase is intended driving to more consistent
approach to constructability issues during the phase. Besides,
information transfer to the construction phase is easier to
achieve.
272 Constructability in Hígher Education Buildings - Campos et al

Accordingly, the design team is required to register

constructability action, namely problems detected and
alternative design solutions adopted to overcome those
problems. Checklists used in the scope of the third workshop
and results of the inquiry should also be registered, then, a
final report on constructability should be produced.

These documents are organised in a file delivered to the

project management team from Universidade do Minho that
will make use of it in tender documents.

Records of claims during the construction phase are also

helpful information to improve constructability initiative in
future projects.

Conclusions.
This paper reports our research on a constructability approach
for higher education buildings and is based on the our
experience on this subject at Universidade do Minho. It was
decided to collect further information from other promoting
organisations, which will be helpful to establish critical
checking points of the programme, as those used at the third
workshop mentioned above. An approach to the
constructability prograrnme to be followed by design teams
contracted by Universidade do Minho is presented. This
process is to be conducted by a constructability co-ordinator
who will be appointed by design teams at the contract stages.

Under this approach, it is expected that the constructability

process may become team work from the project start.
Moreover, it is expected that the implementation of a
constructability programme will lead to quality improvement
and cost reduction of our projects as well as a dramatic
reduction in animosity among project participants.

The implementation of the constructability programme has not

 cIB-2002

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 276 Dfficulty with Performance Specs. - Kashiwagí

process:
l. Low price wins the award.
2. Construction not on-time, on-budget, and does not meet
quality expectations.
3. Construction requires excessive management and
inspection.
4. Environment of conflict, a win-lose relationship.
5. Change orders implemented after the job is awarded,
allowing poor performing contractors to compete with
contractors who put in a price to meet the intent of the
project.
6. Allows a contractor who missed requirements to get the
project.
7. Allow general contractors to mistreat subcontractors.
8. Has lead to poor quality work.

A careful analysis of the low bid process reveals the following

process. A designer identifies the minimum allowable quality
that is defined by minimum standards. Minimum standards are
usually the description of the lowest performing construction
materials and systems. Due to the different levels of quality
products, management and craftsperson skill, the contractors
are at different levels of performance.

The highest performers r"rsually have higher prices due to their

long time craftsperson skill, better performing construction
materials, management, and higher overhead (Figure l). The
designer then uses a subjective minimum acceptable level.
This minimum level is subjective and must be interpreted. Due
to the imperfections in communication, and the complexity in
construction, the definition of the minimum level is based on
perception (Figure 2).

As soon as the contractors with different levels of performance

see the specification, the movement is to try to provide the
owner with the lowest possible level of performance without
being identified as not meeting the performance level
277 ctB-2002

(minimum specifîcations of materials and systems)

Contractor I
(ú
¿ Contractor 2
ø
c)
o
L Contractor 3
À

Contractor 4
Low
Contractor / System

Figure 1. Different levels of Performance

High

Contractor 1

=o
Contractor 2
ø=
o
o
'Ë 3
úL
aa
--contractor
Contractor 4
Low
Contractor / System

Figure 2. Different levels of Performance

Figure 3 shows that most contractors reduce their qualþ to get

the lowest possible price. However, not all the contractors will
278 Dfficulty with Perþrmctnce Specs. - Kashiwagi

bid this type of construction. Many contractors either

negotiate their work, or wait until the low-bid work goes bad,
and comes in to fix the facility at their own price. The
problern with minimum material or process standards is that
the numbers relate to technical properties and do not relate to
performance or longevity of performance level in terms of
mi nimization of maintenance.

3: LowB

High

:ñ
a
c) Contractor 2
'-() Contractor 1
o_

Contractor 3
Contractor 4
Low
Contractor / System

The owners,and designers are directing the contractors to

provide the "cheapest" possible construction. To get the
projects, a contractor must have the lowest price. The
contractors are forced to take risks. Ifanything happens, they
are forced to submit change orders to maintain a profit. As the
low price becomes more and more important, the following
occurs:
L Manufacturers redo their systems to reduce price and
remain competitive.
2. Contractors are forced to do more and more work for less
money (leverage volume for price).
3. Because the emphasis is on minimum quality, the value of
training goes down. Training is expensive, and higher
279 ctB-2002

quality is not a requirement.

4. Contractors are forced to do the minimum for what they
are paid. Therefore, they take less time, and force the
owners to do more complete inspections.
5. Management of construction becomes a very critical job.
As construction is awarded on-price, contractors move
toward providing less and less, management requires
more and more expertise. Management is not a value
added function. The more resources go into management,
the less resources will go into the actual construction'
6. Very detailed specifications including means and methods
allow craftspeople with very little skill to do the job.
They take longer, need more supervision and do not have
the high level of quality. They seem to be cheaper,
however the lowering of quality and the effort to maintain
a minimum level of quality is an endless spiral.

The evidence of the above is:

l. Movement away from low-bid'
2. Low profit margins of contractors.
3. Owners are forcing contractors to leverage volume for
price.
4. Construction research generated because ofpoor quality
construction.
5. Movement towards construction management @ risk.
6. Number of projects that are not on-time, on-budget, or
meeting quality expectations' In the four states that
Performance Information Procurement System (PIPS) has
been implemented, the projects have not come in on-time,
on-budget, and meeting quality expectation. This is the
construction norm under the low-bid system.

Performance Specifications
The movement away from low-bid affects the major player in
construction procurement: the designer. The designer has
always been the overall manager of construction delivery and
280 D ifjì cu I ty w it h P e rfor m anc e Spe c s. - Kas hiw agi

the approval authority in construction. However, as there is a

movement toward design-build, the contractor becomes an
equal if not the major player. F-or the designer, there is a sense
of losing control of the process and working for the contractor.
The designer and engineer have always been the professional.
The designer negotiates their fees after being selected on
performance. The contractor has been treated as an
uneducated commodity (award is based on price). Designers,
in trying to keep their professional status, have moved to
performance specifications to be used in best value awards.
This process retains the design-bid-build delivery system, but
awards can be made to the best value.

However, there is an irony in the term performance

specifications. If it is a specification, it will contain a
minimum acceptable value or standard. If the award will be
made to the best value (performallce and price), there is no
need for a minimum performance value, because an
unacceptable performance will never get the award. The issue
also results in other questions:
l. How does a designer describe the minimum level of
performance that involves multiple criteria?
2. How does minimum performance that is made of multiple
criteria ensure that the minimum level of performance is
available?
3. How does the designer make a decision on what
performance is in terms of longevity, minimization of
maintenance, minimization of breakdowns, and the
impact of different levels of contractor performance?
4. What is the value of performance?
5. How is performance verified? How many references are
required? How does a designer take the performance of
other jobs and relate it to the performance on the next
job?
6. What level of craftspeople is the contractor required to
put on the project?
7. What if the contractor's systems do not perform soon
281 crB-2002

after construction is complete and the contractor has been

paid?
8. How does the designer identifu if nonperformance is the
contractor's fault or the manufacturer's fault or the
designer's fault?

If a performance specification is used, the award should be

made to the lowest bidder. The minimum performance should
be quantifiable and supported with documented performance.
Performance specifications will not work over time for the
following reasons:
l. Specified performance levels are subjective and require
interpretation.
2. Performance of a constructed system is complex and
there are too many factors for someone to quanti$.
3. Performance specifications direct someone on how to do
work and do not have any proven corrélation with
performance.
4. Construction performance data is nonexistent and it is
too diffìcult to identifr what the minimum data sample
should be and how to collect it.
5. The price pressure will force the contractor to provide
the minimal allowable performance, which will lead to a
confl ict (minimum vs. performance expectation).

No one has clearly defined a performance specification. Does

it include means and methods? Does it include minimum
material and system standards? If it does, then is it the
assumption that these systems will perform? Performance
specifi cations require subjective interpretation, analysis and
decision making. Anything that requires subjection
interpretation and decision making will tend to highlight the
decision maker. Performance than becomes a subjective term
that is constrained by the knowledge of the decision maker.
Because no decision maker has all information, when problems
occur, they will be difficult to solve. In this environment,
liability is still diluted. When decisions are made, liability
282 Dfficulty with Performance Specs. " Kashiwagi

must be assumed. However, if this were true, the contractor

would never be liable for nonperformance if there was a
specification, and the designer used an inspector to ensure that
the contractor followed the specification. Due to the industry
being "function focused" and not "business focused," the
movement of specification and low-bid award to perfonnance
specification and best value award will not minimize the
problems of the low-bid delivery system.

Performance is a Business Issue

Derning states the performance is always dictated by the
owner. Performance is defined by the author as being on-time,
on-budget, and meeting quality expectations. This is a
business issue and not an engineering technical issue. A
layperson can identify if the contractor finished on-time, on-
budget, and whether the owner's expectations were met. The
owner's problems can be solved if the owner can know if the
contractors can:
l.ldentify the risk to the owner with the constraints of
budget, time, and expectations.
2.Know how to minimize the risk using construction and
engineering skill.
3.Accurately identiff the costs.
4.Have skilled managers and craftspeople that will perform
the construction.
5.Identifz the construction schedule.

The owner can do this by doing the following:

1 . Have the contractors submit their best references to

identif, past performance.

2.Have the contractors identifu what performance criteria
make contractors different.
3.Have the contractors identiff the risk, how to minimize the
risk, and prepare detailed schedules and cost breakouts.
4.Have the general contractors hire their subcontractors
based on performance.
283 c I B-2002

5.Consider both relative performance and price to pick the

best value.

There are several issues if the owner is to implement the

above. Because it is a business process issue and not a
technical issue, minimum standards cannot be used.
Requirements are already set by the industry. They include
licensing, bonding, and insurance. Therefore, a method must
be created to do the following:
I . Measure items on a relative basis.
2.Compare both objective data and subjective data without
translation. For example, if there are no minimums, a
contractor might have only two references, which give
high marks, while another contractor might have 40
references with almost the same marks. Which contractor
is better?
3.Minimize decision making on what is performance, but be
able to input on what level of perfornr-ance is acceptable.
4.Even though the designer represents the owner, the process
should make the contractor liable for understanding the
owner's expectations and performing the construction.

The identification that is a business issue and not a technical

issue is unsettling for many designers. The new process will
require information workers and not designers or engineers.
The owner's requirement will still be quantified in technical
terms, but the increased performance will be obtained by using
business information (past performance). Designers and
engineers can change their function to become information
workers with design capability.

Performønce Informøtion Proc urement System

(PrPS)
PIPS an information based procurement system with the
is
following steps:
1 .Identification of past performance. This gate forces

contractors to identify their own level of performance.

284 DifJiculty with Perþrmance Specs. - Kashiwagi

Poor performers will only pass this gate if they change

their method of operation and personnel, and do it at a
more economical price.
2.Request for proposal (RFP). The owner uses a complete
design and specifications, partial design, or requirements
only to convey the requirement to the contractors. The
RFP includes the relative importance of past and future
performance.
3.Bid submittat. The contractors submit a management plan
(MP). The MP includes the identification of risk to the
user, how the risk will be minimized, construction
schedule, and detailed cost breakout.
4.Analysis of MP. The MP willbe rated in relative fashion'
5.lnterview ofkey personnel. The key personnel are
interviewed. The interview thrust is a test to see if the
key personnel, site manager and project manager' can
visualize the risks ofthe projects before it is constructed'
and how they will react based on planning'
6.Prioritization of alternatives. The relative data from their
past performance (general, subcontractors, key personnel,
MP ratings (future capability on specific job), and key
personnel interview ratiltgs, is leviewed by an artificial
intelligent decision maker that measures the relative
differences and prioritizes the altematives to meet a
unique user's requirement. The relative performances are
then compared with prices based on preset weighting to
identif, the "best value."
T.Preaward meeting. The "best performing" contractor then
is asked to recoordinate the specifications and drawings
with allthe critical subcontractors, identiflr any points
that need clarification, get the answers from the designer
and ow'ner, and then present how they will construct the
facility. They sign a contract that includes the RFP, their
management plan, interview comments, and the
discussions with the owner and designer before the
preaward meeting. The only change orders'will be for
scope changes and unforeseen events as identified by the
285 ctB-2002

owner. An important fact is that if the contractor is good,

and the owner wants the contractor back, he will not act
in an unfair manner. Another safeguard is that the
contractor can always pull out of the job if the contractor
identifies the owner as an "unfair" owner. If an owner
runs PIPS, the PIPS will also identiff if the owner is
unfair.
S.Rating on construction. The contractor and all the
subcontractors are rated after the job is completed, and
their rating becomes 25Yo of their future performance
rating.

The AI system is based on a modified Displaced Ideal Model

(MDIM) developed by Zeleny. It measures relative differences
of criteria with minimum translation. It is easy to use and
understand. The MDIM prioritizes differently every time. It
does nottake into account previous runs' Every
implementation uses the same "processing'"'

If performance is more of a business issue than a technical

issue, PIPS will increase performance. The following are
results of PIPS implementations:
l. Implemented 290 times.
2.Used on $150M of construction procurement.
3.Largest project was $53M.
4.99% of projects on-time, on-budget, and met quality
expectations.
5 . I 00% customer satisfaction.

6.State of Hawaii has run 100 tests' Management

requirements have been minimized to l\Yo' One engineer
can do the work of l0 engineers under the low bid system.
T.Designers and inspectors work and risk is reduced by 50%.
S.Performance has exceeded the expectations of facility
managers, owners, and manufacturers.

The above results show that construction performance is a

business issue. If the owner hires contractors who understand
286 Dfficulty with Pe(òrmance Specs. - Kashiwagi

construction, the majority of performance issues disappear

Good business practices include the following results:
l.Minimized decision making.
2, Using past performance information.
3.Paying a fair profit.
4, Differentiation of performance.
5. Totally open competition.
6.Entry and exit barriers.

The key to having the last three characteristics is to use the

performance information to become the entry and exit barrier
Performers will not leave and non-performers cannot enter.

Conclusion
Performance in construction is a business issue. Trying to
solve a business issue with technical specifications will not
lead to performance. Performance specifications should
therefore include the owner's requirements, and the method of
identifuing the best performance. Performance specifications
should not include minimum performance standards.
Performance specifications can only be used when considering
performance and price. The using of performance
specifications will not be welcomed by designers and large
contractors due to the following factors:
I . Change in process.
2.Change in functions.
3. Increased liability for performance.

However, due to the information environment, the requirement

to minimize risk, and the price pressure, the construction
industry will move to a performance orientation.

References:
Deming, W. Edwards, (1986) Out of the Crisis, Massachusetts
287 crB-2002

Institute of Technology, Cambridge, MA.

Zeleny,Milan, (1982) Multiple Criteria Decision Making,
McGraw-HillBook Company, New York, NY.
Kashiwagi, Dean T., (19S4) The Economic Feasibility of the
Polyurethane Foam Roof System, Master's Thesis, Arizona
State UniversitY, TemPe, AZ.
Buckingham, Marcus and Coffman, Curt (1999) First, Break
All The Rules, Simon & Schuster, New York, NY'
289 crB-2002

Performance Contracting for Accelerated

Innovation and EfficiencY
Hans Westlingl

Abstract
Formulation of challenging performance criteria has in many areas
contributed to innovative solutions. New collaborative work is
ongoing within the Demand-Side Management Agreement of the
lnõrnational Energy Agency (IEA). The objective is to facilitate the
use ofperformance contracts and other energy service company
(ESCO) contracts. Performance contracting is a well-established
àechanism for promoting the installation of energy effrcient building
equipment and systems. Facility owners and energy service
contractors use this method to retroftt equipment to save money on
building operations. The savings in energy bills - often 20-40%o - are
shared [e¡reen the facility owner and the ESCO under the terms
of
the agreement. The ESCO is taking the project's performance risk by
guarJnteeing a specified level ofenergy savings' Eight countries
participate in this new project, which includes studies into processes,
rules for contracts and demonstration projects'
Keywords: performance contracts, energy efftciency, ESCO

Introduction
Energy service contracting, or performance contracting, is an
established mechanism for promoting the installation of energy
efficient building equipment and systems. Facility owners and
energy service contractors, or ESCOs, enter into agreements to
perform retrofit installations of equipment that can save money
ãn building operations. The savings in energy bills due to the
more efficieni equipment are shared between the facility o.'ilner
and the ESCO uñd"r terms of the agreement. Most importantly,

I 5l Stockholm, Sweden' (email

Promandat AB, Box 24205,58-104
hans. westling@Promandat. se)
290 P e rþr manc e C ontrac t ing - lle s t I ing

the ESCO takes on the project's performance risk by

guaranteeing a specified level of energy savings. The ESCO's
compensation is directly tied to achieving these savings. The
financing can either be by the ESCO, by the suppliers of the
system or components or by an outside third-party company -
or in different combinations. Leasing arrangements can also be
considered. Different problems and hindrances have reduced
the introduction and wider spreading of this method. Within
the Demand-Side Management (DSM) Agreement of the
International Energy Agency (IEA) the collaborative work
Task X "Perfonnance Contracting" has started with eight
countries participating - Finland, France, Italy, Japan, the
Netherlands, Norway, Sweden and the United States. Different
motives, scope and objectives, methodology, preliminary
findings (including bariers and possibilities) and the future
work is further discussed in this paper

Motives
There might be different motives for choosing a performance
contract or other ESCO financial arrangements:
o For some property owners and users the main reason can
be lack of investment capital.
¡ For some it is simply a very economical business
strategy, We only pay when we see value-added
functions, as reduced energy bills.
¡ For the ESCOs, it is a good business argument and a way
to connect with customers and start new business
relations.
o For some companies and government organisations it
can be avery efficient way to inspire innovations and to
facilitate the introduction of more efficient solutions.
. Spreading of the use of performance contracting to more
markets.
. A joint multinational IEA project contributes to an
expanding international market for performance
,291 crB-2002

contracting,

Scope and Objectives

This project is a business-to-business project limited to efforts
involving the performance contracting agreements and other
ESCO related financial options and services between client,
businesses and all types of companies offering these services.

The overall objective is to facilitate the greater use of

performance contracts and other ESCO financial options and
services (PC/ESCO) in the participating countries.

The IEA DSM Performance Contracting project will:

o Provide all the participants with a better understanding
of how performance contracts and other ESCO financial
options and services can be used.
¡ Promote an understanding of the benefits of performance
contracting and other ESCO financial options and
services and the potential contribution ofthese financial
options and services to promoting energy efäciency and
mitigating global climate change.
¡ Promote an understanding of the necessary regulatory
and legal context under which the performance
contracting industry may function'
o Identi& the market potential in countries for which no
mature performance contracting industry currently
exists.
o Identiû and share information concerning potential
barriers and problems associated with implementing
performance contracting and other ESCO financial
options and services.
o Identiff and share information concerning solutions to
problems and success stories involving performance
contracting and other ESCO financial options and
services.
 292 P er fornmnc e C ontrac t ing - lltes t ling

a Contribute to increased awareness of the excellent

opportunities that the performance contracting models
can offer, and as a result, establish larger market
opportunities in more countries.
a Formulate defìnitions of different tvpes of performance
contracting.
a Identify how to involve energy agencies, consultants and
other intermediates in the preparation process.
a Identify solutions and schemes how to find suitable
ESCOs and how to improve the tenclering process.

Methodology
The project is organised with a group of NatiorLal Experts, who
work together under the co-ordination of an Operatirrg Agent
or project manager. Each of the eiglit participating countries
has a National Co-ordinator and has organised groups
representing different stakeholders, such as for instance facility
owrlers, different ESCO cornpanies, energy suppliers.
consultants, financiers, and governrnent offìcials. The work is
divided into steps, or subtasks.

During the Initial Workshop - Subtask A, the Experts

completed work already started during earlier phases and
discussed the contents in coming Country Reports and the way
of presenting different case studies.

In the Country Reporls - Subtask B, the countries have started

the work on contributing reports on the situation in their
country from their perspectives regarding establishment and
utilisation of the perfonnauce contracting industry. Countries
with mature performance contracting industries can provide
information in their repofts about already existing model
contracts, problems/hindrances, case studies, and market size.

This subtask will be followed by an interactive workshop

293 ctB-2002

comparing the Country Reports and the ideas - Subtask C.

This is a forum for the participating countries to share the
results of their research into the performance contracting
industry and to draw conclusions from the comparison of the
different Country Reports and to have discussions with other
interested parties.

The countries will then develop individual Country Plans -

Subtask D - to increase the viability of performance
contracting in their countries. These plans will be followed up
by identified cases and demonstration projects, which will be
analysed to form a background for formulation of lessons
learned, and of a draft for a final Management Report.

Different stakeholders, financiers, legal specialists, and people

specialised in benchmarking, measurement and verification
matters will be invited to some of the meetings and workshops

Preliminary Findings And Issues For Future

Work
Some preliminary findings after the presentation and studying
of the first drafts of the Country Reports are summarised
below.
o Valuable contents for future comparisons have been
formulated by the eight participating countries.
o Barriers for the early acceptance of performance
contracting have been identified such as lack of
information and understanding of the opportunities, lack
of public recognition and future-oriented buyers taking
the lead, unclear public procurement rules and no
generally accepted contract principles, lack of frnancing
on attractive conditions and the separate responsibilities
within buyer organisations for investment and operation'
o The countries have identified a number of cases for
future study:
projects like hospitals, schools, industries, and
294 P erformance C ontracting - Il/es tling

commercial buildings.
a Some models used for contract arrangements have also
been pointed out. They include different proposals for
sharing the savings and the risks and also different
arrangements for the investment capital. Benchmarking
will facilitate better comparisons and stimulate
development of better solutions.
a Typical energy savings according to analysis of many
projects in different countries are in the areaof 20-40Yo.
a Target markets and customers have been identified in
some of the countries.
a Defìnitions about performance contracting have been
discussed. Further analyses have to be made, for instance
whether it is possible to include also other services, apaft
from energy, for whiclt there is a market. This could for
instance be cooling, combined with district heating in
some countries, but it could also be various IT services,
cable arrangements, etc.
a Some key areas, which should always be included in the
performance contracting arrangements, have been
identified by some of the countries, and there is
openness among the participants also to inclurde other
areas and detailed arrangements.

The main issues for the further work include:

o Contract arrangements about:
Standard/Model processes and contracts
General Conditions
Ownership of installed equipment
. Principles for sharing positive and negative results
o Guarantees and enforcement
¡ Financing with different alternatives
¡ Measurement and verification

Performance contracting can be a good partnering activity, and

an important tool for the use of resources and the wider use of
more efficient solutions resulting in reducing CO2 emissions
29s

and clinrate risks. Accepted principles for process and main

contract conditions can accelerate the internationalisation'

A very important element is to inspire large public

organisations to take an active role and as clients initiate more
performance contracting arrangements.

References
BRECSU (2000): "Energy services at Warwickshire schools",
Good Practice Case Study 385. Brochure. Watford, United
Kingdom.
CIB (2001): CIB Special Project: "PeBBU Proposal-
conditionally - accepted by EUl" Article by General
Secretariat. In CIB Information Nr. 1/01.
IDAE (1995): "Third Party Financing for Energy Saving
Projects". Edited by Juan Antonio Alonso Gonzalez by
order of the European Commission Directorate-General for
Energy (DG XVII). Madrid.
International Energy Agency (2000): "Task X. Performance
Contracting". In Annual Report 2000 from the
International Energy Agency DSM Implementing
Agreement.
International Energy Agency DSM Agreement Task X
'Performance Contracting' homepage:
http://iea.clsnr.olgiresearoh/pro.iect I Olproject I 0.htm
International Energy Agency DSM Agreement Task X
'Performance Contracting' (2001): Country Reports.
Drafts from Finland, France, Japan, Norway, Sweden and
United States.
Kogan Lockhart, N & Singer T.E. (2000): "Accelerating
International Energy Efficiency Project Development:
Identifying Practical Approaches and Replicable Models"'
NAESCO, Washington D'C.
Kogan Lockhart, N (2001): "Financing ESCO Projects in the
United States", copies of transparencies from presentation
at the ESCO Seminar in Helsinki, Finland' 18 June 2001 '
296 P e rþr mance C ontracti ng - lle s tI ing

WEEA, World Energy Efficiency Association (1999):

"Briefing Paper on Energy Services Companies with
Directory of Active Companies" (Revised Edition)'
Westling, H. (1996): "Co-operative Procurement. Market
Acceptance for Innovative Energy-Efficient
Technologies". B 1996:3. NUTEIIIEA. Stockholm.
Westling, H. (2000): "IEA DSM Annex III Co-operative
Procurement of Innovative Technologies for Demand-Side
Management - Final Management Report". Swedish
National Energy Administration, EI 6:2000' Stockholm.
Westling, H (2001): "Agreed Performance Criteria Facilitates
More Efficient Housing Solutions". Paper for the CIB
World Building Congress, Wellington, New Zealand, April
200r.
Westling, H (2001): Task X 'Performance Contracting' Task
Status Report, September 2001.
297 crB-2002

Public-Private Partnership Projects in the UK

Treatment of Associated Risks by Local Authorities
Akintola Akintoyel, Eamon Fitzgeraldl & Cliff Hardcastler

Abstract
The cyclical pattern ofthe overall expansion oflocal government
services -andparticular services in the post-war years has created and
inheritance of a social infrastructure requiring substantial investment
in modernisation and replacement works. Public-private partnerships
of the type spearheaded in the uK by the Private Finance Initiative
(pFI) have offered a solution to the problem ofsecuring the necessary
investment at a time of severe public expenditure restraint. In the
uK, central govemment has offered positive encouragement to local
authorities for the development of this alternative procurement. For
pFI, a major challenge is to achieve a distribution of rîsk acceptable
to all partìes, including the public sector client, private suppliers and
conûáctors together with their financing institutions. The current
study shows that most respondents are conversant with the principle
of riik management advanced in government policy i'e' that risk
should be allocated to the party that is best able tu rnanage it. All
respondents agree that the DBFO risks should be completely
transfened to the private sector. The risk factors that authorities
prefer to share with the private sector are those related to demand and
regulation/legislation.

Keywords: public-private partnership, risk allocation, public sector,

DBFO,

Introduction
public-private partnerships (PPP) in construction facilities
development can involve the private bodies in the clesign,

I
Department of Building and Surveying, Glasgow Caledonian University,
Glasgow G4 0BA, United Kingdom. akin@qcal ac uk
 298 Public-Private PartnershÌps - Akintoye et al

fìnancing, construction, ownership and operation of a public

sector utility or service. Partnership between the public and
private sector is now a widely known and acceptable
alternative to the traditional fully state provided public
facilities. Arguably. it allows the public sector client and the
private sector supplier to achieve an outcome which neither
parfy could alone achieve, thanks to a blend of special skills
and experience which are irtcorporated in the joint approach.
Within the UK this takes the form of the Private Finance
Initiative (PFI).

Interest in the PFI, while to date, has rnainly been associated

with projects promoted by UK central govenlment
Departrnents, It is increasingly targeted upon UK local
authority (LA) services, spurred by charrges to regulations
go',,erning LA capital expenditure and borrowing, the
launching of the Public Private Parlnership (PPP), and the
reaffinnation by Govemment of tight controls upon levels of
publicly funded capital expenditure. Local authorities offer a
variety of calls upon such capital resources; typically: social
service premises, schools, energy initiatives etc. In the case of
school projects, a number of LA schools are due for
development and refurbishment. In other reaches of local
authority provision, domestic energy systems, combined heat
and power or waste-to-energy projects are being actively
pursued using the PFI.

The two fundamental requirements for a PFI scheme are that

the public must secure value for money (VFM) and the private
sector must genuinely assume responsibility for the risks
associated with the scheme. In essence, the public sector,
including local government, must be seen to have achieved an
optimum allocation of the risks associated with a PFI scheme.

This paper reviews PPP and documents the UK experience of

public-private partnership, the adoption of the Private Finance
Initiative by the local authorities and the experience of the
299 crB-2002

local authorities in dealing with the risk allocation associated

with the initiative, based on a questionnaire survey involving
fifty-fìve PFI schemes.

Public Private PartnershiP

From tentative beginnings of rhetoric rather than action, the
private-public partnership has established itself worldwide as a
signifìcant means of delivering public infrastructure
development. The World Bank records the number of new
private investments of this nature in Asia during the period
from 1984 to 1995 amounted to some 160 projects,
representing 28Yo of aworldwide 574' ln addition, out of the
ten largest private investment projects world-wide initiated
during this period, seven were of Asian origin (Tong-Kyu,
1998). Haarmeyer and Mody (199S) conclude from their study
of such initiatives, that the shift to private participation for
infrastructure provision can create substantial benefit'
However, they reckon that effective private involvement
required governments to provide a new facilitating and '
rcgulatoty role in ordcr to create a credible and low-risk
contracting and operating environment for its private partners.

Initiatives designed to involve the private sector in public

service delivery can take four forms: (i) outright privatisation
of previously state-owned utilities; (ii) contracting-out of
services such as refuse collection or cleaning to private frrms;
(iv) the use of private finance in the provision of social
infrastructure; and (iv) public-private arrangements involve a
variety of techniques and activities to promote more
involvement of the private sector in providing traditional
government or public services (EPA, 1999)

The benefits of public-private partnerships have been listed by

the Environmental Protection Agency (EPA 1998), itself a
derivative of local authority service provision. The Agency
attributes this to the specialist skills available in the private
 300 Public-Private Partnersh¡ps - Akintoye et al

sector which a private supplier can offer; the general

improvement in effrciency of resources use, techniques for
achieving a quality service for the public and a variety of
financial savings and a general ability to adapt and respond to
change which is less evident in the public sector. The EPA
also confirms a gain from private sector procurement methods
and shorter implementation times but does however, echo the
traditional coucern of the client in any 'out-sourcing' i.e. the
feared actual or potential loss ofcontrol over key variables
influencing control over the quantity and quality of service
delivery.

Celeste (1996) concludes that public-private partnerships

invent new relationships, stimulate growth, have a positive
effect onjob creation and provide an effective response to
global competition; partnerships provide relationships which
are challenging and productive for both parties.

The World Bank reports that in a number of projects it has

studied, the involvement of private enterprise in public service
provision has been associated with "substantial benefìts to
consumers in terms of'expanded coverage and quality of
service as well as significant improvements in productive
efficiency" (Rivera, 1996). At the strategic level, a public-
private partnership allows a government to implement change
without losing sight of the true business of government i.e. to
develop social policy, maintain and communicate a vision for
the future and manage the delivery of service. In effect, local
authority activity concentrates upon adrninistering a strategic,
facilitating and monitoring role, rather than direct service
provision. For the private sector, it represents an opportunity
to offer new products and skills to new markets and to develop
strong, long-term relationships with clients in the public sector
301 crB-2002

Public-Private Partnerships - The UK

Experience
The whole concept of Public Private Partnership is a
government poliry to tackle financial problems in facility
management skillto
f,rovision, und un integrated private
in"r"u." effìciency, effectiveness and quality (FIM' 2000)' The
level of private sector involvement might range from a purely
service irovision, without recourse to public facilities, through
service þrovision based on public facilities usage, up to "public
facilities" ownership.

The UK government has identified eight types of PPPs as

follows:
o Asset Sales which relates to the sales of surplus public
sector assets'
. Wider Market which deals with introduc.ing the skills
and finance of the private sector to help with better use
of the asset in the Public sector.
. Sales of Business, which deals with the sales of shares in
state owned business by flotation or trade sale'
o Partnership Companies, which is about introducing
private sector ownership into state owned business,
while still preserving public interest through legislation,
regulations, etc.
¡ Private Finance Initiative
o Joint Ventures in which public and private sector
partners pool their assets together underjoint
management'
r Partnership Investments in which the public sector
contributes to the funding of investment by private sector
parties, to ensure that the public sector shares in the
return generated.
r Policy Partnerships in which the private sector
individuals, or parties, are involved in the development'
or implementation, of public sector policy'
 302 Public-Private Partnerships * Akintoye et al

Contractual arrangements between the parties, and the nature

and scale of service provision, provide the means of classifuing
partnerships. In PPP, the degree of direct interest and
involvement of the private sector in the public sector projects
provide a useful dimension. In a Korean study (Tong-Kyu,
1998) this approach is used to distinguish between two types
of private infrastructure provision; termed: primary and
secondary, Primary-facilities are those projects which were
judged to be more sensitive to public interest, required more
investment than secondary facilities and were developed based
on a build-transfer-operate mechanisrn (BTO). The ownership
of the facilities reverts to the centre or local government upon
their completion, but for a predetennined franchise period, the
franchiser is granted the right to operate the facilities and
assign user fees to tlre beneficiaries. The prirnary facilities
include such infrastructure facilities as road, railway, hartrour,
airport, sewage and telecommunications.

Secondary facility projects were developed through a build-

own-operate mechanism and examples of these are power
plants, distribution complexes, bus terminals and parking lots.
With the secondary fäcility projects the franchisers have
permanent ownership of the completed facilities and are
allowed to make a reasonable profit.
Specifically in relation to the UK Private Finance Initiative
projects, Hall(1998) identifies three types of public-privare
partnership projects namely:
o financially free-standing projects in which the capital
outlay can be recouped through user charges;
o joint ventures in which the public sector provides the PFI
contractor with a subsidy to reflect the social benefits of
a project not reflected in cash flow, such as the
Docklands Light Railway extension to Lewisham, the
Manchester Metrolink and the Channel Tunnel Rail
Link; and
o services sold to the public sector such as those provided
by Bridgend Prison, DBFO road schemes and new
303 ctB-2002

rolling stock for London Underground's Northern Line'

The UK's Private Finance Initiative (PFI) began with the

declared objective of frnding ways of mobilising the private
sector to meet the needs which are traditionally been met by
the public sector. The initiative was first announced in under
the bonservative Government in 1992' The Labour
Government has continued with this initiative by putting PFI
into the framework of its "public-private partnerships"(PPP)'

The most popular type of PFI contract in the UK is Design,

Build, Finance and Operate (DBFO) or Design Construct,
Manage and Finance (DCMF)' Currently, most PFI schemes
are op-erating under a DBFO contract arrangement in which the
public sectoi makes monthly, quarterly or annual payments for
ih" ,r" of privately owned facilities over the lifetime of the
concession. Although PFI is currently being used for a variety
of public sector projects, Mountain (199S) has presented an
argument that the only projects clearly open to the PFI/PPP
trJatments are infrastructure projects such as roads and
highways, water transport, metropolitan transport systems etc'

As part of the Labour Government efforts to re-invigorate PFI,

the'Bates Commission was established to review the initiative.
The commission published 29 recommendations (see cunliffe,
1gg7) which according to sandison (1998) focussed mainly on:
"enhancing the professionalism of existing departmenÍ
procurement units through training; sharing of best practice
across the public sector and drawing on private sector
experienci through inward secondment; standardising the
rc)minologt, proiedures and contract documentation used by
dffirent ãepartments; making better use of external advisers
ty introduiing an accreditation scheme and requiring them to
contribute their written work to a dedicated procuremenl
libraryfor use as precedents in subsequent proiects"'

The uK government has identified four inter-related principles

 304 Public-Private Partnerships - Akintoye et al

at the heart ofthe PFI:

¡ Risks should be allocated, between the public and
private sector parties, to that party best able to manage
them to ensure optimum value for money (genuine risk
transfer).
o Contracts should speciÛ the service output required by
the public sector client from the private sector (output
specification).
o PFI contracts should normally require the contractor to
take responsibility and assume risk for the performance
of the asset over the long-term, at least for a significant
part of its useful life, so that efficiencies arising from
long-term asset management can be realised (whole life
asset performance); and
¡ Payments to the contractor under a PFI contract are
characterised as a regular "unitary" fee for services
which must be subject to performance appraisal in
relation to specific and quantified criteria in the contract
(performance-related reward).

Hall (1998) listed three fundamental criteria for a project

which should be apply in the evaluation of the PFI as a means
of providing public services namely: that the project should
realise additional investment in social infrastructure; provide
good value for money (VFM) for taxpayers, and not limit the
pursuit of the public sector's ability to pursue its public service
objectives, now or in future. Hall's assessment indicates that,
to date, PFI has been used as a substitute for rather than a
complement to publicly financed investment. Assessments of
value for money suggests that the out-turns have been variable
but some PFI contracts have delivered good value and the
effect of the PFI on the public sector's flexibility to pursue its
social objectives have yet to be established. Hall concluded:
"the gain realised through the PFI may increase as public
sector managers gain experience in how risks and
responsibilities can be optimally shared between the public and
private sectors in a cost-effective manner."
30s crB-2002

Local Authorities Involvement In PFI

PFI was originally conceived as a means of attracting private
capital into capital-intensive areas of public service provision,
particularly transport. Today, it has extended its reach to
include health, prisons, defence, education etc. (Gray, 1997)'
In successive phases of development the instrument has been
underpinned by administrative and other arrangements which
leave local authorities equipped to meet a significant volume
oftheir needs using the new approach to service provision.
Sanders (199S) provides a substantial list ofstatutory
responsibilities for which PFI can now be regarded as a
potentially attractive local authority procurement route,
particularly in relation to residential and nursing care for the
elderly, and school projects.

The Department of the Environment Transport and the

Region's (DETR, 1998) publication titled: 'Local Government
and the Private Finance Initiative' identifies the benefits of PFI
and other public private partnerships for local government as
being to :

o promote private investment in the capital assets required

to deliver public services effîciently by bringing in
private sector finance and operational management on a
risk-taking basis;
o improve value for money by allocating risks to those best
able to manage them in the public or private sectors;
. encourage the upgrading and rationalisation oflocal
authority property, including that needed for service
delivery and office accommodation.;
. allow the transfer to the private sector oftrading assets,
which would benefit from better utilisation, and of
surplus operational land and buildings;
o facilitate joint ventures to give authorities new scope to
participate in companies led by the private sector - and to
score only the council's contribution to suchjoint
306 Public-Private Partnerships - Akintoye et al

ventures as public expenditure, not the activities of the

company as a whole; and
a remove unnecessary obstacles to partnerships in the
areas of economic development and regeneration.

The latest changes in the rules governing capital expenditure in

projects involving the private sector and associated revenue
support mechanisms are designed to encourage local
authorities to make maximum use of the opportunities outlined
by the DETR. The Local Government (Contracts) Act 1997),
in order to assure the private sector that a Local authority can
enter into a PFI deal acting within its powers, has clarified the
powers of local authorities to enter into contracts; introduced
certification procedures (enables LA to certif,'the major long-
term contracts that have caused concern); and introduced the
concept of relevant discharge terms, which ensures that the
contractor would be compensated if the contract were set
aside. Also the general framework ancl the associated regime
relating to revenue expenditure have been amended to facilitate
development of PFI projects by the local authorities in England
and Wales (Local Authorities (Capital Finance) (Amenclment)
Regulations 1998 ISI 371]). According to the DETR (1998)
"llithin this framework the general aim is to give authorities
discretion to make their own choices on expenditure priorities.
The PFI in local government worlæ within this fiamework but
a series ofregulatory changes has introduced various
relaxations, giving authorities a wider choice of procurement
method and new ways to achieve value for money and to
deliver higher quality services to the public. "

Risk And Privately Financed Infrastructure

The risk associated with private provision of public sector
infrastructure differs according to the nature ofthe service for
which the facility is provided. In the report of The Private
Finance Panel (1995), entitled: 'Private Opportunity, Public
Benefit', six generic risks relevant to PFI: design and
307 ctB-2002

construction (to cost and time); commission and operating

(including maintenance); demand for volume/usage, residual
value, technology/ obsolescence; and regulation and legislation
were identified. These risks were further commented upon in
the Panel's publication (1996), 'Risk and Reward in PFI
Contracts'.

The risks of private sector toll road operating within a public

sector road network, are identified by Arndt (1998); these he
categorised as:
o Design and Construction Risks - design suitability;
obtaining necessary permit and approvals; the time and
cost of construction compared with the budget, site
characteristics, including environmental, archaeological,
and heritage issues; and project completion and
commissioning.
. Operating Risks: production risks, including adequate
tolling system operation, ability to penalise non-paying
motorists, input costs, rates and charges' Other risks
include those associated with maintenance, service
standards, meeting environmental standards, and
maintaining required insurartcc.
¡ Market Risk - traffic volume, growth of transport
substitutes, availability ofother revenue sources such as
advertising, and the setting oftoll levels subject to
agreed caps.
. Sponsor Risk - availability and structuring of finance,
commercial risks such as required rate of return,
tendering cost, and project viability, consortium risks
including adequacy of documentation and make-up of
the project vehicle, and condition of transfer' Other
sponsor risks include: credit worthiness and suitability of
the project vehicle and its individual parties.
¡ Sovereign or Legislation Risks - changes in legislation
and government policies affecting the project. It may be
essential for this risk ofgeneral changes in the law or
small regulatory changes to be bome by the private
308 Public-Private Partnerships * Akintoye et al

sector with the contract containing provision for re-

negotiation and possible price adjustment in the event of
changes with a major impact.
a Network risk including access to the existing
government road network and the feasibility of
connecting to the existing infrastructure. This also
includes the risk of the use of alternative routes available
by toll-averse drivers.
a Technology Risk - this includes the use of new
technology in the operation ofa road that had never been
used on a real life project. An example is the use of a
fully automated tolling system in case of the Melbourne
City Link (MCL) BOOT project in Australia.
Technological risk, associated with the obsolescence of
both the services and the function ofthe assets
themselves is most relevant to lT-based projects; it is
recommended that this risk should be dealt with
explicitly in the contractual agreement.
a External Risks - these includeforce maieure events,
interest rates, exchange rates, and inflation.

ln addition to the foregoing, other risks associated with the

private provision of public sector infrastructure include:
demand risk and residual value risk. Demand risk is the
willingness of the private sector to take on the risks associated
with demand, and will depend on its ability to control and
manage this risk. In cases where the public sector itself is not
the only user of the services provided, consideration must be
given to the possibility of transferring demand risk. Residual
value risk has two main determinants: (i) the condition of the
asset at the end of the contract and (ii) demand for it. The
specialist nature of some assets and lack of alternative uses
may limit the scope for transfer of this class of risk. Since
these affect the value ofasset, the transfer ofresidual value
risk for each PFI scheme must be given case consideration.

Chapman and Ward (1994) have identified three types of

309 crB-2002

clients' behaviour when making an independent choice

between alternative ways to achieve completion of a project.
Firstly, clients are prepared to take risk, but they are not
prepared to take an additional amount of risk without a
decrease in expected cost. Secondly, they will always seek the
lowest expected cost for any given level or risk, or the lowest
level of risk for any given expected cost, Thirdly, they will
seek an optimal trade-off between risk and expected cost.
Chapman and Ward argue that reciprocal assumptions apply to
contractors in terms of their profit. However, they are of the
view that both client and contractor should be prepared to
negotiate a level of risk sharing which puts both parties in an
improved risk/return trade-off position. Obviously, the risk
associated with PFI should be efficiently and optimally
allocated. Initially, the Government sought for an opportunity
to transfer, through the Private Finance Initiative, most of the
risks associated with the public sector servicé and asset
provision to the private sector. The position has changed and it
is now recognised that risk should be allocated to the parfy that
is best able to manage it.

Local Authorities PFI Schemes Risk Allocation

The objective, that a high proportion of risk should be
allocated to the private sector, lies at the heart of the PFI /PPP
exercise. It is of particular importance in relation to the
argument advanced by the Accounting Standards Board that
the capital costs of all PFI projects should appear in official
records as part of the PSBR. The Treasury response argues
(from a standpoint keen to limit PSBR) that because PFI is a
scheme which enables the public sector to buy services rather
than an asset, capital costs should not rank against the PSBR'
Given the possibility that the settlement of this debate is likely
to hinge upon the degree ofrisk transfer, the pressure to
maximise such transfer remains considerable.

In the present studies, curreut involvement of the UK local

 310 Public:-Private Partnerships - Akintoye et al

authorities in PFI and the associated task of risk assessment

and management were investigated through a mailed
questionnaire survey. Overall, the mailed questionnaire
achieved 55 positive responses from the project managers
involved with PFI projects, a response rate representing 30%
of the entire UK local authorities involved in one or more PFI
projects. This paper refer only to the risk allocation element of
the investigation.

The local authorities were asked to indicate the criteria used to

allocate risks associated with their PFI projects (whether to
retain, transfer or share). Forty-five respondents (82%)
completed this part of the questionnaire. Table I indicates the
criteria and the number of times these were mentioned.

Table I Criteria used local authorities for PFI risk allocation.

Criteria for risk allocation No of %
Respondents
(n:45)
Assessment of the party best able to mange risk 20 44.4
Guideline from government. govt department and l0 22.2
Treasury Taskforce
Value for money (including cost/benefit) 17.7
tsargaining power/negotiation (incl. Commercial 6 13.3
reality and bankability)
Based on advise ofexternal advisers 6 13.3
Management judgement and previous experience 3 6.6
Current/common practice and reasoned assessment J 6.6
Affordability 2 4.4
Project and risk offbalance sheet 2 4.4
Sufficient risk transfer to private sector 2 4.4

The criteria are intrinsically linked; the need to assess and

allocate risk to the party best able to manage it, apart from
being a good risk allocation practice, is one of the guidelines
or principles of PFI produced by the UK government to ensure
that the best value for money is achieved. It is explicitly
referred to in the explanatory note on PFI and Public/Private
Partnerships in local government, "Local Government and the
Private Finance Initiative". As part of the government
311 ctB-2002

guidelines for risk allocation of PFI within the local

authorities, Regulation 40 of the LocalAuthorities (Capital
Finance) Regulations 1997, Contract Structure Test, specifies
that a minimumof 20Yo of the payments due to a local
government PFI contract are must be tied to performance
related criteria.

A further criterion mentioned is bargaining power and

negotiation, subject to the commercial reality (what the market
can accept). Cunent or common practices operating within the
PFI sector (e.g. schools PFI projects) may be considered by the
local authorities in ariving at the decision on risk allocation.
Some local authorities depend on external advisers to assist
with the risk allocation but such advisers should abide by
government guidelines in formulating risk allocation decisions.

Local Authorities Treatment Of PFI Risk

Allocation
The government publication (Private Finance Panel, 1996)
identifies seven principal PFI types of risk arising from
designing, building, financing and operating an asset, which
should be genuinely considered, and transfered where
necessary, between the public and private sector to the party
best able to manage the risk and ensure best value for money.
In addition, the DETR's publication (DETR, 1998): 'Local
Government and the Private Finance Initiative' outlines
indicators of risk, based on Treasury guidelines, which show
whether or not the operator is bearing real commercial risks,
namely: demand risk, availability and performance risk;
pricing risk, residual value risk, operating cost risk and design
risk.

Based on the seven principal risk factors for PFI, the

respondents in this study were asked to indicate how risks are
allocated; with the options of any risk being retained by the
public sector, transferred to private sector, shared between
312 Public-Private Parlnerships - Akintoye et al

public and private sectors or where unknown to indicate

ounknown at present'. Table2 shows how the authorities treat
tlre seven risk factors. Forty-three of the 55 respondents (78%)
completed this part of the questionnaire. Six respondents did
not indicate how demand risk should be treated and of these,
four believed that this is applicable to their projects (projects
concerned were a school, magistrate court, transport and IT
scheme). Two respondents involved with transport and school
schemes indicated that technology/obsolescence risk is not
applicable to their schemes.

'fhe Table shows that the seven principal risk factors could be
grouped into three classes: (i) risk factors that the local
authorities should transfer cornpletely to private sector; (ii) risk
factors to be shared between the local authority and the private
sector, (iii) risk factors where respondents are divided on their
treatment.

The principal risk factors that the local authorities respondents

reckoned should be cornpletely transferred to private sector
and in which they were unanirnous are design and construction
(95.2%); commissioning and operating (95.3%); financing
(83,7 %); and techno lo gylobso es cence (660/o) ri sks. On ly
I

11.6% and32Yo of the respondents indicated that fìnancing and

technology/obsolescence risk factors, respectively, should be
shared between the local authority and the private sector. With
the exception of commissioning and operating risk factor, in
which one respondent indicated that this should be retained by
the local authority, none of the respondents indicated that local
authorities should retain the risk factors falling into this group.

Regulation risks fall under the second group of risk factors to

be shared between the local authority and the private sector.
The majority of the respondents (64.3%) agree that these
should be shared with 24%o indicating that this should be
transferred to private sector and 10Yo that this should be
retained by the local authority.
313 crB-2002

Residual value and demand risks fall under the third group i.e.
those for which the respondents are divided on the treatment of
the principal risk factors. Thirty percent ofthe respondents
indicated that demand risk should be retained by the authority,
35% favoured risk sharing and35%o believed it should be
transferred to the private sector. In case ofresidual value,25Yo
of respondents favoured it being be retained, l7 .7% favoured
sharing and 40o/o favoured transfer to the private sector; 17.5%
are, at present, not sure how to treat the risk.

Table 2: Treatment of Risk

Principal PFI Risk Allocation
Risks
Retained Shared Transferred to Unknown
bv LA private sector at Present
Nr Nr % Nr % Nr o/o
Nr o/o

'95.2
Design & 42 2 4.8 40
Construction
Commissioning 43 I 2.3 I 2.3 4l 95.3
& Operating
Demand 5t ll 29.7 l3 35 l3 35
Residual Value 40 t0 25 7 l7 40 29.0 7 t7.5
5
Technology/ 4l 13 3l 27 66.0 1 2.4
Obsolescence 7
Regulation 42 4 9.5 27 64 l0 23.8 I 2.4
-t
Financing 43 5 ll 36 83.7 2 4.7
6

Further analysis was canied on these two principal risk factors

to discover if differentialtreatment of demand and residual
value risks is applied according to project type; no evidence of
this practice could be found.

Conclusions
The public-private partnership principle embodied in PFI is
314 Public-Private Partnerships - Akintoye et al

now established worldwide as a significant means of

developing public sector infrastructure. Such initiatives,
designed to involve the private sector in public service
delivery, can take the form of: (a) outright privatisation of
previously state-owned utilities; (b) the contracting-out of
services such as refuse collection or cleaning to private firms;
(c) the use of private finance in the provision of social
infrastructure; and (d) a number of other public-private
arrangements which promote greater involvement of private
enterprise in public service delivery. It is commonly
emphasised that the benefrts of any such arrangements should
accrue to both sectors, public and private. From such
initiatives can flow an overall improvement in the eff,rciency of
resource use, techniques for achieving greater quality in
service provision, a variety of financial savings and a general
ability to adapt and respond to change which has been hereto
lacking in public sector provision.

The Private Finance Initiative has now achieved a central

position in the delivery of UK public sector services following
upon its initial official adoption by central government in
1992. The pressure of local government spending limits has
encouraged localauthorities to explore the use of the initiative
in meeting demands for new and replacement premises and
services. In addition the drive to adopt private sector business
methods and management to defrne and pursue organisational
goals has led to a developing interest in the full range of
resources and initiative which the private sector rnight
contribute to modern public service provision.

For the particular case of public-private partnerships involving

local authorities, a set of key risk factors which should be
considered for transfer to the appropriate party are design and
construction risk; commissioning and operating risk; demand
(or volume/usage) risk; residual value risk; technology and
obsolescence risk; regulation risk; and project financing risk'
Most UK local authorities are conversant with the principle of
315 crB-2002

risk management advanced in government policy i.e. that risk

should be allocated to the parfy that is best able to manage it.
All respondents agree that the design, build, fìnance and
operating risks (DBFO) should be completely transferred to the
private sector. The risk factors that authorities prefer to share
with the private sector are those related to demand and
regulation/legislation.

References
Arndt R H (1998) Risk allocation in the Melbourne City Link
project. Journal of Project Finance, Vol. 4, No. 3, pp. 1l-
24
Celeste R F (1996) Strategic alliances for innovation:
Emerging models of technology-based twenty-first century
economic development. Economic Developmenl Review,
Vol. 14, No.l, pp.4-12.
Cunliffe P (1997) The Bates Review. Private Finance
Initiative Journal, Y ol. 2, Issue 3, pp. 24-27 .
Chapman C B and Ward S C (1994) The efficient allocation of
risk in contracts. Omega, InternaÍional Journal of
Management Science, Yol.22, No. 6, pp 537-552.
DETR (1998) Local Government and the Private Finance
Initiative. An explanatory note on PFI and Public/Private
Partnerships in Local Government. HMSO
EPA ( 1 998) Public-private partnership.
Ir tt p // lv rv n,.
: e pa. go vtlcl ocs/A I t Ir i n a n c e R ep
Gray, A (1997) Editorial: Private Finance Initiative. Public
Money & Management,Yol. 17, No.3, pp.3-4.
Haarmeyer D and Mody A (1998) Tapping the private sector:
Approaches to managing risk in water and sanitation.
Journal of Project Finance, Vol. 4, No. 2, pp.7-23.
Hall, J. (1998) Private opportunity, public benefit. Fiscal
Studies, Vol. 19, No. 2 pp. 121-140.
HM, Treasury (2000). Public Private Partnerships - The
Government's Approacå, the Stationery Office, London.
http://rvrvrv.hm-treasury. sov. uk/clocs/2000/npp. htm l.
316 Public-Private Partnersh¡ps - Akintoye et al

Mountain P (1998) Building for the Future. Private Finance

Initiative Journal, Vol. 3, Issue 4, September, pp. 30-34.
Private Finance Panel(1995) Private opportunity and public
benefit. HMSO, London. November
Private Finance Panel (1996) Risk and Reward in PFI
Contracts. HMSO, London. May.
Rivera, D (1996) Private sector participation in water supply
andwastewater sector. Directions in Development Series,
Washington D.C., World Bank. pp. 71.
Sander S (1998) Risk-taking without tears. Public Finance,
November 20-26, pp. 24-28.
Sandison, H. (1998) Why better government must include
better government procedure, Private Finance Initiative
Journal,Vol. 3, lssue 3, July/August, pp. 46-48.
Tong-Kyu P (1998) Private infrastructure development in Asia
Journal of Project Finance, Vol,4, No. 3, pp.25-33.
317 ctB-2002

Strategic Risks and their Communication in

Project Management
Conceptual Framework
Deepak Bajajt

Abstract
Strategic risks need to be communicated to the project participants for
their appropriate management. This paper develops a conceptual
framework of risk communication process between project
participants for the successful execution of a project. The framework
is based on the research conducted in Sydney with a sample of
contractor, client and consultant representatives on construction
projects at the Sydney Olympics site. The risk communication
framework will help in the project design, project tender, contractor
selection and the management of the proJect process' Open
communication of the strategic risks will lead to reduced uncertainty
and improved relationships between the client and the project team.
This approach will lead to better coordinated documentation for the
project and a successful project.

Keywords: strategic risks, communication, conceptual framework,

project management

Introduction
Building construction process is one of the most complex
activities undertaken in the commercial sector. The majority of
projects are prototypes with their own unique requirements and
problems (Sawczuk, 1996). The construction process brings
together a large number of organisations including
manufacturers, suppliers, sub-contractors, contractors,
rProject Management and Economics Program, Faculty of Design, Architecture and
Building, University ofTechnology, Sydney, PO Box 123 Broadway NSW 2007,
Australia
318 Strategic Risks - llajaj

consultants etc., each with their different contractual

arrangements, objectives and responsibilities.

Risk communication in the building industry is very limited.

As part of a research project undertaken by the author at
Faculty of Design, Architecture and Building, University of
Technology Sydney, it was found that it was unlikely for
contractors to discuss risk allocation with clients or potential
clients (Bajaj et. al., 1997), as a result risk related issues are
rarely communicated in the construction industry, This leads to
a situation where the contractors pass on risks (assurning that
they know themselves) to sub-contractors at every given
opportunity. The same goes for clients who pass on as much
risk as possible to contractors. This is the most popular method
of addressing risk allocation in the construction industry. The
research also concluded that all the respondents (100%) agreed
that the accuracy of their estimates for projects would improve
if a systematic risk identification procedure were follorved.
Research has found that Profits are the driving objectives of all
project participants, for clients it is the return on investment,
for contractors it is the profìt from the project, and similarly
for consultants and sub-contractors. So one ofthc objcctivcs of
all the participants is common. The other most important
objective is the sustainability and growth in business interests,
which drives various participants, with sustainability from the
short-term point of view and growth from the long-term point
of view.

The principal medium for transferring and allocating risks is

the building contract. The opportunity to manage risk through
contract strategy decisions should not be undervalued (Hayes
et al., 1986). Several studies in various countries examining
choice of procurement method and formulation of contract
docunlents have concluded:
. Contracts should allow the explicit allocation of specific
identified risks between parties.
. Contracts should include incentives for risk control and
319 ctB-2002

sound management prac(ice.

a Risks should only be allocated to the parties who are
best able to control them and/or sustain their effects
(Lewis et al., 1992).

Strategic Risks
There are various approaches to risk. Risk has a variety of
well-defined meanings in ordinary discourse, and individuals
may be able to use the tenns in a meaningful fashion.
According to Collins and Ruefli (1996), while some formal
conceptualisations of risk in the literature contain many of the
properties of common usage, they fall short of providing a
firm-levelmeasure of risk appropriate to a strategic context.

Strategic risk could be from the point of view of the decision

theoretic usage ofrisk, behavioural science usage ofrisk,
finance usage ofrisk, or insurance industry usage ofrisk. From
the project management point of view and that too in the
construction industry, nearly allthe four usages of risk would
be utilised.

Collins and Ruefli (1996, p. 56) define strategic riskfor an

individualfirm as the probability of afirm movingfrom its
present category to a lower ranked category and also the
magnitude of that move. Strategic risks on projects are ones
that have the potential of impacting on the project success.

Strategic risk can be also defined as a risk that is generated and

I or can be managed from strategic management and the
decision-making involved in strategy for a construction firm. In
project management in the construction industry the strategic
risks range from market share, specialisation, marketing
stratery, diversification in the industry, portfolio of projects
maintained would be some of the strategic risks from a
construction firm's point of view. These being apart from
internal corporate decisions which impact on the projects and
320 Strategic Rßlt's - Bajaj

the firm.

Further to construction firm's strategic risks there are project

related risks that would fall under the category of being
strategic in nature. Project risks depending on different stages
of the project could be classified as strategic. If the
construction firm assesses project portfolio related risk and
decides not to proceed with a particular project within an
industry type then it would be a strategic risk of the company
that they have responded to by that decision, yet it is still a
project related strategic risk. Research findings of Raftery
(1994) and Uher & Toakley (1997) demonstrate that maximum
benefits can be derived from risk management if the process is
applied continuously throughout the project-from conception
to completion. There are three steps in risk assessment:
L identifuing and predicting
2. assessing and consolidating into a manageable form
3. managing and diffusing.
From this research point of view, the author wishes to maintain
a different position on strategic risk. This paper will discuss
stratcgic risks for a project from a construction firm's point of
view and its communication to the client at the early stages of
the project under consideration. This is the theme of project
management in general as well.

Project scope, documentation ofproject for tender, experience

of client in construction projects, financial funding of the
client and project could be some of the potential strategic risks
for the contractor or any other significant project participant'
The appropriate communication of information could reduce
the risks at the execution stage. This is where one has to
distinguish between the project risks and strategic risks on the
project. Project risks that will occur during the execution stage
cannot be all eliminated at the early stages of the project.
However, if proper channels of communication are set-up and
the handling of strategic risks discussed and agreed upon at the
321 crB-2002

initial stages of the project, then the project risks would be

easy to deal since the cooperation amongst the participants
would be expected to be better than in the traditional approach.

Results of Sydney Olympics Project Survey

In order to establish the best way to obtain the information we
needed from construction professionals, interviews were
conducted with both the contractors and client representatives
on major Sydney Olympics projects. This seemed to be the
most effective way of understanding about the strategic risks
and the communication process. The interviewees all agreed
that relations between the contractor and client did affect
claims, which are linked to risks on projects that might have
materialised, though it is difficult to quantifu the effect.

The sample size for the study included 6 client representatives

and 2l contractor representatives. The contractor and client
representatives were selected at random with a phone call to
the contractor's site office to get an agreement to the interview
and to make an appointment. A summary of the important
points of the interviews with client and contractor
representatives is as follows.

Client Representatives :
The important statements that the 6 client representatives made
are as follows:
l. Contractors go for anything, and they are more likely
to be successful if they have a good relationship with
the client.
2. A good relationship means they will have a better idea
of what would be successful methodology,
presentation and technique.
3. As far as the client goes the relationship makes no
difference - they pay claims according to merit and
entitlement.
322 Strategic Risl<s - Bajaj

4. Entitlement is the decisive factor in paying claims.

5. As far as contractors go the decisive factor is also
entitlement - but their financial situation has an impact
as well.
6. The most important factors in building a good
relationship are respect and providing a professional,
high quality job.
7. The variations that are most likely to be affected by a
good relationship are the ones that are difficult to
quantifli - such as costs due to delay and disruption.

C on trøcto r Rep res entat ives :

The imporlant statements of the 2l contractor representatives
are as follows:
1. Contractors agreed that personal relations between the
corìtractor and client do make a difference.
2. If formal partnering is in place and it's working well
then trade-offs and deals will often be made rather
than going through the claim process. As far as the
contractor goes - that's the ideal situation.
3. If there are sour relations ancl no flexibility then
whenever there are grounds for a variation we'll put it
in and keep the price up.
4. Contractors agreed that entitlement is the decisive
factor for putting forward a variation claim.
5. Good relations have more of a positive affect than bad
relations have a negative affect.
6. Most conflict arises over the interpretation of
contractual obligations on design and construct
projects. This conflict goes hand in hand with the
claims we make.
7. A good relationship would cause us to not pursue
claims too strongly, We would take a softer line on
doubtful claims.
8. It really depends on the client - some clients have the
room to be flexible on trade-offs and deals. They have
to be private clients though the government can't do
323 crB-2002

that.
g. And generally private clients quibble over every dollar
as they, in the long run, need to make profrt as much as
we do. Building a good relationship does come down
to individuals. You need trust, credibility and respect'
It's also important to be timely in coming forward with
problems. You could be as nice as pie with the client
but if you don't tell him when things are going wrong
he's not going to think much of You.
10. Factors that make for a poor relationship are lack of
communication of problems, telling lies, bad
mouthing, speaking out of turn, being treated like
idiots and lack ofresPect.
I l. Past experience is not that important with clients but as
far as subcontractors go it is extremely important'
12. The best way to develop a good working relationship
is to have a professional approach without being too
aggressive.
13. To encourage teamwork, you need a clear defrnition of
roles and regular communication.
14. Everyone needs to work at their own level and not
have to tleal with barriers to gct thc information they
need.
15. Partnering makes relations better but there is more to
be gained from the client's point of view'
16. Many contractors feel that partnering aids in setting up
this environment. The aim of partnering is to remove
the combative nature of the tendering situation'
17. The main problems encountered in partnering are that
the parties have not been committed to it' The
contractors are, therefore, quite cynical about the
whole process and tend to feel about partnering that it
changes nothing i'e. it just makes people smile a bit
more in the earlY daYs of a Project.

Communìcatíon Processes
The contractors were asked about the processes in place for
 324 Strategic Risks -* Bajaj

communication between the contractor and the client.

Following are the questions that relate to the communication
processes.

# As communication is obviously important to a good

relationship, the contractors were asked what they do to aid
good communication. On the question 'Do you haveforntal
processes in place to aid comntunication and feedback
between you and the client? ' there are 7 60/o respondents who
have resorted to formal processes to improve communication
and feedback between the client and themselves but 24% of
them do not have any such process. A variety ofprocesses
have been suggested to evolve better communication.
o T'ypes ofProcesses:
¡ Weekly/monthly regular meetings,
o Issue regulation process,
o Letters,
¡ Repofts.

# Tlre question'Do you believe having such processes in place

would affect vøriation claims?'was included in questionnaire
to see how conscious they are ofthe need for fonnal
procedures to support good communication. The summary of
responses in this context indicates that 41%o were conscious to
adopt formal processes in order to ensure better
communication. It is evident that 50o/o were not conscious of
this need whereas 9Yo preferred to be non-committal.
Surprisingly, given how much emphasis has been placed on the
need for good communication contractors are split on the
affect of the formal communication processes.

In general contractors seem to be quite cynical about company

imposed communication and paperwork - they trust more what
they personally say to someone. This implies trust as well as
communication is very important.
325 crB-2002

Teamwork Processes
Teamwork is essential to the success of a contractor on a
project and also as a business in the construction industry. The
following questions were asked to get a sense of the
importance placed on building good communication and
teamwork by construction companies. The importance of
measures or steps taken by the contractor has significance, as
there is the client above the contractor with whom the good
teamwork is required. Below the contractor is the sub-
contractor(s) with which the contractor needs to have good
teamwork for the goals of the project to be worked together.
For the steps to be implemented the contractor organisations
internally needs to have good teamwork between the staff
involved.

# On the question 'Is team-work aformal aspecl of your

management technique or something you just hope happens?'
there are 830á respondents who agreethat the teamwork is a
formal aspect management technique while lTYo of them do
not concur with this.

# The contractors were made to respond how they establish or

encourage teamwork was made to respond to see if again they
tried to focus on the features they believe build a good
relationship and to find out how much importance they place
on establishing teamwork on their projects. Table I below
summarises the responses.

Table 1: Factors to establish / encourage teamwork within the

contractor satlon
Factors:
Communication
Team work (motivating everyone to involve and discuss)
Regular meeting and information sharing showing appreciation and
reward
-
Thus in one word "good worker relations"
-
# The following two questions were put to see how contractors
 326 Strate gic tì.isks - llujaj

are similar in their approach to building good work relations

Table 2: Factors to establish / en teamvvork with the client

Factors:
Socialisation
Communication
Discussion of policies and attitudes
Keep them informed

# The company responses on method of establishing or

encouraging teamwork with the sub-contractor are summarised
in the table 3 below.

Table 3: Methods used to establish or encourage teamwork with the

sub-contractor
Factors:
Clear definition of roles
Regular cornmunication
Paying in time
Respect their professionalism
Extra pay

The factors listed as contributing to good teamwork are very

similar to those that create a good relationship between the
client and contractor. It seems that all come down to
communication, trust and being professional. When these
factors are in place the path is free for people to get on, for the
flow of information to be unimpeded and for variations to be
dealt with appropriately.

Summary
Based on the analysis and presentation of the comments made
by both the clients and contractors in the interviews, there is
still a gap between the client and contractor view of the
relationship. There is an element of mistrust between the
parties, which is reflected from the comments made by
representatives of both parties. Clients seem to think that
327 ctB-2002

contractors go for everything possible to claim on the project.

Contractors are quite cynical about the partnering exercise and
think it just makes people smile a bit more in the early stages
of the project. Also, from the partnering process, client seems
to gain more than anyone else. A major objective of partnering
is to discuss the risks and more importantly the strategic ones
that can influence the outcome of the project later. Discussion
and resolution of strategic risks should be one of the major
objectives of partnering workshop.

Furthermore, both client and contractor representatives agree

that good relationship helps in resolving issues and partnering
is a good way of achieving a good understanding of the
perspectives. Both agree that teamwork is good to achieve the
client objectives and also in communicating between the
participants, they both have the intent and it all works well as
long as there is no problem. As soon as there are problems, the
communications and teamwork seems to breakdown' This is
one of the reasons why there is scepticism towards the
partnering process, which was supposed to get c,ver those
barriers.

Conceptual model
Since profit is an important objective for any reasonable
contractor, risk management for the contractor should be the
top priority. Risk communication must also be in place so that
the risks are managed to best capacity. One problem is that
current perception is that one party's gain is another party's
loss. Hence it is believed that to have a competitive edge risks
need to be kept confidential and uncertainty needs to be
allowed for without letting the client know. If the client knows
it is assumed the client will try to pass on the risk without
paying for it. I think one has to stop thinking from that narrow
view, as the party finally paying is the client. In a normal
scenario more information means less unknown and therefore
less contingency or premium is required to manage it, whoever
328 Strategic Risks - Bajaj

is the party in that position,

The conceptual model of risk communication in the

construction industry is based on the assumption that the client
pays for the project fi'om the inception to the handover phase,
including the errors and mistakes made by the project
participants in not accounting for the risks involved on the
project. The client pays if the contractor has made a mistake at
the tendering stage ofthe project by not quoting the right price
inclusive of the contingency, orle can dispute this if it is a fixed
price lump sum contract. Clients pay for mistakes by way of
variation clairns; disputes and conflicts on site; reduced
quality; time delay; strained relations; sub-contractors being
squeezed; client losing reputation for delay in project;
litigation costs; contractor going bust - lost time to frnd
replacement etc. to mention some of them.

The challenge is to sit together and price the risks so that the
most competitive price arnongst the project participants is
given the task of managing the risk, of course one would have
to see if the party can manage the risk or not.

Conceptual model is based on the following principles:

. communication of information on risks and their
allocation;
. consultative approach to contract drafting;
. real parlnering on the project.

Communicøtíon of ínformation on risks and their

allocation
Communications plans for sharing of information must be built
and include (Donnelley, 1997):
- Research
- Strategy
- T'argetedpresentation
- Monitoring and Measurement
- Flexibility for modification,
329 ctB-2002

Plans for communication should be just as straight forward for

all the parties to be involved or involved on the project. The
client should be open and flexible during the communication
process allowing modifications to the contract to make the
project a success. The risks should be accepted and managed
by the parff best capable to control them and the rest should be
insured.

Consultative øpproøch to contract drøfting

Contract drafting is the process of choosing the most suitable
contractual arrangement for a project, with project objectives
in mind. The process also includes choosing and formulating
contract conditions. Standard conditions of contract when
modified by way of additional conditions are also part of the
contract drafting process. Specification of works is also part of
a contract and should be appropriate to the project objectives
and especially quality objectives, as a substantial number of
disputes at site arise from quality objectives (Bajaj, 1997).

Reaching an appropriate contract strategy for a project requires

careful consideration of:
. the choice ofthe type ofcontract;
. how the contractor should be selected eg. select
competition, negotiation;
. the choice oforganisational structure to control design,
construction and their interface;
. the selection of the content, extent and sequencing of
the work packages;
. selection and preparation of tender documents,
including the Conditions of Contract - the primary
vehicle for the allocation of risk between client and
contractor (Hayes et al., 1986).

If, as is often the case, the risks are allocated without

consultation and agreement, those parties who are often very
undercapitalised relative to the size of the risks imposed on
330 Strategic Rßks - Bajaj

them by contract, are moved to adopt defensive strategies

including:
L lmposing contingency charges (either explicitly or
inflated unit prices) to cover construction risks that are
frequently uncontrollable.
2. Adopting conservative approaches to product design
and construction methodology.
3. Refusing to utilise design alternatives involving new
technology because of potential liabilities arising from
undue cost or failure to perform.
4. Resorting to litigation or arbitration for any possible
type of dispute, whether warranted or not (Levitt et al.,
resl).

Clients (customers) have learned from experience that their

risks are not appreciably reduced on entry into a contract,
altirough, under most contracts, the contractors (suppliers) are
committed to achieving performance in terms of quality,
schedule and support services (Wearne, 1992).

To be ready for contract drafting in consultation, the client and

contractor have to be ready with the background work, which
will involve risks on the project and clauses in the contract
related, so that the risks are taken by the party capable to
control and manage them. This will involve discussions and
negotiations, which can only take place if the contractor is
provided with sufficient information. New approaches to
project procurement force contractors to research the project in
much greater detail than when using traditional procurement
methods.

Hence, 'risk management study' will become an essential part

of the bidding process. To make it a success the clients will
have to decide on an integrated tendering and contractor
selection strategy upfront. This is the theme behind the
proposed approach, which will
head towards 'real partnering'
if there is a free and sincere flow of information over the
33r cIB-2002

various stages ofproject cycle and the project participants.

The main stakeholders in the project should use partnering.

The client and contractor need to come together for a
successful project. All the risks must be discussed, shared and
allocated to the parfy(s) best capable to take and manage the
risk (Bajaj, 1994).It is not practically possible to involve all
parties, though ideally it should be the case.

The challenge to be addressed in the consultative approach is

to introduce the basic elements of competitive bidding to get
value for money on the project. Competitive flavour in the
process would be essential for the long-term viability of the
approach due to accountability of the many organisations,
which would stand to benefit from it.

Real pørtneríng on the Proiect

According to Schultzel and Unrup (199 6),'Partnering involves
a major transformation of business attitudes and practices. It is
a liberating process that strives to help the best that can be to
realise their full potential.' In my opinion, partnering is about
reducing uncertainty on projects and increasing the certainty of
making profit from the participants' point of view. To achieve
the objective of profit, the risks involved for the participants
have to be identified and communicated to the parties when the
information becomes available.

There are two basic levels of partnering. One being at the

higher level of the entity view i.e. the situation of legal
entities that are engaged in partnering. The other one
being the lower level with personal view i.e.
individuals who are personally engaged in partnering.
In most situations, principles of partnering can exist in
both levels as well as in either of the two levels.
332 Strategic Risl<s - Bajaj

Figure 1: Flow Chart of Consültative Approach (Source:

Bajaj(1997)

succEss All Parties lnvolved

How ?

No Conflict Situation All Parties lnvolved

-
How ?

& Agreement
<- Client & Contractor

How ?

Clauses & Risks to be Client & Contractor

Discussed

How ?

Risk Management Study

-- Client & Contractor

How ?

Client
Provided to Conlractor

How ?

Tendering Strategy <- Ctient

How ?

Contractor Selection .Ê- Client

How ?

REAL PARTNERING All Palies lnvolved

JJJ ctB-2002

The author for the following reasons is introducing the term

real partnering:
. commitment of the parlies should be real;
. commitment of the individuals should be genuine;
. comrnitment of the client initiating the paftnering in the
first place for open forum and not being used as a
buzzword of the industryl
. client to share the risk profile of the project;
. client has to follorv the rvhole process at various critical
points of decision making (refer Figure l) to get the best
outcome for the project.

A research study in 995 by a student under nry supervision in

1

Construction Managentent Unit of UTS on 'Partnering in

constructiou industry in NSW Public Works Projects'
concluded that the benefits of successftrl partnering iuclude.'
hcltar clocumenÍalion (al leasi ott DD&C ctnd D&C proiects)
v,hich Ieqd.ç to g,reuter huildahilitv, improved siÍe ntanagenrenl
ntelhods, improved co.sl ¡terfornîance und management as a
resull of increasetl comnntnicalions between proiect
participanls, reduced claims and disputcs and a general
decrease in lensions. The study also found on the question of
structural elements to paftnering on a scale of l-10 if they had
worked or not, found that Parlnering Charter at 6' I '
Comnrunications .fratnework at 8.9, Evaluution Procedure at
6.9 and Problem-solving Procedure at 7 9. By far the most
beneficial aspects of partnering process has been the opening
up of the comntunications amongsl projecl participants,
inclusive of the risk issues (l,ehmann,l995)'

The other problem with hard dollar or lump sum contracts is

that the contract is signed where the client has basically
transferred the risks on the contractor without consultation and
then asked the parties to come together through partnering, the
contractor is still vulnerable to financial risks. If things go well
on the project then it is said partnering is or was successful,
334 Strategic Risks - Bajaj

however, if things start going wrong financially, then the

objective of the contractor changes and it is to minimise the
loss (Bajaj, 1994).

The model
The model for risk communication should be based on the
following foundation of project tender and contractor selection
as shown in the flow chart (Fig 2) below' In the model, the risk
communication should start from the client itself, which means
the client gets a risk management study or a risk assessment or
even a risk identification study done at the conception stage of
the project. This risk assessment study could have elements
which are for the corporate of the client, which could be the
confìdential part and need not be shared with the participants
but the other parts which are project specific should be shared
and participants asked to price the risks as they see them from
their perspective of managing them.

As seen in Fig 2, the eventual project success is dependent on

real partnering being achieved on the project. The strategic
risks are riiscussed in the initial stages of the project i.e. at the
project tender stage and also at the contractor selection stage of
the project. The project design development and also the
management of the project process would be dependent on the
procurement strategy selected by the client.

The communication of information and risks should take place

early on in the project for most effective risk management
strategies to be formulated and the participants appropriately
rewarded for managing the risks. The importance of utilising
the opportunity at the time of the partnering workshop to
discuss and develop responses for strategic risks would make
the workshop more meaningful and worthwhile and hopefully
the communication and teamwork would still continue when
the project and the relationship runs into trouble, which it
invariably does on most Projects.
 335 ctB-2002

'Scope determination
.Any knom
information on project
.Relevant sections of
risk report from
Communication of leasib¡lity stage
lnformation

Refer Figure I

Consultative
Contract
Drafting

Real pannering will be

achieved ifthe client md
project participents meet and
discuss the risks involved on
Real Putnering
thejob and who is most
comDetitive to mmace them.

Project Tender Contractor Selection Project Design Management of

project process

Shuing and proper Discussion on risks

of and proper sharing Real pa¡tnering and communication of strat€gic risks
communication
ofrisks to be done at amongst ths participants can be achieved in this phase of
information at this
ofthe Project this stage by way of the projeat process ifthe tender and contractor selection
stage
involves the principles discussed in Fig l.
avoids inclusion of consultative contract
unnecessary drafting and mutual . IndepEndent ofthe procurement strategy
contingencies on the agreement between r Project design and Management could involve
part of lhe project participants diffe¡ent specialist teams in the case offixed
contractor or and the client. price contract and would be sme tcm in the
consultants. cæe of D&C æntract.

Figure 2: Conceptual Model of Risk Communication

336 Strategic Rßl<s - Bajaj

Fig 2 presents that the project life cycle evolves from project
tender to contractor selection, to project design and
management of project process. The real partnering should
take place as early on in the project and reduce the problems in
the later stages. In this instance the project life starts from
project tender, since the type ofproject being discussed is
being procured on D&C system an hence the project tender
would include the bid for design and construction.

Conclusion
For the conceptual model of risk communication process to be
successful, the client has to set up the process of
communication of risk right from the start of the discussions.
The improved communication and cooperation between all
parties will give the desired results of better profits and less
vulnerability to project risks.

Furthermore, the leadership in the partnering process has to

come from the client again, with the desire to discuss strategic
risks on the project and the need to discuss them at the
partnering workshop it self. With attempts to discuss risks will
come the trust amongst the participants that the risk have been
discussed and addressed for the project. By approaching the
project in this way, there is more chance of project being
successful and the participants leaving the project thinking that
they achieved something along the way.

The difference between the project risks and strategic risks on

the project is discussed. It is recommended that if proper
channels of communication are set-up and the handling of
strategic risks is discussed and agreed upon at the initial stages
of the project by way of the partnering workshop, then the
project risks would be easy to deal since the cooperation
amongst the participants would be expected to be better than in
the traditional approach.
337 crB-2002

References
Bajaj, D. (1994). Risk Management, Contract Drafting And
Partnering: A New Relationship. Construction conflict:
management and dispute resolution. CIB Publication No
l7l. International Council for Building Research, Studies
and Documentation (CIB), The Netherlands, 1994' pp. l-
12.
Bajaj, D. (1997). Contract Drafting : A Consultative Approach'
The AIQS Refereed Journal, Vol.l, Issue 1, pp.32-34'
Bajaj, D., Oluwoye, J. and Lenard, D. (1997)' An analysis of
contractor's approaches to risk identification in New South
Wales, Australia. Construction Management and
Economics, Vol. 1 5, No.4, PP.363-3 69.
Collins, J.M. and Ruefli, T.W. (1996). Strategic Risk" A state-
defined approach, Kluwer Academic Publishers, Norwell,
MA. p.45.
Donnelley, M. (1997). Communications Risk. ACEA Seminar
on Risk Managentent, Sydney. May 1997 '
Hayes, R.W., Perry, J.G., Thompson, P.A. and Willmer, G'
(19S6) Risk Management in Engineering Construction' A
research report supported by the SERC specially promoted
programme in construction management and prepared by
the project management group. UMIST
Lehmann, D. (1995). Partnering with NSW Public Works
Department Undergraduate Thesis for construction
management degree at University of Technology, Sydney.
Levitt, R.E., Ashley, D.B. and Logcher, R.D' (1980) Allocating
Risk and Incentive in Construction. Journal of the
Construction Division September 1980, Vol' 106. (CO3),
pp.297-305.
Lewis J., Cheetham D.W. and Carter D.J. (1992) Avoiding
Conflict by Risk Management - the role of the client's
project manager. Risk Management, Proiect Management,
Conflict Avoidance, Construction Conflict Resolution,
1992.
Sawczuk, B. (1996). Risk avoidance þr the building team.
First edition, E & FN SPon, London.
338 Strategic Risl<s - Bajaj

Schultzel,H. and Unruh,P.(1996). Successful Partnering:

Fundamentals for Project Owners and Contrøctors. John
Wiley and Sons. USA.
Uher, T.E. and Toakley A.R. (199? Risk management and the
conceptual phase of the project development cycle. Ptisk
Management Research Unit, School of Building, The
University of New South Wales.
Raftery, J. (1994). Risk analysis in project management.
E&F.N. Spon, London.
Wearne, S.H. (1992) Contract Administration and Project
Risks. International Journal of Project Management Yol
l0 No I February 1992. pp.39-41.
339 ctB-2002

Identification of Critical Risks in Indian Road

Projects
Through Build, Operate and Transfer (BOT) Procurement
Approach
Satyanarayana N, Kalidindi' & A.V'Thomasr

Abstract
and its transition
'with the recent opening up of the Indian economy
towards global market, the prospect of private sector participation in
road and other infrastructure development is gaining acceptance and
popularity in India. BOT (Build, Operate, and Transfer) approach is
iné most common form of private participation in road infrastructure
development in India. Though massive investment opportunities are
available in Indian road sector, private participation through BoT set
up is not up to the expected level due to the high degree ofrisk
.*poru.. oÌ such project procurement systems in Indian environment
anà aho due to the variation in risk perception among major project
participants. In this paper, the authors present some of the results of a
ãetailed study to identifi the various risk issues associated with Indian
BOT road projects. Based on an all India questionnaire survey, a risk
perception análysis among four major stake holders/participants such
äs prómoters/developers, Government representatives, lenders and
consultants is also carried out to evaluate the criticality ofthe
identified risks.

Keywords: Infrastructure, Risk Management, BOT projects

Introduction
In India, till recently, the road infrastructure projects were fully
funded by the government through internal budgetary
allocation or with external borrowings. There is a shortage of
internal budgetary resources to finance these projects and the

I
Department of Civil Engineering, Indian Institute of Technology, Madras,
India
 340 Identification of Critical Risks * Satyanarayana & Thomas

growing debt burden in developing countries like India has

resulted in reduction of its external borrowing capacity. The
investments needed over the next six years, for the
development of the National and State Highways in India, are
estimated to totalUS$ 33.7 billion. Governments at central and
state level in India have adopted the idea of private
participation in the form of Build-Operate-Transfer (BOT)
concession financing as a partial solution for resource
constraints in road infrastructure procurement. The concept of
road infrastructure development using BOT approach is
relatively new in India. In the recent past, many highway
projects under BOT procurement scheme have been taken up
by National Highway Authority of India (NHAI) and various
state governments. Few ofthem are under operational phase
and the remaining are either in construction phase or
developmental phase. (Banarjee, 2000)

T'hough the Government has taken many initiatives to improve

the project environment for implementation of BOT road
projects in India, the expected enthusiasm is not reflected from
the private promoters and institutional lenders (Hindu Business
Line, 2000). The main reason for the lukewarm response is the
high degree of risks and obstacles in Indian BOT road projects
especially during the developmental and operational phase.
Many projects planned under BOT mechanism in India have
been non-starters due to many factors including inadequate
project information, difficulties in obtaining long term finance,
absence of adequate government guarantees, inadequate legal
and regulatory framework and lack of widely accepted ris!<
management tools. Effective application of risk management
principles to Indian road projects is crucial and risk strategies
are to be incorporated at an earlier phase ofthe project.

Research objectives and methodology

This paper presents some of the findings of a study undertaken
on the risk issues related to BOT road projects in India. The
341 ctB-2002

specific research objectives addressed in this paper are:

To evaluate the relative importance of risk issues associated
with development of BOT road projects in India
To identiff the most critical risks associated with Indian
BOT road projects

The methodology adopted for this research study are (i) a

comprehensive literature review along with few case studies to
identiff initial risks and risk issues associated with BOT road
projects in India; (ii) unstructured interviews and discussions
with BOT road project participants to consolidate the risks
identified through the first step (iii) An all India survey among
four major stake holders/participants of Indian BOT road
projects such as government representatives,
promoters/developers, lenders and consultants. The consultants
were included in the respondent category because of the fact
that they play avital role in both pre-bidding stage as well as
implementation stage of a BOT road project.

Table 1 Details of the

No of respondents
Category
Experience Total
Number
Very High High 5-8 Medium Low <2
(o/o\
>8 nroiects Proiects 2-4 Proiects Proiects
Government 4 3 2 6 t5 Q4%)
Promoters 6 6 4 2 t8 (29%\
Lenders 4 5 4 3 13 0lo/o\
Consultants 4 4 -t 2 t6 Q6\%\
Total t8 Q9%\ t8Q9%\ t3 Qt%) t3 Qt%) 62 il00%\

The survey questionnaire was mailedto 124 very senior level

officials who have experience in BOT road projects in India
and 62 responses were received. Though the total number of
respondents in each category is limited, the reliability of
survey results is expected to be high because all the
respondents are top-level experienced management officials in
their organisations. The details ofthe survey respondents are
given in Table l.
 342 Identijìcation of Critical Risks * Satyanarayana & Thomas

About sixty percent of the respondents have high to very high

experience in the area of Indian BOT road projects. The
sample size is well distributed in terms of category as well as
experience with in the totalnumber of responses.

Important risk issues in Indian BOT road

projects
Risk is often used in several distinct senses such as
opportunity, hazardlLhreat or uncertainty (Koorp, 1999). Risks
in BOT road projects could be viewed as opportunity in
bidding phase for promoters in obtaining a better deal from the
government and as ahazañlthreat in the implementation
phase, since they affect the goals and the economic
performance of the promoters of the project.Improper
identification and allocation/sharing of risks among stake
holders (if not based on their capability of management) may
lead to sub-optimality, and result in higher than necessary
prices for risk transfer (Asian Development Bank, 2000).

There are various risk issues associated with the successful

bidding and development of BOT road projects. These issues
are likely to be the source of major risk events and are to be
analysed and addressed during bidding and contract
negotiation phase. A comprehensive list of possible risk issues
was prepared based on literature review and further

Table 2 Rati for risk issues and risk

Rating score Importance of risk issues Criticality of risks
0 Not Aoolicable Not Applicable
I Not Important Not Critical
2 Somewhat Important Somewhat Critical
3 Important Critical
4 Very Important Very Critical
5 Most Important Most Critical

consolidated through discussions with experienced BOT road

project participants. The shortlisted issues were evaluated
 343 ctB-2002

through all India survey to decide on the relative importance in

Indian BOT road project environment' The rating scales used
for evaluating importance of risk issues and criticality of risks
are given in Table 2.

The survey responses were statistically analysed using SPSS

9.05 package and the issues are ranked based on the perception
ofeach category ofrespondents and are given in Table 3'

Table 3 Im e of risk issues in Indian BOT road ects

GO\¡llRNì\f E¡vT PRO\,lOTER LENDER CONSULTANT COMBINED

RISK ISSUES
l\lcan Ì\1câr Mean Mean
i\fean Râ¡k Rank Rank Rank
Rank score score
score SCOre

.1.00* 7 4.28+ 3 4.0(r* 6 3.69 tì 4.03 t 5

Equity requirement

Amount of inl'ornìÂtion
4.00* 5 3.83 9 194 t0 3.85 l0 3.90 l0
available in
Project preparation &
3ó0 t2 394 '7
3.50 l4 3.08 t7 356 l5
b¡dd¡Ds cosl
Probity
J.00t 6 3.7 8 t2 4.00, 9 4.1 5* 6 3.97 6

Chances ofsuccess in
2.60 t9 2.50 l9 3. 19 l8 285 l9 2.77 l9
bid
3.69 t2 3.97 'l
4.07+ ,t 4.00* 6 '1.0ó* 7
of
Cenainty ofthe lender
-3.07 l'1 3.17 l8 3.3 8 l6 3.3 8 l6 3.24 l'l
oroce6s
Resettlement and
.1.JJ t4 3.78 t3 3.88 t2 4 00* 8 3.7 4 l2
Rehabililation issues
State road project or 20 2.t7 20 2.94 l9 2.23 20 2.2'r 20
I .73
Central road
Availability ofland ,1.5ót 2 4.544 2 4.3'7* 3
4.20* 3 4
lfree lrom
Commercial
4.33* 2 4.14* I 4.38* 4 4.62* 4.44r I
iustifìcation (return

Risk allocation 3.87 9 4.ll* 5 4 44* 3 4.23* 5 4.23t 4

Bankability ofthe I 4.39* 2 4.564 I 4.31* 3 4.42r 2

proiect
4.40*
State in which project
2.80 l8 3.22 1'7 2.88 20 2.85 l8 2.95 l8
located
The overrun ln
3.73 l0 3.50 l6 3.50 l5 3.62 t3 3.58 l3

Type oftolling
3.?_0 l5 3.83 l0 4.06* 5 4.00* 7 3.7'7 It
ldirect/shadow/annuitv)

Env¡ronmental issues 3.0? lö 3.72 l4 3.88 l3 3.62 t4 3.58 I4

Regulatory framework
3.61 ll 3.89 8 3.94 ll 4.23* 4 3.92 9
/âuthoritv
rssues
3.53 l3 3.50 l5 3.31 t7 3.46 t5 3.45 ló
Regulatory restrict¡ons
3.87 8 3.83 ll 4.06* 8 3.92 l9 3.92 8
(on user chôrge & rate

* Very Important issues (mean score > 4.00)

 344 Identification of Critical Risl<s - Satyanarayana & Thomas

The issues rated with a mean score higher than 4.00 are treated
as very important. The five most important risk issues (in the
order of importance) to be considered during the bidding and
development phase of a BOT road project based on the
combined rating by participants are; i) commercial
justification/return from project, ii) bankability ofthe project,
iii) availability of land free from encumbrances, iv) risk
allocation and v) equity requirement.

Though there are some variations in the relative importance of

some of the above issues, the ranking conelation among the all
the category of respondents are significant. The Spearman's
rank correlations among different category ofrespondents are
given in Table 4. This is an indication of the degree of
understanding the survey respondents have on issues related to
BOT road project development in India.

Table 4 Correlation among participants on importance of risk

issues
Promote Consultan
Government Lender
r t
Government I 0.84r* 0.81** 0.76**
Promoter I 0.88r* 0.76**
Lender I 0.87**
Consultant I
**Spearman's correlation is signifrcant at the 0.05 level (2-tailed)

Both government representatives and lenders attach maximum

importance to the bankability of the project, whereas the
promoters and consultants attach maximum priority to likely
commercial return from the project. Many projects in India
have failed to take off due to delay in financial closure. For
example, A BOT road bypass project for which concession
agreement was signed 3 years back is yet to have financial
closure. Lenders attach importance to bankability because of
the non-recourse type ofproject finance. Invariably all the
345 crB-2002

respondents have rated availability of land free from

encumbrance is a serious issue to be considered and addressed.
Most of the BoT road projects in India are faced with the risk
of delay in project implementation mainly due to problems in
the process of land acquisition.

Thoughpromoters,lendersandconsultantsidentifiedrisk
allocalion in BOT road projects as an important issue,
government representatives attach little irnportance to that
issue. Equity requirement is a major colìcerll for promoters'
Majority of the prornoters in India BOT road projects are
."äiu* sized contractors/joint ventures, who find difficulty in
managing sufficient equity in time. The equity part of the total
projeãt cãst is to be put upfront for getting the debt released
f.onl finun.ial institutions. Though government representatives
and consultants did not consider type of tolling as an important
issue, promoters and lenders do consider them as crucial'
Type
of tolling decides with whom the tolli'g a'd traffic revenue
risks are allocated.

Identification and classification of critical risks

Ramakrislinan (Ramakrishnan, 1995) has presented important
risk factors affecting the privatisation ofroads in India'
Charoenpornpattana and Minato (Charoenpornpattana &
Minato, (lggi) have ide'tified privatisation-induced risks in
transportation projects in Thailand with an objective of pin
poiniing which risk could be shared between public and private
sectors. They also iclentified privatisation-induced risks for
various countries. Salzmann and Mohammed (Salzmann &
Molrammed ,1ggg) have presented risk identification
framework for international BOOT projects based on four
super factor grouping, i.e' host country, investors, projects and
prãject organisation/management. They also gave an overview
of published/identified risk factors.

Raphel and Maguire (Raphel & Maguire, 1999) have carried

346 IdentiJìcation of Critical Risks - Satyanarayana &. Thomas

out research in risk identification and allocation of Australian

BOOT projects. Wang et al (Wang, et a1,2000), have studied
in detailthe criticality of politicalrisks and effectiveness of the
various management strategies in China's BOT project. The
critical risks identified are credit worthiness and reliability of
Chinese parties, change in law, force majeure, delay in
approval, expropriation and corruption. However, allthe
above studies are country specific and have not covered risks
in BOT road projects under Indian environment. Asian
Development Bank (ADB) has published a list of risks in
expressways under private sector investment in Asian
countries (ADB, 2000). It covers mainly design, construction,
traffic revenue, finance, operation and maintenance and there
is no mention about developmental risk issues prior to the
construction phase such as project identifìcation, bidding cost,
land acquisition, arrangement of finance in time etc.

Tiong (Tiong, 1990) classified BOT risks based on

construction and operation phase where as Beidleman's
(Beidleman, 1990) classification has an additionalphase i.e.
developmental phase. In this research, the authors have
considered another phase i.e. project life cycle phase, in
which risks occurring in more than one of the phase are
included. Since the total duration of BOT road projects is very
long, the project life cycle risks need special long term
planning and are to be continuously monitored for a possible
change in their criticality over a period of time. For project risk
identification, preparation of a checklist (PMBOK, 1996)(Perry
& Hayes, 1985) or Delphi process (Dey, 1999) have been
suggested. The detailed checklist ofrisk events prepared under
each risk is not included in this paper due to limitation of
space. The important risk categories identified through
literature review and unstructured interview are classified and
listed in Table 5.

As per the classification developed, there are twenty-two major

risk categories, which are likely to occur in a BOT road
347 crB-2002

project. The survey respondents were asked to rate the

criúcality of these identified risks based on their perception
and experience with Indian BoT road projects. The scale used
for meäsuring risk criticality is shown in Table 2, criticality is
assumed to be the combined effect of probability of occurrence
and the impact of occurrence of the risk'

Table 5 Classification of risks in BOT road ects

Risk
Project phase Risk Category
Code
Pre-investment risk. Resettlement and
Developmental Rehabilitation risk. Delay in land acquisition,
DRC
Phase Permit/Approval risk. Delay in fìnancial
closure.
Construction Technology risk, Design and latent defect risk,
CRC
Phase lon ns Cost overrun risk.
Operation Traflic revenue risk, OPeration and
ORC Demand risk.
Phase maintenance
Legal risk, Political ri sk (direct & inclirect),
Partnering risk. Regul atory risk, Debt servicing
Project life risk, Financial risk, Environmental risk,
PRC
cycle Physical risk, and Non political force majeure
risk

CriticalitY of risks
The criticality index was calculated for each risk using the
formula:
5n, + 4n, +3n, +2no + n,
Criticality Index:
5(nr+n2+n1+n4+ns )

Where:
n /= number of respondents who answered "Most Critical";
nz: number of respondents who answered " Very Critical";
nj: number of respondents who answered "Critical";
,?r= number of respondents who answered "Some What
Critical"; and
r¿J= number of respondents who answered "Not Critical";
 348 ldenlification ol'('ritic'al llisks -. Satt,anarovana & Thontas

ldentification and classifìcation of critical risks were done on

the basis of combined mean score of risk criticality. The
summery of classified risks are given in Table 6.

Table 6 Risk criti rati dents

Co\ernrcnr Lcndcr Con$ll¡nr Cotr¡bincd
Risk tusk
Clâs
Cril Cril. Cr( C¡il Crit
Mca Mca Mca Mca F Mea
lndc ¡ndc lnde lndc sig lndc
n n
\

2.21 0.t5 2n o.¿2 2.88 061 2.5t 0.5 ¡ t15 o29 2.{¡ NC

Dclât in
f¡nanciâl clos
{.u) 0.80 3.78 0.7(' 3 8l 0.76 3.11 0.1s 016 0.91 l8J 0.11 VC

Rcsilc¡rcnt
& 1.27 h.67 l¡{ o 6t) 388 0.18 l.:)fr o68 o.12 0.51 150 blt c
rchabilìråtion
Dcla) jn land
acquisitjon
1.21 085 !.06 0 8l { ¡9 08t Lt5 0.83 0 t0 0.95 t.l6 0.83 VC

2.81 0.51 1.50 o.70 3.ll n.6, l.l t () 66 L25 029 119 066 c
approval r¡sk
Tæhnology
2.2r 0.¡l 272 05J 2.63 () 53 2.18 0.{8 1.05 036 ).50 0.50 NC
risk
Dcsrgn &
larcnt dcfæt 2.A1 o51 2.91 o.5.) 3.tß 0.6t 3.(X) 0.60 0. t1 0.9:r 2.91 059 c
dsk
Cost ovcrrun
3.6) 012 :t.t I o72 I8l o16 177 o15 0.23 0.87 l.ó9 0 7.t VC

Conìplction .t.00 0.80 L8:r t17 3.lJ8 o.18 3.69 o.1! b.22 0.86 1.85 o.17 VC
risk
DcDrard
1.01 0 8t L06 0 8t I ll 0 8r) 3.11 o.15 0.71 0.5t {.06 08t VC
/markct risk
Tramc
t.t0 0.88 J,J¡ 0.89 1.56 0.91 .1.r5 0.E3 0.50 0.() t.¡0 0.88 VC

O&M risk 1.2{) 0.ó{ 2.72 0.51 2.88 0.58 211 055 019 0.50 2.89 0.58 c
Dirær 'l.18
polilic¡i
3..t0 o.68 0.1(t 3.25 0.65 3.ó9 0.?l 0.78 0.51 3.51 0.?l VC
r¡si^

lndi.æl
pl¡tic¡lrisk 140 o6R 3.61 012 3.63 o.1f 3.23 0.ó5 0.16 0.10 l.{8 o.1o c
Rcgulätory
rsk
3.20 0.6t :]. t3 0.67 1.9¡ 0.19 3.t8 0.68 2tf 0lt 3.12 0.68 c

lxgal risk 3. l3 0.6¡ 3.1,t o.69 3.8 t (t.16 l.2l 0.65 t.52 0.21 ,.ro I o.ot c
Dcbl
sN¡cing risk
160 0.12 3.50 0.70 1.1 I 08ó 3.18 0.ó8 2.69 0.05 3.7 I 0.?J vc
Fi¡Hncial
1.60 0.12 3.28 0.ó6 1.56 0 7l 321 065 oJ8 o.69 0.68 c
risk

Non pol¡ticâl
forcc mâictrrc
2.40 0.48 3.06 0.61 LII 0.63 2.46 0.,19 2.12 0. t0 2.19 0.5ó c
PålncrinS
Risk
280 056 250 050 100 0.60 2.5t 0.51 0.98 0.10 2.1t 0.51 c
Environmcnlå .0t *
I risk
2.41 0.49 1.06 0.61 3.50 0.70 2.38 0.52 1.66 2.89 0.59 c

Phvsi€al dsk 2.21 0..t5 2.t I o42 269 o5J 2.23 0.t5 2.lo 0.t I 2.32, o.16 NC

H": Thcrc is tro sign¡ficanl difTcrcnce ¡n

Hr: Sign¡fiønt dif[crencc in criticålity raling among
# VC: Vcry Crilicâl C. Crilicål NC: Nol Critical
349 crB-2002

The risk criticality rating by government officials, promoters,

lenders and consultants are given in Table 6' One way
ANOVA test (2- tailed) carried out for each risk shows that the
there is high degree of agreement at 0.05 significance level, in
risk criticality rating except environmental risk. There is also a
high correlation among different participants in overall ranking
oftifferent risks. The Spearman's rank correlation for risk
criticality is given in Table 7. This high degree of agreement
on risk criticality shows that the respondents have understood
the risks in Indian BOT roads and the reliability of their
answers to various other risks related issues are likely to be
high,

Table 7 Correlation among participants on risk criticality

Promote Consultan
Government Lender
r t

Government I 0.91** 0.81*+ 0.95**

Promoter 0.83 * * 0.95 * t

Lender I 0.85**

Consultant l
**Spearman's correlation is significant at the 0.05 level (2{ailed)

The criteria on which risk criticality classification done is

shown in Table 8.

Table 8 Risk critical classification

Risk based Critical Criteria
Not Critical Mean score < 2.50
Critical Mean >2,5 to ( 3.5
Critical Mean >3.50 to (4.50
Most Critical Mean )4.50

All the categories of respondents rated traffic revenue risk as

the most critical risk in Indian BOT road project. The

 350 Identification of Critical Risks - Satyanarayana & Thomas

classification shows that it is "Very Critical with highest mean

score of 4.40 and a criticality index of 0.88. The risk of
producing good traffic forecast is high in India due to lack of
reliable traffic data. The model concession agreement (Model
Concession Agreement, 2000) published by Ministry of
Surface Transport (MOST) does not have any provision for
traffic guarantee from the government. Though paralleltoll
free road in not mandatory for any BOT road, traffîc diversion
through alternate route is quite common in India. Moreover
government does not give any guarantee against
creation/improvement of any new/existing parallel toll free
roads during the concession period.

The second most critical risk in Indian BOT road projects is

delay in land acquisition. It is classified also "Very Critical"
with a mean score rating of 4.16 and criticality index of 0.83.
Road pro.jects under BOT set up require large stretches of land
free from all encumbrances. Delay in survey, notification and
acquisition process, politically motivated resistance, non-
availability of alternate land at reasonable cost, political
patronage for encroaches, public litigation, delay due to court
orders, resettlement and rehabilitation problems etc. arc quitc
common in India. There are many road projects in India, where
such issues became major reasons for inordinate delay in
project implementation.

The other risks in Indian BOT road projects rated as "Very

Critical" are demand risk, delay in financial closure,
completion risks, cost ovenun risk, debt servicing risk and
direct political risks. The traffic revenue risks and demand
risks are closely associated. Any change in road demand will
affect the traffic revenue where as the increase in toll tariff can
reduce the demand due to toll elasticity. Non-agreement
between the contracting parties on the conditions in concession
agreement, inadequate guarantees from government, delay in
debt syndication, failure of promoter to rise necessary equity in
time etc. often delay the financial closure of the project.
 3sl ctB-2002

Majority of the BOT road projects in India are not able to

achieve fìnancial closure within the prescribed time limit
because many of the conditions in the concession agreement
between promoter(s) and Government are not acceptable to the
lender(s). In some cases, the financial closure was achieved but
the financial institutions delayed the disbursement of funds
affecting the project promoters. The lenders of Indian BOT
projects are often not involved in the negotiation prior to
iigning of concession agreement between promoter and
government resulting a delay in debt syndication for the
project.

45

35
+olREECl POllllcaL Rlsx

I
o 25 FTXANCIÀL RISK
Ij

a RISX

-REOULAfORY
rxorREcl PoLtf tcÀL Rlsx

0.5

Development Construction Operation

Figure 1. Project life cYcle risks

As per the Ministry of Statistics and Program Implementation

datå (Annual report, 1999), during 8'r'plan (1992-97) out of the
421 infrastructure projects, 169 projects had reported cost
overruns and 202 projects reported time overrun. The total cost
oveffun was of the order of US$ 6 billion' The Completion risk
and cost overrun risk is rated as "Very Critical" with mean
scores of 3.85 and 3.69 respectively. Some of the important
352 Identification of Critical Risks - Satyanarayana & Thomas

project procurement and execution problems in India are

inadequate/incomplete site investigation, non-receipt of
drawings and instructions at site, non-availability of material
and equipment as per schedule, delay in payments of the
completed work due to paucity of funds, inadequate escalation
clauses leading to disputes, lack ofadequate dispute redress
mechanisms etc. Debt servicing risk is rated as "very critical"
with mean score of 3.71 and criticality Index 0.74. This risk is
closely associated with traffic revenue and demand risks.

Project life cycle risks

There are many project life cycle risks such as direct political
risks, legal risk, regulatory risk, and financial risks that have
been rated from "Critical" to "Very Critical range". Though
the government has taken many steps to improvq the legal and
regulatory environment in road sector, much improvement is
still expected in the area of contract implementation,
establishment of independent regulatory authority etc. The
criticality of these risks changes with time during the project
life cycle. The change in risk criticality of these risks in three
different phases of the project life cycle (development phase,
construction phase and operation phase) is evaluated from the
phase wise risk rating given by survey respondents and is
shown in Fig-1.

Conclusion
With limited availability of funding for development of road
infrastructure, the Indian Government has adopted the BOT
approach for some of the road projects being implemented.
Though the Government has taken many initiatives to improve
the project environment for implementation of BOT road
projects in India, the expected enthusiasm is not reflected from
the private promoters and institutional lenders The main
reason for the lukewarm response from promoters and lenders
353 ctB-2002

is due to the high degree of risks and obstacles in Indian BoT

road projects especially during the developmental and
op.ruìionul phaie. The most important issues to be considered
piior to BOÍ road project developments are commercial
j ustifi cation/return from proj ect, bankability of the proj ect,
ävailability of land free from encumbrances, risk allocation,
equity requirement, type of tolling, regulatory restrictions,
probity and integrity/transparency of the bidding' The most
criticai risks in Indian BOT road projects identified in this
study are traffic revenue risk' delay in land acquisition'
demand risk, delay in financial close, cost and time overrun
risks, debt servicing risk and direct political risk' The
perception analysis between various categories of participants
ìn gof road projects shows a high degree of agreement in risk
related issues. Unlike BOT projects in country like China,
political force majeure and delay in approval risks are not
"very critical" in India.

References
Banarjee, A. K. (2000). "lnfrastructure Development in
Highway Sector-An Overview." Proceedings of lítorlcshop
on Developments in Civil Engineering Inftastructure,
Madras.
Poor FDI on Indian Roads' The Hindu Business Line,2000,
7(274).
Koorp, J. (1999). "At What Risk.. .?." The Management
Acc ountant, 1 0,7 3 5 -7 3 6.
Asian Development Bank (ADB) Report' (2000)'
"Development of Best Practices for Promoting Private
Investment in Infrastructure: Roads.", l0l-106'
Ramakrishnan, R. (1995)' "Entrepreneur's Risks on
Privatisation of Road Projects." Journal of Indian
Constructior¿, Builders Association of India, 9,7-14'
Charoenpornpallana, S', and Minato, T' (1999)' "Privatization-
Induted itirk* State-Owned Transportation Enterprises in
Thailand." Profi table P artner ing in C onstruction
354 Identification of Critical Risks - Satyanarayana & Thomas

Procuremenf, Edited by Ogunlana, SO, E&F.N Spon Ltd.,

London, 429-440.
Salzmann 4., and Mohammed, S. (1999). "Risk Identification
Frameworks for International BOOT Projects." Profitable
Partnering in Construction Procuremenl, Edited by
Ogunlana SO, E&F.N Spon Ltd., London, 475-486.
Raphel, R., and Maguire, G. (1999). "RiskAllocation ond
Identificøtion Project-Survey Report " The University of
Melbourne, The Department of Treasury and Finance,
Melbourne.
Wang, S. Q., Tiong, R.L.K., Ting, S. K., and Ashley, D.
(2000). "Evaluation and Management of Political Risks in
China's BOT Projects." ASCE Journal of Construction
Engine ering and Management, 126(3), 242-250.
Tiong, R. L. K. (1990). "BOT Projects: Risk and Securities."
Construction Management & Economics,E & FN Spon, 8,
315-328.
Beidleman, C. R. (1990). "On Allocating Risk: The Essence of
Project Finance." Sloan Management Review, Spring, 47-
55.
A Guide to the Project Management Body of Knowledge
(PMBOK) (1996). Project Management Instittrte, Eclited
by William R. Duncan USA, I ll-122.
Perry, J. G., and Hayes, R. W. (1985). "Risk and its
Management in Construction Projects." Proceedings of the
Institute of Civil Engineering, 7 8/l , 499-521 .
Dey, P. K. (1999). "Process Re-engineering for Effective
Implementation of Projects." International Journal of
Proj ect Management, 17 (3), | 47 -l 59.
Model Concession Agreementfor BOT roads. (2000). Ministry
of Surface Transport, Government of India.
Annual report. (1999). Ministry of Statistics and Program
Implementation, Government of India.
355 crB-2002

Stadium Australia
Reflecting on the Risk Factors of Boot Procurement
Marcus C. Jefferiesr & R. Gamesonr

Abstract
The private sector is playing an increasingly important role in the
procurement process of public works and services' This has
partly
àrisen out of à requirement for infrastructure development to be
undertaken at a rate that maintains and allows growth' In turn this has
become a major challenge that cannot be met by government alone'
The emergenie of Build-Own-Operate-Transfer (BOOT) schemes as
u ,.rponrð to this challenge provides a means for developing
the
infrastructure of a country without directly impacting upon the
government's budgetary constraints' The concepts of BOOT are
iittlou, doubt extremeþ complex arangements, which bring to the
construction sector risks not experienced previously' This paper
examines perceptions of BOOT schemes in order to develop a
framework of risk factors established from a case study of Stadium
Australia.

Keywords: BOOT procurement, case study, infiastructure challenge'

risk factors, Stadium Australia

Introduction
According to McDermott (1999), a significant development in
construction procurement has been the rapid increase in the use
of Build-Own-Operate-Transfer (BOOT) arrangements' The
private sector is playing an increasingly important role in the
àevelopment of infrastructure growth. This in turn has become
a majoi challenge for many countries, and particularly so
wheie it is evident that these provisions cannot be met by
government alone. The emergence of BOOT schemes as a
i"rponr. to this challenge provides a means for developing the
I Department of Building, University of Newcastle, Australia
3s6 Stadium Australia - Jefferies & Gameson

infrastructure of a country without directly impacting on the

government's budgetary constraints (Walker et al, 2000).
The latest New South Wales (NSW) Government Green Paper
attempts to capture this public-private sector joint venture
opportunity in order to increase the benefits and comment on
the issues and concerns (NSW Government, 2000).

This is a welcome opportunity to broaden relationships

between the public and private sectors that may involve
innovative recommendations and the formulation of new
policies. Therefore, the aim of this paper is to examine
perceptions of BOOT schemes to establish a framework of risk
factors developed from a case study undertaken on a current
project.

The BOT/BOOT Concept

The concept of private sector participation in infrastructure
provision is not a new idea. It is however, only in the last two
decades that Build-Operate-Transfer (BOT) concepts have
become high on many government agendas. Australian
examples of the BOT approach include the Sydney Harbour
Tunnel, M4 and M5 tollways in NSW and the Ord River
Hydro-Electric Scheme in Western Australia (Angeles &
Walker,2000).

When a private sector group has a concession to build and toll

a motorway project for say 20 years, this is a BOT. If,
however, their concession also allowed them to own, build and
rent warehouse space (for the concession period of20 years) at
certain locations along the motorway then the contractual
arrangement in place is described as a BOOT agreement
(Walker & Smith 1995). Most BOT projects are first identifred
by the host government. In advertising or requesting for
proposals, the host government asks for bids to have a
particular project delivered on a BOT basis (UNIDO 1996).
357 crB-2002

Risk
Risk identification is an important step prior to risk analysis' In
order to correctly manage risks through analysis,
comprehensive identification at the preliminary stage is
required (Salzman & Mohamed,1999). Managing risk in an
integral part of the procurement process (Akintoye & Taylor,
te97).

The NSW Government Department of State and Regional

Development published its 'Guidelines for Private Sector
Participation in the Provision of Public Infrastructure' in
October 1997. These guidelines confirm the shift in attitudes
toward asset planning and procurement by stating,
"The government aims to maximise private investment in
infrastructure to the extent that this results in net benefits
to the community beyond those from public provision' It
also strives to promote an fficient allocalion of risk
between the public and private sectors to parties best
able to manage them." (NSW Government,l99T)

These changes have indeed opened new avenues to the

government for the procurement of buildings. The utilisation
of the BOT concept or its variations, is an example of the
increased acceptance of these forms of procurement.

Identification of Risk
It is difficult to generalise about the risk characteristics of BOT
infrastructure projects, given that each host country, each
infrastructure sector, and indeed each specific project has it's
own risk profile. Notwithstanding this, the development of a
broad based framework listing all relevant general issues, is
seen to have good application at the planning and conceptual
stages of such projects.

Ma et al (199S) identified ftve main risk categories under the

headings of political, construction and completion, market and
3s8 Stadium Australia * Jffiries & Ganteson

revenue, operating and financial risks. They suggest that the

identification, management and allocation of these risks is best
served by the undertaking of comprehensive feasibility studies,

UNIDO (1996) attempted the development of a'risk check-

list', after dividing risks generally into two broad categories
for the purposes of identification, namely general (or country)
risks and specific project risks. The following table
summarises the outcome.

General lOr Country) Risks

Political risks Country commercial risks Country lesal risks
Political support Currency inconvertibility Changes in laws and
risks risks regulations
Taxation risks Foreign exchange risks Law enforcement risk
Nationalisation risks Devaluation risks Calculating
compensation delay
Forced buy-out risks Inflation risks
Cancellation of Interest rate risks
concesslon
Import/export
restflctlons
Failure to obtain
aoorovals
Specifrc Proiect Risks
Development risks Construction/completion Operafing risks
risks
Bidding risks Delay risk Associated
infrastructure risks
Plannins delay risks Cost overrun risks Technical risks
Approval risks Re-performance risk Demand risk (volume
and price)
Transnational risks Completion risk Supply risk (volume
and price)
Force Maieure risk Cost escalation risks
Loss or damage to work Management risks
Liability risk Force Maieure risk
Loss/damage to
proiect facilities
Liability risk
Table 1: Risk checklist for BOT projects (LINIDO, 1996)
359 ctB-2002

In noting the absence of a definitive list of risk factors

applicable across BOT projects generally, Salzmann and
Mohamed (1999) identified the need for development of a
comprehensive risk framework. As previotts lists of risk factor
ideniification were based on different definitions, categories
and studies, then these lists were not totally comprehensive
across the broad spectrum' Subsequently, the development of
their framework was done in such a manner as to include every
possible aspect where risk may elnanate from a BOT scheme'
They saw it appropriate for the developrnent of two risk
frameworks, where categories are fonned according to where
the factors, influence is first encountered. The first framework
lists those factors present throughout the feasibility to building
stage, and is referred to by the authors as the development or
'build' phase. The second framework presents factors
encountered throughout tlte 'owtt, operate and transfer' stages,
and is referred to by the authors as the operations phase'

Their models are an attempt to encompass available published

material but the frameworks have not been tested on a current
BOOT project.

Research MethodologY
Fellows and Liu (1997) comment that a case study yields deep
but narrow results. The possibility of the case study results
being 'narrow' is accepted in that they are restricted to the case
study project in question. However, the case study will serve to
test the validity of the risk factor issues identified from the
related literature and subsequently develop a risk factor
framework applicable to BOOT projects in general' A single
case study has been selected as the most appropriate means for
the research reported in this paper. collection of evidence for
the case study was achieved by reviewing the documentation
and reports provided by the consortium stakeholders,
government office and general project literature and an
 360 Sladium Australia - Jefferies & Gameson

informal interview process with key senior project participants.

The research has identified risk factor issues from the literature
and they have been tested and developed through the interview
process. The case study further validates these risk factors in a
generic 'real world' context.

Project Background: Stadium Australia

The Olympic Co-ordination Authority (OCA) was established
on 30 June 1995 by the NSW State Government to oversee the
planning and development of facilities for the XXVII
Olympiad. The NSW Government issued a call for proposals
in August 1994 for private sector investment in the new
Olympic stadium facility. This call was framed around a
BOOT delivery scheme with an intention for the Government
to shortlist successful tenderers (Magub and Hampso n, 1999)

It was not until August 1996 that the OCA awarded the
proposal to design, construct and operate the facility to the
'Australia Stadium 2000' consortium. The Stadium Australia
Trust and OCA signed the project agreement in September
1996 (Stadiurn Australia Group 1996a). The A$615 project is
now being run by Stadium Australia Management as a classic
BOOT scheme.

The OCA granted the Stadium Australia Trust the Trust Lease
on the completion date of the stadium, being March 1999. The
term of the Trust Lease expires on 31 January 2031. On the
lease expiry date, the ownership and operational rights of the
project transfers to the government (OCA) for nominal
consideration (Stadium Australia Group 1996a).

The financing of Stadium Australia has broken a number of

barriers because ofa unique set ofstructures and an innovative
approach. Of the initial A$550 million investment, the public
float raised A$350 million. The float \ryas unsuccessful in that
it finished short, but from a stadium viewpoint, it didn't make
361 crB-2002

an enormous difference because the underwriters paid the

shortfall (Jefferies et al., 2001). Equity funding for the project
was raised via gold and platinum investors, founders and
commercial investors, The capital structure of the Trust and
Stadium Australia Management was such that at financial
close, investors would hold or be obliged or entitled to
subscribe for approxim alely 97 ,3 million units in the Trust, and
an identical number of shares in Stadiurn Australia
Management (Stadium Australia Group 1996b).

Stadium Australia was the first Australian Stock Exchange

(ASX)- listed lifestyle product and also the first triple-stapled
listed product. Stapled products involve add-ons which are
designed to

Partv Bcarins The Risk Factor

Risk Factor Project Insurance Contractor Other Project Host
Company Company/ - Obayashi, pârticipants - Gov't
Stadium lJnder- then Ogden IFC,
Australia writers Multiplex Gardner OCA
Trust Merchant etc.
Construction
time overrun
Construction
cost overrun
Design Risk
Operational
cost overrun
Latent
conditions
Changes in
taxes/laws
Market Risk
Industrial
relations
Biddine risk
Corruotion
Political
backdown
Existing
infrâstructure
Raw material
suoplv
Inflation/
 362 Stadium Australia - Jefferies & Gameson

Party Bearing The Risk Factor

Risk Factor Project Insurance Contractor Other Project Host
Company - Company/ - Obayashi, participants - Gov't
Stadium Under- then Ogden IFC,
Australia writers Multiplex Gardner OCA
Trust Merchant etc.
Interest rate
Financins
Countrv risk
Force Maieure
Operation
failure
Market
comoetition
Project
performance
Operational
safety regs
Wa¡ranties and
guarantees
Project
lifespan/
Life cvcle
Native Title/
Land Claim
Operating
exDenses
Discretionary
termination
Documentation
Risk
Ticket/
Membership
riehts
Environmental
impact
Approval
processes
Project
comolexitv
Legal
framework
Political
(in)stability
Table 2: Risk Factor Framework - Established during interviews via
the Case Study Project
363 ctB-2002

make the overall product more attractive or to suit the

particular needs of the project. In the original float offerings,
gold and platinum packages involved three things - Olympic
tickets, membership entitlements and equity investment; thus
the recognition of a triple-stapled product (Jefferies et al.,
200 l ).

The future financial success of the Trust and Stadium Australia

Management depends substantially on their ability to generate
corporate hospitality revenues and membership subscriptions.
Revenue generated from corporate hospitality and membership
subscriptions over the 32 year concession period, need to be
adequate to cover interest payment, debt repayment, dividends
on equity investment, operational costs and ideally a sufficient
profit margin (Stadium Australia Group 1996b).

Results And Discussion

The 'ticks' in the following table indicate which particular risk
factor is applicable to the relevant parly managing or bearing
the risk factor(s) in question: IJltimate responsibility for
managing construction, and subsequently any construction
related overruns, are borne by the contractor, Multiplex. The
contractor was ultimately responsible for cost overrun by way
of fìxed price,lump sum Design and Construct (D & C)
contract. The project company was responsible for the cost
overrun associated with their initiated changes and variations
or for items outside the D &, C scope. Multiplex bore the
substantial portion ofdesign risk under the D & C contract.
Project performance can have a significant effect on the
efficiency during the operation of the project and the ultimate
effect of an inefficient operation may result in lower revenue
collection.

Operational risk is typically borne by the private sector

operator under the terms and conditions of the operational and
maintenance agreement. In this instance Ogden IFC. Gardner
364 Stadium Australia - Jffiries & Gameson

Merchant also bears similar risk in the operation and provision

of catering services. Risk identified with operational safety is
significantly the responsibility of the Operations and
Maintenance (O & M) contractor, Ogden IFC, but Multiplex
bears some risk in undertaking the D & C contract to provide a
facility that is 'fit for purpose'. Any risk associated with
industrial relations are borne by Multiplex throughout the
construction/development phase of the project and the O & M
contractor throughout operational phase.

The Trustee is responsible for expenses and damages

associated with site conditions, latent conditions,
contamination, heritage and archaeological items, endangered
flora and fauna. The Government indemnifies the Trust against
any native land claim. If however a claim is based on artifabts
or archaeological items found, then the Trust be.ars this risk'
The risk of poor environmental management may be a private
or public sector risk depending on arrangements and is
particularly important given Sydney's bid for the Olyrnpics as
the 'Green Games'.

Financial risk is managed by the equity investment untlertaken

by the founders, commercial investors and public investors.
Underwriters were forced to take up the balance of the under-
subscribed public offering of gold packages. The works
adjustment deed makes provision for any contract sum
adjustment due to interest rate fluctuations up until financial
close of the project. Any taxation risk is covered in that the
Project Agreement states that the project company bears tiris
risk except where alawltaxchange is shown to be
'discriminatory', i.e. specifically affecting the project, the
project and other privately owned venues within Homebush
Bay area, or the project and other competitive stadiums.

Country risk was not seen as a key issue as Australia is viewed

as a very stable and secure country in which to invest. The risk
associated with changes in government or policy are largely
365 crB-2002

with the project company. Corruption risk was assessed as

being unlikely as the allocation of responsibility is dealt with
by the underlying laws of Australia. Clear and transparent
guidelines from the public perspective eased concern with
regard to the possibility of corruption. The process was
overseen by the government's 'due diligence' auditor' Any
political backdown or failure to honour guarantee's was
managed by the Project Agreement making provision for
indemnification of the private sector. Political risk was offset
by a Government that was very supportive of the project, given
the country's responsibility in staging the Olympic games' By
virtue of the concession period however, all BOOT projects
will see changes in administration and this is a risk that the
private sector can 'gamble' olt in accepting exposure' Greater
political stability and support will aid in success and
management of risk.

Lifespan risk exists for the project company in that over the
project lifespan/concession period, new technology or
ðompetition may introduce an element of obsolescence' At the
transfer stage the government may be taking ownership of a
partly outdatecl facility. Any infrastructure related risk was
àccounted for in that the facility depended on construction of
adjacent infrastructure such as the new rail station, carparking,
roads et al, which were promised by OCA in accordance with
the Homebush Bay Masterplan Transportation Strategy'
Existing infrastructure (Sydney Football Stadium, Sydney
Cricket Ground and Parramatta Stadium) in the form of
competition risk, was borne by project company.

All market risk is borne by the project company, but,

signifrcant feasibility and market research aims to mitigate this
risk. Risk in the form of market competition is typically borne
by the private sector operator under the terms and conditions
of the operational and maintenance agreement. Risk is assessed
by the private sector during feasibility stages and the project
agreement does not restrict construction of similar venues.
366 Stadium Australia - Jefferies & Gameson

However, the OCA undertakes to 'negotiate in good faith' with

the Trustee over any financial loss associated with construction
of a venue in excess of 25,000 seats and within a 50 km area of
Stadium Australia. Market risk in the form of income or
revenue change is managed by a comprehensive feasibility
investigation using realistic forecasts and allowances for
contingency factors. Risk does remain in that social and
economic change in an area is likely throughout a20-30 year
concession period. Some mitigation may be provided by way
of the project participants partially 'underwriting' certain
revenues.

Conclusion
The emergence of BOOT schemes provides a means for
developing the infrastructure of a country without directly
impacting on the government's budgetary constraints.
Consideration given to BOOT characteristics and perceptions
has allowed the development of an overall risk factor
framework. The framework serves the purpose of raising
awareness to factors at an early planning stage, such that
further consideration can be implemented where applicable.
The framework considers issues from all perspectives
throughout the construction and development phase through to
the operational and eventual transfer phase. The undertaking of
a case study allowed the identification of risk factors relevant
to a large infrastructure project procured under the BOOT
concept.

Country related risks of a political, legal and commercial

nature are identified as the most significant as they are all
issues that the project company has little or no control over. In
developed countries, where legal systems are welltested and
proven to be very reliable, concession companies can
undertake to carry most risks while receiving very little
guarantees in return. This logic was proven correct in the
context ofthe case study project.
367 crB-2002

The case study project is classified as a high complexity of

product/high complexity of market type operation. This
classification of facility is considered most difficult to develop
and operate because of its complex businesses serving a
variety of customers in a variety of markets. The case study
does show evidence required for a sustainable operation.

The next stage of the work is to refine the Risk Factors

highlightecl in this study and to identifu their key attributes that
make them success factors. Refined success factors are tested
in continuing work case studying BOOT projects that were
procured after Stadiurn Australia.

References
Akintoye, A. and Taylor, C. (1997) Risk Prioritisation of
Private Sector Finance of Public Sector Projects. In (Eds)
Davidson, C.H. and Abdel Meguid, T.A. Procurement - A
Key to InnovaÍion, Proceedings of CIB W92 International
Symposiurn, Montreal, pp 1-10.
Angeles, N.H. and Walker D. (2000) "BOOT Schetnes - A
Project Delivery System for a New Millennium".
C h ar t e r e d B u il d in g P r ofe s s i on a/, March 2000, pp 2 1 -23
Fellows, R. and Liu A. (1997) Research Methods For
Constructio,n. London, Blackwell Science.
Jefferies, M.C., Cook, M. and Rowlinson S. (2001) The BOOT
Approachfor Stadium Australia: Reflecting on the Critical
Factorsfor Success.ln (ed) Duncan, J. Performance in
Product and Practice, Proceedings of the CIB World
Building Congress, 2-6 April, llellington, NZ.
Ma, T.Y.F., Chan, A. and Lam P.T.I. (1998) A Study Into The
Characteristics of BOT projects in Hong Kong. The 6th
East Asia-Pacific Conference on Structural Engineering
and Construction, Taipei, Taiwan, pp1 131-l 136.
Magub, A and Hampson K. (1999)'Sydney's Olympic
Stadium: A World Class Event?' Construction Process Re-
368 Stadium Australia - Jefferies & Gameson

engineering '99, Proceedings of the International

Conference for Construction Process Re-engineering, 12-
13 July, LINSW, Sydney, pp 121-132.
McDermott, P. (1999) "Strategic and Emergent Issues in
Construction Procurement". In (eds) Rowlinson S. and
McDermott , P ., Procurement Syslems: A Guide to Best
Practice, E. and F.N. Spon, London, pp3-26.
NSW Government (1997) Guidelines for Private Sector
Participation in the Provision of Public Infrastructure.
NSW Government, Department of State and Regional
Development.
New South Wales Government (2000) Working with
Government - Private Financing of Infrastructure and
Certain Government Services in NSll. NSW Government
Green Paper.
Salzmann 4., Mohamed S. (1999) "Risk Identification
Frameworks for International BOOT Projects". In (ed)
Ogunlana S. Profitable Partnering in Construction
Procuremenl, CIB W92 Proceedin gs Public ation 224, pp
475-485.
Stadium Australia Group (1996a) Stadium Australia Group -
Summary of Mate.rial Conlract,s. Sydney, Stadium
Australia Group.
Stadium Australia Group (1996b) Stadium Australia Group -
Price ll aterhous e C orporate F inance- Independent
Accountant's Report. September 1996, Sydney, Stadium
Australia Group.
United Nations Industrial Development Organisation ( I 996)
Guidelines for Infrastructure Development through Build-
Operate-Transfer (B OT) Proj ects. LINIDO, Vienna.
Walker C. and Smith A.J. (1995) Privatized Infrastructure: the
B OT Approach. London, Thomas Telford.
Walker, D.H.T., Hampson, K. and Peters, R. (2000)
Relationship Based Procurement Strategies for the 2lst
C entury. Auslnfo, Canberra.
Yin, R.K. (1984) Case Study Research Desígn and Methods.
California, Sage Publications.
369 ctB-2002
371 ctB-2002

The Interdependence of Procurement

Strategies and Organizational Culture
From the Perspective of Innovation
G. Girmscheidr, & A. Hartmannr

Abstract
In the last few years new procurement strategies have tried to consider
the planning, construction and operation phase of a constructed
facility from the beginning of a construction project on. On the one
hand this leads to an increased innovation potential, as the constructed
faciliry is viewed as a system in its total life cycle. On the other hand
the innovation potential can only be used, ifa corporate culture serves
as a framework for the co-operation of all those who take part in the
construction project.

The paper is based on the results ofa survey on innovation from the
point of view of the client and a detailed case study on the ability to
innovate in a medium-sized contractor. In particular it shows how the
organizational culture effects the innovativeness ofthe client and the
contractor and whir,h cultural clmnges are ueeded for intra-
organizational solutions fostering innovations. Moreover, these
frndings will be transferred to inter-organizational solutions, which
are deduced from the innovation potential provided by a changed
procurement strategy of the client.

Keywords: innovation, procurement strategies, organizational culture

Introduction
In recent years a trend could be observed in the construction
industry that expressed itself in a movement from the
traditionally sequential procedure of a construction project

I Institute for Construction Engineering and Management, Swiss Federal

Institute of Technology Zurich, Switzerland
372 Interdependence ofprocurement - Girmsheid et al

towards an integrated one. Typical of this integrated procedure

ofa construction project is that the influences from the phases
ofexecution and operation are already considered in the
planning phase. One of the reasons for this trend is the change
in the demands of the clients. Nowadays clients more and more
ask for constructional solutions which will guarantee long-term
low expenses for maintenance and operation and which can
easily, flexibly and quickly be adapted to possible changes in
utilization that might occur due to economics or technology.
Another reason for the trend is that clients now transfer a part
of the tasks they used to fulfil to construction companies.
Correspondingly the procurement strategies of the client have
changed. Constructed facilities are more and more only
characterized by their functions and the requirements resulting
from them. To find out how to meet these requirements is the
companies' task. The client wants to have one contact person
who takes on the responsibility for the constructional solution.

For the companies from the construction industry this trend is

a challenge and a chance at the same time. On the one hand,
using the innovative potential that results from viewing the
constructed facility over its wholc lifc cyclc cnablcs thcm to
find constructional solutions that ideally match the clients'
demands and thus also enables them to gain advantages in
competition. On the other hand, in order to be able to use these
innovative potentials, the construction companies are forced to
find new forms of co-operation and as a prerequisite for that
especially a new cultural orientation for their dealing with each
other.

The Influence of the Organizational Culture on

the Ability to Innovate
It has been known for a while that one of the conditions that
foster innovations in organizations is creating an organic rather
than a bureaucratic organizational structure. Characteristic of
those organic organizational structures is that they have fewer
373 ctB-2002

hierarchical levels, that they are decentralized' that the

employees'tasks are extensive and their areas of competence
far-reaching (Hill, Fehlbaum, Ulrich , 199'1)' It has remained
unreco gn i sed thou gh, that or ganizations and espec ial ly
companies consist of different units that are charactetizedby
the various demands on the tasks and the structure of the
organization, Difficulties arise from the necessity to co-
ordinate the different units, as the different tasks and structures
tead to different attitudes and behaviours on the part of the
staff members (Kieser, 1986). This in return leads to conflicts
in realizing innovations, because here different units have to
work together. In order to solve the conflicts, a stabilizing
framework is needed, which orientates all persons involved to
the aims and strategies of the company and motivates them for
fulfilling their tasks together. This means that common values
and rules have to be conveyed (Kieser, 1986)' The
organizational culture with the values and rules, the way of
thinking and the attitudes as a whole serves as this framework.
Different empirical studies could proof this (Wagner, Kreuter,
1998), (Vahs, Trautwein, 2000)'
Organizational cultures that foster innovation show the
following features:
. high status of innovations
o freedom of the members of the organization to act
autonomously and to be creative
o support for those members of the organization who are
especially innovative
. preparedness to take risks and willingness to tolerate
mistakes
. open communication on and between all levels and
units of the organization

The Innovative Culture of the Client

A specific feature of the construction industry lies in the role
of the client. He is not only the purchaser of the constructed
facility as the product, but he decides if, when and how
374 Interdependence ofprocurement - Girmsheid et al

something is built. He defines the demands on the constructed

facility, he provides the financial resources and chooses the
procurement strategy. The decision for a procurement strategy
here depends on how the demands on the constructed facility
can be optimally transfered into a constructional solution. As
innovations in this sense contribute to reaching the optimum,
one criterion for choosing the procurement strategy can be the
available innovative potential.

The innovative potential increases, if the constructed facility is

viewed in its whole life cycle and therefore is enlarged by
procurement strategies that bring together the knowledge of the
single life phases at an early point in time (Girmscheid,
Hartmann, 2001b).

To find out to what extent clients deliberately choose these

procurement strategies a survey on the attitudes of professional
clients from the commercial and private building construction
sector was carried out by taking semi-structured interviews .

The status of innovations or the demand for innovative

constructional solutions is thc rcsult of onc of thc main aims of
professional clients. This main aim is obtaining a good return
on investment with the constructed facility in the long term and
preserving or enlarging its market value. But this aim can only
be reached through arecognizable surplus value overthe
whole period of its useful life in comparison to similar
constructed facilities nearby that are in competition with it.
Investments and new developments in the field of heating and
ventilation are an example for this. With the help of them
energy consumption results can be achieved now that will
already satis$r the requirements of future protective measures
for the environment.

Here clients are forced to deal with an increasing intricacy of

constructed facilities. A multitude of technical elements, which
are related to each other in numerous ways, make it more
375 ctB-2002

difficult to assess the effects of innovative changes, Bringing

together the technical knowledge of the planning, execution
and operation phase at an early point in time by choosing an
appropriate procurement strategy, the client can better assess
the effects of innovations and thus the risk decreases. At the
same time they regard an early co-operation as partners as a
greater support for innovations'

Although the risk has been reduced, it cannot be guaranteed in

advance that innovations will be successful' There will always
be a remaining risk ancl the clients under investigation tended
to be r¡,illing to take this risk, especially if they showed
preparedness to take risks with regards to innovations in their
core business, too.
These clients are also willing to bear the additional expenses
on investments that often come along with innovations. For
example, they raise internal funds to subsidize innovative
constructional solutions, which otherwise would not have been
realizable because of a lacking return on investment. They also
create incentives for the construction companies to be
innovative by implementing Bonus-Malus systems.

Nevertheless many clients still prefer the classical separation

of planning and execution. A lack of confidence in the
technical competence of construction companies as well as the
opinion that the process ofexecution has no influence on the
constructed facility often stop the use of other procurement
strategies.

The Innovative Culture of Construction

Companies
The case study in a medium-sized construction company aimed
at determining the substantial influences on the innovative
processes taking place in the company and with the help of the
results at developing instruments that are suitable for fostering
innovations.
 376 Interdependence ofprocurement - Girmsheid et al

In order to be able to reach this aim, a starting-point was

chosen that considered the specific conditions of the company
and put them into relation to the objects ofan integrated
innovation management. Company culture has been regarded
as an indirect object, too, and has been included in the
investigation (Girmscheid, Hartmann, 200 I a).

One.part of the case study's aim therefore was to determine the

markedness of the company culture with regards to its support
of innovations. This was intended to detect the prerequisites
for designing innovation processes in the company and, if
necessary, to be able to take measures that will change the
culture. Data gathering was carried out by group discussions in
the upper and middle management, semi-structured interviews
on all levels of management and analysis of documents.

For a better understanding of the following results some

additional information on the main characteristics of the
company under investigation is given. It is a family-owned
company with about 1,000 employees, offering execution work
in different areas (i.e. building construction, tunnelling, road
construction, maintenance of buildings etc). The company
consists of technical and regional business units, with the
technical business units operating from the company's
headquarters. Both, technical and regional business units work
as autonomous profit centres.

Desirable Values and Rules - The Management's

Point of View
From the point of view of the company's management
innovations play an important role, because they can serve as
the company's reaction to changes of its environment.
Innovations are regarded as one possibility to obtain
advantages in competition. In particular, they are meant to
contribute to achieving a higher extent of satisfaction of the
377 crB-2002

clients demands and to securing the quality of the services

offered.

This is why the management does not object to innovations,

but has high expectations and applies a strict standard when
assessing them. It is of great importance to them that the
financial risk is restricted to a minimum.

While the dynamically changing environment can be seen as a

reason for the necessity ofinnovations, personalized values,
which originate from the tradition as a family-owned company'
such as confidence, modesty, the willingness to perform and to
tolerate mistakes have an influence on the way new
developments are dealt with.

In order to support the staff members' preparedness to

innovate, the management expresses the necessity to achieve a
constant increase in efficiency and effectiveness and expects
all employees to strive for this.

In addition to this, the possibility to work autonomously and

the delegation of demanding tasks shall contribt¡te to the staff s

motivation and create freedom to act innovatively.

In the end innovating in the company is seen to be to a large

extent depending on single staff members. Being innovative is
regarded as a permanent and comprehensive task of every staff
member, which has to be actively pursued, while the quality
and the professionalism of the management on all levels is
seen as a prerequisite for this.

The management believes that the communication within the

company is active, which means that the necessary information
is always available and that everybody knows where to get
which information or where it is needed.
378 Interdependence of procurement - Girmsheid et al

Existing Values and Rules - The Staff s Point of

View
If the values and rules desired by the management actually
exist in the company, was a question that could be answered by
the employees.

The communication between the departments concerning the

projects is going on without problems. The project-related
work and the spatialcloseness of the departments support the
exchange of information. Short distances and the existence of
public places (e.g. cafeteria) particularly stimulate the informal
exchange of information. Partly the site managers complained
about an insufficient flow of information with regards to the
ideas that the calculator has on the execution while he is
working on the offer.

Most of the staff members from all hierarchical levels think

that there is little preparedness to take risks in connection with
new ideas. There is a tendency only to implement innovations
that have already proved themselves on the market. Here the
attitude towards new activities that the management
characterized as ,,careful" can be observed.

In addition, the fact that the responsibility for costs and

deadlines is restricted to projects and departments partly
prevents the departments from co-operating in new services.
The risk has to be taken by the initiating department, while
other departments help, but are not willing to share the risk.
Therefore part of the work is not done using own capacities,
but is obtained on the market for a better price. Synergies are
not used as the thinking is restricted to the single departments.

The company under investigation allows its employees to work

autonomously. It is possible to try and test new ideas. A further
sign of the delegation of responsibility is the way mistakes are
dealt with, which staff members are allowed to make in
connection with new ideas.
379 crB-2002

However, the freedom to act innovatively, which is granted by

the possibility to work autonomously, is restricted by a lack of
time, which is characteristic of the whole building project.
Furthermore, it is true that there is the possibility to try new
ideas, but an employee's willingness to do so is seldom
suppor-ted or appreciated by the superior' Here it is evident that
it is not sufficient to call for new ideas. Additional efforts have
to be made to give the employees freêdom to be innovative or
to highlight innovative action and acknowledge it.

Measures to Change the Culture

The results of the investigation revealed that the instruments
which have to be developed, in order to organize the
innovation processes, have to be accompanied by additional
measures to change the culture. But to transfer a culture that is
hostile to innovations into a culture that is open to innovations,
is an extremely difficult task. It will be a long process that has
to be carried out gradually and according to plan (Kieser,
1986).

The measures that were taken to change the culture mainly

aimed at improving the support of innovative staff members by
their superiors, at improving the communication between site
manager and calculator and at providing the staff members
with freedom to innovate.

The following concrete measures were taken to change the

culture:
o bilateral talks between superiors and employees that
take place regularly and are mainly intended to convey
the importance of being innovative to the employeeo to
increase his openness to new ideas and to indicate the
superior's support for innovative action. This also
includes that the management has to communicate the
importance of innovations to the heads of the
380 Interdependence ofprocurement - Girmsheid el al

departments more frequently, in order to support co-

operation befween the departments.
. a project checkpoint to examine the innovative
potential ofthe project at different stages. This
includes checking, if it is useful to take into account
the knowledge of the site manager at an early point in
time and to invite him to participate in decisions
regarding the project,
o innovation groups as a perrnanent forum for innovation
within the department, consisting of employees from
the department who organize the groups themselves.
'fhese groups will help the staff members to
permanently and intentionally think about
improvements in the department and at their work
station and to deliberately look for solutions to the
problems. This measure also intends to further
intensif,, the communication that is already going on
well.
a
Besides this, organizational solutions were developed which
will reduce the problem of the lack of time for innovations and
thus will indirectly strengthen the element of autonomy which
is fostering innovations.

Taking into account the company's attitude towards risks,

organizational instruments were developed that primarily
support the implementation of incremental innovations.

Innovative Culture on the Project Level

The results of the investigation clearly show that the choice of
a procurement strategy is on the one hand partly determined by
the demand of the client for an innovative constructional
solution and the innovative culture of the client's organisation.
On the other hand the innovative potential that is created by
the procurement strategy can only be used, if the
organizational culture of construction companies is open to
381 ctB-2002

innovation.

A multitude of persons involved in the project act on the

project level and these persons vary from project to project.
This is why differently shaped organizational cultures come
together at this point, which are not connected by a cultural
framework, As a consequence it becomes more difficult to find
solutions to conflicts and to take on risks that especially come
along with innovations.

A cultural framework supporting innovation can emerge from

the co-operation of different companies that goes beyond
single projects. An example for this are strategic networks as a
long-term form of co-operation (Girmscheid, Hartmann,
200 l b).

By uniting companies that are specialized in different fields of

service and work together as virtual companies according to
the requirements of the project, strategic networks make it
possible to orientate the companies to long-term aims and
strategies. A common organizational culture makes this
possible.

Therefore, companies that try to realize strategic co-operation,

find themselves in a dilemma. On the one hand only a long-
term co-operation can lead to a common culture, on the other
hand a common culture is the prerequisite for a successful co-
operation. This makes it evident once again that the
establishment of common values and rules requires a long and
complicated process with possible set-backs.

Referenccs
Ginnscheid, G.. Hartmann, A. "Innovation management in
construction companies - an integrated model".
Proceedings of the CIB World Building Congress,
Wellington, New Zealan d, 2001 a.
382 Interdependence of procurement - Girmsheid et al

Girmscheid, G., Hartmann, A. "The ability of contractors to

co-operate - a key to innovative total solutions".
Proceedings of the I't International Conference on
Innovation in AEC, Loughborough, UK, 2001b.
Hill, W., Fehlbaum, R., Ulrich, P. ,,Oganisationslehre 1" (in
German). 5th ed., UTB, Bern, 1994.
Kieser, A. ,,Unternehmenskultur und Innovation" (in
German). Management von Innovationen, Erich Staudt
(editor), FAZ, Frankfurt am Main, 1986.
Vahs, D., Trautwein, H. ,,Innovationskultur als Erfolgsfaktor
des Innovationsmanagements" (in German).
iomanagement, 7/ 8, 2000, 20-26.
Wagnern M., Kreuter, A. ,,Erfolgsfaktoren innovativer
Unternehmen" (in Germ an). iomanagement, 10, 1998, 3 4-
41.
383 crB - 2002

Transformed Culture And Enhanced

Procurement
Through Relational Contracting And Enlightened
Selection
Motiar Rahmanl, Mohan Kumaraswamyt, St"ue Rowlinson2 &
Ekambaram Palaneeswaranl

Abstract
A cluster of recommendations that resonate through many high-
(e.g'
powered reports on construction industries in different countries
and Hong Kong) relate to the desperate
Ûf, Singupore, Australia
.cultural' changes. For example, the identified need
need for*radical
to re-integrate fragmented functions and teams, has led to
,..ott.ndutions on cooperation and collaboration through
approaches such as partnèring and alliancing. Relational
contracting
of such approaches and underpin the
(n'ò) principl., ur" ãt the core
tt eoiËtitut ioundations for their growth' However, ad hoc and
disjointed partnering and alliancing initiatives, while registering
some

,uJr.rr, wàuld benefit from more focused applications: (l) firmly

founded on holistic RC theory and (2) deriving a practical impetus
through (a) re-engineered contractual systems and (b) realistic
evaluãtioncriteriã for selecting team participants - throughout the
principal
supply chain of consultants, contractors, subconiractors and
tuppli.tt - that will require upfront commitments to the RC oriented
rritut. change ifthey are to be selected' These theoretical
justifications and practical imperatives would then empower the
,cultural shift' and propel the 'new procurement paradigm' -
älusive
from industry report rhetoric to reality. The rationale for the above
is
surveys in
,rt or, in this paþer and illustrated with results from recent
HongKongandexumplesofinnovative'goodpractice'fromother
countries.

I
Department of Civil Engineering, The Univcrsity of Hong Kong'
Pokfulam'
Hong Kong
Hong Kong'
Oepa.tntent of Real Estate and Construction, The University of
2

Pokfulam, Hong Kong

384 Transformed Culture - Rahman et al

Keywords: Construction, Culture, Partnering, Procurement,

Relational contracting, Selection.

Introduction
The construction industry is known to be highly adversarial
(Latham 1994). Productivity levels are low compared to other
industries and have even dropped in some countries
(Schwegler et al 2001). Owners have been seen as risk evasive
(Ahmed et al. 1999), and contracting parties interpret contract
clauses differently (Hartman et al 1997), and for their own
benefit (Clegg 1992). Contracting parties are seen to work 'at
arms length' in disjointed and fragmented arrangements,
usually motivated by conflicting 'self-benefits' that not
surprisingly depress productivity levels. Other consequences
include time and cost overruns, poor quality, customer
dissatisfaction, lengthy and costly disputes, and disruption of
relationships among the contracting parties. Moreover, purely
price-based selection strategies induce tenderers to lower their
bids to win contracts, relying on subsequent claims to recover
their costs. These translate into more disputes and even lower
overall productivity.

The above vicious circle/ downward spiral scenarios have been

sketched in many high-powered reports on construction
industries in different countries. These have called for radical
'cultural' changes and recommended cooperation and
collaboration through approaches such as partnering and
alliancing. Applications of these approaches, mainly between
owners and contractors, have recently met with some
successes. But the subcontractors carry out major parts ofthe
works (Kumaraswamy and Matthews 2000), while
consultants, suppliers and other stakeholders also play
important roles in project delivery. They should therefore be
brought into the 'one team' concept to optimise benefits
(Lownds 1998). While classical contractual anangements call
for clear and definitive allocations of risks between
stakeholders, all possible risks/ uncertainties are difficult to
385 crB - 2002

foresee and quantif at the outset (Macneil 1978). This calls

for flexible contract conditions under which unforeseen risks
would need to be dealt with using a 'Joint Risk Management'
(JRM) strategy at the post-contract stage (Rahman and
Kumaraswamy, under review-A)' Relational Contracting (RC)
principles underpin and justiff efforts to lubricate consequent
ðontractual 'transactions' with an additional focus on smoother
risk management through JRM. More 'relationally-based' and
performance oriented (rather than purely price-based)
contractor selection would also encourage an amicable RC
environment, more collaborative teamwork and higher
productivity (Rahman et al200l)' These concepts may be
óxtended to radically improve the selection strategy throughout
the supply chain and to build a coalescent 'one team' to deliver
optimal project performance. What is critical are the re-aligned
attitudes and convergent culture ofthis coalesced team
(Rahman and Kumaraswamy, under review-B).

Drawing on the above background observations, this paper

discusses the required 're-engineering' of contractual systems
and realistic evaluation criteria for selecting team participants
through the applications of RC principles. These encourage
long-term provisions on the basis ofunderstanding each
other's objectives and introduce a degree of flexibility into the
contract, by considering a contract to be a relationship among
the parties (Macneil l9S0). The paper also demonstrates how
RC principles may be applied in building a successfulproject
team for JRM during the entire project life cycle i.e. at pre-
contract, contracting and post-contact stages' This will be
reinforced by relevant observations on the perceived
desirability of JRM and the importance of different factors for
developing a successful RC environment, based on recent
surveys. Examples of some innovative'good practice'will
illustrate these observations.
 386 Transformed Culture - Rahman et al

X'undamentals of Relational Contracting

Relational Contracting (RC) is based on a recognition of
mutual benefits and win-win scenarios through more
cooperative relationships between the parties. RC principles
underpin various approaches, such as partnering, project
alliancing, strategic alliancing, joint venturing and other
collaborative working arrangements and better risk sharing
mechanisms (Alsagoff and McDermott 1994, Jones 20004). At
the core of RC, parties do not strictly follow the legal
mechanisms incorporated in specific contracts, but they
operate within a dynamic standpoint constantly pulled by a
collection of contractual (legal), economic and behavioural
forces (Macaulay 1963). Relationships between the parties are
therefore very important. This is particularly so in complex,
lengthy and evolving transactions, as seen in construction
projects, where the circumstances underlying the contract may
change considerably over time.

RC provides the means to sustain ongoing relations in long and

complex contracts by adjustment processes of a more
.' thoroughly transaction-specific, ongoing administrative kind.
This may or may not include an original agreement; and if it
does, the need for the contract may be of less importance
(Macneil 1978). RC considers contracts as promises of doing
something in the future. But not all the events can be
'presentiated' (perceived or realized), and, as all the
information needed cannot be 'presentiated' at the time of
contracting, mutual future planning is required. This may well
give rise to 'opportunism', which is counteracted by the
'business trust' that is based on communities of shared ethical
values, shared principles of fairness and convergent mutual
expectations about informal obligations (Deakin et al 1997).
These are achieved through motivation and individual attitudes
that considerably influence the project outcomes (Drexler and
Larson 2000). Such trust can sustain cooperative behaviour in
the face of complexity and unforeseen problems.
387 ctB - 2002

RC approaches thus appear useful in achieving the overall

objective, which is to reduce the sum of production and
transaction costs (Walker and Chau 1999), by providing the
necessary flexibility to adjust and adapt outside predetermined
(purely contractual) response mechanisms. However, while
non-legalenforcement mechanisms clearly play'a major role in
RC, legal mechanisms may also play a part in exchange
arrangements. Equally, tnore formal contractual arrangements
(i,e. cìassical antl neoclassical) are present with an armoury of
supportive non-legal mechanisms (Lyons and Mehta 1997)'
This is seen in some RC-type practices in the present
construction industry e.g. through partnering: Project partners
work as a team on the basis of a' paftnering charter' that is not
legally binding and if there is any problem the original contract
will take precedence.

The Issue of Transformed Culture

Hofstede (1980) describes 'culture' as the collective
programming of the rnind that distinguishes the metnbers of
nn" hutun group from another. It is usually reserved for
societies or nations or for ethnic or regional groups, but it can
be applied equally to other human collectivities or categories:
an organization, a profession' or a farnily.

Culture in construction project scenarios is therefore the

culture of the project team comprising different contractitlg
parties in the supply chain and also include company-wide
ìnter-departmental members and others who contribute in some
way to the final product or service to be delivered (Mackay
1gi3).4 project culture is thus built up from a number of
sources - national, ownership, sectoral and style differences' At
the project level, there are also other issues that affect the
culture of the project. These arise from key variables flowing
in from multiple organisational cultures, individualistic
subcultures, professional subcultures and operational
subcultures (Kumaraswamy et al 200 I ).
388 Transformed Cuhure - Rahman et al

It is therefore vitalto recognize the team, while the individuals

in the project team are extremely important as well. What is
needed is an understanding ofhow to structure, develop and
reward both teams and individuals without detriment to either,
while also shedding costs, improving margins, and being
extremely client-responsive. These imply doing things
effectively and efficiently at the first time (Mackay 1993). This
requires a commitment to change and teambuilding very
different from that ofthe past. Recent studies show that such
ideas are now emerging in the construction industry, as will be
discussed in subsequent sections. The combined 'mind-set' of
the project team may need continuous and cooperative
learning, in a direction that recognises changes in customer
demands and expectations. Such collective 'culture
acquisition' (or transformation) also depends on the 'real
event' in all its complexity of place, people, atmosphere, and
interactive responses that is derived from 'a set ofrelations'
(Pitman et al 1989) and thus relates wellto the previously
discussed RC approaches.

Transformed Culture and JRM

The nature and extent of construction risks may change as a
project progresses, new risks may emerge and existing risks
may change in importance or be re-allocated, as not all the
risks are foreseeable at the outset. Some of these risks may also
require the combined efforts of contracting parties for their
effective management.

Despite these facts, it has become almost a truism that the

parly best able to manage a risk should bear the risk (Nunn
2000). Yet, present risk allocation mechanisms on construction
projects vary, depending on several client-specific attitudes
and project-specific characteristics. For example, Table I
presents a relevant summary of responses from 66 respondents
around the globe to a Hong Kong based survey on an array of
 ctB - 2002
389

contractors' A variation in
risks transferred to Design-Build
risk allocation perceptiois across
different contractual regimes
ìr-"Ut.*.¿ from ttrii summâry' It may also be noted that
contracting
;;ig" risks being passed on to the same
in tñit increasinglv nopuþlesign
Build scena-rio
ö;îäi"" mv) does not reflect the
¿;"h.;h"t; is alreaJy 'ot"In-¡uiit
general construction scenano'

risks transferred to the

Table 1: Summary of responses on

Percentage of respondents
to who ticked
Risks that should be transferred
the Design-Builders HK* USA oc** Overall

61 .5 40.6 42.9 45.5

Ground conditions
Discovery and relocation of 53.8 68.8 81.0 69.7
utilities s6. I
s3.8 71.9 3 5.5
s3.8 s6.3 6t.9 57.6

Hazardous wastes/ hazardous 3 8.s 37.5 61,9 45.5

conditions
6l.5 68.8 52.4 62.1
w eather conditions
Variations to satisff different 23,1 43.8 23.8 5J.J
users'
Unforeseen 23.1 6.3 19.0 13.6

Acquisition/ possession of 0 31.3 t4.3 19.7

construction atea
46.2 96.9 95.2 86.4
control/ assurance
23.1 43.8 38. I 37.9
criteria
Design defects from client's initial '7.7 46.9 42.9 37.9

69.2 100 '76.2 86.4

Co-ordination with other work/ 61.5 93.8 85.7 84.8

* HK - Hong Kong, ** OC - Other countries

a profile of average
Table 2,on the other hand, presen-ts
ãn JRM desirability that are extracted from a
öceplil;
 390 Transformed Culture - Rahman et al

summary of relevant responses from 47 respondents to a

different Hong Kong based survey that focused on risk
management in construction projects in general. Here, it is
evident that sizable components (percentages) of many of the
4l identified common construction project risks were
perceived to be more suited for JRM, despite relatively small
divergences between different groups. Table 3 shows ihe
desirability for JRM of almost all of the same 4l risk items
irrespective ofcontract conditions. It is seen from the total
sample that l6 risk

Table 2: Average Perceptions on Joint Risk Management (JRM)

based on groupings of 'working organisation' and ,nature of present
j ob'
Percentage
Number of risks (out of 41, used in the survey) in each
category*
ofrisk that
should be
jointly Total Naturé of
managed (47) CSL CTR owN ACAD MGRL

0 0 0 7 I 0 0 I
l-10 12 15 6 l3 4 l8 l0
lt -20 l3 13 t7 8 20 12 t2
2t-30 10 9 5 8 l3 6 8
3l-40 6 3 4 6 J 5 7
4l-50 I I J I I
5t - 60 I I 2
More than 60
Total No.: 41 41 4t 4l 4l 4t 4t
*Figures parentheses Q indicate the numbers of respondents in each group.
Notes: CSL - Consultantr CTR - Contractors owN- Owners
ACAD - Academics ENGG - Engineering MGRL - Managerial

items are perceived to be suited for JRM of more than2}yo.

Table 4 shows the percentages of these l 6 risk items that are
recommended for JRM under different sets of standard
contract conditions.

All these show the collective attitude/motivation of the

391 ctB - 2002

industry towards the desperate need for more RC oriented and

flexible contractual arrangements that are expected to enhance

Table 3: Summary of average perceptions on Joint Risk Management

based on contract stand. conds. of
% of risk that Number of risks (out of 4l used in the survey) in
should be each category*
iointly managed Total (47) FrDrc (2s) HKGCC (8) GENERAL (9)
0 0 0 0 I
l-10 t2 20 9 5
tl -20 l3 14 5 ll
2t- 30 l0 5 l0 7
3t-40 6 2 7 l1
4l-50 4 4
5l - 60 5 I
More than 60 I I
Total No. 4t 4t 4t 4t
*Figures in parentheses
0 indicate the number ofresponses. ' Five responses were
based on some other different contract conditions and those are not compared here as a
separate category.
Notes: FIDIC: Fédération Internationale des Ingénieurs-Conseils (Intemational
Federation ofConsulting Engineers); HKGCC: The General Conditions ofContract
for Civil Engineering Works in Hong Kong; GENERAL: Not according to any
paficular conditions of contract

overall economic perforïnance. The observations also

reconfirm the increased importance of selecting the 'right'
partner with whom clients can establish and maintain such
relationships and achieve high performance levels in win-win
scenarios (Rahman et al. 2001).

Initiating Cultural Transformations through

Procurement and Selection Strategies
Partnering and alliancing are good examples of RC principles
in practice. Recent industry practice and research trend show a
tendency to encompass all the stakeholders in one team. For
example, Thompson and Sanders (1998) observed that benefits
from partnering-type RC increase with a migration of
 392 Transþrmed Culture - Rahman et al

teamwork attitude from competition to cooperation, through to

collaboration and finally to coalescence. Essentially,

Table 4: Comparing average perceptions on Risk items ranked as

most suitable for Joint Risk m
Risk Items Percentage of risks suitable for JRM *
Total FIDIC HKGCC General
(47\ (2s\ (8) (e)
Cost of legal process 40 38 35 44
Delays in resolving 39 3l 55 38
contractual issues
Delays in resolving 35 30 55 25
disputes
Public disorder 32 22 75 37
Envir. Control (as 32 l7 36 59
impacting on proiect)
Acts of God 3l l8 60 45
Envir. hazards (project 30 19 35 48
area only)
Buildability/ 30 23 4l 42
Constructability
Change order 28 24 27 33
evaluation and
negotiation
Physical impossibility 27 20 57 31
Unforeseen site 26 l5 46 t5
conditions
Economic disaster 25 17 38 35
Third party delays 24 20 57 l8
Conflicts in documents 24 21 24 40
Change in scope of 23 t1 25 t4
work
Union strife 23 l9 40 35
*Figur., in parentheses ( indicate the number of
) responses. Five responses were
based on some other different contract conditions and those are not compared here æ a
separate category.
Notes: FIDIC: Fédération Intemationale des Ingénieurs-Conseils (Intemational
Federation of Consulting Engineers); HKCCC: The General Conditions of Contract
for Civil Engineering rvVorks in Hong Kong; GENERAL: Not according to any
particular conditions of contract
393 ctB - 2002

coalescence implies all stakeholders work in a 'one team'

spirit. Ho (2000) indicated cost savings of ll% to 38Yo in
Guaranteed Maximum Price (GMP) based procurement
strategies that also included an open book approach when the
contractor - together with his subcontractors' and suppliers'
information - worked closely together with the consultant.
Kumaraswamy et al. (2001) argue for a cultural transformation
towards 'one team' consisting of all stakeholders and a project
culture that can facilitate the required productivity gains. The
Australian National Museum project (Walker et al. 2000), and
also three out of 34 contracts of Tseung Kwan O Extension
project of Hong Kong Mass Transit Railway Corporation
(MTRC) (Bayliss 2000) were contracted and agreed on a target
final account and 'pain-share/ gain-share' approach. The
Heathrow Express Railway project will probably be an
appropriate example of a completed successful teambuilding
exercise in a changed culture (Lownds 1998). The project
suffered an enorrnous setback when the tunnel in the central
terminal area collapsed, yet the 'culture change' initiative of
the client in the form of teambuilding and cooperation among
'all parties' concerned resulted in a reductionof 20%o of costs
it expected to carry after the collapse, made up critical
construction time, and saw the opening date for the railway
brought forward from early 1999 to June 1998. Regardless of
their organisational affiliations, parties on this project had a
slogan that they were not competing with each other but
operating as 'one team' with overuiding loyalty to the goal of
delivering the railway. In fact, RC approaches are expected to
work in almost any environment, if applied properly. However,
this requires transforming traditional relationships towards a
shared culture that transcends organisational boundaries (CII
1996). What are critical are the motivation and attitudes of the
project participants.

Achieving such major cultural transformations after the

various project participants are selected is not easy. For
example they would each bring their 'own baggage' (or
'preconditioning') with little incentive to change and also may
 394 Transþrmed Culture - Rahman et al

be under pressure to 'get on with the work' in ,tried and

trusted' ways. It is therefore recommended to initiate the
required cultural transformation by appropriate conditioning
during the 'selection stage' i.e. by incorporating desired facets
such as 'partnering history and/ or potential' into explicit
selection criteria. Many public and private clients still prefer
price-based selection strategies for various reasons, such as
convenient evaluation, accountability concerns, and apparent
economies. Moreover, there is an increasing trend for
enlightened clients to seek other performance-related criteria to
meet the special needs of their projects. For example, Rahman
et al (2001) argued that more relational and perfonnance
oriented contractor selection would encourage an amicable RC
environment and more collaborative teamwork. Kumaraswamy
and Matthews (2000) found l0% tender pricing reductions by
subcontractors based on savings anticipated in a partnering
(i.e. RC-type) approach. The alliance team for the Australian
National Museum project was selected with some.l2 non-price
based factors, to work in an open book approach (walker et al
2000). The alliancing contracts in Australia are also featured
with 'no dispute' clause (Jones 20008). The Utah Department
of Transportation insists on 'partnering' as a mandatory
precondition for contractor prequalifîcation (UDT, l9g7),
while the MTRC in Hong Kong has an anecdotal reputation for
achieving good relationships with contractors, hence
minimizing disputes and associated costs through such
'relational' approaches.

It is observed from the above that the long-awaited paradigm

shift is in progress. The following results from an ongoing
survey on RC and JRM reconfirms this trend. Table 5 shows
the perceptions on 'which project partner should be brought in
at what stage' of the project. It can be noticed that only 4 of the
l7 respondents to date preferred not to consider subcontractor
and suppliers before contract award. Table 6 shows the
perceptions on the importance of different factors for building
a successful RC. The selÊexplanatory results show that the
respondents have overwhelmingly rejected the traditional
395 cIB - 2002

hierarchical contractual relationships. The pioneering role of

the clients and the possibilities of future works are considered
even less important than professional ethics and developing
RC culture within an organisation. Comparatively lower
standard deviations ofthe average results from the responses
of7 countries and diverse contracting parties indicate a
consistency in the perceived need for RC approaches
worldwide. This is reassuring in that it may hopefully indicate
that we have now entered a transitional period of the long-
awaited paradigmatic cultural shift in the construction
industry.

Concluding Obseruations
There is increasing evidence of a growing appreciation of
benefits from non price-based selection and innovative
procurement strategies. Progressing from gradual
improvements in contractor selection, these strategies are
likely to gradually encompass the selection of consultants,

Tabte 5: Perceptions on Who should be brought in at Which stage of

RC oriented for JRM
Consultan Contracto Sub- Supplie
Stages/ Options contractor
t r t'

lnceotion of the proiect t6 J I I

During Preliminary/ early 4
I J J
stage of design
Iowards end ofdesign stage 6 2 4
After design, but before J 4
rendering
During tendering, but before I J 5
submission of bid
Afrer awarding the contract J 2
No need to consider I 2
Iotal t7 t7 t7 t7
Note: l7 responses from 7 countries, average experience =17.5 years, represent both
public & private owners, academics, consultant and contraotor
 396 Transþrmed Culture - Rahman et al

Table 6: Importance of factors for developing a successful RC for

JRM on a scale of I to I
ltems/ Factors STDEV
Average ¡

Iraditional owner, contractor, subcontractor hierarchy ,.82 ¿.5 I

fointly organised social/ cultural activities (e.g. karaoke,
t.29 ¿.39
ìports)
Legal implications i.00 2.45
Pioneering role ofthe owner/ client 5.t2 2.45
Cost of implementing partnering 6. l8 z.t6
Possibility of future work 6.47 2. l5
Partnering workshop 5.53 ¿.12
Role of partnering facilitator 5.59 t.66
Partnering experience 5.71 2.26
Developing a partnering culture, first, within the
5.94 2.36
organisation
Alignment of objectives 7.21 2.49
Professional ethics 7.24 2.33
Agreed mechanism for performance appraisal 7.41 1.8
3ompatible organisational cultures 7.41 1.87
Frequent formal and informal meetings 7.59 t.7
Agreed process for dispute resolution 7.82 ¿.04
Equitable and clear allocation of foreseeable and
3.00 2.5
quantifrable risks
Collective responsibility, instead of personal
responsibility
3.06 t.7t
Efiective coordination 3. l8 1.55
A,wareness of risks and rewards 8.24 1.09
Understanding each-other's objectives 8.50 1.22
Attitude of the project participants 8.59 1.28
Readiness to compromise on unclear issues 8.65 r.06
Cpen communication among the parties 8.65 1.84
Mutual trust 3.94 1.25
STDEV = Standard Deviation

Note: l7 responses from 7 countries, average experience:17.5 years, represent both

public & private owners, academics, consultant and contractor
397 crB - 2002

subcontractors and suppliers, to form a more cohesive project

team. A growing realisation of the advantages of JRM is being
followediy an appreciation of less adversarial contracting
frameworks. The industry is seen to be thrashing in the throes
of a transition in transforming its traditional existing
adversarial culture towards more relational holistic 'one team'
approaches that also suit the nature of a particular project' RC
théories and principles are also seen to be at the core of almost
all these appioaches, although these have not been discussed as
such in reôént literature. However, there has hitherto been a
lack of theoretical foundation and justification for such
approaches. If such RC principles are translated into practices
ttrát are made almost mandatory in contracting and selection
procedures, all potential project partners will be forced to frt
into ,the system, in order to win work and survive. This will
plant the seeds for an RC culture and will help to propagate
itC on a broader scale, through the whole supply chain, as a
standard way of doing business. The 'next generation' of the
construction industry can then be expected to be horizontally
and vertically integrated in RC oriented virtual organisations
that integrate multiple parallel functions and extended supply
chains respectively, to provide effective, efficient, and
seamlessly integrated innovative services'

The project team does not only consist ofdifferent contracting

orgunirátions, but the individuals within those organisations
also vary in terms of position, education, skills, profession,
ethical values, and many other background characteristics. It is
therefore not easy to develop a desired project culture by
blending them into a homogeneous solution' Instead, the
desired culture may be compared to a well-cooked curry (or
stew), where all the ingredients, their quantities and the time of
adding them to the cooking pot are carefully chosen to bring-
out thã special flavour in serving a particular target group of
people; and where cubes/ small pieces of meat and
supplementary items may absorb essences of various spices
and^yet preserve their individual identities,.while producing the
 398 Transformed Culture - Rahman et al

desired overall integrated impact on the senses!

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403 ctB - 2002

Innovative Delivery Systems For Municipal

Infrastructure Projects In South Africa
How Prepared Are Municipal Authorities?
PD Rwelamila'& Iyaloo Nangolo2

Abstract
South Africa's 82 I municipal authorities face tremendous service
delivery challenges that are somewhat unique among emerging
economies. With the end of the apartheid era, the South African
government began investigating a variety of innovative approaches to
municipal (local government) service delivery that many other
countries had refined and tested during the long period ofSouth
Africa's international isolation. Often grouped together as 'public-
private partnerships (PPPs)' - also referred to as municipal service
þartnerships (MSPs) to include
possibilities for public-private
þartnerships - these approaches include long-term concession and
lease contracts, management and service contracts, as well as outright
sales of government assets. Local authorities as clients in these PPPs,
and especially Local Authorities Departments of Public Works
(LADPW), need to be equipped in the understanding of dynamics
attached to controlling demands of projects and making choices
within constraints. Due to sophistication of projects delivery systems
LADPWs need to have personnel well conversant with allocation of
budget and contingencies - capable of managing the cost parameter;
adjustment of timing, time-scales and floats - capable of managing
the schedule (time) parameter;adjustment of specifications (to basic,
medium or high) - capable of managing the quality parameter; and
making value judgements between higher initial costs and longer-term
savings - capable of managing the subsystem focussing on the utility
parameter. This paper focuses on one ofthe four project parameters
indicated above - Quality. It reports the results of an investigation into

I
Graduate School Of Business Leadership (Gsbl), University Of South
Africa (Unisa), P O Box 392, Unisa 0003, South Africa.
([email protected])
2
Jordaan Oosthuysen Qs, P.O Box 8497, Windhoek, Namibia
([email protected])
404 Innovative Deleivery Systems - Rwelamila & Nangolo

Total Quality Management (TQM) implementation and understanding

in Public Works Departments of the Western Cape Province Local
Authorities. It reports on LADPW's perceptions about TQM
principles, commitment to implementing the philosophy, and beliefs
about its effect relative to more "traditional" management
philosophies; it reports on the LADPW' perceptions about obstacle(s)
to successful TQM implementation; it identifies measures that
LADPW can use to determine the success of TQM efforts;and finally
recommendations and conclusions are made.

Keywords: innovative approaches, public-private partnerships,

quality , TQM implementation, South Africa

Introduction
In 1998, after two years of preparation, the South African
national government paved the way for public-private
partnerships (PPPs) by creating the Municipal Inft'aptructure
Investment Unit (MIIU), a non-profit company tasked with
providing technical assistance and grant funding to
municipalities investigating innovative service delivery
partnerships. The long term aim of MIIU is to develop a
market place in which informed local authority officials and
professionals can obtain the services ofprivate sector advisers,
investors and service providers - as well as other public sector
service providers and experts - to find more cost-effective
ways of providing urban services to citizens.

Discussion with stakeholders in the government and the private

sector, as well as analysis of policy and guidelines documents,
procedures and international literature, have highlighted a
number of constraints, opportunities and necessary conditions
for PPPs in South Africa. For a greater number of PPPs to be
implemented successfully, it is essential for these issues to be
dealt with decisively: needþr policy reþrm (the needfor
cross-depart mental pol icy c oherenc e and cons is tency); Iegal
and procedural reþrm required (the needþr reþrm that
would make the legal environment more PPP-friendly); public
405 ctB - 2002

finance issues (the needfor an appropriate framework to

balance priorities between sectors and to ensure prudenl
control over the government's financial commitments);
capaciÍy and traíning issues (functional capacity to engage in
p artner ship-type tr an s ac t ion s); and ins titutional ørrangements
(a regulaîory and support framework, which is driven and
monit or e d by effect iv e in s títut i on s).

This paper focuses olt one of the above issues: capacily and
training issues. The need for capacity and training is
approached from Masterlnarl's (1992) argument about
experienced clients - municipal authorities are considered as
experienced clients, Accorcling to Masterman (1992),
experienced clients regularly carry out construction work and
have little difficulty in obtaining information from, and dealing
with, the constructiort industry as they will have developed a
method of working, based upon past experience, which should
enable a high level of success to be attained.

The capacity and training issues are consiclered from the

project performance focus, where the need for client
satisfaction is considered as fundamental in PPPs projects
success. The municipal authorities capacity to meet client
objectives, by managing project parameters through their Local
Authorities Departments of Public Works their (LADPWs) is
considered as significant in facilitating innovative delivery
systems for infrastructure projects.

Defining terms

Project delivery system

The principal argument of this paper rests on the ability of
Municipal authorities to select and manage innovative delivery
systems in infrastructure projects delivery. The selection of the
most appropriate organisation for the design and construction
ofthe project - herein referred to as the project delivery
 406 Innovative Deleivery Systents - Rwelamila & Nangolo

system (PDS) is an important component towards successful

PPPs in South African municipal authorities. Masterman
(1992), refers to phrases such as 'building procurement
method', 'procurement form' and procurement path' which
have been used by various authorities when refering to this
concept.

According to Franks (1984), PDS is 'the amalganr of activities

undertaken by a client to obtain a building'. The term project
delivery (PDS) has therefore been adopted and used
throughout this paper. This term is generally used in this
paper to describe:
"The organisaticnal structure adopted by the client to mandge
all stages of the project from inception to completion ond
certain situations including posT completion phase(s) "
[Rwelamila (1996)].

P u b lìc-p riv øte p art n e rs h íp (PPP)

Public-private partnership (PPP) under the South African
Municipal Services Partnership (MSP) Policy is defined as:
"...a conlrctct between a local authority and 'an individual or
a privately owned or controlled parlnership, company, lrust or
other for-profit' juridical person. "

This definition is used in this in this paper

According to Rwelamila and Savile (1994) the client's

objectives in the construction project are the achievement of
quality, cost, time, and utility. Quality is the structure level of
conformance to specification, while cost relates to first cost or
price of the structure. Time is timing, or the completion of the
project in accordance with the planned time. Whereas utility
includes running costs, maintenance issues, constructability
and flexibility for alterations or other uses (Rwelamila, et al.
199e).

The above four parameters present constraints and choices to

407 clB - 2r)02

the project management team, the balancing should, therefore,

be struck to achieve them without compromising resources
available on the project. Most of construction projects are
procured based on only two of these objective parameters,
namely: cost and tirne (Rwelamila, 1996). The optirnum utility
of a construction project can be obtained by making value
judgernents between higher initial costs and longer-term
savings (Rwelamila and Savile, 1994), Quality, oue of tlte
prirnary focus of this paper, has been neglected (Rwelamila,
1996). According to Rouuce ( 1998) the main attributes to the
neglect of quality among others are; firstly, broken promises
on likely availability of design itrfortnatiou. Secondly,
frequently re-design or re-working of drawirtgs. Thirdly, not
solving root causes of design ruanagelrellt problerns and lastly,
the inacleqLrate delìnition of client's brief before starting the
design. 'lhe true cost of qLrality neglect or quality rton-
conformance in projects is, therefore, the total cost of meetirtg
the client's requirelnertts (Rounce, 1998).

According to Wright (1996\, quality is too iniporlant to be left

to the managers. Everybody in the organisation has to be
involved to achieve quality excellence. An organisation that
upholds TQM is on a different level, by concerning rnore than
just to standards and conforntance, but also by having an over
riding culture of quality (Wright, 1996: Kasi, 1995). Crosby
( 1984) argues that TQM creates a culture where everyone in
the organisation seriously believes that not one day should go
without the f,rrm in some way improving the quality of its
goods and service. Based on these arguments, it is clear that, if
Municipal Authorities are to provide essential urban services
in a way that spreads the benefits of development to all South
African citizens through PPPs -where appropriate delivery
systems are employed (Cox and Townsend, 1998; Cox and
Thompson, 1998), they need to be smart clients embracing
TQM among other fundamentals.
408 Innovative Deleivery Systems * Rwelamila & Nangolo

Context
Although Municipal authorities seem to fit into the
Masterman's (1992) definition of experienced clients, there
are strong indications to suggest that the skills required for
effective negotiation and implementation of PPPs are still in
relatively supply. There are strong indications to suggest that
Municipal authorities do not have capacify to manage project
parameters, hence the need to assess the extent ofthe problem

As part of a major project, this paper, reports on a study, which

critically looked at one of the project parameters - Quality - in
one of the three South African major provinces (based on
economic activity and population), the Western Cape Province.
The study focussed on the implementation of TotalQuality
Management (TQM) in LADPW.

This paper reports on:

o the LADPW's perceptions about TQM prînciples,
commitment to implementing the philosophy, and
beliefs about its effect relative to more "traditional"
management philosophies;
¡ the LADPW' perceptions about obstacle(s) to
successful TQM implementation in their organisations;
o the measures that LADPW can use to determine the
success of TQM efforts;
¡ the factors that effect process quality; and finally it
advances recommendations and conclusions based on
the findings of the research.

The Survey
The Western Cape Province consists of 20 local
authorities. Ten of which were selected by systematic
sampling survey as a research sample. A total of 3l
questionnaires were distributed which represented 3
questionnaires to each of the 10 local authorities including
409 crB-2002

an extra one for Cape Town Metropolitan Provincial

Administration. The bias was accorded to Cape Town
Metropolitan Provincial Administration due to its
enorïnous responsibility and the fact that Cape Town
Metropolitan Provincial Administration handles more
work compared to the other local authorities'

Survey resqonse
As indicated in Table 1, a respottse rate of approximately 80 %
fronr all the sampled LADPWs in the Western Cape was
o/o fron Íhe
attained. Also the response rate of 32
questionnaires sellt was achieved.

The respondents gave variotts reasolls as to why they did not

fill in tlre questionnaires: some cited lack of interest; some
claimecl ,ot Ío hnvu receit'ed the quesfiortnaire; sonte reported
lo be too busy and thereþre could nol spare linre to fill in the
queslionnaire.

Table 1 SC

Total actual samPle (number) 10

LADPWs

Total uestionnaire sent number 31

Total of 11ur11 10
Total response from LADPWs (number) 8

Percentage ofresPonse rate of 32%

Percentage ofresp onse from LADPWs 80%

Iramiliari4t with TQM principles

The majority of respondents reported to be generally
unfamiliar with TQM principles. In addition, they believed that
their colleagues, their superiors, and their subordinates to be
equally unfamiliar, with TQM principles.
 410 It tt t r :¡'t t I i ve I ) a I t' i ve r.t,.5j'.s/crrrs lùy e I a m i I u & Ì\' a n go I o

Acloplion versus inr¡tlenrutlulion of TQM

The respondcnts clearly acknowledged that TQM had not been
formally adopted as a qLrality improvemerrt strategy. The
LADPWs showed no commitllent to implernent TQM
principles in their operations. It can be concluded that in the
absence of forrnally adoption of TQM principles, there can
hardly be any fruitful efforts towards quality and custorner
service, which constitute vital pillars of quality management.

Vctlue adclecl hy TQM implemenlation to current managetnent

praclice
A majority of the respondents believe that irnplernenting TQM
principles can add value to the current management practice.
They also believe that their peers are as enthusiastic as their
senior management about TQM, thus suggesting existence of a
broad awareness of the surveyed subject matter. Nevertheless
these results yield no relevance as to the irnplementation in-as
much as there were no existing initiatives of integrating TQM
in the LADPWs.

Cus lomer ervice focu,s

.s

Majority of the respondents reported that their departrnents had

not formally identified their customers applicable under TQM
principles. This is confirmed by their ranking of the upper
nlanagement as the most important category of their customers.
'ì'his suggests a "top down" mode of management in the
LADPWs. Nevertheless, the respondents managed to identify
public and private sectors among their imporlant customers,

The respontlent,s perception on how to implentent TQM

The respondents indicated that the LADPWs need a
comprehensive and formal TQM implementation program. In
order to execute the program, respondents also indicated the
need for a comprehensive TQM training at all levels of
management and non-management personnel. Where
constrains exist a %to I day TQM overview for all employees
411 cilt - 2002

per month or a comprehensive TQM training for management

persorrnel was recomlnended.

Barriers to TQM imPlementation

TIre respondents did not give priority to "resistance to
change" arñ " tried it andfound it didn't help" as potential
barriers to TQM. Neither did they found that "takes too much
time from real v'ork" nor that "TQM is perceived as iust
anolherfashionable sysÍenf'as being potential barriers' It can,
therefore, be deduced that despite the fact that the responderrts
rvere able to point out tlle potential barriers to TQM
implemelttatiott, tltere is however, a clear irldicatio¡ of a lack
of irnplementation of TQM in LADPWs. This is shown by the
respclnclents' failure to point out "resistance to change" in-as
rnuch as to its importance as one of the crucial barriers to
TQM implementation. Hence rendering these results corrtrary
to tlre results of a similar study in the USA, by Burati and
Oswald (1993), which showed "resistance to chauge" as a
major obstacle to TQM implementatiotr'

Measuring of TQM success

In the absence of the respondents' suggestiorts as to how
LADPWs coultl measure'fQM stlccess' it is necessary for this
study, to point out a few measures germane to LADPWs' In a
similar study done in the USA's Depaftrnettt of Transportation
(DOT) by McCambridge and Tucker ( 1998), the following
were found. Firstly, the use of customer surveys and focus
groups (external and internal customers). Secondly,
establishing performance measures (e'g., pavernent condition
reports, bridge reports, design cost/total cost ratios)' and
thirdly formalteam effectiveness reviews. LADPWs in South
Africa could equally apply these measures.
According to McCambridge and Tucker ( 1998) other relevant
measures for TQM success, which could be applicable to
LADPWs in South Africa, are:
o Change in number of and response time to customer
complaints
 412 Innovalive Deleivety Systents - Rwelamila & Nangolo

rReduction in number and size of tort claims

oNumber of processes re-evaluated and procçss
improvement results (e.g., shorter cycle time, cost
savings, waste reduction, re-work improvements,
product quality improvements, reduced change order)
o Reduced equipment down time
o Improved employee morale, productivity, satisfaction,
turnover, and absenteeism.
The above represent but a few measures which the respondents
could have suggested should they had a shred ofknowledge on
TQM implementation.

Marketing practices as related to TQM principle,s

Very few respondents pointed out the examples of LADPWs'
efforts to enhance their image and how successful/unsuccessful
they have been. These examples given include: preparation of
budgets and conducting of public meetings; subdividing the
LADPWs into smaller task sections ainted at servicing specifìc
client, such as education-schools, health-hospitals etc.; and
writing and delivering national and international papers for
conferences or j ournals,

The above results strongly suggest that LADPWs lack capacity

in managing one of the four primary project parameters -
Quality. There are strong indications to speculate, that
Municipal Authorities may be facing a significant capacity
problem in embracing other primary project parameters.

Conclusions and Recommendations

Conclusíons
Based on the research fìndings, the following conclusions may
be drawn:

a LADPWs \¡iere generally unfamiliar with TQM

principles. This suggests a total lack of TQM
 (-tB - 2002
413

understanding within the LADPWs.

a LADPWs clearly acknowledged that TQM had not been
formally adopted as a quality improvement strategy.
They showed no commitment to implement TQM
principles in their operations. This could be inferred that
in the absence of formal adoption of TQM principles,
there can hardly be any fruitful efforts towards quality
and customer service, whicli embody allquality
improvement strategies.
a "lhe respondents indicated that the LADPWs need a
comprehensive and fonnally TQM irnplementation
program. In order to execute the program, respondents
also indicated the need f<lr a comprehensive TQM
training for all maltagelnellt and non-management
personnel. Where constraints exist, a % to I day TQM
overview for all employees per rnonth or a
comprehensive TQM training for managernent personnel
was suggested. This strongly suggest that LADPWs
perceive the need to implement TQM as a means of
improving quality of their products and services to their
clients.
a Contrary to the fìndings of similar studies elsewhere,
USA in particular, the "resistatrce to change" was not
found to form one of the potential barriers to TQM
implernentation. The respondents indicated: the lack of
administrative support for TQM; general lack of
awareness/understanding of TQM; lack of financial
resources; and difficulty in measuring the effectiveness
of TQM improvement, as the most conspicuous barriers
to successful TQM implementation.
a Surprisingly the respondents failed to suggest any ways
to measure TQM success. Which maybe attributed to the
respondents' lack of understanding of TQM, despite the
fact that there are many ways of which one could
measure the success of the any program implementation.
a Few respondents pointed out the examples of LADPWs'
efforts to enhance their image and how
 414 Innovative Deleivery Systems * Rwelamila & Nangolo

successful/unsuccessful they have been. These examples

include: preparation ofbudgets and conducting ofpublic
meetings; subdividing the LADPWs into smaller task
sections aimed at servicing specific client, such as
education-schools, health-hospitals etc.; and writing and
delivering national and international papers for
conferences or journals. These examples, however, are
not in line with TQM strategies for enhancing the
organisation's image, thus confirming the LADpWs lack
of TQM understanding.

Recommendstions
If South Africa Municipal authorities are going to effectively
negotiate and implement innovative delivery systems for
infrastructure projects, it is pertinent that they improve their
capacities. The challenge for them is to foster a new a
approach to local government service delivery, by providing
affordable, good quality services in a timely and sustainable
manner. This is possible if the municipal authorities become
smart clients, and one of the requirement of a smart client is to
adopt a TQM culture.

The following need to done if municipalauthorities need to

adopt a TQM culture:
o LADPV/s should adopt and implement TeM principles.
This is in order to establish a culture of excellence
within LADPWs and add value to the LADpWs
management in terms of client focus, leadership,
participative workplace and continuous improvement of
department processes.
r LADPWs should deploy a customer service focus
germane under TQM as a tool for marketing LADpWs
practices to their clients as well as means of enhancing
their image. In so doing, LADPWs would save resources
that are likely to be wasted in the pursuit of activities,
which otherwise bear no value to customers.
¡ In order to come up with the best possible way of
415 ctB - 2002

implementing TQM in LADPWs, there is a need to

introduce benchmarking techniques on similar public
ventures, which are doing remarkably well with TQM
programme elsewhere in the world. This should enhance
the LADPWs knowledge on obstacles and necessary
measures in order to bring about a successful TQM
implementation.
a Whilst this study has concentrated on TQM
implementation in the LADPWs in the Western Cape
Province, it is clear that a similar study could be carried
out focusing on all LADPWs. Such a study should shed
rnore light as to what extent TQM implementation has
occurred in South Africa's LADPWs practices, and what
are obstacles encountered and measures taken to
overcome them.

References
Burati, J.L and Oswald, T, H (1993) Lnplementing TQM in
Engineering and Constru ction. Journal of Managemenl in
En gin e erin g, 9 (4), pp 45 6-47 0.
Cox, A. and Townsend, M. (1998) Strategic procurentent in
construction Thomas Telford, London'
Cox, A. and Thornpson,I. (1998) Contractingfor business
success. Thomas Telford, London'
Crosby, P.B (1984) Quality lVithout Tears. McGraw-Hill Book
Company. New York.
Franks, J (19S4) Building Procurement Systems - a Guide to
Building Project Manøgement, The Chartered Institute of
Building, Ascot.
Kasi, M, (1995) TQM on a Transportation Project. Journal of
Management in Engineering. Y ol.l 3.No.3, pp 2l -23'
Masterman, J.W.E., (1992) An Introduction to Building
Frocurement Systems. E & FN Spon, London
McCambridge J.A and Tucker M.L (1998) TQM
Implementation in State Departments of Transportation:
View From The Firing Line. Journal of Management in
416 Innovative Deleivery Systems - Rwelamila & Nangolo

Engineering, l4(l), pp 49-57

Rounce, G (1998) Quality, Waste and Cost Considerations.
Architectural Building Design Management, 16(2), pp
t23-127.
Rwelamila, P.M.D (1996) Quality Management in the Public
Building Construction Process. Unpublished PhD thesis,
Department of Construction Economics and Management,
University of Cape Town, Cape Town.
Rwelamila.P.M.D, Talukhaba and Ngowi,B (1999) Tracing the
African Project Failure Syndrome: the significance of
'ubuntu' The Journal of Engineering, Construction and
Architectural Management, 6(4), pp 335-346.
Rwelamila P.M.D and Savile P.W (1994) "Hybrid Vale
engineering: the Challenge of Construction Project
Management in the 7990s"InternaÍional Journal of Project
Mana ge m en t. 1 2(3) 1 57 - 1 64 Butterworth- He i nemann.
Wright, J.N., (1996) Creating a Quality Culture. Journal of
General Management.Yol.2l, No.3 pp 19-29.
4t7 ctB - 2002

Achieving Best Value in Construction

Through Non-Traditional Procurement Methods
David Greenwoodl

Abstract
The successful outcome ofconstruction projects appears to be
profoundly influenced by the way they are procured, and the subject
of procurement has been the subject of much investigation. In the
UK, a recent report into the effìciency of the industry, commissioned
by the Department of the Environment, Transport and the Regions
(DETR), expressed a 'deep concern that the industry as a whole is
under-achieving' and suggested 'radical changes to the processes
through which it deli,zers its projects'(Construction Task Force,
1998). One of the suggested changes is to 'replace competitive
tendering with long term relationships based on clear measurement of
performance and sustained improvements in quality and
effìciency'(Construction Task Force, I 998). This initiative effectively
coincided with a radical shift in UK government policy to public
sector procurement. Under the l.ocal Government Act 1999, the
requirement for Compulsory Competitive Tendering in public sector
procurement was abolished, and replaced with the requirement to
demonstrate 'Best Value'. The result is that local authority clients are
enabled to experiment with alternatives to tendering, and this
opportunity has been taken by a number of public sector clients' ln
one such initiative, a Local Authority have created a partnering
agreement with a small group of contractors to implement its school-
building programme over the next four years. At the root of the
agreement is a system ofnon-adversarial working underpinned by
rigorous performance measurement and targets for improvement. The
paper represents a work-in-progress report upon a larger piece of
research funded by the DETR to investigate the success of this
project. The impact ofnon-adversarial patterns ofworking on project
and business performance should be of major interest to clients,
practitioners and policy-makers throughout the construction industry,
particularly in the public sector, and indeed to a wider audience'

I
School of the Built Environment, University of Northumbria, UK
418 Non-Traditional Procurement Methods - Greenwood

Keywords : Best Value, Non-adversarial contracting, Partnering,

Procurement, Public sector.

Introduction
It is generally accepted that the way construction work is
procured has a fundamental influence on a number of things,
including the cost of tendering (Latham, 1993) and that
innovative procurement practices may reduce these costs
(Hughes et al. 2001).ln particular, it has been argued that non-
traditional procurement methods such as partnering, will not
only produce these immediately accessible savings, but also an
improvement in relationships that may further increase overall
value for money (Construction Task Force, 1998). The earliest
experiments with partnering were in the USA, where examples
of non-adversarial relationships between contractors and
owners were studied (Construction Industry Institute, l99l;
Weston and Gibson, 1993; Loraine,7994, Larson, 1995). In
the UK construction industry, partnering has become an
popular topic following several highly publicized client-led
initiatives and the impetus given to it by the publication of the
report by Sir Michael Latham (Latham,l994). There followed
a number of influential publications that demonstrated the
benefits of [email protected] et a|.,1997; Bennett and
Jayes, 1998; Construction Industry Board, 1997a) and indeed,
others that were more sceptical. In the manufacturing industry
for example, Bresnen (1996: 127) has observed that in many
cases the so-called 'partnerships' between buyers and suppliers
'can be deconstructed to reveal the reality of control and
market power that underpins the demand-supply relationship'.
Often, the aim of innovative procurement practice is merely to
pass costs and risks'down the line': these mechanisms are often
forced upon suppliers by their economically stronger'partners'
and reflect the power imbalance in their relationship (Powell,
1990, Morris and Imrie, 1992; Turnbull et a|.,1992). Similar
419 ctq - 2002

criticisms have recently been clirected at the uncritical

acceptance of 'partnering' by the UK construction
establishment (see, for exarnple, Green, 1999). However in the
public sector, the major obstacle to its adoption has been the
need for public accountability and demottstrable financial
probity (Larson, 1995), A major turning point has been the
'Rethinking Construction' report (Construction Task Force,
1998) cornmissioned by the Department of the Environment,
Transport and tlie Regions and produced by a 'task force'
under the chairmanship of Sir John Egan. The report reported a
concern that the UK construction industry was'under-
achieving' (Construction Task Force, 1998: paragraphs 4-6)
and that in order to improve the industry needed to make
'radical changes to the processes through which it delivers its
projects' (Construction Task F'orce, 1998: chapter 3). The
report makes specific reference to the need to 'replace
competitive tendering with long term relationships based on
clear measuremeut of performance and sustained
improvements in quality and efficiency' (Construction Task
Force, 1998: paragraphs 67-71). This involves 'new criteria for
the selection of partners' based, not on 'lowest price, but
ultimately ... best overall value for rnoney' (Construction Task
Force, 1998: chapter 4). Egan notes that this 'goes against the
grain, especially for the public sector' (Construction Task
Force, 1998 ).

However, public sector antipathy to partnering was overturned

by a significant shift in government policy . On 1 April2000,
the Local Government Act 1999 removed the previous long-
standing requirement for Compulsory Competitive Tendering,
and replaced it with a requirement to obtain 'Best Value'.
Broadly speaking 'Best Value' requires a council to seek
improved performance by whatever means is best. It is likely to
transform the way services are procured and delivered. The
legislation requires authorities to challenge whether existing
practices are still relevant, consult on better cost-effectiveness,
compare its performance with others through benchmarking,
420 Non-Traditíonal Procurement Methods - Greenwood

and compete with the best solutions (Joseph Rowntree

Foundation, 1999 47). The result is that localauthority clients
were enabled to experiment with alternatives to tendering. The
means by which individual organisations satis$ stakeholders
(in particular council members and auditors) is open to debate.
However, it is clear that performance measurement will be
essential. In order to meet the requirement to demonstrate Best
Value, a culture of 'management by fact' i.e. using hard,
quantitative data will become the norm in the public sector.

The North Tyneside Partnering Agreement

(NrPA)
North Tyneside is the local authority governing an area to the
north of the city of Newcastle-upon-Tyne in the north-east of
England. The authority is responsible for the construction,
replacement and maintenance of a sizeable stock of public
buildings, including public housing, schools and'other non-
housing provision. The Council has recently entered a
partnering agreement (the NTPA) with three contractors for
implementing its school-building programme over the next
four years. The argument for this was grounded in the
philosophies of Constructing the Team (Latham, 1993) and
Rethinking Construction (Construction Task Force, 1998) and
set in the context of the requirements of Best Value
procurement of public services. In agreeing to waive its
Standing Orders With Respect to Contracts to accommodate
this initiative, the Council effectively took a ground-breaking
lead in local government procurement.

Expressions of interest were invited and a process of selecting

the partners - three building contractors - was completed early
in 2000. The selection process was rigorous and transparent,
but based upon quality criteria alone. After selection, the
University of Northumbria was approached to facilitate the
partnering process. The process commenced with a number of
workshops designed to familiarize those involved with current
421 ctB - 2002

thinking on parlnering. The 'theoretical' input was provided by

presentations by academics who sought to identiff key issues,
examine them and perform a needs-based analysis. The final
stage was the agreement and cornpletion of a Partnering
Charter that clearly expressed the partners'objectives.

Researching The Performance Of NTPA: Aims

And Methods
The University was also asked to carry out research to monitor
the success of NTPA. The vehicle for this is a research project
suppofted by the'Patlners in Innovation' sclteme ftrnded by the
UK Government's Depaftment of Environment Transport and
the Regions (DETR). The project's fìrst aim was to address the
immediate requiremerrts of the stakeholders in monitoring the
effectiveness of what they have created. Three of the specific
objectives of the parlnering agreetnent that they entered were:
1. 'establishing appropriate perforrnance indicators ,.. to
rneasure and demonstrate continuous improvelnent';
2.'establishing appropriate benchmark standards against
which to monitor this';
3. all involved'... ate supported and
and ensuring that
encouraged by education and training'.

The research will cover an eighteen month period, during

which time it is anticipated that at least seven projects, ranging
in value frorn f330,000 to f l.5millions will be 'live' and at
different stages in their development.Dafa willbe collected
from these projects and comparisons made between past and
current ways of working. Refereltce was made to
developmental work on headline and operational KPI's by
organisatious such as the Construction Best Practice
Programme, M4I, and the BRE. Consequently, mechanisms
were put in place to monitor performance in a number of areas,
including time, cost, quality, client satisfaction, Health and
Safety, and business perþrmance.
422 N on-Tradi ti ona I P r ocure me nt Me t hods ^ G re e nw ood

Initially, the KPI's used were those promoted by the UK

Government (refl). It was agreed that these required a more
detailed definition, and over the course of three workshops, a
set of Detailed Perþrmance Indicarors (DPIs) was developed.
There followed a series of project-specific workshops, where,
on project start-up, each project team agreed the appropriate
method for capturing the DPI data, and the person responsible
(in conjunction with the researchers) for doing so.

Results To Date
The project is in its early stages, and it will not be possible to
pronounce categorically upon the outcome until the first
projects come to an end. However, the results to-date show
encouraging signs that post-partnering projects have benefited
from considerable improvements especially in project time and
c l ient s at isfac t i on. lnterestin gly, one proj ect has performed

particularly well in these areas, but badly in the area of cost

certainty. Analysis of the cost overruns revealed shortcomings
in the way project'stakeholders' were defined, and their inputs
catered for, under the client's existing organizational
structures. These had been geared to reflect old ways of
working (i.e. those based on Compulsory Competitive
Tendering) and may no longer be appropriate under a Best
Value regime, particularly where the chosen procurement
method is through partnering. Indeed, defining the 'complex
client' can be a difficult task on a school project and this has
been identifred as an area for further research.

Future Directions And Aspirations

The research is approaching a point where the data will enable
the comparison between pre- and post-partnering performance.
The second stage, that of monitoring improvements through
the partnering programme, will then commence.
423 clB - 2002

The project is already attracting a great deal ofnational, and

even international attention. The expected outcomes of the
research are both quantitative, in terms of key performance
indicators, and qualitative, in terlns clf the impact of cultural
factors and the extent to which culture change is engerrdered.
In the context of business efficiency the study will exarnine the
potential for reducing transactiotls costs, and any benefits
thereby gained, while retaining incentives to perforln in the
absence of a traditional adversarial approach. These outcomes
should be valuable to tlie stakeholders, but also to a wider
audience and would complement the other receut and ongoing
studies on partnering in helping to identify its benefits and the
circulnstances where these are most likely to be realised' This
is particularly irnporlant irl view of the recent requirements of
Best Value procurement for the public sector. This
requirement, together with pressure for change from the
government in the light of the Egan report' will place a number
of different pressures on the public sector. The focus will no
lorrger be on the lowest price, but on 'adding value' and
strategic parlnering, with its team approach, appears to be an
'fhe impact of non-adversarial
ideal vehicle for achieving this.
patterns of working on project and business performance
should be of major interest to clients, practitioners and policy-
makers througltout the construction industry, particularly in the
public sector.

References
Barlow, J, Cohen, M, Jashapara, A, and Simpson' Y (1997)
Towards positive partnering. Revealing the realities in the
conslruction industry. The Policy Press, Bristol.
Bennett, J and Jayes, S (1998) The seven pillars of partnering.
Thomas Telford Publishing, London.
Bresnen, M (1996) An organisational perspective on changing
buyer-supplier relations: a critical review of the evidence.
Organization 3 (l) l2l -1 46.
Construction Task Force (1998) (Sir John Egan, Chairman)
424 N on-Trad i t i ona I P r ocure me nt Me t hods - G ree nw o od

Rethinking construction London: Department of the

Environment, Transport and the Regions.
Construction Industry Board (1997a) Partnering in the Team.
London: Thomas Telford.
Construction Industry Institute (1991) In Search of Partnering
Excellence. CII Special Publication 17-l. Bureau of
Engineering Research, University of Texas at Austin.
Green, S (1999) Partnering: the propaganda of corporatism, in
Ogunlana, S. (ed.) Profitable Partnering in Construction
Procuremenl. Proceedings of CIBW92, Chiangmai,
Thailand.
Hughes, WP, Hillebrandt P, Lingard, H and Greenwood, DJ
(2001) The impact of market and supply configurations on
the costs of tendering in the construction industry.
Published Proceedings of the CIB Ilorld Building
Congress, April 2001, Wellington, New Zealand.
Joseph Rowntree Foundation, (1999) Modernizing local
government.
Latham, Sir Michael (1993) Trust and money: thd interim
report of the joint government/industry review of
procuremenl and contractual arrangements in the UK
c ons truct ion indus try. London : HMSO.

Latham, M. 1994) Constructing the team: the final report of the

joint governmenlindustry review of procurement and
contractual amangements in the UK construction industry.
London: HMSO.
Larson, E (1995) Project Partnering - Results of Study of280
Construction Projects. Journal of Management in
Engineering ll (2): 30-35.
Loraine, R.K. (1994) Project Specific Partnering. Engineering,
Construction and Architectural Management, I (1), 5-16.
Morris J and Imrie, R (1992) Transforming Buyer-Supplier
relations: Japanese-style Industrial Practices in a llestern
C ontext. Macmillan, London.
Powell, WW (1990) Neither Market Nor Hierarchy: Network
Forms of Organization Research in Organizational
Behøvior 12 295-336.
425 ctB - 2002

Turnbull P, Oliver, N and Wilkinson, B (1992) Buyer-Supplier

Relations in the UK Automotive Industry: Strategic
Implications of the Japanese Manufacturing Model.
Strategic Mansgement Journal 13, I 59- I 68.
Weston DC and Gibson, GE (1993) Partnering - project
performance in US Army Corps of Engineers. Journal of
Management in Engineering 9 (4), 410-425.
427 ctB - 2002

The Impact of the Tendering Contract on the

Opportunities for Contractor Innovation
Tony Sidwellt & Dedi Budiawanr

Abstract
The concept ofthe existence ofa "tendering Contract" has arisen in
recent years following international court decisions such as those
made by the New Zealand court in Pratt Contractors v. Palmerston
North City Council (1995) and the Canadian court in Health Care
Developers Inc. and Others v. The Queen in Right of Newfoundland
(The Crown) (1996); and authors such as Craig (1997a) have
suggested that this might impact on the ability of clients to solicit
tenders from contractors which include provisions for innovation.
Such an inhibition clearly militates against many developments in
procurement strategies which have been designed to take advantage of
the contribution that the contractor can make in improved
technologies and processes. This paper reports on a three-year
research project into the impact ofsuch case law on the procurement
process and the altemative mechanisms (strategies) that enable clients
to find ways to foster a climate conducive to innovation with less
likelihood of placing themselves at risk of such litigation. The
research is led by an industry task force and sponsored by the
Australian Research Grants Council and the Construction Industry
Institute, Australia. The researchers have developed a model of the
influencing variables in the process and have conducted a preliminary
round of pilot case studies to test the model. Results from the
preliminary cases will be reported.

Keywords: innovation, procurement method, contractual

arrangement, conforming bid/tender, alternative tender, tendering
contraclprocess contract.

Introduction
In the construction industry clients are focusing on achieving

t
Queensland University of Technology, Australia
428 Impact of Tendering Contract - Sidwell & Budiawan

quality and value for money to get the most out of their
investments in constructed facilities, on the other hand
contractors seek competitive advantage through innovation in
construction methods. However recent international case law
has raised doubts about the ability of owners to seek
alternative tenders without placing themselves at risk of
litigation. It has indicated that a "tendering contract" may arise
between the tenderer and the owner upon the submission of a
conforming tender. In decisions of the Supreme Court of
Canada in "The Queen in Right of Ontario et al v. Ron
Engineering & Construction Eastern Ltd (1981) SCR I I I; 119
DLR (3d) 287, 272 " case and the High Court of New Zealand
in "Pratt Contractors Ltd v. Palmerston North City Council
(1995) 1 NZLR 469" the cases have established the owner's
duty of fairness to all bidders. This duty may be breached
when an owner accepts an alternative tender which does not
conform to the conditions of tender (Craig 1999a,1999b).

Craig questions whether the traditional tendering prôcesses can

facilitate innovation. He points out that the successful
tenderer's scope to be innovative is very limited. All too often
the focus is concerned with designing novel claims for extra
cash and more time and with "bid shopping" to drive down
subcontract prices. The time that contractors have for pricing
the job before they submit the tender is too short for them to
come up with "real" innovative ideas and by the time they
reach the construction stage, it is too late for innovation; all
they have time to do is finish the project according to all the
documentation and specifi cations.

Given these circumstances, how'can the industry provide

clients and the community with access to contractors'
innovative ideas without compromising contractors'
commercial advantage? This research focuses on discovering
the project context conducive to encouraging innovation.
429 ctß - 2002

Literature Review on Innovation

Definitíon
Innovation is defined as an idea, practice' or material aftifact
that is perceived as new by the relevant unit of adoption
(Zaltman et al. 1973, Tornatzky et al. 1983). According to
Rogers (1995), the perceived newness of the iclea for the
individual determines his or her reaction to it. If the idea seems
new to the individual, it is an innovation. "Newness" of an
innovation may be expressed in tenns of knowledge,
persuasion, or a decision to adopt. Lenard & Bowen-James
(1996) and Lenard & Eckersley (1991) provide more
comprehensive and descriptive definitiorl as "any idea,
technique and/or process, old or new, that is uniquely applied
to any aspect ofthe production ofgoods and services, such that
it either directly or indirectly generates measurable benefits in
the fornl ofsystem or process efficiency, product quality or
product fype".

Product innovation rnay be development of a new product or

modifications to an existing product through introduction of
new features to enhance its value (Romano 1990). Process
innovatioir may be application of a new element inlo an
organisation's production or service operations - input
materials, task specifications, work and information flow
mechanisms, and equipment used to produce a product or
render a service (Utterback and Abemathy 1975). Another
distinction between process and product innovations was made
by Rosenberg (1982) who specifies that process innovation
enables a greater output per unit of input while product
innovation results in a qualitatively superior product.

Another distinction of innovations, from organisational focus,

is between technical and administrative innovations. Technical
innovations bring change to the organisation by introducing
changes in the technological core. fhey are concerned with
products, services, and production process technology; they are
 430 Impact of Tendering Contract -'Sidwell & Budiawan

related to basic work activities and can be associated with

either product or process (Damanpour and Evan 1984).
Administrative innovations, on the other hand, are changes that
occur to an organisation's structure or its administrative
processes (Damanpour 1 987). These administrative
innovations are directly related to the management of the
organisation and indirectly to the basic work activity of the
organisation (Kimberly and Evanisko 1981).

The adoption of innovation is viewed as a process that includes

activities that lead to a decision to adopt as well as activities
that facilitate putting an innovation into use and continuing to
use it (Damanpour 1991). The adoption process consists of fwo
stages: in itiation and implementation (Zaltman et aI. 197 3 and
Rogers 1995). The initiation stage is characterised by all
activities related to a problem perception, information
gathering, attitude formation and evaluation, and resource
attainment leading to the decision to adopt. The
implementation stage consists of allevents, actions, and
decisions involved in putting an innovation into use (Rogers
1995,Damanpour 1991). Past research has revealed that the
process of initiation and implementation of the three types of
innovations mentioned previously differ in significant ways
(Daft and Becker 1978, Kirnberly and Evanisko 1981).

Rogers (1995) asserts that the innovation process in

organisations is complex. Implementation typically involves a
number of individuals, each of whom plays a different role in
the innovation-decision process. Further, implementation
amounts to mutual adaptation in which both the innovation and
the organisation change in important ways.

Innovatíon in Construction
Despite the fact that innovation is generally perceived by the
construction industry as a rare occurrence, in reality it comes
about consistently throughout the sectors ofthe industry
(Dibner and Lemer 1992, Slaughter 1993, 1998). In fact,
431 crB - 2002

construction actually incorporates innovations at the same rate

as other industries, and these innovations are more likely to be
originated by the people working on site rather than
manufacturers or research laboratories ( S laughter I 993 ).

In construction industry, there are many different ways in

which innovation may be introducecl. These may include
(Smith and V/ilkin I 997):
o the development of new or improved products,
¡ improvedconstructionmanagementtechniques,
o developments in construction technology (i.e. the
process by which products are assembled to satisfu the
client's needs),
. new approaches to architectural and engineering
design so as to improve the client's and users' level of
satisfaction whilst also enhancing the quality of the
built environment,
o improved approachesto construction'procurement.
As to the stages of the innovation-adoption process, Stewart
and Tatum (1988) describe five major steps based on case
studies of innovation in construction projects, which can be
seen to encompass the initiation and implementation stages
mentioned previously. The five major steps are:
. recognising forces to innovate,
r planning to identif, options for methods,
r selecting and defining construction methods,
o implementing and developing the innovation, and
¡ transferring the innovation to future projects.

The Research Project

Figure i illustrates the research design including its
methodology adopted for this research. The industry task force
in essence performed similar role to that performed by experts
in the Delphi peer group method. The development of the
432 Impact of Tendering Contract - Sidwell & Budiawan

theoretical framework and the research instrument has gone

through a number of iterations in consultation with the
taskforce members. As the figure shows, the taskforce took
part from the very beginning ofthe research project in the
research problem definition, interviews in relation to the
development of the theoretical framework, and pilot studies in
the devel of the research instrument.
Defning Coñduoiing lhorough
rêsearch problem lilêralure revi€w

cxa conducling Theorolical famowork

6emi-sÍuclured int6ryiów with
côñtâclô.s/cliêñis

oeveloping a ¡ê6.â¡ch
Conducllng Pilol sludY

conduciing 6lage-1
quêstloñnaire suNey

ca.rylns oul preliminãry datá

analysls

Revislñg lho r€s€arch

Conducling stage-2
quêsllonnairê 6urv€y

Cãrry¡ng oui dàiâ ânãlyÊls ánd

¡ni6rpretålion

Figure 1. Research Design

The theoretical framework encapsulated 68 variables that were

thought as determinants of the process of innovation adoption
in construction project. These variables were grouped into
contractor' s characteristics, cl ient' s characteristics, proj ect
team performance characteristics, project team management
characteristics, construction management actions,
documentation quality characteristics and contract strategy
433 ctB - 2002

characteristics.

To frll in the questionnaire of the preliminary stage-l survey,

the respondents were required to select a completed project
that had some content of contractor innovation, on which the
responses would be based. The questionnaire also specified the
types of innovation cited by Smith and Wilkin (1997), to which
the respondents were asked to relate the innovation occurring
in their project. The response to each variable was recorded on
a seven-point scale to allow for quantitative analyses. The
reason for giving respondents seven alternative answers was to
measure variables at higher levels so that more powerful
statistical procedures may be used. However, as Neuman
(1997) points out, increasing the number of categories beyond
eight or nine is not probably meaningful and will confuse
people. The respondents were asked to rate the degree ofeffect
ofeach variable on the process ofbringing about the
innovation. The questionnaires were disseminâted to
contractors in Queensland, Australia. Only those who were in
the middle-to-top levelposition and involved in construction
projects, such as project managers, construction managers,
design managers, operations managers, were chosen as sample
targets. A total of 44 valid responses were obtained out of the
I l8 questionnaires dispatched, resulting in 40% response rate.
The seven-point scale used was anchored with "1" denoting
"not affected" and "7" denoting"greatly affected". Several
statistical techniques were used to analyse the data. These
included one-way ANOVA, Kruskal-Wallis test, independent-
samples T test, Mann-Whitney test, and paired-samples T test.

Figure 2 shows the sample distribution by contractual

arrangemerìt. Eleven percent of all projects obtained in this
pre I im inary survey \¡/ere procured trad itionally, 5 0%o under
design & construct method, 7o/o undet alliancing, 20%o under
management contracting, and I lYo under other methods. The
fact that design & construct and contracting management
methods stand out in this survey as a result of random variation
434 Impact of Tendering Contract - Sidwell & Budiawan

t0
t0

l0
e
t
l0
r
l0 il r
0

Contmcn¡al ardngcnÉnt

Figure 2. Sampling distribution by contractual arrangement

apparently supports the perception that contractual

arrangements which allow more integration between design
and construction or early involvement of contractor in the
design development phase are more conducive to innovation

xl

112 TF¡ ltP{

T¡pe of lmowtion

Figure 3. Frequency distribution of various innovation types

Note: no response obtained for type 5
Type l: Process by which a constructed product is assembled, Type 2:
Improved construction management, Type 3: lmproved approaches to
construction procurement, Type 4: New approaches to architectural and
engineering design, Type 5: Development and/or application of new
equipment or tools, Type 6: Use of alternative materials or equipment, Type 7
Development ofnew or improved product, and Type 8: Other.

Figure 3 shows the frequency distribution of the responses

associated with the types of innovation being investigated.
43s crB - 2002

Visual inspection on this figure shows that three types of

innovation predominate in this preliminary survey as a result
ofrandom variation; the researcher had no control over the
respondents to choose or not to choose a particular type of
innovation. These three types ofinnovation are type I (process
by which a constructed product is assembled), type 2
(improved construction management), and type 4 (new
approaches to architectural and engineering design). Given
that:
o this study is looking more at construction innovations
originated by contractor;
o the process of bringing about an innovation may
significantly vary from one type of innovation to another
e.g. product vs. process innovation, technical vs,
administrative innovation;
o there is need to concentrate on a specific aspect so that
more useful and meaningful outcomes can be drawn out
of this research;
the researchers decided to focus on only one type of innovation
i.e. type I - process by which a constructed product is
assembled. This major type of innovation is hereafter referred
to as "process innovation". As a matter of fact, process
innovation is closely linked to other types of innovation shown
in Figure 3. For example, an innovation in architectural and
engineering design may require new methods of construction
to build the facility; product innovation usually brings about
process innovation in construction (Stewart and Tatum 1988).
By the same token, new methods of construction may require
an application of new equipment or the use of alternative
equipment.

As process innovation becomes the focus of this research, data

of other innovation types were compared with those of process
innovation to examine if there was any significance difference
between them. If no significance difference was found between
a determinant of a particular innovation type and the
corresponding determinant of process innovation, the data of
436 Impact of Tendering Contract - Sidwell & Budiawan

these two innovation types were pooled together for that

particular determinant. To do this, in addition to the
independent-samples t test, the nonparametric Mann-Whitney
test was carried out at the 5% significance level. This analysis
was performed for all the 68 variables identified in the
theoretical framework.

After the data pooling process had been performed and

determinants ranked in descending order of their mean scores,
the next stage was to compare the ranked determinants, one
with another so that determinants of the same significance
level could be grouped together. This process was carried out
by the paired-samples t test and the independent-samples t test
atthe 5Yo significance level. Both tests resulted in similar
results. These analyses enabled the researchers to extract 39
most important determinants by taking into account the top
three groups. A closer examination of these cleterminants
revealed that the lowest mean score is just above 4, which is in
fact the middle point of the 7-point scale used in this research.
The revised theoretical framework consisting of the 39
variables is shown in Figure 4.

Summary
This paper reports the preliminary survey on determinants of
project context conducive to the process of innovation
adoption in construction projects. Several statistical procedures
were applied in attempts to determine the most significant
determinants among those already identified in the initial
theoretical framework.

Process innovation was chosen by the researchers to be

investigated further for several reasons. Firstly, the study is
looking more at construction innovations originated by
contractor. Secondly, this innovation type is broad and is likely
to be associated with other innovation types. Lastly, focusing
on a specific aspect will result in more useful and meaningful
437 ctB - 2002

outcomes.

PRoJËcr TaM M¡^6EsENl

'1.ú.hp dù ffiÙdM l..mkdt
'Loúrbodlh *qn t..m l.S
!!@e
' r..nMrkbMó.Úl.rm
.o¿rryol.* ol t..m m#ri
'hddbn&Þntu16
.h.rdh¿q¡óffi1ú
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cdtMct stMtEcY
.d¡riry.d ódh...i É@ bÉl
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'n
ehó\@dÈ!.

PRoJEct PÊñFoRurcE/TaM
côr7R^cloR'3 CHAuctE^tsr6s
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'tulmt tuollhe¡Sl.am .wni@$ ro b
.tulmr l@ ol th æßÙdtr rèâñ PRæE3g INNOVAIþN 'm{f*
' B.tsrffi¡i.dóFryb.h'bri.k
' (hrDd dlM ésign l.¿ñlm'* gqd ON
CoNstRUcrpN
PRoJEcr oFr.'vôlltuÒFhlry
bMf,lh 6ÙdM l.¡m
Èitgwrd¡rdaúd
&rhm r.l.lþßhpbMn rh

PRoJEcf CoMPLÉttlY CLtENis CH^McrEntsttcs

o¿d. rmlEld h FF
'cld. {s¡'w.r lo'ñ dd.ld'F

Figure 4. Revised theoretical framework

The research is continuing with further survey based on the

revised theoretical framework produced at this preliminary
stage. The questionnaire will first be revised to encompass
only the most significant variables. Thorough analyses using
multi-variate statistical procedure will be carried out in
attempts to find out project context conducive to process
innovation.

References
Craig, R. (1999a). "How Innovative is the Common Law of
Tendering?" Journal of Construction Procurement, May
1999, pp. 15-26.
Craig, R. (1999b). "Protecting the Integrity of Construction
438 Impact of Tendering Contract - Sidwell & Budiawan

Procurement by Imposed or Assumed Contractual

Obligations". The International Construction Løw Review,
16(2), pp.263-286.
Craig, R. (1997a). "The 'Tendering Contract': Fairness,
Equality and Innovation". Proceedings, CIB W92
Internalional Symposium, Procuremenl - a Key to
Innovation (ed. C.H. Davidson and T. A. A. Meguid), pp.
91-100. Montréal: I.F. Research Corp.
Craig, R. (1997b). "Competitive Advantage through Tendering
Innovation". CII Australia, Fourth Annual Conference.
Melbourne.
Daft, R. L. and Becker, S. W. (1978). The Innovative
Organisatio¡2. New York: Elsevier.
Damanpour, F. (1991). "Organizational Innovation: A Meta-
analysis of Effects of Deterrninants and Moderators".
Acad, Manage. J.,34(3), pp. 555-590.
Damanpour, F, (1987). "The Adoption of Technological,
Administrative, and Ancillary Innovations: The Impact of
Organizational Factors". Journal of Management, 13, pp.
675-688.
Damanpour, F. and Evan, W. M. (1984). "Organizational
Innovation and Performance: the Problem of
Organizational Lag". Adntinistrative Science Quarterly,
29, pp.392-409.
Dibner, D. R. and Lenter, A. C. (1992). The Role of Public
Agencies in Fostering New T'echnologt and Innovation in
Building. Washington D. C.: National Academy of
Sciences Press.
Kimberly, J. R. and Evanisko, Nf. (1981). "Organisational
Innovation: the Influence of Individual, Organisational and
Contextual Factors on Hospital Adoption of Technological
and Administrative Innovations". Academy of Management
Journal, 24(4), pp. 689-7 I 3.
Lenard, D. and Bowen-James, A. (1996).Innovation: The Key
to Competitive Advantøge, RR9. Adelaide: Construction
Industry Institute, Australia.
l,enard, D. and Eckerslev, Y. (1997). Driving Innovation; the
439 ctB - 2002

Role of the Client and the Çontrqctor, RRll. Adelaide:

Construction Industry Institute, Australia.
Neumair, L. W. (1997). Social Research Methods: Qualitative
and Quantitative Approaches. Allyn and Bacon'
Rogers, E. M. (1995). Diffusion of Innovations. Fourth Edition.
New York: The Free Press.
Romano, C. A. (1990). "Identifuing Factors which Influence
Product Innovation: A Case Study Approach". Journal of
Management Studies, 27, pp. 7 5-95.
Rosenberg, N. (1982). Inside the Black Box: Technologt and
Economics, Cambridge.
Slaughter, E. S. (1993). "Builders as Sources of Construction
Innovation". Journal of Construction Engineering and
Management, I l9(3), pp. 532-549.
Slaughter, E. S. (1998). "Models of Construction Innovation".
Journal of Construction Engineering and Management,
124(3), pp.226-231.
Smith, A.J. and Wilkins, B. (1997). "Procurement Strategy,
Innovation and the Assessment of Project Success".
Proceedings, CIB W92 International Symposium,
Procurement - a Key to Innovation (ed. C.H. Davidson
and T. A. A. Meguid).pp. 703-710
Stewart, W. S. and Tatum, C. B. (1988). "Segmental Placement
of Renton Outfall: Construction Innovation". Journal of
Construction Engineering and Managemenr, 114(3), pp.
390-407.
Tornatzky, L. G., Eveland, J. D., Boylan, M. G., Hetzner, W.
4., Johnson,E.C, Roitman, D., and Schneider, J. (1983).
The Process of Technological Innovation: Reviewing the
Literature. National Science Foundation, Productivity
Improvement Research Section.
Utterback, J. M. (1974). "Innovation in Industry and the
Diffusion of Technology". Science, 183, pp. 658'662.
Zaltman, G., Duncan, R. and Holbeck, J. (1973). Innovations
and Organisations. New York: Wiley.
 441 cIB-2002

Face-to-Face Communication in Construction

Mats G. Holmr

Abstract
In the construction process communication between the
. involved parties plays an essential part of the service delivery;
in addition new developments in IT and telecommunication
have facilitated new and easy ways of communication.
However, in many cases, design consultants or contractor
employees need to meet the customer or building user face-to-
face to convey information, trust or security. With findings
from the fields of communication and service management, the
significance of face-to-face communication between service
providers and customers, especially between craftsmen and
building users, is highlighted and practical implications are
outlined.

Keywords : communications, face-to-face, construction proj ects

Introduction
Face-to-face communication between users and contractor
employees exists in many types of construction; two examples
are: (l) refurbishment of flats or offices with users in
occupancy and (2) offices "shells", to be completed after the
users have moved in. Both of these types of construction are
cost saving, as neither temporary accommodation nor
additional moving are needed. Thus, they are frequently used
despite the potential of being more distressing for users.

I Skanska Services AB, SE-l69 83 Solna, Sweden. [email protected]

442 Face-to-Face Communication - Holm

Refurbishment should be seen as a service (Holm, 2000a) and

recent investigations of seven refurbishment or completion
projects with users in occupancy in Sweden showed that the
service quality provided by contractor employees has a major
impact on the users' willingness to recommend the contractors
(Holm and Bröchner,1999; Holm and Bröchner, 2000; Holm,
2000b; Holm, 2000c). Moreover, the investigated projects not
only revealed frequent visual interaction between the users and
the craftsmen but also almost as frequent oral communication.
The mean frequency of visual interaction or oral
communication varied between projects but spanned in the
housing refurbishment projects from once a fortnight to several
times a week. However, written communication from
contractors to users was much less frequent when investigated.

Evidently, face-to-face communication is part of the

contractor's service delivery and consequently the mentioned
investigations also pinpointed communicating well as one of
the major influences on the users' willingness to recommend
the contractor.

As stated, face-to-face communication not only exists in

refurbishment projects but also in many other types of
construction. Thus, there seems to be a potential, in the light of
the mentioned investigations of refurbishment projects, to
discuss face-to-face communication between the various
parties involved in building processes, especially the case of
communication between craftsmen and building users, aiming
at an increased understanding of the impact of face-to-face
communication.

Interaction in construction
Let us assume that there are five ways of interaction between
craftsmen and building users in occupancy: (1) observation, (2)
face-to-face communication, (3) space sharing, (4) indirect
effects and (5) service recovery. These five groups of
interaction can be compared with the frve criteria tangibles,
443 crB-2002

reliability, responsiveness, assurance and empathy that

customers use to evaluate services according to Zeithaml et al
(1990). In construction projects there is also the quality of
work which is generally acknowledged as influential in
achieving customer satisfaction in the industry. The five ways
of interaction assumed, while not always mutually exclusive,
lead to different expected impacts on user satisfaction.

Observstíon
Observation can be interpreted as visual interaction. This first
type of interaction includes several factors that may contribute
to satisfaction or dissatisfaction, such as if the craftsmen, in
the eyes of the users, have the right equipment or if they seem
skilled. Furthermore this type of interaction also includes if the
users are able to identiff the contracting firms from logotypes
or brand names on signs or clothes; without such recognition,
many benefits from satisffing the customer may well be lost.

Føce-to-fac e c o mm unic atio n

Face-to-face communication is our second and most obvious
type of interaction. A user sends a message to (: asks) a
craftsmen in order to obtain information. However, during
such a transmission of information, obstacles as noise,
impaired hearing and language difflrculties may obscure parts
of the message. This can be compared with the classic
mathematical theory of communication (Shannon and Weaver,
1949), where a message passes from the information sourge to
the destination through transmitter and receiver and where a
noise source may affect the transmitted riressage. It can be also
assumed that the craftsman interprets the received message and
formulates an answer. This answer depends, in addition to the
interpretation of the message, upon the skills of the employee.
These skills may be divided into six categories: (l) ability to
listen (being receptive); (2) ability to phrase an answer suited
for the user (rhetorical); (3) knowledge (educational), (4) skills
acquired by experience, or (5) project related skills, and (6)
 444 Face-to-Face Communicalion - Holm

empathy. Next it can be assumed that the user will analyse the
answer, including a comparison with the original request so as
to establish whether it is a response to the original message,
and an identification of the skills of the employee. The user
understands more or less of the received information and may
consider the answer adequate or choose to formulate a further
question to acquire additional information. The process may
thus include more than one message sent in either direction.
Finally, the communication ends and the user is feeling more
or less understood which eventually contributes to user
satisfaction or dissatisfaction.

Spøce sharing
Space sharing, that the users and the craftsmen share the same
space, is an issue of accessibility and co-operation. This third
type of interaction means that craftsmen and users need to
perform their individual tasks under a co-operative regime,
whether they like it or not. In addition both parties often need
to store equipment and materials in such away that it
minimizes mutual damage. This, in many cases forced, co-
operation should have a potential to contribute to user
satisfaction or dissatisfaction.

Indìrect effects
Dust and noise are examples of how conversion work may
influence user opinion of contractors negatively without direct
personal interaction. Furthermore, indirect effects may also
include user-to-user communication regarding information and
opinions on the contractors or subcontractors, thus influencing
each other and probably resulting in that opinions from leaders
(informal or formal) have an amplified impact on the other
users' opinions. Such an effect can be predicted if the "two-
stop flow" hypothesis is applicable to the situation (Lazarsfeld
et a1.,1948). This hypothesis suggests that ideas from media
often reach the public indirectly through people, so-called
opinion leaders, who are more active in discussions and
445 crB-2002

consume more media than less interested people.

Semíce recovery
The impact of service recovery on customer satisfaction in
hotels and restaurants is shown in a study by Smith et al.
(1999). In both service settings, customers were less satisfied
after service.failures than after outcome failures.

Implications for the construction industry

At least the first two of the five groups of interaction can be
considered as visual communication - (l) observation, as
signals are transmitted to the observer consciously or
unconsciously and (2) face-to-face communication. Focusing
on face-to-face communication, it exists in various shapes in
the construction industry, for instance between contractor
employees, design consultants, clients and building users in the
construction industry. A commonly used expression in the
service marketing literature is "the service encounter", which
is the time the consumer directly interacts with a service
(Shostack, l9S5). Face-to-face communication in a restaurant
service setting has earlier been analysed by Haring and
Mattsson (1999). Examples of face-to-face communication in
construction are between:
o craftsmen and users during refurbishment projects with
users in occupancy;
o craftsmen and users during repair and maintenance
activities;
o sellers and users when new flats are produced and sold;
o contractor employees and the client, during a building
project and when a construction project is procured;
o design consultants and building owner, during the design
phase;
o contractorand subcontractors, duringthe physical
construction process;
o individual employees within one or more of the involved
 446 Face-to-Face Communication - Holm

companles;
a various groups within the contractor's organization

The several studies mentioned earlier (Holm and Bröchner,

1999; Holm and Bröchner,2000; Holm, 2000b; Holm, 2000c),
pinpointed the significance of face-to-face communication
between craftsmen and users in a refurbishment setting with
users in occupancy. They also revealed that only a minority of
the users used the possibility to rank the quality of work
provided by the various trades. The latter finding may indicate
that the users have difficulties in discerning between the
individual trades. If this is true, many users will see the
subcontractors as representatives of the main contractor - often
building contractor. To be remembered is also that the main
contractor is responsible for its subcontractors in a contractual
sense. Having these two things in mind, it is easy to understand
that the service quality provided is particularly important for
the main contractor, often building contractor, as the provided
service quality influences the users' willingness to recommend
the contractors. Potential referrals that in turn may lead to
increased possibilities to achieve new contracts.
Recommendations have earlier shown to be an important way
to generate new work for the UK repair and maintenance
industry (Leather and Rolfe, 1997) and one of the factors
influencing developers' selection of contractors in Thailand
(Ogunlana and Khaewkhaseng, 2000).

This research does not include comparisons between written

and face-to-face communication. However, focusing on the
craftsman-user communication: (1) written communication to
users is seldom used by craftsmen as such task seldom is in
their line of responsibility, whereas (2) face-to-face
communication between users and craftsmen is more often
performed on an ad hoc basis and cannot be avoided (e.g. a
user need information and asks one of the craftsmen).
Moreover, Westmyer et al. (1998) showed that oral
communication is preferred over written communication to
 clB-2002
44',1

the need for

interpersonal needs'
All^in all' tni¡
fulfil llficates
communication for the
guiding principles in face-to-face delivery'
irnprou"d service quality
craftsmen as a way ,o,
many
communication exists in
To summari ze" face-to'face to be
and they have proved
gpes of building q'1ì""it
tttúng' Nevertheless' further
sisnificant in a r"luråiJ*"ni
projects are needed to
;ü;iläiä,r'""vp* ofåïuuitaing
face-to-iace communi':"ti"l-iÎ^^
discern the full itpuãi the servlce-
focusing on the role of
construction. Ho*.u.r,
i,åîiaì"eï*'ïlîli;lîLî'1":ilJil:î::llxÏ:lif'lL'
of commur
this tYPe
in the case of reftrrbishrnent'
ä"niJ.if"trt

Conclusions
various types of face-to-face
Obviously, there exists and it seems
u lon't'utiion pJ?c:ss
communication durinf
could influence the
nrobable that this "ofm*i"ution
provider' not onlv in building
ffi;ä;iirt" '"'"i"" o"tupancv but in manv other tvpes
::iffiffi;ni*itl'' u'ã"'in
of construction as well'
communication
the need for marketins
Nevertheless, whereas not much
mav be cvident to' tn't
construction
"o*puãi"''
face-to-face
ffåä; h;;;" tu' u"* directed towards
not in the case of the craftsmen'
communication, "'p"tìully achieving an
to"Ue u potential for
Therefore, tt-'"'" '""i"
the market if the face-to-face
improved reputation in and hi ghli ghted within
commun icati""'ki li;;; ì""o gni""o
gíi¿" to better communication'
contracting fi'*'' ;i;;;""p of the contractor and
between tttt it""1"a"f*ît"pl:I:-ï the importance of
building
'"'ui""
users could be (1) recognize
the
(2) edicate managers and
face-to-face users about the
"o**'iJ"ãtìon'
craftsmen' (3) i"fJ;;;;;-iiìl't"11and four
(4) communicate well' These
present project and frnally in
at teast imi;å;ît"t of the six skills needed
steps would
 448 Foce_to_Face Communication _ Holm
communication earlier mentioned:
ability to listen, ability to
phrase an answer, knowledge
p;;j;;i related skills.
""d
It could also be fruitful for a construction
company to try to
increase the number of face_to_face;;;;;;;,
berween
craftsmen and users a¡ thel if
well p".fo*"¿,
r --4v¡r¡ may increase
the potential for positiv, ,éf".rulr.

References
Haring, M. den and.ffatt¡so n, J. (1999),.,A
linguistic approach
to studying quarity of face-to-fa."
.o,n.nun ication,, The
Service Industries Journal,Vol.
l9 No. 2, pp.Zt_+t.-'-"
Holm, M.G., and Bröchner, J.-itfl¡,;,Sutis$ing
the ultimate
customer in housing refurb ishment,,,
C IB WZ 0 Intern at ional Sympos
in í, ;
"-,
;;;r;; ;;"'
ium on Manage ment,
Ma in
g-I o" i iii i r r,
t e n an c e a n d Mo d e in ¡ sà t ¡ o n o¡ n i tain
Singapore, tg_20 November I998ipp.205_212.
"
__ -
Holm, M.G., and Bröchner, r. (zoió), iöm""
conversions: the
effects of craftsman_user interaclion,,
Facilitles, Vol. lg
No. l3l14, pp.535_544
Holm, M.G. (2000a), .,Service
management in housing
refurbishment: a theoreti.uf uppåu"f, _,
' Management
Construction
an.d Ecoro*i"r,'VoL ii,
No. 5, pp. 525_533.
Holm, M.G. (2000b) .,Servic-e qí"iiry
product quality in
housing refurbishme nt,, Inìlrrrà'í,ìi)t ""¿ nrrnat
and Re I i a b it itv Man ase me
of euatity
n t, y ot. I i No. + t s, pi.zi1"
-- íqo.
Holm,;Vfr! ..(2000c),.,Selice pr""irì""'i"
building
refurbishment,,, in proceeåings
Cln Wr70 International
Symposium on Fqcilitie: M";rg;*rit "¡
and Ma¡ntenonce,
Brisbane, 15_17 November ,gg'g,
_
Lazarsfeld, p.F., Berelson, g.
pp,.' S+l_545.
unJ Gl åä, (194g), The
People's Choice; How the
Pr e s i d e n t i a r c amp a ign, 2nd.frorc,
Uoi"s ".(Jp His Mind in a
edn, ð"î".ui" university
Press, New york.
Leather, P. and Rolfe, S.J. (1997), ,.Fit
for the task: the future
of the small scale domestic,óJr;nä.aintenance .
449 cIB-2002

industry in the UK", Construction Management rind

Economics, Vol. 15, pp.20l-212
Ogunlana, S. and Khaewkhaseng, N. (2000), "Customer
satisfaction in the procurement of residential construction:
the example from Bankok", in Proceedings of CIB 14192
International Procurement Systems Symposium on
Informat ion and C ommunicat ion in C ons tntct ion
Procurement, Santiago de Chile, 24-27 April2000, pp.
219-231.
Shannon, C,E. and Weaver, W. (1949), The Mathematical
Theory of Communication, University of Illinois Press,
Urbana.
Shostack, G.L. (1985), "Planning the service encounter", in
The Service Encounter: Managing Employee/Customer
Interaction in Service Businesses, Czepiel, J,A, Solomon,
M.R. and Surprenant C.F. (eds.), Lexington Books,
Lexington MA, pp. 243-253.
Smith, 4.K., Bolton, R.N, and Wagner, J. (1999), "4 model of
customer satisfaction with service encounters involving
failure and recovery", Journal of Marketing Research,
Vol.36 No. 3, pp.356-372.
Westmyer, S.4., DiCioccio, R.L. and Rubin, R.B. (1998),
"Appropriateness and effectiveness of communication
channels in competent interpersonal communication",
Journal of C o mmun ic at ion, Y ol. 4 8 S ummer, pp. 27 -48.
Zeithaml, V.4., Parasuraman, A. and Berry, L.L. (1990),
Del iver ing Qual ity Serv ice : Balanc ing Customer
Perceptions and Expectations,The Free Press, New York.
 451 ctB-2002

Problems of Trust and Control in Client-

Contractor Relations
Anna Kadeforsl

Abstract
Adversarial inter-organisational relations have since long been
considered a major problem in the construction industry. In Sweden,
however, clients have been hesitant to abandon traditional
procurement practices, and there are still only a few examples of
explicit partnering projects. In this paper, research on trust in
exchange relations is employed to analyse client-contractor relations
in construction projects. Several potentially dysfunctional
mechanisms are identified. Notably, rational models tend to predict
distrust and the logic of interaction in contingent claims contracts
contradict intuitive perceptions ofhow a trustworthy exchange partner
should behave. It is proposed that a combination,of unobtrusive
control strategies and communication is needed to ensure viable co-
operation.

Keywords: trust, control, dysfunctional mechanisms, rational models

Background
In Sweden, contractual relations in construction are considered
to be less adversarial than in, for example, UK and US. Most
conflicts are negotiated and resolved within the projects, and
few cases reach either formal adjudication or courts. Still,
there is considerable dissatisfaction with the level of conflict
and the working climate within the Swedish construction
industry, and the interest in developing more co-operative
client-contractor relations has increased in recent years.
However, concrete examples of explicit partnering projects are

I
Dept. of Service Management, Chalmers University of Technology, SE -
4I 2 96 Göteborg, SWEDEN. (email an na. kadcforsíl,mot. cha lnrers. sc)
452 Problems of Trust - Kadeþrs

still quite few, and clients hesitate to increase the contractor's

responsibility in influencing design, The aim of this paper is to
analyse the clients' doubt and to suggest more co-operative and
yet viable strategies.

Traditional Contracts
In traditional Swedish contractual arrallgemellts, the client
appoints consultants to specifu the building design and main
contractors are then invited to tender. Often, a frxed price is set
for the contract and as the specifications are detailed, it is
normal to appoint the lowest bidder. Standard contractual
agreements stipulate that when a client chooses to change the
requirements, or when errors or omissions in the specifications
are found, the appointed contractor has the right to carry out
the "extra" work that follows. The pricing of this work is based
on contractor cost and is not subject to competition. Thus, after
the contract is signed, specification defects and client changes
entail extra costs for the client and opportunities to improve
profits for the contractor. After the contract is signed,
specification defects and client changes entail extra costs for
the client and opportunities to improve profits for the
contractor. The client fears that the contractor will scrutinise
the contractual documents for errors and ambiguities that may
lead to clailrrs, expluit thcil tttottopolist position by excessive
pricing of extra work, or save money by shirking on quality.
Consequently, the client often monitors site work quite closely
and contractor claims and suggestions are critically examined
to detect signs of opportunism.

Historically, it is the Swedish contractors who have been most

dissatisfied with traditional, general construction contracts.
They would prefer less specified design-build contracts, so that
the contractors may participate in the initial phases of a
project. Contractors argue that they may bring significant value
to the process, and complain that their employees are
dissatisfied and frustrated when they are not allowed to
453 crB-2002

contribute their knowledge. Another important aspect is that

competitive tendering on detailed specifications makes it
difficult for contractors to make a profit.

A study of government sector clients (Björkman, Kadefors and

Ranhem 1999) as well as two recent master theses (Gerle and
Nyberg 2000; Hindrichsen, Kruus and Wahlqvist 2000) have
investigated Swedish clients' attitudes towards closer co-
operation with contractors and long term contractor relations.
The studies showed that many clients share the view that
closer co-operation with the contractor would be advantageous
and look for ways to achieve better integration of design and
construction and less conflict. They agree that current
contracting practices failto make use of the competencies of
those involved, and that too much effort and resources are
spent on finding out who is responsible for a problem and to
little on constructive problem-solving. However, despite the
perceived need for new forms of interaction, many clients were
reluctant to abandon traditional, general contracts. Considering
that competitive tendering admittedly tends to reduce
contractor profitability, clients tended to view co-operation as
something that primarily benefits the contractors rather than as
a means for achieving a win-win situation. Allthe studies
found that clients heavily stressed the importance of
competitive tendering. In the next section, the clients' attitudes
are analysed using literature on trust in business relations.

Rational Models and Control

In rational models, trust is seen as a product of the incentive
structure shaping the interests ofa person, and a perceiver's
knowledge of these interests (Kramer 1999). Thus, a person
will trust another person if it is in the other's interest to act in a
way that is desirable to the first person. One such framework is
Williamson's (1979,1985) transaction cost theory. ln this
model, individuals are seen as motivated primarily by
economic self-interest and transaction costs arise because of
 4s4 Problems of Trust - Kadeþrs

the need to speciff, monitor and enforce contracts when the

parties' interests diverge and there is risk for opportunism.
Many construction management researchers have used
Williamson's framework to analyse project relations in
construction (Eccles 1981;Reve and Levitt 1984; Stinchcombe
1985; Winch 1989). The generally observe that the
opportunities for opportunistic contractor strategies are
substantial given the temporariness, interdependence and
uncertainty of construction relations. Thus, rational
assessments of the contractor's interests and opportunities for
defection tend to lead to the conclusion that the contractor can
not be entrusted with design responsibility other than in
standardised and simple projects, were the specification
uncertainty is low. Furthermore, it is considered necessary to
ernploy quite close monitoring of contractor performance.
Thus, recommendations based on rational analysis fit well with
the traditional system. However, there are other imporlant
mechanisms involved in human interaction that may blur ancl
even contradict the effectiveness ofcontrol strategies based on
rational models.

Reciprocity and Self-FulfTlling Prophecies

According to rational models, detailed specifications and
monitoring strengthen trust because the client's feelings of
vulnerability are reduced and the willingness to trust increases.
However, the actual relationship between control and trust is
more ambiguous and formal mechanisms of control may act
not only as facilitators but also as impediments to trust (Sitkin
and Stickel 1996;Elangovan and Shapiro 1998). People tend to
reciprocate both trust and distrust by the kind of behaviour
these attitudes anticipate. Distrust communicates to the other
party that opportunism is expected and, consequently, risks to
induce opportunistic strategies such as shirking and work-to-
rule behaviour. Furthermore, once suspicion has been raised
about another person's motives or competence, the perceiver
tends to apply a more active and mindful mode of analysis
 455 ctB-2002

(Fein 1994). As a consequence, monitoring is enhanced and it

is more likely that bad performance will be detected. The
implication is that highly specified contracts, close monitoring
and sanctions for breach of contract may be interpreted as
signs of distrust and may lead to reduced co-operation, thereby
justifying the distrust.

Conversely, trust breeds trust, and people tend to reciprocate

shown trust with a behaviour that justifies that trust. Trust
communicates that co-operation is expected, Also, the trusting
party subconsciously makes extra efforts to ensure that the
trusted party succeeds, in the end justiffing the original
decision to trust (Hayashi 2001). Thus, both trust and distrust
tend to become self-fulfilling prophecies.

Contracts and Co-Operative Behaviour

Based on a review of trust literature, Mayer, Davis and
Schoorman (1995) suggested that, apart from the trustor's
propensity to trust, the most important antecedents of trust
were the trustee's ability, benevolence and inregrity. Ability is
more or less equal to competence, and benevolence
encompasses factors such as loyalty, receptivity, availability
and caring. Integrity implies consistency, fairness, reliability,
openness and value congruence. A closer look at client-
contractor interaction suggests that a major problem of
construction contracts and procurement practices may be that
they produce behaviours and attitudes that contradict intuitive
human understandings of what a co-operative relation irnplies
and how a trustworthy exchange partner should behave.

First, consider the contractor's right to claim "extra" payment

for additional work when the specifications are changed. After
the contract is signed, all changes cost the client money. To the
client, this is easily interpreted as a lack of benevolence,
especially if it is not obvious that the proposed change leads to
cost increases. Also, contractors often are entitled to extra
 456 Problems of Tru.sl - Kadeþrs

payments when there are errors and omissions in the contract

documerrts. Thus, the contractor may profit from adopting a
critical attitude towards the contract documents. As it is the
client and the client's consultants who have prepared these
documents, contractors are perceived as taking advantage of
the client's mistakes. Another aspect that affects perceived
trustworthiness is that each contractor's chances of being
awarded the contract increase if they do not disclose problems
they find in the tendering documents, Instead, they may
anticipate that errors may lead to change orders and reduce
theii bid correspondingly.

All these rules le¡d to conrractor attitudes and behaviours that

are easily perceived as violating the benevolence requirement
by clierts. As for the client, in traditional contractual
arrangements the client role implies a suspicious attitude.
During construction, the client involvement is mainly directed
towards inspection and monitoring. As described above,
distrust may start off vicious circles by discouraging co-
operative contractor strategies. For example, co-operative
moves by the contractor may be doubted and even interpreted
as concealed opportunism. Furthermore, in traditional
contracts all parties try to avoid being perceived as
responsibie. Thus, the concracts encourage both parties to
cr iticise and blame each other participants, rather than to
listen, assume responsibility and show respect.

Conclusions
Two interrelated mechanisms which contribute to the
persistence of low-trust relations in construction have been
discussed: that rational analysis emphasising economic self-
interest tends tojustiff control-based strategies, and that the
formal contractual roles give rise to attitudes and behaviours
that are contradictory to factors generally considered by the
trust literature as trust-enhancing. This indicates that it would
be beneficialto develop more trusting relationships in
 457 ctB-2002

construction. 'l'o increase contractor motivation and

commitment, clients need to participate strategically in project
communication to create meaning, communicate and develop
goals and listen to contractor opinions, Future research should
investigate the role of less obtrusive project control strategies
based on communication, teamwork and constructive conflict
likely to improve performance.

However, clients tend to assign great importance to the role of

extrinsic incentives and competition in influencing contractor
performance. Social and organisational norms are important in
shaping trust behaviour (Creed and Miles 1996;Kramer,
Brewer and Hanna 1996; Miller and Ratner 1998), and
personal risk avoidance may keep client representatives from
using alternative procurement options. Thus, a more viable
alternative might be to combine co-operative arrangements
with more unobtrusive control mechanisms. For example,
formal interest alignment in the form of incentive contracts
may be important as a signal that co-operation is legitimate and
to be expected, thereby making relations more stable.

References
Björkman, L. Kadefors, A and Ranhem, L (1999)
Byggherrerollen. Interujuer med statliga byggherrar.
Stockholm: Statliga Nätverket för entreprenad- och
kval itetsfrågor.
Creed, W E D, and Miles, R E (1996) Trust in Organizations:
A Conceptual Framework Linking Organizational Forms,
Managerial Philosophies, and the Opportunity Costs of
Controls. In Kramer, R M and Tyler, T R (eds) Trust in
Organizatio,r¿s Thousand Oaks, CA: Sage, l6-38.
Eccles, R (1981) The Quasifirm in the Construction Industry.
Journul of Economic Behavior and Organization,Yol.2,
335-3s7.
Elangovan, A R and Shapiro, D L (1998) Betrayal of trust in
organ ization s, Ac ade my of Man age ment Rev i ew, Y ol. 23 :
458 Problems of Trust - Kadeþrs

547 -67
Fein, S and Hilton, J L (1994) Judging others in the shadow of
suspicion, Motivation and Emotion,Yol. 18: 167-98.
Gerle, C and Nyberg, L (2000) Closer co-operation in building
projects - Interviews with clients in the Göteborg region.
Göteborg: Chalmers University of Technology.
Hayaslri, Alden M. (2001) When to trust your gut, Harvard
Business Review, Vol. 79: 59-65.
Hindrichsen, R, Kmus, M and Wahlqvist, F (2000) TrusÍ and
Longer Relalions in Construction - Clienl Atlitudes and
Contractor SÍrategies. Göteborg: Cltalmers Ilniversity of
Technology.
Krarner, R M (1999) Trust and Distrtlst in Organizations:
Ernerging Perspectives, Ertduring Questiotts, Annual
Review of P sychol o gy, Y ol. 50: 5 69-598.
I(ramer, R M, Brewer, M B and Hanna, B A (1996) Collective
Trust and Collective Action: The Decision to Trust as a
Social Decision. Iu Kramer, R M and Tyler, T R (eds)
Trust in Organizatiors. Thousand Oaks, CA: Sage, 357-89
Mayer, R C, Davis, J H and Schoorman, F D (1995) An
integrative model of organizational trust. Acadenty of
Managentent Review, Vol. 20: 709-734.
Miller, DT. and Ratner, R K (1998) The disparity between the
actual and assumed power of self-interest, Journal of
Personality and Social Psychologt, Y ol. 7 4: 53-62
Reve, T and Levitt, R E (1984) "Organization and govemance
in construction," Project Management, Vol. 2:17-25.
Sitkin, S B and Stickel, D (1996) The road to hell: the
dynamics of distrust in the era of quality. In Kramer, R M
and Tyler, T R (eds) Trust in Organizations Thousancl
Oaks, CA: Sage, 196-21 5.
Stinchcombe, A L (1985) Contracts as Hierarchical
Documents. In Stinchcombe A L and Heimer, C A:
Organization Theory and Project Managentent.
Administering Uncertainty in Norwegian Offshore Oil.
Bergen : Norwegian University Press.
Williamson, O E (1979)Transaction-Cost Economics: The
459 crB-2002

Governance of ContractualRelations, The Jourtralof Law

and Economics, Vol, 22,233-261.
Williamson, O E (1985) Economic Organization. Firms,
Markets and Policy Control. Brighton: Wheatshef.
Winch, G ( l9S9) The construction firm and the construction
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Management and Economics, Y ol. 7 : 331-345.
461 crB-2002

Trust in Construction
Conceptions of Trust in Project Relationships
William Swanr, Graham Woodr, Peter McDermottl & Rachel
Cooperr

Abstract
The role of trust has been repeatedly highlighted as an important
factor in the successful completion ofconstruction projects (Latham
1994,Egan 1998, National Audit Office 2001). T'he Trust n
Construction Project, carried our first for the EPSRC, has attempted
to understand trust's role and impact on construction project
performance.

Building on previous work of the research team (Wood and

McDermott 1998), this first stage of the project has been to conduct
40 interviews, from trade level to director level, in an effort to
understand the different views of trust and how it impacts
relationships and work within construction projects. This paper
documents how different individuals within project teams defined
trust, considered how it was built or destroyed, and the role they felt
that it had on the performance of the teams that they worked in.

Keywords: trust, relationships, teams, supplier chains

Introduction
This paper outlines the model developed from interviews
undertaken during the Trust in Construction Project. The
model looks at the conceptions of trust for a "trust evento' or
single game (Williams 2000). The trust event lies in the
context of many other factors that influence trust (Wood and
McDermott 1999), but allows us to see some of the issues that

I
School of Construction and Property Management, Bridgewater Building,
University of Salford, Salford, M5 4WT (email; rv.c.slvan(í.ùsalli¡rtl.ac.uk)
462 Trust in Construction - Swann et al

arise in exchanges in a project context

The Trust in Construction project is an EPSRC (Engineering

and Physical Sciences Research Council) funded study,
investigating the role of trust in project teams, The project is
framed within the context of the change agendas forrnulated in
the UK construction sectors by Latharn (1994) and Egarr
(1998). l'he role of trust in construction was once again
highlighted in a National Audit Office Report (2001)
"Modernisirrg Construction". which endorsed the change
agendas set in rnotion by Latharn and Egan.

"Tllese initiatives will only achieve inrprovemellts if there is

sustained comuritment across the whole industry to bringing
about change built on mutual trust between client departnrents
and construction firms and a common appreciation of their
respective priorities." (NAO 200 I )

The following repofts on sorne of the preliminary work to

identify conceptions of trust in relationships and the factors
that influence its role within construction projects. These senti-
structured interviews, conducted in parallel with a Social
Network Analysis (Scott 1991) that informed this approach,
were designed to allow the clevelopment of indicators fbr a
"trust inventory" to measure trust in project teams (Brorniley
and Cummings 1996).

Semi Structured Interviews

The interviewees were mainly drawn from the participants in
two pilot case study projects. Additional interviewees were
drawn from the project steering group organisations. The
questions were based on the structure used b1, and previously
reported to W92 by Wood and McDermott (1999).

The interviewees were drawn from many levels and disciplines

in an attempt to get a more rounded conception of trust from
463 crB-2002

different perspectives. The interviews lasted between 35

minutes to I hour 15 minutes.

Level in Percentage of
Orsanisation Trust Interviewee
Director r9%
Senior Manager 31%
Manager 34%
Supervisor 6%
Tradel 9%
Production
Table I - Interviewees Levels within their Organisations

The sample of interviewees was not representative of the

individuals working on the project It did, however, allow all
organisational levels to be questioned in an effort to establish
broad conceptions oftrust at the early stage ofthe trust project.

What is Trust?
Brenkert (1998) noted the growing importance of trust within
and between business organisations, "Trust is said not only to
reduce transaction costs, make possible the sharing of sensitive
information, permitjoint projects of various kinds, but also to
provide a basis for expanded moral relations in business"
(Brenkert 1998),

Trust is a multidimensional, (Sako 1992, Ganesan 1994,

McAllister 1995), multifaceted social phenomenon (Fukuyama
1995, Misztal1996), which is regarded by some as an attitude
(Luhmann 1979, Flores & Solomon 1998), and by others as a
vital social lubricant (Gambetta 1988, Fukuyama 1995). In
spite of the large literature on the subject, Gambetta (1988)
still saw trust as an elusive concept, and ten years later Misztal
(1996) noted the continuing conceptual confusion that
surrounded this socialphenomenon. The difficulty of defining
the concept in a functional sense lead the team to develop a
 464 Trust in Construction - Swann et al

working definition within which to investigate.

Llte define trust as a willingness to rely on the actions of

others, to be dependent upon them, and thus be vulnerable to
their actions, We are mainly interested in trust as it affects the
willingness to co-operale (Wood and McDermott 1999, Smyth
and Thompson 1999).

The first stage of the semi-structured interviews was to assess

what individuals perceived trust as being, to allow them to
provide their own definitions, based on their experience, and
inform the team's understanding of what trust is. The main
theme that ran through the interviews were (Swan et. Al200l),
Honest and open communications - can they be trusted?
Reliance - what do you do when you trust someone?
Outcomes - what happens when you trust?

Perception Intentional¡ty

Trustor Trustêe
Communications

Actions &
Behav¡or¡rs

to

Outcomes

External
Factors

Figurel-TrustEvent

These basic themes were identified as factors that occurred at

the point, or a "trust event", that an individual trusted another.
 46s crB-2002

Figure I highlights the relationship between the trustor, the

person who trusts, and the trustee, the person who is trusted.
This model for trust events has been developed on the basis of
the semi- structured interviews.

Honest Communications
The majority of interviewees agreed that trust was concerned
with the way people communicated with each other. People
had to be open, willing to share important information with the
rest of the team, and honest, giving information that reflected
the real situation.
"To believe thefacts that they produce,"
"Someone makes a decision and they stand by it. You get good
clear information in a reasonable amount of time. "
"IYhether they are open or honest and they are proved to be
honest. "

People stated that trust could only erist where these types of
communications existed. It was felt to be important that people
gave information when it was needed.

Actions and Behaviours

Individuals felt that the people they worked with had to match
actions to communications. Trust will be built where the
actions reflect what the trustee has communicated to the
trustor. This requires people delivering what they promise and
to an acceptable standard.

Outcomes
Ultimately, a project team is working together to complete a
specific outcome. Trust can be built on actions and
communications but, ultimately, people have to successfully
complete the tasks that they are assigned to carry out in order
to complete the project. The outcomes are the physical
466 Trust in Construction -- Swann et al

representations of the promises and actions, such as

information and actual construction work.

"Spending time with people and working with them Iis

important]. Even if you have no experience of someone, there
is trust there, but obviously the proof of the pudding is in the
eating. If you have worked with a project and you have been
let down you would not use that contractor again."

The only way individuals can prove they are competent is in

the final outcome of their work. At site levelthis issue of
competence and its role in trust was considered very irnportant.

"Basically, I will look at someone and say whether I can I trust

them? Just ask a simple question and you can usually see if
they know what they are talking about. Take that on boarcl. If
you ask them a sirnple question and they give you a load of
codswallop, you say to yourself there is something wrong
here."

External Factors
The communications-behaviour-outcomes model functions at a
very basic level. Individuals interviewed understood that
external factors played a big role in construction.

"How they [sub-contractors] react to change is important,

because change is a big thing in construction. It is not as
simple as producing a drawing and them working to that
drawing. There are external factors and it is how the contractor
reacts to that that is important."

During a project information is likely to change. Through

people acting on the trust of others this uncertainty may be
reduced. However, there are factors that neither the trustor nor
the trustee has control over. The interviewees felt it was
important to consider these factors when outcomes did not
467 cr8-2002

match communications. If a trustor felt there were mitigating

circumstances for the outcomes failing to meet their
expectations then most stated this would not damage the trust
in the relationship.

Perception and Intention

The trustor's trust is built through their expectations being met.
Ifthey understand that the trustee is going to bring about
certain outcomes and they rely on this, then how they perceive
the outcomes is important. If they perceive that their trust has
been justified then the relationship will improve. Even if the
outcomes are as predicted by the trustee, unless the trustor
perceives them as such, then the relationship may not be
strengthened.

Another factor is the trustor's perception of the trustee's

intention. Many of the interviewees are aware that mistakes
will happen and are prepared to forgive these without allowing
trust to be damaged in the relationship. However, if the
interviewees felt there was a negative intention in the
behaviour, whether there was one or not, then this would
damage relationships, possibly ineparably.

"If someone set me up on a project, and I found out, I would

never forgive that. If people make genuine mistakes that is one
thing, but if people put you in a position where you believe one
thing I think that is just unforgivable, it depends on the
intention."

Trust in Relationships
An event, or phenomenological, model is useful to understand
trust in relationships. However, trust is built throughout
relationships in which many repeats of these events will impact
future exchange relationships (Williams 2000). Experience is
468 Trust in Construction - Swann et al

considered to be the main driver of trust.

"As you get to know people it gets easier. . . past experience is

important"

The trust "event" or "game" will occur many times in a

relationship during the course ofa construction project. Each
present game will be impacted by past events and events in
other relationships (Smith and Laage-Hellman 1992).ln
addition, this will be impacted by factors connected to project
status, organisational issues and individual contexts (Wood
and McDermott 1999). The trust "event" should not be viewed
in isolation. What it does is isolate specific behaviours in a
relationship to help us understand what happens when people
actually trust.

Conclusions
The models developed have been suggested by recurring
themes of the interviews. It is clear that trust exists at many
different levels and there are many factors that can impact trust
that have not been discussed in this paper. Procurement
systems (Rook and Seymour 1995 from l-iu and Fellows
1999), organisational (Liu and Fellows 1999), psychological
(Bromiley and Cummings 1996) and macroeconomic factors
can all influence relationships in construction project teams
(Swan et al 2001). What is clear is that all levels of the
organisation see the need to trust as vital to the way project
teams need to work. As one interviewee noted,

"People are aware of how much you have to trust people. Even
where there is mistrust there has to be something there to
deliver, otherwise you would do the job yourself."

If we establish what trust is and how it is formed, then we can

look towards measuring and managing the development of
trusting relationships within project teams. If we are able to do
469 crB-2002

this, then we can bring the benefits of flexibility, effective

problem solving and reduced conflict, that the interviewees
highlighted as important benefits of trust (Swan et al. 2001).

Bibliography
Brenkert, G. (1998) Trust, Business and Business Ethics: An
Introduct ion, Business Ethics Quarterly, 8:2, 195 -203
Cummings, L.L.; Bromiley, P. (1996) The Organisational
Trust Inventory in Kramer and Tyler ed Trust in
Organisations, 302 - 330 Sage Thousand Oaks
Egan, Sir John (1998) - Rethinking Constructio,n -HMSO
Flores, F. & Solomon, R. C. (1998) 'Creating Trust'Business
Ethics Quarterly, 8:2, 205 -232
Fukuyama, F (1995) Trust: The Social Virtues and the
Creation of Prosperity, Harmondsworth, Penguin Books
Gambetta, D (ed) (1988) Trust: making and breaking
c o op erat iv e re I at ions, Oxford, Basil B lackwell

Ganesan, S (1994) Determinants of longlerm orientation in

buyer-seller relationships. Journal of Marketing, 58
(April), 1-19
Latham, M (1994) Constructing the Team, Final Report of the
joint Government/Industry Review of Procurement and
Contractual Arrangements in the United Kingdom
C ons truct i o n Indus try,.HMSO

Liu, Anita; Fellows, Richard 1999) - Cultural Issues in.

McDermott and Rowlinson (ed) Procurement Systems: A
Guide to Best Practice in Construction) (139 - 162 E & FN
Spon London
Luhmann, N. (1988) 'Familiarity, confidence, trust: Problems
snd alternatives', in Gambetta, D. (ed.) (1988) Trust:
making and breaking cooperative relations: 94-108 Oxford,
Basil Blackwell
McAllister, D.J. (1995) 'Affect and cognition based trust as a
foundation for interpersonal cooperation in organisations',
Academy of Management Review, 38:1, 24-59
Misztal, Barbara A. (1996) Trust in Modern Societies,
470 Trust in Construction - Swann el al

Cambridge, The Polity Press

National Audit Office - Modernising Construction - (2001)
HMSO
Scott, John (1991) Social NetworkAnalysis: A Handbook-
Sage Publications: London
Smith, P.C; Laage-Hellman, J (1992) Small Group Analysis in
Industrial Networks, ed Axelsson, B; Easton, G. Industrial
Networks: A New View of Reality - Routledge
Smyth, H.J; T'hompson, N.J (1999) Partnering and the
Conditions of Trust ed. Bowen, P.; Hindle, R - CIB W55 &
W65 Joint Triennial Symposium: Customer Satisfaction: A
Focus for Research and Practice
Swan, William; Wood, Graham; McDermott, Peter; Cooper,
Rachel - Trust in Construction: Interim Report
(Forthcomin g 2001)- Centre for Construction Innovation
Williarns, Bernard (2000) 'Formal Structures and Social
Reality', in Gambetta, Diego (ed.) Trust: Making and
Breaking Cooperative Relations, electronic edition,
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<hup //www. soc i o l o gy. ox. ac. u k / papers/w i l l iams3 -
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l3.doc>.
Wood, Graham; McDermott, Peter - Searchingfor Trust in the
UK Construction Industry: An Interim View - CIB W92
Procurement Systems Conference (1999) - Thailand
 471 ctB-2002

Ethics of Hong Kong Surveyors - in an

Organizational Context
Anita M.M. Liur & Jess K.W. Ngr

Abstract
Surveyors are regarded as one ofthe key professionals involved in
construction projects. However, there has been a general lack of srudy
on the ethics ofsurveyors. In the paper, literature ofethics and
professional ethics are reviewed. The similarities and differences
between ethical theories in the East and the West are examined.
Contextual analysis suggests that the identifrcation ofgroups affect
the level of analysis of ethics, such levels include individual, local and
cosmopolitan. The local level, generally refers to organisations, is
emphasised in this research. A suggested methodology is proposed to
study the ethical climate and culture of organisations where surveyors
work.

Keywords : Contextual Analysis, Eth ics, Professional Ethics

Introduction
While there have been previous studies on ethics of architects
(such as Abramowitz,l99S; Takahashi, 1997) and engineers
(such as Alhemoud, 1996; Davis, l99l), there seems to be a
general lack ofsuch study in the surveying profession.

This paper investigates ethics of Hong Kong professional

surveyors in an organizational context. According to the
definition of the Hong Kong Institute of Surveyors (and under
the notion of the old RICS system in surveying divisions), the
title of a "Surveyor" embraces a number of the disciplines
involved with land and its development with buildings. Their

I
Department of Real Estate and Construction, University of Hong Kong,
Pokfi¡lam Road, Hong Kong (email: ammliu¿Ohkucc.hku.hk)
472 Ethics of Hong Kong Surveyors - Liu & Ng

services embrace site setting out, contractual arrangements,

project cost control, land valuation, properly management etc.

The study of teleological and deontological ethics provide a

platform for individuals to justifu their principles of
(professional) judgement. Moralrules may be regarded as
more authoritative and objective than government laws or rules
ofetiquefte. Professional conducts and codes are being
prepared and developed as the society prospers and advances.
The major significance in studying ethics is not in the guidance
it may give in particular cases but in the development of width
and outlook and seriousness of purpose in dealing with moral
and professional matters generally.

Ethics
There is no guarantee that those who understand the difference
between right and wrong will necessarily follow the right. The
purpose ofstudying ethics does not necessarily provide
answers but aims to justify principles ofjudgment. Moral
philosophy provides a starting point and method for coming to
reasoned judgments but promises few definite answers to
specific problems (Lillie, 1951). People's ethical standards in
Hong Kong are subject to much influence of both western and
eastern countries. The understanding of the prominent ethical
theories in the West and East is essential in developing a
research model.

According to Lillie (1951), there are different classification of

ethical theories in the West: absolute and relative ethics;
naturalistic and non-naturalistic ethics; teleological and
deontological ethics. The classification of teleological and
deontological ethics is commonly used by philosophers (Pettit,
1993; Carlson, 1995; Oderberg, 2000). Teleological theories
hold that the rightness and wrongness ofan action depends on
its consequences or results. A deontological theory holds that
the rightness or wrongness ofan action depends on the action
473 ctB-2002

itself and not on the consequences. The means, rather than the
ends, are used to arrive at ethical decisions.

Ivanhoe (1993) distinguishes between western and Chinese

ethics. Western philosophers have been much more concerned
with the definition of what goodness is. On the other hand,
Chinese thinkers focus on how to become good. De ( ) is an
early form of Chinese character since the oracle bone
inscriptions . De is similar to the concept of virtue which
includes kindness or even self-sacrifice (Ivanhoe, 1993).
Stewart (1995) compares Aristotle's concept of virtue with
Chinese Confucians. Stewart contends that the former is
concerned with definition of virtue while the latter
concentrates on the practical questions ofhow to teach and
achieve virtue. However, Steward claims that Aristotle and
Confucius seem to agree on what qualities go to make someone
a virtuous person.

The foundation of Confucian ethics is in the concept of ien

( ), which is variously translated as love or benevolence or
humanism. According to Stewart (1995), there are similarities
between Confucian and occidental values. The concept ofyen
coincides with Christ's injunction to "love your neighbor as
yourself'. Hsu (1991) contends that Confucian ethics is
deontological and denies consequential or rule-based ethics as
the emphasis of Confucian ethics: "Jen is not necessarily
related to a consequence, rather it is an intrinsic characteristic
in which its manifested behavior or norms of behavior is only
secondary" (Hsu 1991 p.l9).

According to Harbour (1995), a shared core of human moral

values of different cultures does exist, but only at the most
basic level such as the approval ofbeneficence,justice,
courage and so on. However, secondary and tertiary moral
values differ between societies. Secondary values are
elaboration and specifications of the general values in the form
of culturally shaped definitions and principles of conduct.
 474 Ethics of Hong Kong Surveyors - Liu & Ng

Tertiary values are specific codes of behavior. Basic,

foundation-level moralvalues are shared across cultures
because they share the same objective property. Therefore, the
most unambiguous evaluations are at the primary level such as
murder is wrong, courage is good.

There are four possible relationships between professional

ethics and general morality:
l. Professional ethics is independent of morality
Professional ethics represents a distinctive ethical
system. This advocates norms which are central to the
profession and it permits conduct which is completely
different from non-professional morality (Green, 1990).
2. Professional ethics is identical with morality
Professional ethics should fall under the same general
principle of morality as do all other branches of ethics
(Gewirth, 1986).
3. Professionalethics is the specification of morality
It means that universal norms are specified in relation to
different situations and circumstances that the
professionals encounter. (Bayles, 1989)
4. Professional ethics is functionally related to morality

Professionals possess specific roles, have additional duties that

ordinary people do not have (Bayles, 1989). Conduct, which is
not in line with general morality, may be permitted if it can be
justified by the values shared among the professionals.
According to Ng (1994), there are broad and narrow
perspectives of professional ethics. The narrow perspective
restricts professional ethics which mainly deals with ethical
dilemmas and pró,bleryrs found in the practice of any
profession. Professiohal ethics is defined in terms of value
conflicts occurring in the practice of professional activities
(Becker, 1992). The broad perspective suggests that
professional ethics encompasses all issues involving ethics and
values in the roles of the professions and conduct of
professionals in society (Bayles, 1988; Annis, 1989).
475 ctB-2002

Research Model
Contextual analysis is the study of the role of group context on
actions and attitudes of individuals and it is widely used in
social sciences research (e.g. Brown, 2000; Kawachi, 1999)'

The concept of cosmopolitan versus local orientations was

originally developed to differentiate between the two primary
reference groups of influential community (Merton, 1957). For
local orientation, the important reference groups or sources of
role definitions and expectations are contained within the
social system that one is embedded, i.e. the local role relates to
service orientation to the organization (Ben-David, 1958) and
is generally referred to the organizational level. For
cosmopolitan orientation, the sources of role definition are in a
social system external to the system in which thg actor is
embedded, i.e. a practitioner seeks recognition from the group
(such as the surveying institution) to cievelop and maintain his
expertise (Blau and Scott, 1962).

In addition to the cosmopolitan and local levels, a third level is

the individual. According to Victor and Cullen (1988), the
individual is external to the focal organization in the sense that
the prevailing normative climate supports a referent for ethical
reasoning located within the individual. It supports the use of
one's personal ethics or the engagement in self-interested
behavior. Also, Victor and Cullen (1988) argues that for
cosmopolitan sources of ethical reasoning, it can be generated
outside organizations but used inside as part of the
institutionalized normative system.

Organizational (local) level is regarded as the central part of

the model (fig. l) as it has much influence to a person's attitude
and behavior. Some scholars (Waters, 1978; Clinard, 1983)
suggests that there is much inter-relationship between ethics of
 476 Ethics of Hong Kong Surveyors - Liu & Ng

individuals and that of the organization.

Individuals are the basis of the corporation. Any study of

corporate ethics must include a study of the ethics of the
employees of a firm. The ethics of employees result, to
some extent, from their own moral characters developed
prior to entering/joining an organisation. Also, ethics of
employees result partly from the adherence to prevailing
values of the organization after joining.

Cosmopolitan level

Local level Ethical Climate

(the organisation)
Ethical Culture

Personal Ethics

Company Outcome
goals Performance (Morally
Behavior
right/wrong)

Perceived Evaluation
Performance
Feedback

Figure 1. Ethics model in the organizational context

Outline Of Research Plan

To review western ethical theories (e.g. Lillie 195 l, Oderberg
2000) and Chinese culturaltheories (e.g. Hsu 1991, Ivanhoe
1993) in order to develop a model for studying professional
ethics in the organizational context. To identiff the level of
analysis of ethics in relation to local and cosmopolitan
orientations (Victor and Cullen 1988) and to incorporate the
477 ctB-2002

concept of "goals-behaviour-performance-outcome" in
construction participants' behaviours from project
management literature (Liu and Walker 1998) in the model. To
collect data from different organization types in Hong Kong
which employ surveyors and cost engineers. The two main
types of employing organizations of surveyors are from the
public sector and private sector (subdivided into developers,
contractors and consultant firms).

Only respondents who have membership (including Honorary

Fellows, Fellows, Associates and Student B membership) of
the Hong Kong Institute of Surveyors will be included in the
sample. Questionnaires are used to measure the ethical climate
and culture of organizations. In order to investigate the
convergence and divergence of the ethical climate and culture
constructs, a principal component factor analysis is to be
conducted on all ethical climate and culture questions. Then
correlational analysis is conducted to determine whether
correlations of within-constructs measures are higher on
average than those of between-constructs (as this would
suggest divergence of the two constructs). Analysis of variance
(ANOVA) will be used to compare the four different types of
organizations for their dominant climate and culture types, if
any.

Findings

A total of 3 15 questionnaires were sent to the respondents as

described in the research plan. Valid returns of 134 received
indicating a 42.5% response rate. Fig. 2 shows the factor
loadings of the ethical climate and culture dimensions. Fig. 3
shows the mean scores of each factor from the public / private
sectors respondents and the coded / non-coded organizations'
employees (coded indicates that the organization adopts a set
of ethical codes known to the employees). The figures
highlighted in bold (in fig. 3) denote significant
differences(p=0.05) in the ANOVA results.
478 Ethics of Hong Kong Sut'veyors - Liu & Ng

2. Factor for ethical climate and culture dimensions

Ethical Climate KMO sphericity 0.652
Factors Cumulative variance 68.023'/.
Factor I: Caringfor
Peonle in Oreanizølion
The most important 0.883
concern is the good of
all people in this
organization.
It is expected that each 0.826
individual is cared for
when making decisions
here.
Managers emphasize on 0.648
human relationshiP and
has a genuine concern
for the employees.
Faclor 2: CompønY
Efficíencv
The major responsibility of 0.8r6
people is to consider
effìciency first.
The most efficient way is 0.786
always the right way in this
organization.
The major 0.426
responsibility of people
is to control cost.
People here are concerned 0.484
with the company's interest-to
the exclusion of all else.
Factor 3: Personal
Moralìn
People are guided by 0.822
their own personal
ethics.
Each person in this organization 0.5 l9
decides for himself / herself what is
risht and wrong.
Factor 4: Løws and
P¡ofcssÍonal Codes
People are expected to strictly follow legal 0.472
or Drofessional standards.
479 ctB-2002

In this organization, the law or ethical code 0.420

ofthe profession is the major consideration.
In this organization, the first consideration 0.7 l3
is whether a decision violates any law.

Factor 5: Friendly
Almosohere
My organization emphasizes on viewing fellow 0.425
staff members as colleagues rather than
competitors.
A friendly and sociable atmosphere 0.716
orevails in mv organization.

Faclor 6: Proleclíon ol
inleresls
People are actively concerned about the customer's 0.518
and the public's interest.
People protect their 0.815
own interests above all
else.
Work is considered substandard only when it hurts 0.496
the company's interest.

7: Self
Centrism
iMy organization emphasizes on individual contributions rather
team contributions. 0.601
You are expected to do 0.873
what benefits yourself.

Føctot 8: Company
Rules and Procedures
Successful people in this 0.685
oreanization eo by the book.
* My organization emphasizes on meeting the demands of clients and
reacting to changes in the external environment rather than setting 0.789
internal organization routines such as developing rules and guidelines.
* items with reversed scale
KMO sphericity 0.608
Cumulative variance
Ethical Culture Factors 50.785%
Í'¡ctor 1: Ethical Environment
Management in this organization disciplines unethical 0.462
behaviour when it occurs.
Ethical behavior is rewarded in this organization. 0.731
The top managers ofthis organization represent high 0.789
ethical standards.
480 Ethics of Hong Kong Surveyors - Liu & Ng

Top managers of this organization guide decision 0.724

makine in an ethical direction.
Factor 2l Obedience to Authority
A person who wants to make his/her own work-related decisions 0.790
would be quickly discouraged here.
There can be little action taken in this organization until a 0.567
superior approves a decision.
The boss is always right in this organization. 0.6s3

Figure 3. Mean scores for the public and private sectors, coded and
non-coded
Organizational N I 2 3 4 5 6 7 8 9 l0
Type
Public Sector 4l 3.61 3.66 3.54 4.60 4.41 3.7 5 2.89 3.49 4.01 3.73
Private Sector 89 3.69 3.76 3.92 4.26 4.04 3.72 3.23 3.r6 3 .84 3.73
Total 130 3.6'l J.t5 3.8C 4.3',1 4.16 3.'73 3.12 3.27 3.9C 3.73

Coded 88 3.8s 3.66 3.79 4.s0 4.32 3.82 3. l5 3.21 4.04 3.7C
Non-coded 42 3.29 3 .88 3.82 4.10 3.82 3.55 3.07 3.38 3.60 3.81
Total 130 3.6'l 3.73 3.8C 4.3'7 4.r6 3.73 3.t2 3.21 3.9C 3.73
L Caring for people in organization 2. Company efficiency
3. Personal morality 4. Laws and professional codes
5. Friendly atmosphere 6. Protection of interests
7. Selfcentrism 8. Company rules and procedures
9. Ethical environment 10. Obedience to authority

Conclusion
There are a number of key findings. Eight major ethical
climate types can be identified in organizations, namely Caring
for People in Organization, Company Efficiency, Personal
Morality, Laws and Professional Codes, Friendly Atmosphere,
Protection of Interests, Self Centrism and Company Rules and
Procedures. Among them, the Personal Morality, Laws and
Professional Codes and Company Rules and Procedures
climates confbrm to the climate types suggested by the original
instrument (Victor and Cullen, 1987).

Since there is more than one respondent from any organization,

481 crB-2002

their divergent responses to the existence ofan ethical code

within the same organization indicates the possibility of
employees' ignorance ofethical codes or that such codes are
not well communicated to employees. When comparing the
coded and non-coded organizations, it is found that the
climates of Personal Morality and Company Rules and
Procedures are significantly negatively related in organizations
with ethical codes. This suggests that ethical codes, which give
rise to over-formalization and inflexibility, hinder personal
development of morality.

Organizations do not have single ethical climate, however,

dominant climate can be found in different types of
organizations. The dominant climate of Laws and Professional
Codes and the least likely climate of Self Centrism are found
in most of the key organizationaltypes. This also confirms that
social norms exist and Bayles' (1988) view that professional
ethics is a system of norms. Laws and Professional Codes
climate is thus the norm in the surveying profession while Self
Centrism is not advocated by many organizations.

The public sector has significantly stronger climates of Laws

and Professional Codes, Friendly Atmosphere and Company
Rules and Procedures. Rules, including ethical codes are
emphasized in the public sector. The private sector, on the
other hand, has stronger climate of personal morality. People
in the private sector may make their personaljudgement more
freely, instead of being constrained by formal codes and rules.

Ethical codes are more effectively implemented in the public

sector. The existence of ethical codes in the private sector may
be for window dressing only.

Organization with ethical codes have stronger climates of

Caring for People in Organization, Laws and Professional
Codes, Friendly Atmosphere, Protection of Interests and
Ethical Environment. Also, human relationship is highly
482 Ethics of Hong Kong Surveyors - Liu & Ng

associated with implementation of ethical codes

References
Abramowitz, A, (1998). A lawyer fìnds that architects, in the
intense pursuit of ethics, often deny themselves a
pragrnatic practice. Architectural Record. 186 (l l), 24-36.
Alhemoud, A. (1995) Engineering ethics is smart business.
Profess ional Safety. 40, 42-43.
Annis, D.B. (1989). Professional Ethics in Education: a
Neglected Issue. San Francisco, CA: American
Educational Research Association
Bayles, M.D. (1988). The Professional-Client Relationship In:
Callahan J.C. ed. Ethical Issues in Professional Life, pp.
I 13-1 19. Oxford: O.U.P.
Bayles, M.D. (1989). Professional Ethics. New York:
Wadsworth.
Becker, L.C. (1992). Encyclopedia of Ethics. Vol.1L. Chicago:
St. James Press.
Ben-David, J. (1958). The professional role of the physician in
bureaucratized medicine: a study in role conflict. Human
Relations,4,255-274.
Blau, P.M. and Scott W.R. (1962). Formal Organizations: A
C o mpar at iv e Appr o ac h. San Francisco : Chandler.
Brown, A. Ó. (2000) Rural Black women and depression: a
contextual analysis. Journal of Maniage and the Family.
62(t),187-t99.
Carlson, E. ( 1 99 5 ). C ons e quent ial is m Rec ons idered.
Dordrecht: Kluwer Academic Publishers.
Clinard, M.B. (1983). Corporate Ethics and Crime. Beverly
Hills: Sage.
Davis, M. (1991). Thinking like an engineer: the place of a
code of ethics in the practice of a profession. Philosophy
and Public Affairs. 20, I 50- I 67.
Gewirth A. (1986). Professional ethics: the separatist thesis.
Ethics. Jan., 300-315.
483 crB-2002

Green, L. (1990). Legalethics: sociology and morality. In

Macniven D. ed. Moral Expertise: Studies in Practical and
Professional ethics, pp. l0l-105. New York: Routledge.
Harbour, F.V. (1995). Basic moral values: a shared core'
Bus ine s s and Int ernat i onal Affair s, 9, | 5 5 -17 0'
Hsu, C. Y. (1991). Applying Confucian ethics to international
relations. Ethics and International Relations,5, 15-31'
Ivanhoe, P..f. (1993). Confucian Moral Self Cultivalioz' New
York: Peter Lang Publishing Inc.
Kawachi,I. (1999 Aug.). Socialcapitaland self-rated health: a
contextual analysis. American Journal of Public Health' 89
(8),1187-1194.
Lillie W. (1951). An Introduction to Ethics., London: Methuen
& Co. Ltd.
Liu A.M.M. and Walker A. (1998) Evaluation of Project
Outcomes, C onstrucl ion Management and Ec onomics, I 6,
209-219
Merton, R.K. (1957). Social theory and Social Structure.New
York: Free Press.
Ng Chi Hung (1994). Teachers Perceptions of Professional
Ethics In Hong Kong. Hong Kong: Hong Kong University
M. Ed. Thesis.
Oderberg, D.S. (2000). Applied Ethics : A Non-
C ons e q uent i al i s t Appr o ac h. Oxfor d: B lackwell Publ ishers
Pettit, P. (1993). Consequentialism. Aldershot, Hants:
Dartmouth
Stewart S.(1995). The ethics of values and the value of ethics:
should we be studying business values in Hong Kong? In:
Stewart S. and Donleavy G. eds. Whose Business Values?
Some Asian and Cross-Cultural Perspectives, pp.2-18.
Hong Kong: Hong Kong University Press.
Takahashi, E.K. (1997). Standards of care offer architects real-
world applications of AIA code of ethics' Architectural
Records, 185,22-34.
Victor B. & Cullen J.B. (l9SS). The Organizational Bases of
Ethical Work Climate. Administrative Science Quarterly,
33, l0l-125.
484 Ethics ofHong Kong Surveyors - Liu & Ng

Victor, B. & Cullen, J.B. (1987). A Theory and Measure of

EthicalClimate in Organizations. In Frederick W.C. ed..
Research in Corporate Social Performance and Policy, pp
5l-71. Greenwich, CT: JAI Press,.
Waters, J.A. 1978). Climatefor Creativity. Elmsford, NY:
Pergamon.
485 crB-2002

Project Leadership's Influence on Costs of

Human Errors
Per-Erik Josephsonr

Abstract
The paper concerns leadership in building projects and focuses on the
site manager. It argues that the leadership influences the costs of
human errors to a large extent. By leadership is meant that (a) the
project members on site have confidence in the site manager, which
depends on the site managers competence and the distance between
the site manager and the project members, (b) the task is clearly laid
down and defined for both the site manager and the project members
on site, and that (c) the site manager get power and the organisational
support he needs. These three major groups offactors are divided in
twelve more specific factors. The analysis is based on close follow-
ups on seven building projects and 92 interviews with key persons
within the projects. It is recommended that the client demand the
contractor's organisation to support the factors presented and that the
contractor çvaluates their project organisation in early stages based on
the same factors.

Keywords: Project leadership, site management, success factors,

human error, cost.

Introduction
'To err is human', is a common statement in general as well as
in construction. But humans do mistakes too often. The costs
for consequences of human effors in building projects have
been found to be approximately 5Yo of the project cost
(Josephson and Hammarlund, 1999)' Numerous studies
aiming at quantiffing the cost of rework (e.g' Love et al,1999)
and costs of deviations (e.g. Burati et al, 1992) in building and

lDept. of Building Economics and Mgmt., Chalmers Univ. of Technology,

SE-41264 Göteborg, Sweden (email: per'[email protected]'se)
 486 Project Leadership - Josephsort

civil engineering projects confirm that the costs ofnot perfect

processes are considerable. Including indirect costs (e.g. Love
et al,200l), hidden costs (e.g. Josephson, 1990; Sörqvist,
1998), costs for consequences appearing during use and other
losses the cost of human errors may be significantly higher.
There is no doubt about the importance of reducing these costs.

The root-causes of human errors, rework and deviations have

been analyzed in a number of studies. Most studies agree that
the causes are complex. Short time, forced down prizes, weak
organisations, unclear clients, type of contract form and weak
project management are often mentioned. The same factors
can be found in numerous studies of what characterises
successful projects. Some of these studies are summarised in
Belassi and Tukel (1996). There are also several studies of
what characterises successful construction projects in general
or specific types of construction projects (e.g. Ashley, et al.,
1987; Sanvido et al., 1992; Songer and Molenaar,1997).

Some root-causes, such as time pressure, cost pressure, divided

organizations and processes, can be found in most building
projects and are by practitioners often accepted as
characteristics for building projects. An alternative approach
to identiff reasons for different outcomes is to compare two or
more projects with each other. Josephson (1999a) compared a
best and a worst case according to cost of human errors. The
main reason for the variation was found in the project
leadership. By comparing the two cases several factors
significant for leadership were found. All factors had to do
with the group's confidence in the leader, how clearly the task
is laid down and defined, and the amount of power and
organisational support to the leader. Thus, leadership is
viewed as a group process, which includes not only the leader,
but also the relation to the group as well as the relation to the
superior. This view is in accordance with the modern view of
leadership (Yukl, 1998), but differs from most empirical-
oriented studies of project leadership, which still focuses on
487 crB-2002

the leaders personalcharacteristics (e.g. Zimmerer and Yasin,

1998; El-Sabaa,200l).

The purpose with this paper is to test the findings in Josephson

(1999a). That is to say the purpose is to determine the project
leadership's influence on costs of human errors in building
projects. Focus is on the site manager as leader. Human errors
include alltypes of errors and mistakes made by humans and
which result in defects. Changes because of clients' changed
needs are not considered as errors. The study is limited to
costs arisen until finished project.

Method
The analysis is based on close follow-ups of seven building
projects, presented in Table L The costs of human errors were
measured by seven observers, spending full-time on one site
each. The researcher educated the observers in how to collect
and analyse data on human errors. Several group discussions
during the studies and regular contact with the researcher made
sure that the differences in the analyses were minimised. The
error cost is presented in Table II.

The data about leadership aspects was collected by interviews

with92 key persons in the projects; client representatives,
architects, structural engineers and specialist designers,
contractors' project managers, site managers, foremen,
workmanship representatives, sub-contractors' managers and
workmanship, and observers. The interviews lasted for 30-90
minutes each and aimed at getting the key persons views on
what they considered to be important aspects in their projects'
All interviews were tape-recorded and transcribed verbatim.
Together with many informal discussions the interviews gave a
relatively complete picture of the production process and the
project end result.

The researcher analysed each interview and especially looked

488 Pro.iect Leaclerslûp - Josephsttn

for comments on the identified leadership aspects. Each

comment was valued on a five-point scale; i.e. "...we had no
contact at all" meant I and "the best site manager I have ever
had" meant 5. For each leadership aspect an average figure
was calculated for each key person and then was an average
figure calculated for each project, The key persons represent
different actors. Of that reason their opinions varied to some
extent. However, they had surprisingly similar views on most
aspects. The leadership aspects and the average figures are
presented in Table II.

Table 1: Details of the proiects.

Proj. Client Type Nett const- Type of Produclion Time
No ruction or conlracl cost (nonths)
re- (MSEK)
furbishmenl
A Munici- Museum New/Refur- Traditional 30 t2
pality bishment lump sum
contract
B Munici- School Nerv Traditional 130 l3
pality lump sum
contract
c Own University New Design-Build 100 l6
project building
D Real estate Housing New Design-Build 2l l4
company
u Munici- Industry Refurbish- Traditional l5 4
pality ment lump sum
contract
F Munici- Fire station New Design-Build 55 l5
pality
G Insurance Shopping Refurbish- Traditional 30 l3
company centre ment lump sum
contract

Analysis
Twelve leadership aspects were identified by Josephson
(1999a). They were classifred in three major groups. The site
manager is the leader in this analysis. He is situated on site
and has full responsibility for all activities and all project
members on site. The group consists of all project members on
site, except the site manager.
489 ctB-2002

The group's conJidence in the leader

The first factor considers the relation between the leader and
the group. It considers how much the group likes their leader
and the confidence they have in him. It has to do with the
leader's competence and the distance between the leader and
the group.

All site managers were considered to have good knowledge and

long experience, especially the managers in project C and
project B. However, the site managers in project A and project
D had little or no experience of the specific product. The
abiliry b give clear informationvaried. The site manager in
project C was known to always give clear information. If he
couldn't answer a question he knew whom to ask. The site
managers in project E and D often gave vague answers. Social
competence and trusting the group is close related. The site
managers in project C and F created good atmosphere on site.
One reason was that they got everyone to feel important for the
project. Another reason was that they dared to trust the group
and consider their ideas.

The distance between the site manager and the group depends
on the site manager's role and earlier relations. The site
manager in project C was given a wide role with full
responsibility for the project. The role was free with little
control from the company. Every day he took a stroll around
the site. In that way he had daily contact with all group
members. He had worked together with most of the group in
several projects before. The site manager in project B had less
contact with the workmanship partly because of the large size
of the project. The site manager in project E took an
administrative role and seldom talked to the workmanship.
The organisations in project E and D consisted ofnew groups,
in which few project members had worked together before.
490 Project Leaderskip - Josephson

How cleørly the task ís laid down and deftned

The second factor considers how well the task is defined.
There are two levels of analysis. First, how clearly the task is
laid down and deJìned to the site manager. Second, how
clearly the site manager instructs the group.

In project C, the drawings were complete when the production

began. There was also much communication with the
designers. The designers often visited the site on their own
initiative. The site manager were involved in the later part of
the design phase and consequently had great knowledge ofthe
product when the production started. In project D, the
drawings were also complete when the production began. The
design was only to modifu the drawings from a similar project,
situated close to the site. However, there was a wish for more
detailed drawings. In project E, the communication with the
designers was extremely limited. The site manager entered the
project the week before the start of production.

The site managers' instructions to their groups varied,

principally due to their respective roles. The site manager in
project C had an active role, which involved frequent contacts
with the group and giving the group clear instructions. The
foremen imitated the leader in giving clear instructiorts. The
site managers in project E and D were administrators, while
their foremên had closer contacts with the group.

The ømount of power ønd organísatíonøl support

The third factor considers the site managers' amount of power
and organisational support.

All site managers, except one, had great deals of power. The
companies gave them a large amount of formal power,
including full responsibility for the production. The site
managers had authority and, especially the site managers in
project C and F, were accepted by their groups, which means
that they also had a large amount of informal power. The
 491 cIB-2002

exception is project D, in which the site manager had an

administrative role and an assistant project manager were
active during production.

In project C, three to four foremen supported the site manager

on site. Both the site manager and the group thought that this
support fitted the need. In project D and G, there were only
one and two foremen respectively. The site managers asked
their project managers for more support but without result. In
both projects, the site managers and the groups agreed that this
support was not enough. The organisational support from
main office was limited in most projects. However, the site
managers in project B and C thought they got enough support
and they knew that they could ask for help whenever he
needed. Again, the site manager in project D asked for more
support without result. The project had low priority for the
company.

Correlatíon between project leødership ønd costs

of humøn ettots
The project leadership correlates surprisingly well with the
costs of human errors in this analysis. The rank order for good
project leadership in the views used here and the rank order for
low costs of human errors are the same with only one
exception.

Project C was an extremely successful project. Despite a

delayed building permit, which forced the contractor to shorten
the production phase with a couple of months, they managed to
finish tlie project in time. The costs of human errors were very
low. Most comments on the project leadership aspects were
positive or much positive. Project E and D were unsuccessful
according to costs of human errors and project leadership.
Most comments on project leadership aspects were negative,
sometimes very negative. Noteworthy, the clients in project E
and D had recently built similar buildings close to the sites. In
these cases were good reference buildings not enough.
492 Project Leadership - Josephson

The ratings for each leadership factor are presented in Table II

below.

Table II: Ratings on proj ect leadership aspects.

CBFAGED
Project
A The group's confidence in the leader
The leader's competence
-Knowledgeandexperience 5 5 4 3 4 4.5
- Ability to give clear 5 4 4 3.5 3 ,
information
- Trust thegroup 5 3. 5 4.5 2 J
- Social competence 5 2 5 4.5 3 3

The distance between leader and group

role
- The site managers 5 2 4 3 3 J
- Earlier relations 5 3 3.5 2 3.5 1.5 I
B How clearly the taskwas laid down ond defined
-Communicationwith 4 4 4 3 3 25
designers
- Knowledge of product at 4 3 4 3.5 4 l3
start
- Instructions to the group 5 3 3 3 3 2
C The amounl of power and organisational support
-Amountofpower 4 4 4 4 3 J
-Organisationalsupporton 5 3 4 4 2 J
site
-Orgonisationalsupport 5 5 4 4 4 3.5
from main office
Average (4, B, C weight 4.7 3.5 4.0 3.5 3.1 2.2 2.0
l/3 each)
Error cost (%) 2.3 3.1 3.6 4.6 4.8 6.2 9.4

Conclusions
The analysis confirms that the project leadership described in
Josephson (1999a) has a great influence on the costs ofhuman
errors. All project members, from client to workmanship, do
errors. The errors can be traced back to all stages ofprojects
 493 crB-2002

and to environmental, organisational and individual aspects.

The conclusion is that a successful project leadership, defined
by three major groups of factors, reduces the cost of human
errors. This is probably achieved by eliminating causes to
enors on site, but also by reducing consequences on errors
made earlier in the process.

The main recommendation to clients is to demand that the

contractor's organisation support the factors presented here. It
also means that the contractors must be involved in the design
stage. The main recommendation to contractors is to evaluate
their project organisations against the findings in this analysis
and modi$, roles and support when needed.

The analysis is limited to seven building projects. However, a

later study on 19 building projects (Josephson, 1999b),
confirms the results.

References
Ashley, D.8., Lurie, C.S. och Jaselskis, E.J. (1987)
Determinants of construction project success, Project
Management Journal, l S (2), pp. 69-77 .
Belassi, W., and Tukel, O.L (1996) A new framework for
determining critical success/failure factors in projects.
International Journal of Project Management, Vol. 14, No
3. pp. 141-51.
Burati, J.L., Fanington, J.J. and Ledbetter, W.B. (1992)
Causes of Quality Deviations in Design and Construction.
Journøl of Construction Engineering and Management,
118 (l), pp.34-49.
El-Sabaa, S. (2001) The skills and career path of an effective
proj ect manager, In t e rn øt i on q I J o urn al of P r oj e c t
Management, 19, pp. l-7.
Josephson, P.-8. (1990) Kvalilü i byggandet - En diskussion
om kostnaderför interna kvalitetsfel, (In Swedish)
Licentiate thesis, Report 25,Department of Building
494 Project Leadership - Josephson

Economics and Management, Chalmers University of

Technology, Gothenburg.
Josephson, P.-F,. (1999a) Effective management of building
production. In Proc. Joint Triennial Symposium CIB
Commissions W65 and W55, 5-10 September 1999, Vol. 2,
706-715. Cape Town: CIB.
Josephson, P.-E. (1999b) Tre nycklar tillframgångsrik
byggproduktion - förtroende, rydlighet och stöd, (In
Swedish) FoU-VcistRAPPORT 9903, The Swedish
Construction Federation, Göteborg
Josephson, P.-E., and Hammarlund, Y. (1999) The causes and
costs ofdefects in construction: a study ofseven building
projects. Automation in Construction, I (6), pp. 68 I -687.
Love, P.E.D., Mandal, P., and L|H.1999. Determining the
causal structure of rework influences in construction.
Construction Management and Economics,lT (4), pp.
505-5 I 7.
Love, P., Josephson, P.-8., and Haupt, T. (2001) Determining
the indirect costs associated with rework in a building
construction proj ect, In P roc. of Internaîional C onference
on Costs and Benefits Related to Quality and safety and
Health in Construction, 22-23 October 2001, Barcelona,
Spain.
Sanvido, V.E., Grobler, F., Parfitt, K., and Guvenis, M. (1992)
Critical success factors for construction projects. Journal
of Construction Engineering and Manqgement, ASCE,
Vol. I18, No. l. pp. 94-111.
Songer, A.D., och Molenaar, K.R. (1997) Project
characteristics for successful public-sector design-build,
Journal of Constrwction Engineering and Management,
Yol. 123, No. l, March,1997.
Sörqvist, L. (1998) Poor Quality Costing, Doctoral thesis No.
23,The Royal Institute of Technology, Dept of Materials
Processing Production Engineering, Stockholm.
Zimmerer, T.W., and Yasin, M.M. (1998) A leadership profile
of American project managers, IEEE Engineering
Management Review, Winter 1998, pp. 5-ll.
49s ctB-2002

Yukl, G. (199S) Leadership in Organizations,4ú Ed., Prentice

Hall, New Jersey.
498 Effe c t s of cu Itu ra I diffe r e nc e s -' P hua

collectivist, project success, Hong Kong

Introduction
On a global basis, the construction industry is notoriously
inefficient, backward and adversarial and continues to be
plagued with'project failures'; reports of clients'
dissatisfaction due to poor quality of work and to time and
costs overruns, low labour productivity, high levels of conflict
and disputes resulting from acrimonious and adversarial
project environments are rife (Kumaraswamy et al200l,
Latham, 1990;89an,1998). In Hong Kong the picture is not
much rosier - its image is one that is synonymous with
incompetency, inefficiency, and even corruption (Tang, 2001).
Ironically, the nature of construction projects, which requires
the heavy involvement and close collaboration of various
project participants such as engineers, architects, surveyors,
clients, contractors, etc., suggests that there should be a
corresponding high level ofcooperation between such
participants that would lead to, among other things, better
project performance. At its simplest, cooperation is defined as
"the wilful contribution of personal effort to the completion of
interdependeni¡obs" (Wagner, 1995:152) The fact that
"cooperation on an industry wide basis is very limited" (Tang,
2001:17) implies that there could be some fundamental
weakness in fhe overall construction system. This view is
echoed by (Bresnen and Marshall,2000:233) who commented
that within the construction environment, "collaboration
(rather than conflict) which is the aberration to the norm".

Assessing the relationship between construction

industry characteristics and cooperation
One of the most common factors attributed to causing the
industry's predicament is the highly fragmented and one-off
nature of projects (Cherns and Bryant, 1984). Whether by
design or default, the temporary-multi-organization (TMO)
497 ctB-2002

Effects of Cultural Differences on Project

Participants' Co-Operative Behaviour in
Construction Projects
The Case Of Hong Kong
Florence T.T. Phuar

Abstract
Construction management researchers have long recognized the
important role cooperation plays in improving the inefficiency of the
construction industry. However, current theories say little about the
antecedents of co-operative behaviour of construction project
participants. This study presents a conceptual model for analysing
cooperation derived from the organizational culture perspective.
According to this framework, organizations that are composed of
people or under the leadership of people from collectivist cultural
haditions would display more co-operative behaviour with members
oftheir organization than individualistic ones because they tend to
feel more intcrdependent with and more concerned about the results
of their actions on members of their organization. However, this also
suggests that there is a sharp difference in behaviour among
organizational members toward people from other organizations
whom they view as comprising the out-group and this results in
greater hostility towards those which do not belong to one's own
organization. This view sheds some interesting light on the general
inefficiency of the Hong Kong construction industry where in essence
construction companies may be performing well on their own and are
competitive with one another but the collectivist predisposition of
individuals tend to undermine overall project success because of the
inter-organizational discrimination that arise due to the in-group
versus out-group relationships.

Keywords: co-operative behaviour, cultural traditions, competitive,

I
Department of Real Estate and Construction, University of Hong Kong,
Pokfu lam, Hong Kong (Email: þ[email protected])
499 crB-2002

characteristic ofthe construction industry is often being argued

by construction academics to be a construction industry
peculiarity that defies easy identification and analysis of its
associated problems. However, one would be hard pressed to
be entirely convinced by this argument given that the
formation of TMOs is growing in popularity in other industries
and has recorded widespread success - with organizations
downsizing and rightsizing, each trying to focus on only their
core business, and outsourcing supplementary functions to
external bodies.

The proper business of construction organizations like all

economic organizations, is not so much to voluntarily avoid
poor and ineffective construction methods but rather to
properly identi$ and manage their business risks in a rational
way, and to earn proper returns that are commensurate with
those various levels of risk. This overarching and logical
nexus casts the argument back to the much-discussed issues of
cooperation and collaboration - the lack of which undermine
the performance of so many organizations and the industry as a
whole.

At the corporate level alliances, cooperation and partnerships

are being formed for a commercial purpose. The implication of
this view is similar to the resource-dependence perspective
forwarded by Pfeffer and Salancik (1978) namely, that a
primary reason for organizations to co-operate with one
another depends in their realisation that they lack critical
competences or skills which they do not possess or develop
readily on their own. The strenglh of such cooperation lies in
their specialization of skills, their efficiency, aclaptability and
flexibility, but not necessarily in the learning opportunities
they provide in order for long term strategic cooperation to
take place.

Within the construction industry, once the TMO structure has

developed during the production phase ofthe project, the level
 500 liffects of cultural dffirences - Fhua

of cooperation achieved is often the result of the dynamism of

the level of individual interactions that take place between the
respective project participants who are obliged to deal with
each other. In other v,ords, the key emphasis ofcooperation
lies at the inler-organizational interactions thot occur at the
individual levels. This view is supported by (Bresnen,
l99l:248) who suggests that the use of a particular type
contractual/procurement system in construction "provides only
the structural framework within which actions are taken and
decisions are reached" and while it may be an important
condition for ensuring project performance, "it is necessary to
examine tbe behaviour within that system" (p.248, emphasis in
the original) in order to understand how it operates in practice.
'lherefore, in order to understand more clearly the conditions
under which cooperation and participation are more or less
likely to take place, there is a need to extend the analysis to
incorporate variables that encapsulate the reality of what
actually affects co-operative behaviour in construction
organizations.

Cultural differences in l'actors related to inter-

organizational cooperation
Given the conceptual and practical importance of cooperation
in achieving overall organizational performance, much
research has been undertaken by organizational researchers
interested in understanding the behaviour of individuals and
groups in organizations. In line with this. an inrportant area of
research suggests that culture may relate to co-operative
behaviour and its correlates as important moclerating variables
of cooperation (Wagner,1995; Chen et al. 1998). In particular,
the distinction between individualist and collectivist cultures
seems especially relevant and compelling. This cultural
contingency perspective is consistent with Child's (1981)
argument that cultural variables can moderate the effects of
macro-level situational factors, such as organizational
structure. Within the construction management arena, little has
501 ctB-2002

been done to integrate this area ofresearch into the existing

construction literature, although Liu and Fellows (2001) have
incorporated the elements of the so-called Eastern (collectivist)
culture into the construction industry context in order to
improve the partnering process. An area where I believe
research may assist the industry in understanding and perhaps
improving the methods of dealing with a major cause, if not
the major cause, of lack of cooperation in construction is the
management o f inter-or ganizational d ifferentiation that arises
out of the dealings of the individual members of two or more
organizatiorrs with each other. Hence, the pertinent questions
that need to be addressed are: l) whether the development of
dffiring cultural values and the management structures and
objectives of different organizations lead to greater inter-
organizøtional differentiation and 2) does such dffirentiation
thereby resulting in lack of cooperation when organization
members interact under the same proiect organization? 3) If
so, what can be done to mitigate i/? I shall argue that these
lines of inquiry are extremely significant for a better
understanding of organization cooperation and its evolution
and may be another potential avenue for improving our
understanding and perhaps management of construction
projects.

Research has shown that the individualism-collectivism

dimension, while often examined at the societal level
(Hofstede, 1980), is also centralto characterizing how work is
conducted at the organizational level (Earley, 19931' Chatman
and Barsade, 1995). As defined by various academics (e.g
Wagner and Moch, 1986; Hofstede, 1980; Leung and Bond,
1984; Hui and Triandis, 1986; Triandis, 1985) collectivism
occurs when the demands and interests of groups take
precedence over the desires and needs of individuals'
Òollectivists look out for the well-being of the groups to which
they belong, even ifsuch actions require that personal interests
be disregarded. The opposite of collectivism, individualism is
the condition in which personal interests are accorded greater
 504 Effects of cultttral dffirences - pltua

group categorizations wi I I tend to heighten inter-organi zational

discrimination. It is conceivable that the varue that individuals
assocîate with inter-o rganizational membership arises through
different processes in the individuarist and collectivist cultuies
and that this rnight affect the relationship between
categorization and cooperation at the inter-organizational level,
An important implication of this argurnent is that when
analysing the dynamic and complex interplay between
categorization and cooperation in project oriented
environments such as the construction industry, individual
differences in collectivism/individualism may be a moderating
factor for inter-organiz,ational cooperation and therefore serve-s
as a mechanisrn that affects the success or failure ofprojects.
In fact it has been found that some aspects of collectivism such
as out-group llostility may generally inhibit economic
development (Adelman and Morris, 1967;TúandLs, l9g4)
whereas individualism has been associated with higher levels
ofproductivity and gross national products ofnations
(.Adelman and Morris. 1967; Hofstede, l9g0; Sinha and
Verma, 1987) mainly because it fosters contractual
relationships which are based on the principles of economic
exchanges. Generally, in the business milieu, companies with
an individualistic inclination, who act according tò cost.benefit
analyses and who are more likely to adhere to contractual
relationships based on the principles of exchange would do
better than those dominated by internal in-group favouring
behaviours. Taken together, these views underline an
important aspect of the general inefficiency of the Hong Kong
construction industry, where in essence construction
companies may be performing well on their own and are
competitive with one another but the collectivist predisposition
of individuals tend to undermine overall project *r..r,
because of the inter-organizational discrimination that arise
due to the in-group versus out-group relationships.

The role of transformational leadership and its

505 crB-2002

implication for practice

Since one way to enhance cooperation is to increase the extent
to which members view one another as part of their in-group,
identifuing and subsequently managing the factors that cause
people to socially categorize some people as in-group members
and others as out-group members becomes important. An
organization's culture can influence which of its members'
social categorisation is activated, whereby the emphasis on
either individualism or collectivism may particularly affect the
social categorization process. Translating this view into the
Hong Kong construction industry context, it can be posited
that because ofthe heightened priority placed on
interdependence and cooperation, people in collectivistic
organizational culture may be more likely to use organizational
membership as a basis for social categorization. However, this
phenomenon wi ll further differentiate individual proj ect
participants along the in-group/out-group divide within the
project organization unless there is some soft of
transformational leadership (Jung and Avolio, 1999) within the
project organization that can integrate the value orientations of
individual project participants. Transformational leadership
emphasizes the importance of subordinating individual needs
to group goals and collectivists are expected to identiff with
their leaders' goals and the common purpose or shared vision
of the group and organization. Hence, the congruence between
group members' cultural values and a transformational leader's
attempts to build identification with a collective vision is
expected to enhance cooperation and performance among other
group members. From this perspective, this argument has a
much wider application in terms of enhancing group members'
cooperation that extends into inter-organizational context such
as the construction industry. Following this view, Figure I
shows the model of cooperation which posits that cultural
values affect cooperative behaviour either directly or by means
of goal relationships that are instilled through the appropriate
leadership style.
 506 Effects of cultural dffirences - Phua

In collectivist cultures, the strong tendency to support

organizational values and norms should fit with a
transformational leader's efforts to align group members'
persona.l values with a new mission or vision (Avolio and Bass,
1988). Group members from collectivist cultures are expected
to more readily internalize their leader's vision than will
individualists for at least two reasons.

Transformational
Cooperati ve leadership at the
behaviour inter-
organizational
Goal context
relationshins

Cultural values

Figure 1: Conceptual Model of Cooperation (adapted from

Chen et al 1998)

Firstly, collectivists tend to accept their leader's beliefs more

readily because of the high power distance that exists in thosp
cultures (Hofstede, 1980; Triandis, 1995). Secondly, there is
typically a high level of value congruence between group
members and leaders owing to extensive socialization
processes in collectivist cultures. Consequentlyn one can
postulate that a transformational leaders' emphasis on
achieving collective goals would be more readily accepted
when group members' cultural orientation was more
collectivist.
 507 ctB-2002

Conclusion
The preceding discussion of cultural orientation has shed some
useful light on one ofthe reasons for the general lack of
cooperation within the Hong Kong construction industry. The
effect of individualism-collectivism on project participants'
cooperative behaviour is argued to stem from the in-group/out-
group distinctions amongst individual project participants.
Indeed, perceptions of in-group versus out-group among
project parlicipants that largely come from a collectivist
society such as Hong Kong could have a significant effect on
group members' attitudes toward each other as well as on their
willingness to cooperate in the construction project
environment.

While it is a beneficial characteristic to have in order to induce

cooperation within each organization, it is argued that its
benefits cannot be realised when group members with strong
in-group/out-group perceptions work together in an inter-
organizational environment. However, the effects that such
perceptious have on group members' cooperative behaviour
may suggest that within the construction industry, project
organizations can help their leaders (project managers, project
architects or project leader) manage cultural diverse groups
more effectively by providing training on the differential
effects of various leadership styles.

Certain leadership style may be more or less effective than

others depending on the cultural orientation of group members.
In sum, taking into consideration the issues that have been
highlighted, it is argued that the cooperative behaviour of
collectivists will be higher with a transformational leader that
possesses the necessary management acuity to transform any
in-group/out-group differentiations that project participants
might have about each other into a homogeneous in-group
organization so that each members can feel a stronger
attachment to the project organization as well as in-group
solidarity regardless of the fact that they originally come from
s08 Effects of culttu'al dffirences - Phua

different organizations.

The point that this article is trying to asseft is that in order to

mitigate the dire consequences of non-cooperation, in-
group/out-group sentiments amongst project participants must
be overcome and one way in which this can be achieved is
through the use of transformational leadership in the project
organization. It is believed that further research in this area can
provide the impetus for discovering new paradigms of
cooperation for collectivist cultures within the construction
industry.

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513 ctB-2002

Improving Technology-Transformation In
Construction Industry By Understanding
Culturets Influences
Wilco Tijhuis'

Abstract
Due to a worldwide development of construction-activities there is a
need for improving the technologies used in construction-industry.
Not only in the 'modern' developed world, but also in the
underdeveloped and emerging regions. But simply implementing
'western' technology into these emerging regions as a way of
'transferring technology' seems to bejust a hit-and-run-approach, and
therefore only one part of the process: There has to be a structurized
path of development, searching (and acting!) for the best ways of
improving local activities, as a way of 'transþrmlng technology'. But
then there have to be passed-over several barriers, related to e.g.: (l)
Technologt, (2) Organization and (3) Culture.
This paper focusses on aspects, especially related to the'culture'-
issue: It describes several approaches in which this issue is being
looked at in construction industry nowadays. Two case-study are
presented, dealing with improvement of local activities in
construction, out ofwhich lessons can be derived for a better
understanding of 'culture'. It becomes clear that during a certain
period a 'protected' suppportive local environment is needed, created
by e.g. specific procurement systems, together with training-
schedules, for getting people locally suitable for a more developed
construction industry. These issues may assist in helping to overcome
existing barriers of technology-transfer.

Keywords: Construction-industry, Culture, Emerging regions,

Techno lo gy-transformation.

I WT/Consult BV International Construction Process & Development;

-
P.O.Box I 10, NL 7460 AC Rijssen; The Netherlands
(tij huis@wtproj ects. com)
 514 I mproving Tec hno I og1,,-Transþrmat ion - Tij huis

Introduction
Searching for the best solutions for problems occurring in
general is a quite often used approach in problem-solving. One
wants to have the possibilities to get and use e.g. state-of-the-
art technology, expecting that it will give the best solutions for
problems occurring; or at leat one thinks it will give the best
chance for reaching the solution of the problems.

But what to do in underdeveloped and/or emerging regions?

Does this same search for state-of-the-art technology apply
logically to be succesful in such areas? That is an interesting
issue; it is generally known that to improve the need for e.g.
food somewhere, the approach of giving just food isn't the
right one anymore: One should also and especially focus on
giving (agricultural) tools and technologies how grow their
own food succesfully, and not to forget in the meantime that
they also siill need food at first, to stay able to work at all. But
in general, by giving tools and technologies to local people, it
is not just a question of obtaining it, but moreover to maintain
it!

The above described situation can also be applied in

construction industry nowadays: To transfer technology with
the goal to improve local circumstances of underdeveloped or
emerging regions, one should focus especially on a main
important issue: What possible barriers do local people
possibly see to adapt the 'gifts' quite easily? Not only for a
short-term but especially for reaching a long-term
improvement and growth of the areas focussed at.
This paper mainly focusses on some of the barriers one can
encounter, and especially on the strategies to overcome them.
515 crB-2002

Globalization in Construction: Threats and

Opportunities

Introduction
Within the scope of transferring technologies, one can
distinguish opportuinities and thereats. However, opposite to
that sequence as e.g, also Porter uses fPorter, 1985] , the title
of this paragraph ends-up just with opportunities; and that is
what one should focus at. However, to gain maximum potential
of tlre opportunities, one should also be aware of the threats.

Some Serìous Threats

In general, as being part ofserious threats to local and
international construction activities, one can diswtinguish e.g.
the following'lacks':
Lack of money;
Lack of skilled professionals,

Lack of money
As globai (and local!) construction-industry is about projects
like e.g. infrastructure, housing, offices, etc., it strongly
depends on the shift of investments around the world. Basic
economic conditions have to be good for creating the need for
projects, resulting into attractive opportunities for investors,
thus making construction business going.

Lack of motívated ønd skílled professionøls

Although parties in construction industry can be small, mid-
sized or even very large (stock-listed) companies, they all have
to rely on a very important issue: The availability of motivated
and skilled professionals, giving opportunities for delivering
good products, creating stakeholder's and shareholder's value
[SVB, 1996]. And that's an international issue, not only for
specific areas [Tijhuis, 1998]. Looking e.g. to present situation
in Western European regions, there is a lack of motivated and
516 I ntp r ov i n g Te c h n o I ogy-Tr a nsfo r ma ti o n - T ij hu i s

skilled employees, although it has to do with the spread of

activities over certain areas of e.g. the EU.

The above mentioned issues will be used to get a direction for

possible opportunities for improving construction activities in
local emerging regions.

Some Seríous OpportunìtÍes

Looking to the above mentioned threats, influencing local and
international construction industry, one could define the
solutions for the problems described more specifically by
focussing on'serious opportunities'. Doing so results into the
following shortlist:
o Creating an investment-friendly policy;
o Improving skills and professional attitudes of
employees.

Creating an investment-friendly polícy

This issue is a political one, which has a lot to do with the
local situation into regions and countries. As may be clear,
'trust' into people or areas or projects does not exist
'automatically'; one needs to work on it, looking to all these
dimensions, leading to attraction of investments or not. Pricing
the construction risks in such situations is not only a'fuzry'
decision [Moselhi, 1995], but also an issue, based on the
impact of e.g. political issues [Wells & Gleason, 1995]. As
these issues are rnainly related to politics, they will not be
analyzed further into cletail. However, they play avery
important role as one of the 'drivers' for improving and
stimu lating emerging markets.

Improvíng skílls and professional øttitudes of

employees.
This issue has especially to do with people: In the offices and
on the sites, not only from e.g. a contractor's viewpoint but
517 ctB-2002

also from a client's viewpoint. It needs professional attitudes at

'both sides' of a project. Not only to reach for the best results,
but in that process to overcome the problems occurring, taking
care for (cultural) differences and /or different goals into
projects. E.g. 'looking for solutions' instead of 'looking for
who's guilty' [Felstiner, Abel & Sarat, 1980; Tijhuis, 1996],
taking care of local habits.

Resume
From the issues, described in the section above, it should be
clear that both serious opportunities mentioned will have their
impact on improving construction activities in local emerging
regions. Therefore, there has been derived a central question,
regarded here as the important one to take up within the scope
of transferring technologies :
o How to get local people motivated and skilled, so that they
can be productive inlo their own construction industry?

Answering this question will be focussed at more closely in the

following part of this paper.

Transferring Or Transformation Of
Technologies?

Introductíon
When one wants to become more productive, thus generating
profit with a spin-off to possible income, there should be
available at least the following:
o The right people (motivated, creative, etc.);
o The right tools (useful, maintainable, etc.).

It should be clear that there could be a lack of these issues in

certain areas, but nevertheless it always starts withpeoplel
When there are good people within the areas, they do have the
possibilities for creating and/or improving their living-
518 I mpr ov ing Te c h n o I o gy-Transfor mat i on - Tij hui s

environment, leading to activities, making possible investors

interested for funding, etc. Thus leading to a very important
issue, that improving local developments in construction-
industry in suffering and/or emerging areas should consist not
only of investments, but also and especially consist of
implementing technology there, combined with labour-
generating efforts [World Bank, 1996]. And then taking into
account the believe and lrust that the local people do have the
abilities to rvork by themselves, which are of course important
basic criteria to start-up development-schemes in those
emerging or under-developed areas.

The reflections, described in this introduction-part of this

paragraph, more or less lead to a strong focus on:
. transformation (e.g. 'searching for best of both worlds')

instead ofjust using:

transferring (e.g. 'forcing one world into another')

...technology and its impacts. These both viewpoints can cause

a dilemma for the choice to be made: As e.g. introducing a
serious need, willingness and motivation for collaboration in
case of transformation, and e.g. introducing a serious threat of
not-fit-for-purpose-solutions in case of transferring. In figure I
this dilernma is represented more schematically.

However, as from a viewpoint of 'people' and its (cultural)

differences nowadays as a central productivity-factor of
international construction business still since e.g. the
construction of the 'Tower of Babylon' and other ancient
projects [Holy Bible, 1618 and 1619; Warszawski and Peretz,
19921, the focus in this paper will be set on transþrmation of
technologies and its impacts on the people involved.
 s19 crB-2002

Þ
.A

Transferring
frfl
tJ'
f
Transformation 'forcing one world into
'searching for best of another'
both worlds'

Figure 1: The dilemma of choosing between transformation

and transferring of technology

Choosing Levels Of Technology Adøpted

Transformation of technology, combined with labour-
generating efforts, needs a sound climate for good
understanding of both parties: Both for the 'delivering'
(international?) pafi as well as for the 'receiving'
(national/local) party. They should be aware of relevant issues
in the transformation-process. And that just indicates more or
less a serious dilemma:
o Should one focus on getting as much people as possible to
work? (thus maybe introducing a very strongfocus on
ified w orking.methods) ;
Iab our-intens

Or the other way:

o Should one try to improve the working-methods as best as
possible, using the most modern tools? (thus maybe
leading to less needfor labour and employees),

In fact the dilemma represents the discussion of 'which road

leads to success as quick as possible?'; Just creating a high
needfor human labour by using as less as equipment as
possible? (in fact 'employment' is leading then); or: Simply
520 I mproving Technology-Transþrmation - Tij huis

using the most modern equipment locally, thus reducing the

needfor human labour (in fact'technology' is leading then).
However, both 'roads' need a safe, healthy and good managed
process. In figure 2 these two strategies with their 'roads to
success' are represented schematically.

'Employment' 'Technology'
is leading is leading

Figure 2: Two main strategies with their roads to success in

regional development

Although both roads can lead to the success of reaching the

'developed status' for the specific regions, it has different
impacts on its environment, depending of how to deal with the
local people and their culture (values, etc.). But choices have
to be made, consisting of (combinations of) clear strategies.

Resume
In several programmes, based in rural areas, there can be seen
s2l crB-2002

a trend toward the use of labour-based technologies, e.g.

promoted by the ASIST-Programme, a worldwide spread
stimulation-programme for labour-based technologies in
developing areas, as part of the ILO. Not saying this is the only
right approach, it at least indicates the importance and the need
for it worldwide. Especially while it focuses not only on
solving local lack of employment and lack of infrastructure, it
also generates an important 'need for maintenance': Thus
creating not only the initial projects in the construction-phase,
but also and especially the long-term based employment in the
maintenance-phase [Veen de, 2000]. Although one could
suggest that it should then be worth thinking of using ultra
maintenance-free technologies (with potentially higher initial
investments), there is a barrier for it: Not the issue of how to
get people at work, but more how to keep them at work in the
future?! The ILO more specifically focuses on this last issue.

Nevertheless it still should be actual to search for technologies,

suitable for local circumstances. But especially then it is
important to hang on to local habits, values, etc. represented in
its culnre: What is seen as acceptable or valuable by the local
people in their local situation, so leading to the best local
'curing' method for solving local problems, as e.g. also is
being recognized by the medical sector fMorley & Wallis,
19791. Although it here just focuses on 'developing' areas, also
the 'western' construction sites do need a focus on local
culture, despite of an enormous flow of technologically driven
tools like e.g. 'E-sites' etc. fTijhuis,2001a]. But construction
is still a people's business, like also the medical sector is, and
related to that aspect these technologies like e.g. modern
electronic communication do have a lot of assumed benefits,
but still with a difficulty to prove these benefits exactly [Kam
van der,200ll.

Howevern the people involved need training, but also a

stimulating, good and healthy environment for professional
and private life. In the following parts these issues will be
522 I mp r ov ing Te c hn o I o gy-Tr ansfor mat i on - Tij huis

illustrated more in detail.

Culture's Influence And Procurement Strategy

Introduction
The issue of getting and keeping people at work now and in the
near future doesn't need thinking into capacity but more into
creativity: What kind of transformation do technologies need
for getting them accepted and adapted into the local culture
and environment? Focussing on actual themes can be an
important issue then, within the background of lack of labour,
knowledge, experiences, etc. And procurement can be a useful
tool, being the first stage ofgetting construction projects 'into
tlre market'. So, by using procurement as a 'canier ' inside
local markets with respect to their own culture, there can be
reached successful results within the scope of reaching a
strengthening of the developing region. But that means
especially involvement of 'new ' groups of (local) people,
complete with their cultures [Tijhuis, 2001b].
The following two recent case-studies give examples of actual
approaches for improving local developing markets.

A Case Study: An Eco-Building Training Course

Descriptíon
The South African city of Midrand is a fast growing area, in
which sustainability of the environment is still a difficult
problem to solve. As sustainability is of growing importance
worldwide, also this region focusses more on this issue as a
main problem in her built environment. And its especially a
problem while the local construction-employees do not have
enough knowledge and experience in this way of thinking and
building. Therefore, a training-schedule has been set up within
a special project, called 'Eco-City', managed by a special
Sustainable Development Unit, founded by the the local
523 crB-2002

councilof Midrand

The flagship-project is the development of an eco-village in a

local black township. This project is caried out in order to
demonstrate the potential that can be achieved in the
governmental housing programme if lateral thinking is applied
to this issue. It focusses on demonstrating alternative building
practices, planning systems, sanitation and energy systems, etc
As part of an internship, three of our students particpated in
this project on the site, supervised locally by the Research
Center for Employment Creation in Construction, based in
Witwatersrand [Geurtsen, Jongeling & Van der Pal, 2000]'

Scope
lmportant central scope within this project is the fact that one
is convinced that reaching the goals set is only possible when
training the local employees in the construction industry.

Problem was e.g. the differences of skills between several local

groups of people. Solving this issue meant that there was a
focus on the diversified skills available, and transforming them
on those aspects which were different within the focus of
'sustainable construction'. In the same time it also created the
chance to train the people involved also into extra knowledge
and experience of aspects of e.g. modern business management
skills, how to keep the environment clean and healthy, how to
secure the lives ofthe people from diseases, etc.

This is also indicated by the CIB, which also put sustainable

construction on its 'Agenda 2 1' [CIB, I 999] ' Important issue
for challenges ofsustainable construction (not only
technological, but also related to e.g. social, cultural and
economic issues) is its role of contribution to poverty
alleviation and to a safe and healthy environment.
524 I mp r ov i ng Te c hno I o gy-Tr ansfor mat io n - Tij huis

Some results
So, by focussing on a general accepted issue of'sustainable
environment', the training programme resulted into the
adaptation and use ofa broad scope of'help for a better life'
This means in fact that:
. training on the job;

is a very important tool but, if possible, it should be:

a combined withfocussing on improvement of local (private)
circuntslances.

Especially then it could stengthen the impact of change (:

transformation), keeping respect for local culture.

A Case Study: Affirmative Procurement in

South African Construction Industry

Description
Another project in the South African area is the present
programme on alternatives in development (SANPAD). One of
the actual projects is a research in the flreld ofconstruction
proj ec.t proc urement se lection for poverty-focu sed
development fRwelamila, Hindle, Tijhuis et al, 2000].
Although this is based on developing a theoretical f¡amework
for a new policy, aiming to create and implement a so called
Affirmative Procurement Practice (APP), it especially focusses
on results for industrial practice: Both for local small, rnedium
and micro enterprises (SMME's) in construction industry to
train and to improve their business skills in the competitive
market. Thus reaching for the main goal: To use the industry as
vehicles towards adressing past imbalances through on-the-job
training and implementing the APP by creating an enabling
environment for the SMME's.
525 crB-2002

Scope
Especially the development and implementation of APP gives
the several disabled parties in the present construction industry
in developing regions such as e.g. South Africa positive
chances for growing and adapting to equal business chances
and opportunities in the (local) markets. And that is of great
importance: For creating a local economy, one needs well
trained and able local parties. Not specifically run and/or
owned by the big national or international companies, but
especially run and when possible also owned by local people.
That stimulates a good local balanced nefwork of steady and
strong parties like e.g. (sub)contractors, being able to compete
in an honest way with others.
An extra spin-off of the research-part within this project is
reached by the faet that the excellent local universities
involved are incorporating also local research-trainees, to
improve their research and project management experience.

Some results
So, when trying to keep a steady and stable growth of local
developing markets, one needs especially and environment
which:
. Stimulates entrepreneurship,'
o Motivates people to intprove their þusiness)skills.
But growing towards improved skills and strenghtened
business attitude for the disabled parties needs also more or
less:
. o'protecting' environment.

Especially the public clients should give opportunities for such

an approach, by adapting their national/local procurement
systems in such a way that they give chance for the (in general
still) weak local parties to improve themselves, gradually
growing towards the more 'tough' daily situation.
 526 I mp r ov i ng Te c hno I o gy-Tr ansfor mati on - T ij hu is

Resume
The focus on training skills and stimulating the professional
and private environment, are key-factors for the improvement
of developing regions. And in fact these factors do apply
worldwide: While construction is not only a people's business
but also and especially a global activity, although local
business. Therefore one needs a'glocalized' focus on these
issues.

Conclusions and Recommendations: Rethinking

Construction Procurement?

Conclusions and Recommendations

In general, there can be distinguished some main conclusions,
which are described below, together with some reflections.

(l) Instead of aiming on 'transferring' technology, there

should be more focus of 'transformation' of technology.
This has specifically to do with the fact of the recognition and
acceptance or not of local used skills, technologies, etc.

(2) Before starting with the intprovemeitt of local construction

markets, one should define very carefully the road along
which this will happen: Or 'technology-driven', or
'employment-driven', or a certain balance between these
two strategies.
Although local technologies may need a very strong
modernization, one should not pass completely the
opportunities or threats these modernization may have on the
local level of employment.

(3) Involvement of 'culture'-issues is essentialfor getting the

right results in the transþrmqtion of local construction
processes and markets towards a more developed status.
As may seem not everytime the issue, the local situation should
always be the starting point for creating a movement of
527 ctB-2002

change. Especially this is essential when discussions about the

level of development are actual. E.g. what is 'development'?
Should a'western' model be the only ideal focus and goal for
local parties to work for? Although this question is quite
difficult to answer, and differs from situation to situation, it at
least indicates the main thing: Be aware of local culture, and
try to balance interests for the short and the long term.

(4) Continuously training and improving skills for local

people in (developing) markets is essential for
strengthening the loc al situation.
And combining these efforts with focussing on a balanced and
healthy professional and private environmen¡ is essential for
doing the right business, but also for doing the business right
(which may not be the same...). This part is applicable
everywhere, w it hout offe nd in g (int er) national and/or I oc al
regulations.

(5) Creating a 'protecting' environment by the adaptation of

specific procurement-systems during a certain period is
essential for local parties to strengthen themselves.
However, the searchfor a 'protecting' environment (which
may be seriously necessary in unbolanced situations with a
lot of disabled parties in construction industry) may
conflict with national and/or international trading
regulations
Like e.g. the present regulations in European Community (EC)
say in general that every European party should be able to have
equal business opportunities in the European market; A well
balanced and competition-supporting principle [EC, 1993]. But
when there is a group of strong parties (not just that strong for
creating e.g. a cartel) they still can be very powerful to push
aside the newly weak companies. And in such situations e.g.
new (weaker) member countries may be confronted with
competition difficulties. Therefore, there should be especially
control about the duration of this period of protection: It
should only be used during the first few (e.g. five) years of
528 I mpr oví ng Technol ogy-Tr ansþr mat i on - T ii huis

growth of the specific developing market.

Resume
In general, it should be clear that rethinking the choice of
which procurement-strategy suits best for local developing
regions is necessary. But, one should be honest: Starting to
think is only one part ofthe puzzle; one has start to act!
Together with local experiences there can be expected growing
re-actions then, which can improve the situations' And in
several cases it may be better to act at least, instead of waiting
too long! However, thinking before starting is better than only
thinking after starting, or worse, only thinking when the
critical issues arise. Or, to say with a Dutch statement:
'Voordenken ' insteacl of 'Nadenken' .

References
CIB (1999) Agenda 2l on Sustainable Construction; CIB-
report Publication no. 237 ; Rotterdam.
EC (1993) European Directives Nr. EC/93./96 - EC/93/97 -
EC/93/98; l4th June 1993; Publication Offìce of the
European Commission; Luxembourg.
Felstiner L.F., R.I-.Abel & A.Sarat (1980/ The Emergence and
Transformation of Disputes; Naming, Blaming, Claiming;
article in: 'Law & Society Review'; Journal;Vol.l5,
Number 3-4 (1980-1981), pþ.631-654; USA.
Geurtsen T, R.P.M.Jongeling & A.van der Pal (2000) Midrand
Eco-Building Training Course; Internal report of
internship; University of Twente (Dr.ir.W.Tijhuis) and
Univers ity of Witwatersrand (Ir. F.Taylor-Parkins);
Enschede, Witwatersrand.
Holy Bible (161S and 1619) Genesys I I : 1-8;Dutch translation
from Synode of Dordrecht: 'Statenvertaling'; Jongbloed;
Leeuwarden.
Kam van der W.J. (2001) Effects of Electronic Communication
in General Practice; Ph.D-report; EC 4th Framework
529 ctB-2002

Health Telematics Programme; Erasmus University,

Rotterdam.
Morley P. & R.Wallis (1979) Culture and Curing-
Anthropological P erspectives on Traditional Medical
Beliefs and Practices; Contemporary Community Health
Series; University of Pittsburgh Press; Pittsburgh.
Moselhi O. (1995) Pricing Construction Risk: Fuzzy Set
Application - Discussion; article in: 'Journal of
Construction Engineering and Management' ; Vol. 121,
No.l; March 1995; pp.l63-164; American Society of Civil
Engineers (ASCE); New York.
Porter M.E. (1985) Competitive Advantage; The Free Press;
New York.
Rwelamila P.D., B.Hindle, W.Tijhuis et al (2000) Construction
Proj ect Procurement Selection for P overty-Focused
Developmenl; SANPAD-project; March 2000; University
of Cape Town, Peninsula Technikon and WT/Consult BV;
Cape Town (South Africa) and Rijssen (The Netherlands).
SVB (1996) Betrokkenheid is heel belangriik voor de Borw;
article in: 'Peil'; magazine for training and education in
Dutch construction industry; Vol.30, Nr.2; May 1996;
pp.20-21 ; Stichting Vakopleiding Bouwbedrij f (SVB);
Zoetermeer.
Tijhuis W. (1996) Contractors at work or in conflict? -
Lessons from international collaborallon (published as a
book in Dutch: Bottwers aan de slag of in de slag? -
Lessen uit internationale samenwerking); Ph.D-thesis;
Eindhoven University of Technology, Eindhoven; Kondor
Wessels Berlin GmbH, Berlin; WT/Consult BV, Rijssen,
The Netherlands.
Tijhuis W. (1998) Connecting Marketing to Construction
Process: The Impact of Internationalization; paper;
University of Twente, Enschede and WT/Consult BV,
Rijssen, The Netherlands; presented and published in
proceedings of conference "The lst International
Construction Marketing Conference - Opportunities and
Strategies in a global Marketplace"; pp.l4l-148; Ed.:
530 I mpr ov i ng Te c hn o I o gy-Transformat í on - Tij hui s

Chr.N.Preece, University of Leeds; Leeds.

Tijhuis W. (2001a) Improving the Multicultural Construction
Site: The Human Role in a Technology-Driven
Environmenl; paper on CD-ROM: 'International Status
Report on Aspects of FutureSite'; electronic proceedings
of workshop CIB-TG27; Wellington;Edited by:
Prof.ir.Ger Maas & Ir.Frans van Gassel; publication
nr.265; CIB, Rotterdam; Eindhoven University of
Technoiogy, Eindhoven.
Tijhuis W. (2001b) Culture in Construction - Part of the
Deal?; proceedings of workshop; CIB-TG23, 'Culture in
Construction'; Edited by: Dr.ir.Wilco Tijhuis; 22nd and
23rdMay 2000; Published January 2001; publication
nr.255; CIB, Rotterdam; University of Twente, Enschede.
Veen de J. (2000) ASIST: How it began, what it is now and
where it is going; article; ASIST (Advisory Support
Information Services and Training for Labour-based
Practitioners); EMP/INVEST, ILO; Bulletin no.l l; pp.3-4;
July 2000.
WarszawskiA. and W.Peretz (1992) Organization and
construction of Ancient Projects - The Cqse of the Temple
Mount Compound; National Building Research Institute
(NBRI); Technion LLT., Haifa; Israël; Building and
Environment, Y o1.27, Nr. 4, pp.3 9 9 -4 12; Pergamon Press
Ltd.
Wells L.T. & E.S.Gleason (1995) Is foreign infrastructure
investtnent still rislry? - Developing countries are courting
investors. Is it safe to say yes?; article in: 'Harvard
Business Revierv'; journal; September - October 1995;
pp.44-55; Boston.
World Bank (1996) Expanding Labour-based Methodsfor
Road-works in Africa; Technical Paper, no.347;
Washington DC.
531 crB-2002

Global Cultures: Convergent Divergence?

Richard Fellows & Anita Liu

Abstract
The various forces which fuel the concept ofa 'shrinking planet' have
also generatedthe convergence hypothes¿s. As societies become ever
more readily and closely in contact and linked - through
communications, travel and economics - the hypothesis suggests that
differences diminish, resulting, eventually, in a common, global
society. However, that hypothesis' realisation is founded on a number
of important assumptions, including commonality of basic desires.
Some of those assumptions are, at least, questionable. The
divergence hypothesis maintains that social (etc.) diversities will
persist and may even be enhanced through the 'shrinking planet'
forces as communities increase their awareness of uniqueness and
desire its maintenance. Such preservations ofuniqueness foster group
identities and, from other perspectives, can be viewed as 'niching' and
as components of a (power) struggle for self-determination.
Manifestations of the realisation of elements of both hypotheses can
be observed in the globally common 'shopping mall' (should that be
pronounced "maul"?) and in the preservation of buildings of
significant vernacular architecture. This paper investigates the two
hypotheses in the context of evidence of their manifestations and
proceeds to examine the consequences for the construction industry
from a cultuially-oriented perspective.

Keywords: Construction, Convergence, Culture, Divergence,

Globalisation.

Introduction: Convergence - Divergence

The convergence hypothesis assefts that, over time and due to
a variety of forces, organisations and societies will become
progressively similar. The basis for the hypothesis lies in
theories of competition wherein market structures and
constituents strive for efficiency - commonly measured
 532 I mpr ov ing Te c hno I o gy-Tr ansþr mat io n - Tij hu i s

through profitability - as the imperative for survival; the less

the imperfections, the greater and more immediate are the
effects of competitive forces. Thus, in the modern world of
increasingly ubiquitous data and information (if not
knowledge!), more rapid communication etc. with the
consequent breaking down of bamiers (protection devices) and
control mechanisms, the requirement to improve efficiency by
reducing costs, including transaction costs, and enhancing
revenue is magnified. The ultimate of perfect competition
theory is that only those which maximise profits exist -
retribution forthe inefficient is absolute and instantaneous!

However, it is also clear that, despite the, often politically-

aligned, rhetoric of many organisations in capitalist markEt
economies to advocate competition, the actions taken by firms
(wh,ich, over tirne, indicate pursuance of stratery) are geared to
isolate them from competitive forces and to secure market
dominance.

Divergence, tlrerefore, rnay be encouraged by rnarket-power

oriented actions. Further differences are presewed by
government interventions in the international (global) economy
to secure advantages for the domestic economy and its
participants. Basic theory of international trade is founded
upon divergence - in endowmEnts of resources, climate etc.
and, of course, location - as the theory of comparative
advantage. If convergence applied to the ultimate such that
comparative advantages were removed, location of economic
activity would be random!

Examination of recent changes in politico-economic (and

social) systems suggests, superficially, that convergence
towards "democratic", market systems is occurring - such as in
the former Soviet Union and in China. However, whilst that
may be the rhetoric and behaviour, it is also clear that
significant differences persist. The depth of such differences
is evidenced by contrasts in behaviour, attitudes etc. between
533 crB-2002

Mainland China, Taiwan and Hong Kong SAR - just three

examples of significantly different'Chinese' societies! Such
examinations lead to the proposition that convergence and
divergence coexist and operate continuously yielding, at any
location and time, degrees of commonality and of difference
(UK society bears witness too). Boyer (1996:30) notes that
there is, '...no clear trend to convergence or divergence. '.' and
that, iu part, the situation is explained by the '.. 'coexistence
and competition of various kinds of capitalism.' Capitalism, in
its various forms, although increasingly dominant as the
world's generic economic system, exists alongside substantial
elements of command economies - most notably, in mainland
China.

Globalisation
Globalisation, as envisioned by Kenichi Ohmae (Ohmae,
1999), comprises five, progressive stages - exporting;
localisation of sales and marketing; localisation of production
etc.; localisation of headquarters activities - personnel,
frnancing etc. (insiderisation); complete globalisation to give
overall identification to the total firm (activities such as
financing re-coagulated to the 'central' office)' The globalised
result comprises world-wide branding, coupled with logically
centralised functions, together with locally-specialised
features. Thus, globalisation results in combinations of
common and diverse elements.

In any organisation, operating objectives reflect the

environment through performance requirements of major
participants - owners, managers, regulators etc' Thus, the
extending market capitalist oriented economies give rise to
local, international and global organisations having to perform
to accord with the performance imperatives of, particularly,
profîtability and tumover to ensure survival' However, even
given such apparently universal criteria, their applications
differ between societies in reflection of prevailing cultural
534 Improving Technologt-Transþrmation - Tii huis

differences. Soo Western organisations are forced to pursue

continual dividend growth to accord \ilith the financial
performance dictats of the domestic stock markets (the
collectivity of, progressively institutional, owners) -
emphasising short term operating results. Eastern based
organisations have been able to adopt a longer term approach
as reflected in investment perspectives, including R & D.
(See, e.g., Hutton, 1996.) However, restructuring following
the regional crisis of 1997,has instigated a variety of changes,
usually towards more 'Western' procedures.

Traditional economic theory of international trade suggests

that if convergence were to operate to the extreme,
comparative advantage would vanish and, hence, so would
international trade!! However, extremes aside, '...to invest
abroad, firms must find it more profitable, or strategically
worthwhile, to engage in foreign rather than domestic
production', (Dunning, 1993). Dunning's analysis of the
globalisation of business employs the framework of Ownership
(competitive) advantages, Locational (country-specific
competitive) advantages and market Internalisation
opportunities as the categories of variables for analysis (OLI
framework). Analyses include'strategic alliances' between
organisations, the value of which are depicted in figure l.
However, as noted by various authors - e.g. Norman (1998) - a
major issue is enforcement of (contractual) arangements;
difficult enough in the domestic arena but complicated
e¡ponentially in the international one. The variety of legal
ocolonial'
systems exhibits divergence despite, often, common
origins. In many societies, accord with ounderstood' business
arrangements, as well as those expressed, is an imperative of
behaviour to the extent that contracts are superfluous.

Dunning (1993) ft¡rther analyses the changes in cross-border

organisation of production in respect of a triad of organising
mechanisms - governments, privately owned commercial
hierarchies and markets - see figure 2. Changes in relative
535 ctB-2002

TECHNOLOGICAL CONVERGENCE OF
¡NNOVATION TECHNOLOGIES
- Emergence ofNew Technologies - N{astering several Technologies
- High Investmentr Simukaneously
- High Risks . New Borders oflndustrial
-Rapidity of Innovat¡ons Activities
D^6r Dô.!!rn¡' D-;^¡ .ô¡!t^ar - New Structure ofthe Markets
^f

ADVANTAGES
OWNERSHIP
- Rapidity ofNew O Advantages' development
- Rapidity ofExisting O Advantages' exploitation
- Higher Flexibility
- O Advantages based on the Combination ofComplementary but
Non-Similar Assets
- O Advantages based on the Supply ofa Complete Range of
Systematic and Compatible Outputs
- O Advantages based on Outputs with a Dominant Standard

LOCATION
- Access to Complimentary Assets based on the Nations'
Competitive Advantages, Originated in the Partners' Home
Countries
- Access to the World's Main Markets for the Inputs and Outputs
when a'Go-lt-Alone' Solution is l'lot Possible because of the
High Capacities Needed to Exploit them Alone

INTERNALISATION
- Sharing the Costs and Spreading the Risks in High Uncertainty
Solutions
- Transaction Costs Less Important because ofthe Technological
Diffusion Rapidity
- Benefit from Scale Economies
- The Launching of Projects with High Sunk Costs
- New Oligopolistic Reactions to replace Traditional Oligopolistic
Strategies which are Inadequate because ofthe Concentration,
Instability and Asymmetry of Oligopolies

GLOBALISATION
- Concentration, Asymmetrical and Unstable
Oligopoly
- World's Production Adapted to Local demand
- Systems Production
- Outputs b8s€d on rilorld's a@epted St¡trdtds

F'igure 1: The value of strategic alliances

Source: Dunning (1993)
 s36 Improving Technology-Transformation - Tij huis

Ke!:
G: Govemments
H: Hierarchies G
M: Markets

G
G- low
H - high

I
Costs ofusing M or
G æ organisational Costs ofusing G or H
modalities as organisational
modalities

M-low H-low
G - high c - hish
2
M H

M-low Costs ofusing H or M H-low

H - high as organisational M - high
modalities

Figure 2zTriad of Organisational Mechanisms

(Source: Dunning, 1993)

modalities are believed to reflect relative changes in cost-

benefit of the structures, notably, due to the (macro-)
governance aspects of transaction costs. systeml depicts a
command/state capitalist economy; 2 is a market economy; 3 is
a capitalist economy with dominant firms and 4 depicts a
mixed economy. The model notes the levels of transaction
costs which impact on the configuration and operation of the
economic system. However, as noted by Dietrich, (1994),
internal costs and the array of benefits must also be evaluated
when examining the most appropriate form for economic
governance.
537 ctB-2002

Cultural Aspects
There is apparent correlation between behaviour enforcement
orientation, cultural dimensions and linguistic characteristics.
Legalistic cnforcement orientation relates to individualism,
low power-distance, short-term and achievement orientation in
which high content languages are used. Such contexts tend to
engender greater behavioural rigidity' In high context
societies, everyday existence requires more flexibility,
including reflection on the unspecified and consequent action
to accommodate the implicit (legitimate) desires of others'
The high content - high context spectrum may lead to very
different understandings from any behaviour, Iinguistic
exchange etc. That is in addition to the differences in
understanding within a society which are indexical upon
socialisation, education, training etc (see, e'g., Clegg, 1992)'

Child (1999) notes the general acceptance ofthe depth and

persistence of values in a culture and that such values differ
between cr¡ltures. Such perspectives are likely to be reflected
in how information is interpreted - social indexicality - and,
consequently, the forrns of governance adopted for economic
transactions - rvhether devised to protect the community or the
individual and, thereby, expressing normative social priorities.

Ralston et al. (1999) found that external influences do

engender different value structures, although such changes
may occur only over considerable time (as between
generations). However, behavioural modifrcation is
acknowtedged to be speedier but, often, shallower than real
cultural change which, of course, does not detract from the
power of enduring external influences, especially if offering
convincing, tangible benefits.

In considering issues ofthe objectives and regulation of

international trade, Dore (1996:371) notes'...the need for
 538 Improving Technologt-Transformation - Tij huis

mutual recognition of different definitions of the public

interest, deriving from different value concepts of what life is
about'. That perspective has far-reaching importance as
international trade usually occurs across cultural boundaries
and so, must address moral issues.

Discussion
Boyer (1996) discusses three typologies ofconvergence -
Economic, concerning productivity and living standards;
Developmenf, concerning democracy and markets and
Institutional/Regulatory. He continues, '...for the new growth
theorists, technological change is endogenous, that is, the
equilibrium growth path depends on past efforts in research
and development, education, and product differentiation. Thus
rates of productivity growth are likely to vary from one country
to another...' (Boyer, 1996: 35). That perspective is in
contrast with the 'catch-up hypothesis' which emphasises
potential for rapid advance in less developed economies due to
their lower starting point.

The World Bank (2001) stated that 'Inequality both among and
within countries appears to have risen, in part as the result of
technological progress'.

For international projects the issue of sustainability, commonly

through use of 'appropriate technology' is second only to the
fìnancing concerns. Construction, as a major provider of
projects and consumer of resources (many of which are non- or
inadequately renewable) has a critical role. Problems of
working beyond domestic borders are well known but may not
be well understood, given widespread task orientation of the
industry's personnel. Project sites may, often,,be likened to
historic colonial enclaves where groups work to complete the
total product but further'integration' is absent. Consequently,
exporting internationalisation is practiced, rather than
globalisation.
s39 ctB-2002

Design and standards further the concepts of superiority of

certain technologies, production processes and all that
underpins them. Familiarity with the domestic requirements
and procedures hampers flexibility and adaptability and tends
to be reinforced by pricing consequences ofrisk aversion.
Thus, technologies tend to be imposed from the domestic
environments of designers onto project host locations - again,
international financing bodies tend to reinforce the pattern.
Such impositions may be disguised under the cloak of
'technology transfer' but even where such transfers are
appropriate and desired, mechanisms to effect transfers tend to
be quite ineffective, perhaps to protect the market of the
'transferor'.

Conclusions
Given that the evidence may be and has been interpreted
variously and that different data do not yield consistent results,
it is apparent that both convergence and divergence are
occurring in parallel - probably the paces, forms and degrees
vary between locations and times, in part due to political
controls. However, a major trend is towards more widespread
adoption of market economics, and in so doing, also extending
the variants of capitalism.

As both domestic and international power structures shift, the

historic ability of supplier nations (of construction) to impose
technolory, procedure etc on host nations seems likely to
diminish as well as change in pattern. The message seems
clear, sensitivity to engender flexibility and adaptability are
required for success for sustainability of organisations as well
as their outputs.
s40 Improving Technology-Transformati on - Tii huis

References
Boyer, R. (1996) The Convergence Hypothesis Revisited:
Globalisation but stillthe century of Nations,In Berger, S',
Dore, R. (Eds.), National Diversity and Global Capitalism,
Ithaca: Cornell University Press.
Clegg, S.R. (1992) Contracts Cause Conflict, In Fenn, P.,
Gameson, R. (Eds.), Construction Conflict Managentent
and Resolution,London: E&FN SPon.
Dietrich, M. (1994) Transaction Cost Economics and Beyond:
towards a new economics of thefirm, London: Routledge.
Dore, R. (1996) Convergence in Whose Interest?,In Berger,
S., Dore, R. (Eds.), National Diversity and Global
C ap it al is m, Ithaca: Cornell University Press.
Dunning, J.H. (1993) The Globalisation of Buslness, London:
Routledge.
Hutton, W. (f qgO) The State 7[/e're In,Znd Edn. London:
Vintage.
Norman, G. (1998) Foreign Direct Investment and
International Trade: a Review, Discussion Paper 98-l,0
Department of Economics, Tufts University,
(Unpublished).
Ohmae, K. (1999) The Borderless llorld: Power and Sttategt
in the Interlinked Econony, New York: Harper Business.
Ralston, D.4., Egri, C.P., Stewart, S., Terpstra" R.H., Yu, K.
(1999) Doing business in the 2l't century with the new
generation of Chinese managers: A study of generational
shifts in work values in China, Journal of International
Business Studies,30, 415-427 .
Schuster, C., Copeland, M. (1996) Global Business: planning
for sales and negotiations,Fort Worth: The Dryden Press.
World Bank m(2001) Global Economic Prospects and the
Developing Countries 200 l,
http://www.worldbank.orq/prospects/qeo200 1 /sumenq' htm,
l7 May 2001.
 54t ctB-2002

Strength from Within

Relative Importance of Factors Influencing Development
of Local Construction Enterprises in Singapore
George Oforir & Teo Pinr

Abstract
Many factors are instrumental in influencing the growth and
development of construction enterprises. Studies tend to concentrate
on one or a few ofthese factors, such as technology transfer from
foreign construction companies. Thus, they fail to explore the relevant
issues in a comprehensive manner. This partial approach leads to
proposals for improvement in industry performance with wide gaps
withinthem.

This questionnaire-based study first assesses the extent to which local

contractors in Singapore have grown. It then considers a broad range
of factors which have had an impact on the development of these
firms, and examines their relative importance. It is found that
government's action, clients' initiatives, and measures taken by the
companies themselves are all relevant factors which have influenced
the growth and development of Singapore contractors. It is
recommended that appropriate targeted action be taken by this range
ofactors.

Keywo rds : questionnaire, development of firms, Singapore,

contractors

Introduction

Background
Efforts have been made to develop Singapore's construction
industry and its constituent companies sinée the 1960s. Much
of these have been government initiated, supported or led. The

I
Department of Building, National University of Singapore, 4 A¡chitecture
Drive, Singapore ll7 566 (email:. hdgo.fori(.Ð.nus.edu.sg)
542 Strengthfrom within - Ofori & Pin

first steps in these regards followed the major study by a

Commission of Inquiry (1961) appointed by the government to
study the ability of the construction industry to meet the
demands of a planned programme of industrialization, mass
housing and school building.

The continuous development of the industry of Singapore has

been administered by the Construction Industry Development
Board (CIDB), formed in 1984, which became the Building
and Construction Authority (BCA) in'1999 after the
restructuring of government organizations relating to the
construction industry. The achievements and challenges of the
CIDB/BCA have been studied by many authors (see Chow,
1990; Ofori, 1993; CIDB, 1994).

Other government organizations which have been involved in

the efforts to develop the construction industry include the
Housing and Development Board which offbred incentive
schemes to support the purchasing of equipment, and assisted
firms with resource and project management (Wong and Yeh,
1985; Chionh, 1999). The private sector's involvement in
industry development has mainly been through the activities of
the Singapore Contractors' Association Ltd. (SCAL) (SCAL,
1997a).

Previous studies have investigated the factors which have

contributed to the development of Singapore's construction
industry. Low and Tan (1993) examined the relationship
between government measures and the growth of construction
capacity. Ofori and Chan (2000) studied the involvement of
foreign contractors in the development of local firms, and
Ofori et al. (2001) considered local-foreign joint ventures.
Knowledge about these determinant factors would helping in
the development of appropriate initiatives.
543 crB-2002

Research Objectives and Methodology

This study has the following objectives:
l. to examine whether local contractors in Singapore have
grown over the past decade
2. to consider the broad range of factors which have had an
impact on the development of local contractors in
Singapore
3. to examine the relative importance of these factors
4, to propose measures for improving the performance of
the local firms, with the view to enhancing their
competitiveness and performance.

Field Study

Reseørch Desígn
A postal questionnaire-based survey ofthree groups oftarget
respondents was undertaken. These were: (i) local contractors
(LC) in the top three registration categories; (ii) foreign
contractors (FC) operating in Singapore; and (iii) clients and
consultants (CC).

'Ihe first part of the questionnaire sought details of responding

organizations and persons. The second part ofthe
questionnaire posed "Yes" / "No" questions concerning the
growth of local construction firms. The third part related to the
factors which have contributed to the development of local
firms. In this section, respondents were requested to indicate,
for each attribute under each question, the extent to which they
agreed, on a scale of I to 5, where: 5 = "Strongly Agree"; 4 =
'oAgree"; 3 = "Neither Agree Nor Disagre a"; ) = "Disagree"; I
= "Totally Disagree". The ten-year period 1987-97 was
adopted as the frame of reference because existing data
showed that local firms had improved in size most significantly
during this,period (Ofori and Chan, 2001).

The addresses ofall 178 local contractors in the top three

 s44 Strengthfrom within - Ofori & Pin

registration categories and all44 foreign contractors were

obtained from the Register of Contractors and Suppliers
1997/98 (CIDB, 1997); the names of possible contact persons
were taken from the Singapore Contractors' Association Ltd
Yearbook 1997 (SCAL,l997b). Addresses of developers were
drawn from the REDAS Directory 1997 (Real Estate
Developers' Association Ltd, 1997); and those of consultants
from the institutes' directories such as the Singapore
Institution of Architects Yearbook (Singapore Institute of
Architects, 1997).

Response Rate and Respondents

The overall response rate was about260/o (263 questionnaires
sent, 68 returned). Local contractors formed 4l%o of the
respondents; foreign contractors I3Yo; and clients and
consultants 46%.The response rate for local contractors was
16% (178 questionnaires sent, 28 retumed), whereas that for
foreign contractors was 2l%o (44 questionnaires sent, 9
returned), and for clients and consultants,T6Yo (41
questionnaires sent, 3 I returned).

Despite the relatively low response rate, the results of the

survey will provide a good basis for analyzing issues relating
to the growth of local construction companies as the targeted
group included all organizations which had become large in the
past decade.

The questionnaires were completed by senior persons 18% of -

them were Directors or Deputy Directors, 27%o were Chief
Executive Offi cers, Managing Directors, General Managers,
Deputy General Managers or Partners; 24%owere Managers or
Assistant Managers; and the rest were professionals.

Forty-six percent of responding contractors were in the top

registration category, and a cumulative 70Yo in the top two
categories. Of these, 3lYowere foreign contractors. Sixty-four
545 ctB-2002

percent of local contractors were in the top two categories.

Forly-nine percent of responding firms specialised in Building,
and22o/o in Civil Engineering. Nineteen percent of contractors
'specialised' in "Building and Civil Engineering". Forty-seven
percent of local-contractor respondents specialised in building
and25o/o in civil engineering, whereas l4%o of local firms did
not indicate their area of specialization.

By Singapore standards, the responding contractors were large.

Their mean annual tumover in 1995 was S$90 million, and the
maximum was 5$500 million. The average number of
professionals employed by responding contractors was 43, the
minimum was 4, and the maximum, 375. The contractors were
also quite experienced - the mean age of companies was 25
years and the oldest firm was 51 years old.

Growth of Local Firms

Almost all the respondents (96%\ believed that the capacity
and capability of Singapore construction companies have
increased considerably since 1980. Seventy-seven percent of
the respondents felt foreign construction companies operating
in Singapore have helped their local counterparts to develop.

Factórs Influencing Development of Local X'irms

Factors which have contributed to the development of local
construction companies were explored in the study. The results
on the main factors are now presented.

Intluence of Foreign Contractors

Table 1 shows the respondents' mean scores on the vehicles
through which foreign contractors have influenced local
construction companies generally. The overall mean scores
ranging from 3.15 to 3.35 are quite low. This accords with the
finding by Ofori and Chan (2000) that foreign firms have not
 546 Strengthfrom within - Ofori & Pin

been among the key factors which have influenced the

development of their local counterparts. Two vehicles are
jointly ranked as the most effective. These are "transfer of
construction techniques", and "transfer of managerial skills
and systems". The three categories of respondents did not
agree on the most important vehicle. Clients and consultants
rated "transfer of managerial skills and systems" at the top,
whereas foreign f,rrms chose "transfer of corporate policies and
attitudes" and local contractors gave the highest score to
"targets for corporate benchmarking", followed by "transfer of
construction techniques", and "transfer of managerial skills
and systems".

It worth noting that "offering of competition" received the

lowest overall score, and was given a score below 3 by local
contractors and was not ranked highly by any other respondent
category, although it has often been identified as being
important (see The Straits Times,1993).It is also worth
observing that "targets for corporate benchmarking" received
relatively high scores from local and foreign contractors.

Table I Mean score of respondents' views on vehicles through which

contractors influenced their local
Factors Overqll CC FC LC F P>F
Mean value
Inspiration as role models 3.24 3.29 3,44 3.1 I 0.s l 0.6045
Targets for corporate 3.34 3.29 3.67 3.29 0.67 0.5143
benchmarking
Transfer of construction 3.3 s 3.35 3.67 3.2s 0.42 0.6615
techniques
Transfer of managerial 3.3 5 3.39 3.56 3.25 0.18 0.8367
skills and systems
Transfer ofcorporate 3. l5 3.00 3.78 3,l l 1.96 0.1488
policies and attitudes
Demonstration of 3.32 3.42 3.56 3.t4 0.65 0.s245
construction techniq ues
Offering of competition 3.15 3.31 3.56 2.85 2.61 0.0919**
547 ctB-2002

Government Incentives
Table 2 shows the respondents' mean scores on the types of
government incentive schemes which have helped local
contractors to upgrade and expand. The overall mean scores
are between 3.06 and 3.35. "Financial incentives" received the
highest overall score, as well as the highest from both local and
foreign contractors. Clients and consultants rated human
resource development highly. They gave the highest score to
"short courses for professionals and technicians", followed by
"training of site supervisors". Local contractors gave the
lowest score to "national awards", despite their motivational
properties which are often claimed (see Construction 2l
Steering Committee, 1999).

Table 2 Mean score of respondents' views on how government

incentive and schemes have local frrms to
Factors Overall CC FC LC F P>F
Mean value
Financial incentives 3.3s 3.46 3.67 3.17 1.09 0.3428
Advisory services 3.03 3. l6 3,22 2.82 1.55 0.2210
Market information 3.25 3.26 3.44 3.17 0.51 0.6045
Training of skilled 3.r7 3.39 3.22 2.93 l.6l 0.2072
workers
Training of site 3.26 3.48 3.22 3.03 1.60 0.2090
supervisors
Short courses, for 3.28 3.52 3.s6 2.93 5.71 0.0052*
professionals and
technicians
Seminars and workshops 3. l3 3.32 3.1I 2.93 1.96 0.1492
Improvement of business 3.28 3.42 3.22 3.14 0.70 0.5020
environment
National awards 3.06 3.32 2.89 2.81 2.40 0.0993 * *

Governmentts Improvement of Operating

Environment
Table 3 shows respondents' views on the extent to which
548 Strengthfrom within - Ofori & Pin

specific measures adopted by the Singapore government to

improve contractors' business environment have helped them
to develop. The mean scores are relatively low, being between
3.17 and 3.39. "Registration and classification of contractors"
receives the highest overall score, and is also rated at the top
by clients and consultants. The CIDB/BCA also rates this
aspect of its work very highly (CIDB, 1994). Foreign
contractors ranked it second, giving the highest score to
"market information". Presumably, foreign contractors believe
that their local counterparts are privy to some government
sor¡rces of market information which gives them a competitive
edge. Local contractors gave the highest score to "contractual
terms" and accorded all the remaining four measures the same
average score (3.14). This top billing for contractual terms is
not surprising as the local public client in Singapore is a good
one, with fair oontract terms and few bureaucratic procedures
(Chow, 1990). However, foreign contractors gave it the lowest
score.

Table 3 Mean scores of respondents' views on extent to which

Singapore govemment measures to improve contractors' business
environment has
Factors Overall ICC IFC LC F P>F
Mean I I value
hocurement policies 3.20 13.23 13.33 3.14 0.t l 0.897'.7
Contract documents 3.17 lZ.Ze 13.00 3.14 0.45 0.6391
Confractual terms 3.17 13.19 12.89 3.24 0.60 0.5516
Ma¡ket information 3.26 |,3.26 13.67 3.14 t.49 0.233t
Registation and 3.39 .58 .56 3.t4 t.7t 0. I 895
classification of firms t' t'

Locøl Contractors' Inítíøtives

Table 4 shows the mean scores of respondents' views on the
extent to which st¿ted initiatives taken by local construction
firms have helped them to upgrade. The overall mean scores
a¡e between 3.19 and 3.57. The measure given the highest
54e ctB-2002

score was "employment of professionally qualified persons"; it

was also given the highest score by clients and consultants
(followed by "establishment of better relations with clients").
Strategic alliances were rated very lowly, with "strategic
alliances with other local contractors" receiving the third
lowest overall score, 'f oint ventures with foreign companies"
the second lowest, and "strategic alliances with firms outside
construction" received the lowest overall score. Local
contractors gave the lowest score (below 3) to 'Joint ventures
with foreign contractors" and the highest score to "utilisation
of information technology", followed by "strategic alliances
with firms outside construction".

Table 4 Mean scores of respondents' views on how measures

local frrms have them to
Factors Overall CC FC LC F
Mean value P>F
Employment of 3.57 3.90 3.56 3.21 2.65 0.0783
,t*
professionally qualifi ed
þersons
Adoption of human 3.24 3,42 3.44 3.03 1.47 0.2394
resource management
policies
Institution of quality 3.36 3.58 J.-1 J 3.t4 1,57 0,2152
management systems
Joint ventures with 3.21 3.3 5 3.56 2.93 1.86 0. I 640
foreisn ôompanies
Strategic alliances with 3.22 3.35 3.22 3.07 0.86 0.4295
other local contractors
Strategic alliances with 3.19 3.06 3.67 3.18 1.67 0.19s9
fìrms outside construction
Establishment of better 3.43 3.61 3.1 I 3.34 Ll5 0.3223
relations with clients
Utilisation of information 3.3 8 3.52 3.89 3.07 3.28 0.0440
,Í
technolosy
 550 Strengthfrom within * Ofori & Pín

Inítíatíves of Síngapore Contractors' Assocíatíon

Ltd.
Table 5 shows the mean scores of respondents'views on how
initiatives by the SCAL have helped local companies to
improve their performance. The figures are quite low, ranging
fr om 2.9 6 to 3 .24. "Continu ing profess ional development" was
given the highest score overall, and also received the highest
score from clients and consultants, which, again, were more
impressed by human resource development (they gave equal
highest score to "running training courses for contractors'
personnel"), whereas both local and foreign contractors gave it
the second highest score.

Table5 Mean scores of respondents views on how initiatives by

SCAL have helped local companies to improve upon their

Faclors Overall CC FC LC F P>F

Mean value
Running training courses 3.21 J.JJ 3.00 3.14 0.61 0.5462
for contractors' personnel
Organising seminars for 3.15 3.27 3.1 I 3.04 0.61 0.s480
members
Lobbying government on 3.00 3.20 3.1 I 2.76 L37 0.2604
members'behalf
Offering networking 2.96 3.00 3.44 2.75 2.57 0.0845**
opportunities at home
Offering networking 3.10 3.30 3.22 2,86 2.06 0. l36l
opportunities overseas
Construction Industry 3.07 3.30 3,33 2.75 4.18 0.0198*
Information Network
Continuing professional 3,24 J.JJ 3.33 3. l0 0.80 0.4522
development
Singapore List of Trade 2,96 3.20 2.78 2.76 2.46 0.0937**
Subcontractors
Safety consultancy 3.00 3.23 2,89 2.79 2.26 0.1 130

Foreign and local contractors had opposite views. The former

accorded the highest score (only 3.14) to "offering networking
opportunities at home", to which the latter the lowest score
 551 crB-2002

(ointly with "Construction Industry Information Network"

which foreign firms ranked joint second). From their views of
local contractors, the foreign firms scored SCAL's potential
rather than its actual achievements. Local contractors are not
impressed by their association: they gave the lowest scores
under all the factors; they gave the highest score to "running
training courses for contractors' personnel". They gave very
low scores (below 3) to some initiatives which SCAL is proud
about, including "lobbying government on members' behalf,
and the Singapore List of Trade Subcontractors.

Clíents' Initíutives
Table 6 presents mean scores of respondents' views on the
extent to which each specified measure adopted by clients has
helped local firms to improve upon their performance.

Table 6 Mean score of respondents views on how measures adopted

clients have local firms to their
Factors Overall CC FC LC F P>F
Mean value
Shortlisting 3.24 3.32 2.89 3.25 0.67 0.5134
opportunities
Altemative design 3.36 3,4s 3.67 3.t7 t.t4 0.3266
possibility
Favourable contractual 3.13 3.00 3.44 3.t7 0.77 0.466s
terms
Design and build 3.34 3.48 3.44 3.14 0.t5 0.4753
opportunities
Bonus for quality 3.49 3.61 3.44 3.36 0.56 0.s763
performance
Timely payment 3.59 3.94 3.56 3.24 3.01 0.0563**

The highest overall score was given to "timely payment",

followed by "bonus for quality performance". These two
measures were also the top two selected by the clients and
consultants surveyed. The top two scores of foreign contractors
552 Strengthfrom within - Ofori & Pin

went to "alternative design possibility" and "timely payment",

whereas local contractors' two highest scores went to "bonus
for quality performance" and "shortlisting opportunities".

Organisations Outside Construction Industry

Table 7 presents the mean scores of the respondents' views on
the extent to which specified types of organizations outside the
construction industry had helped local contractors to develop.
These organizations outside the construction industry received
relatively high scores. There was overall agreement among the
categories of respondents on the importance of the factors.
Generally, the organizations were ranked in overall terms and
by each of the categories of respondents as follows: (i)
financial institutions; (ii) suppliers of materials; and (iii)
manufacturers of materials and components.

Table 7 Mean scores of respondents' views on how organisations

outside construction have local contractors
Factors Overall CC FC LC F P> F
Meqn valu
e
Financial institutions 3.58 3.58 3.67 3.55 0.11 0.8970
Manufacturers of materials 3,33 3.55 3.22 3.14 2.02 0. l4 l5
and components
Suppliers of materials 3.39 3.55 3.44 3.21 1.1I 0.3346

Conclusion
The study shows that a broad range of measures are required, if
the performance of Singapore's construction industry is to be
improved. These transcend governmental action which is
usually stressed, and even go beyond the construction industry.
Technology transfer from foreign firms was highlighted. The
influence of government's action received stronger
endorsement, with the provision of financial incentives and
setting of standards. The local ftrms can take action to help
themselves, especially with regard to employing qualified
553 ctB-2002

personnel and appointing them to managerial positions.

Attention to the financial aspects of clients' role, such as
prompt payment would also help.

Acknowledgement
The authors gratefully acknowledge the grant provided by the
National University of Singapore which made the research
study possible.

References
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 554 Strengthfrom within - Ofori & Pin

December, Vol. l, pp, l1-13.

Lam, S.W. (1999) Preparing Singapore's construction industry
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Low, S.P. and Tan, S.P. (1993) The Relationship Between' .

Cons.truct ion, Marke t ing and Ec onomic Development.

Royal Institution of Chartered Surveyors, London.
Ofori, G. (1993) Managing Construction Industry
D ev e I opme nt : Le s s ons fr o m S ingap or e's exp er i enc e.
Singapore University Press, Singapore.
Ofori, G. (1996) International contractors and structural
changes in host-country construction industries: Case of
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Manogemenl, Vol. 3, No. 4, pp.271-288.
Ofori, G. and Chan, S.L. (2001) Factors influencing
development of construction enterprises in Singapore.
C ons truc t ion Mana ge ment and Ec ono mic s, 19, I 45 - I 5 4.
Ofori, G., Teo, P. and Leong, C. (2001) Effectiveness ofjoint
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case of Singapore. Journal of C ons lruction Res e arch, in
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Real Estate Developers' Association of Singapore (1997)
REDAS Directory 1997. Singapore.
Singapore Contractors' Association Ltd. (SCAL) (1997 a)
Foundations of Success: Celebrating 60 years of building
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Singapore Contractors' Association Ltd. (1997b) S ingapore
Contractors' Association Ltd. Yearbook I 997. Singapore.
Singapore Institute of Architects (1997) Singapore Institute of
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555 crB-2002

Knowledge Sharing: A Softly-Softly

Approach.
Scott Fernier, Stephanie Wellerr, Stuart D. Greenl, Robert
Newcomber & Marylin Williams2

Abstract
Knowledge sharing has been on the UK construction research agenda
since the early 1980s. Benchmarking as a method of knowledge
capture and transfer to improve organisational performance is an early
example of this. The purpose of benchmarking is to understand both
performance and the contributing factors (knowledge) that dictate
performance. Continuing this theme, the Egan report in 1998 (DETR,
1998) detailed the problems of the UK construction industry and
proposed that knowledge required to resolve these problems \ryas
embedded in the managerial practices of other industry sectors. His
challenge to the construction industry was to capture and transfer
knowledge between organisations in different industry sectors.
However, despite the compelling arguments for the use of knowledge
transfer within construction, efforts to develop and implement an
appropriate method are curiously absent. This paper explores the
notion of knowledge sharing and highlights the pitfalls that may befall
potential methodologies that adopt a simplistic approach. Knowledge
sharing is argued to be a complex social process that involves eliciting
both explicit and tacit knowledge. The process is further complicated
by the need to fully understand and consider the context within which
the knowledge is embedded. This paper proposes a structured
approach for knowledge sharing that considers the embedded and
contextual nature of tacit knowledge. Specificaily, the paper reports
on the initial application of a knowledge sharing method to
organisations within the aerospace and construction sector. The
research is sponsored by the UK Government through the Engineering
and Physical Sciences Research Council (EPSRC), and subsequently
benefits from a high level of collaboration between industrial

I of
Department of Construction Management & Engineering, University
Reading, UK
2
Department of Psychology, University of Reading, UK
 556 Knowledge Sharing -Fernie et al

organisat¡ons and academic researchers.

Keywords: benchmarking, context, industry sectors, knowledge
sharing.

The Need for a Knowledge Sharing Method

The notion that industry sectors or economic clusters are
characterised by varying propensities to import, export, or
produce knowledge for themselves is argued by Gavigan et al
(1999). Specifically, it is noted that the construction economic
cluster (sector) appears to be a net importer of knowledge. If
this analysis is taken to be accurate, the need for an effective
knowledge sharing method within the construction sector
becomes paramount.

An assumption that improved productivity can be achieved by

learning and adopting alternative approaches from other
industry sectors is central to the findings of the 'Rethinking
Construction' report (DETR, 1998). This report, authored by
the Construction Task Force (a UK forum consisting of the
industry's major clients such as BAA) sets out the scope for
improving quality and effrciency in the UK construction
sector. Whilst conceding that the UK construction industry is
excellent at its best, the report focuses on its shortcomings. .

One of the conclusions seemed to be that using particular

management approàches from other industry sectors would
solve many of these shortcomings. This is encapsulated
specifically within a section of the report that analyses and
highlights the drivers for change in other industries as a basis
for change in the UK construction sector (pp l4-17) and, in the
penultimate sentence of the report:
"Il'e wish to see, within/ìve years, the construction industry
deliver its products to its cultomers in the same way as the
b e s t c ons ume r - I e ad nanufac t ur in g an d s erv i c e in dus tr i e s "

(DETR, 1998, pp 40)

However, the report falls short of outlining how such learning

557 crB-2002

can occur which, tends to understate the complexity of cross-

sectoral learning.

Benchmarking is widely advocated within the construction

sector as a way to interact with and learn from organisations
within and outwith the sector (Pickrell et al, 1997). There is
also a plethora of government supported and independent
organisations and initiatives freely available to assist the
novice benchmarker such as the Agile Construction Initiative,
Constn¡ction Benchmarking Centre, Government Construction
Clients' Panel Benchmarking Group, Construction Best
Practice Programme, Movement for Innovation, National
Construction Benchmarking Forum, ECI/CII Benchmarking.
Most of these seem to be positioned as a response to the
findings of the 'Rethinking Construction' report (DETR, 1998)
regardless of their prior existence. However, to accept
benchmarking as a 'knowledge sharing' panacea, without
critical theoretical examination. would be to concede to the
dominant orthodoxy within industry and reject a more
pluralistic position (New, 1997).

The need for a knowledge sharing method is clear, and the

acceptance of benchmarking as a wiclely advocated knowledge
sharing method is evident within the construction sector.
However, theoretical understanding of knowledge sharing and
the potential conceptual limitations of benchmarking within
the construction sector are not. A critical examination of both
these aspects is required to credibly advocate benchrnarking as
tlre only knowledge sharing method, or to introduce, on the
basis of necessity, alternatives approaches.

The Problematic Nature of Knowledge Sharing

Explicit and Tacít knowledge

Human knowledge can be divided into two components -
explicit and tacit (Nonaka and Takeuchi, 1995). Explicit
 558 Knowledge Sharing -Fernie et al

knowledge is that which can be easily shared, codified and

stored, and is present in the documents and reports of
organisations. Tacit knowledge, on the other hand, is difficult
to codify since it is arguably held within peoples heads. Whilst
codified explicit knowledge lends itself easily to sharing, tacit
knowledge must go through a number of processes before any
sharing can occur. These processes are argued to centre on
socialisation, where participants interact within a shared
environment (Nonaka and Takeuchi, 1995). Therefore any
method concerned with capturing and benefiting from
knowledge must consider how these various aspects of
knowledge may be captured and understood within a specific
environment or context. The importance of capturing or
understancling the tacit aspects of knowledge is considered by
Whitley (2000) who finds fault with the current discourse on
knowledge management being directed to knowledge that can
easily be formalised and held in data format within computers,
i.e. explicit knowledge. The concentration on systems that
seek to capture and manage only explicit knowledge is one of
the most common criticisms of knowledge management within
the literature (e.9. Scarborough et al 1999, Egbu, 2000;
Whitley, 2000; Lgbu and Sturges, 2001).

Context
The context within which knowledge is embedded cannot be
divorced from any analysis or understanding of the application
of that knowledge. For example: managerial processes in
different sectors are influenced by disparate economic, social,
technological, legal, environmental and structural factors
(Pettigrew, 1997). From this perspective, an organisation is
itself historically the product of its own environment. To
understand any managerial practice or process it is necessary
to understand its dependence upon the context within which it
operates. As Nonaka and Takeuchi (1995) argue, little sense
can be made of information if it is abstracted from the
associated emotions and specific contexts in which it is
embedded.
s59 crB-2002

Historical events inevitably influence the development of both

the current context within which knowledge is embedded and
the knowledge itself. Taking a snapshot in time of both context
and process, inherent in benchmarking, is therefore inadequate
to provide a basis for understanding the nature of particular
knowledge. The historical development of both context and
process will be caniedforv'ctrd in the human consciousness
(Pettigrew, 1997). Therefore, an insight into the historical
events that have shaped both context and process will reveal a
better understanding ofthe current process and thus its
potential f'or transferab iI ity.

Knowledge sharìng environment

The environment within which the knowledge sharing occurs
between people will influence the extent to which tacit
knowledge can be appropriated or shared. The forum or
environment must seek to engender some form of shared
experience that will allolv knowledge (tacit and explicit) to be
articulated and thus subject to reflection and interrogation.

Drawing on Nonaka and Takeuchi's (1995) model of a

knowledge creation process shown in Figure 1, the social
interaction between individuals acts as the initial catalyst for
four permutations of knowledge conversion: socialisation (tacit
- tacit), êxternalisation (tacit - explicit), combination (explicit -
explicit), and internalisation (explicit - tacit). Further
exploration of these processes displays the difficulty of
accessing tacit knowledge. Socialisation (tacit - tacit) is
concerned with generating shared or sympathised tacit
knowledge within individuals through a shared experience.
This new tacit knowledge takes the form of shared mental
models or constructs - a shared cognitive platform from which
to address the subject matter. To make this tacit knowledge
explicit (externalisation) a process of dialogue and reflection is
used. Codification of this knowledge occurs particularly
through the use of metaphor and analogies, which allow for
560 Knowledge Sharing -l:ernie el al

reflection. Combination (explicit - explicit) is simply

concerned with the combination of discrete pieces of explicit
knowledge to allow the generation of a new piece of explicit
knowledge. Internalisation (explicit - tacit) of explicit
knowledge to tacit knowledge flows from the experience
gained through individuals using newly formed explicit
knowledge. And so the cycle can begin again if necessary,
building upon the existing field of knowledge.

The research project seeks to promote synergistic learning

amongst industrial partners from the construction and
aerospace sectors. Therefore, a high degree of importance is
placed upon engaging practitioners from a diversity of
different backgrounds, within the two sectors, in a highly
socialised setting. Knowledge sharing methods must take into
account these three key issues: (i) the distinction between
'explicit knowledge'and'tacit knowledge', (ii) context, and (iii)
the environment within which effective knowledge sharing
takes place.

Tac¡t Explic¡t
To
Knowledge Knowledge

Dlalogue

Tacit
Knowledge
Socialisation Externalisation
o f
E ãi
o¡
From :
o Éro
o-m
Io roË.
oõ.
L
ã
Expl¡cit
Knowledge lnternalisation Gombination

Learnlng by Dolng

Figure 1: Knowledge Conversion (adapted from Nonaka and

Takeuchi 1995)
561 ctB-2002

Benchmarking as a Knowledge Sharing Method

Improving performance as a consequence of learning from
others' experience is a central tenet ofthe practice of
benchmarking (Camp, 1989, Coclling,1992, Watson 1993,
Zairi 1992, Spendolini, 1992). This practice was first
expressed and introduced to Western management practitioners
by Camp (1989) as a structured process of comparison and
learning between organisations. Camp's ten-step process was
predicatecl on the ability to measure, analyse and understand
why clifferences in performance occur. Essentially knowledge
underpinning the application of processes in an environment
reflects performance differentials. The use of this structured
approach outlined by Camp (1989) and others (Codling, 1992,
Watson 1993, Zairi 1992) is considered by Wolfram Cox et al
(1997) to take the form of recipe knowledge (Sackmann,
1992). They identify the dominant literature on benchmarking
to be prescriptive and pedagogical and that theory is
insufficiently developed to support claims of the efficacy of
one recipe against another.

Inherent in benchmarking is the assumption that irnportant

aspects of organisational performance can be codified, and that
procedures or processes can be structured in such a way to
make measurement achievable and also meaningful (Wolfram
Cox et al,1997, Bresnen, 1998). Yet, as noted above, not all
that is important can be codified such as tacit knowledge.
Notable benchmarking studies and initiatives in the UK
constructiorr sector include Pickrell et al, 1997, Male et al
1998a, 1998b, Madigan 1997 (Agile Construction Initiative)
and the work of the European Construction Institute (ECI)
(rvn'n,.crci-online.orq). These seem to dralv heavily upon
benchmarking recipes (Camp 1989, Codling, 1992,Spendolini,
I 992, Watson, 1993, Zairi, 1992) and are consequently
characterised, to varying degrees, by:
o The assumption of a need to measure
o Process as a'unit of analysis'
o A dominant positivist paradigm
 562 Knowledge Sharing -Fernie et al

a A lack of attention to industrialcontexts

These characteristics reveal various theoretical aud practical

limitations inherent within the 'use ofl and 'process of
benchmarking as a knowledge sharing method.

Problems wíth meas urement

It is recognised that aspects of possible outcomes from one-of-
a-kind slrategic problems may be resistant to quantification,
although still crucial to an understanding of the problem
(Rosenhead, 1989). Therefore important aspects of
organisational and project performance can be extremely
difficult to measure, and in some circumstances even defu
attempts to be measured. Arguing the case for the
determination and existence of an alternative paradigm in
operational research (OR), Rosenhead ( 1989) indicates
potential limitations and OR's over-reliance on traditional
quantitative methods. Making a distinction between technical
and practical problems, and 'tame' and 'wicked problems'
highlights the need for the application of different analytic
methods and the alternative OR paradigm (Ravetz, 1971, Ritell
and Webber,1973). A technical or tame problem is
characterised by agreement of those involved on what the
problem is, and the most appropriate way to address the
problem. A wicked or practicalproblem is characterised by
difficulties surrounding the def,rnition of the problem itself and
any subsequent solution. Technical and tame problems
therefore lend themselves easily to the use of quantitative
methods whereas practical and wicked problems cannot due to
the difficulty in even defining the problem that needs to be
measured. For Rosenhead (1989), these distinctions are
analogous with tactical and strategic problems and the
adoption of the traditional or alternative OR paradigm
respectively.

It is indicated by Bresnen (1999), that a propensity to

concentrate only on easily measurable and quantifiable
563 ctB-2002

ospects of perfonnance is a potential drawback for

benchmarking practitioners. Whilst this may be explained by
tlre dominant empiricists view that a concept attains status and
legitimacy if it can be counted or measured (Wolfram Cox et
alr,1997), it does not therefore lend itselfeasily to addressing
difficult or immeasurable practical, wicked or strategic
problems. Within the realm of OR research, benchmarking can
therefore be described as falling within the traditional
paradigm characterised by a reliance on quantitative methods
and the need for measurement.

The propensity described by Bresnen (1999) also appears to

have been captured and explained much earlier by Schön
(1983), and also the lost opportunity to those who concede to
this propensity:
"In the swampy lowland, messy, confusing problens defy
technical solution. The irony of this situation is that the
problems of the high ground tend to be relatively unimportant
to individuals or society at large, however great their technical
interest may be, while in the swamp lie the problems of
greatest human concern. The pracürioner ntust choose. Shall
he remain on the high ground where he can solve relatively
unimportant problems according to prevailing standards of
rigour, or shall he descend to the swantp of important
problems and non-rigorous inEtiry? "

Traditional quantitative methods are of limited use within the

'swamp' yet the 'comfor-t blanket' of rigour associated with
this method represents a major hurdle to the acceptance of non-
quantitative methods by practitioners. Benchmarking
practitioners are therefore perhaps unwilling to enter the
'swamp'. The dominant use of benchmarking, as a quantitative
analytic method, is inadequate for use in this swamp and
therefore acts to exclude benchmarkingper se from entry.

However, what must be guarded against is the acceptance of

one method over another. Therefore, what this does not do is
 564 Knowledge Sharing -Fernie et al

demonstrate benchmarking to be invalid as a method for

knowledge sharing, only that it may be limited to particular
problems such as technical, tame and tactical.

Inabílity to deal wÍth complexíty

The scientific tradition of reductionism (Pritchard, 1968)
seems to be inherent in benchmarking methods. Reductionism
seeks to reduce a problem to its constituent parts. Through
experimenting with and understanding these parts it is
considered that an explanation of the 'whole' can be
developed. This is evidenced in benchmarking by the need to
reduce activity to a level of process that is ultimately
measurable.

However, the inability of the scientific approach to address

complex social problem situations has led to the emergence of
systems thinking (Checkland, 1993). This systems view reveals
a fufther limitation in using benchmarking as a knowledge
sharing mechanism. In essence, what is conceded by the
dominant reductionisln approach to benchmarking is an
inability to address problem situations characterised by high
levels of complexity. Generally, problem situations grounded
in or highly dependent on human activity, are complex and
problematic. Thus, complex processes and practices such as
design, a complex situation described as a 'mess' by Ackoff
(1979), remain outwith the iniposed limitations of
benchmarking as a useful knowledge sharing method.

Epistemological barriers
Garnett and Pickrell (2000) note that benchmarking should be
an interactive social process, which distinguishes it from a
positivist epistemology, of measurement and observation to that
of social constructivism. Benefits to be gained from the latter
are outlined by Garnett and Pickrell (2000), however they
suggest that benchmarking is still, within the construction
565 ctB-2002

industry, focused on the former. The struggle to understand

and accept the limitations of positivism within the construction
industry as a whole has been argued elsewhere in the
construction management literature (Seymour and Rooke,
1995). However, the underlying positivist epistemology of the
use of benchmarking in the construction sector is considered
here to have profound consequences for the potential to
develop an effective knowledge sharing method. The notion
that 'we know more than we can tell' (Polanyi, 1966)
highlights the need for social interaction to access and
understand tacit knowledge and thus indicates a social
eonstructivist epistemology. A positivist approach to
benchmarking and knowledge sharing will therefore inevitably
restrict the development of useful knowledge sharing methods
that captures tacit as well as explicit knowledge.

Context slríppíng
In challenging the use of various competing paradigms as the
basis of inquiry or research, a critique of problems associated
with quantification reveal what is termed context stripping
(Guba and Lincoln, 1998). This refers to the consequences
arising from a research design that uses what is termed a
precise quantitative approach. Such an approach focuses on a
specific set of variables and excludes from the data collection
and subsequent analysis the impact of other potentially
influential contextual factors. More importantly however is the
criticism surrounding the relevance of the flrndings from such a
study to other contexts. Contextually stripping potentially
important factors from a study limits the generalisability of the
findings to other contexts. In the use of cross-industry
benchmarking this criticism becomes crucial since the
differences in context may be insurmountable.

Recontextuolßatíon
Knowledge extracted from one context to be converted and
adapted to another context is an aspect of knowledge
566 Knowledge Sharing -Fernie et al

transferability that is addressed and described as

'recontextualisation' by Gavigan et al (1999). They draw on
Brannen et al's (1998) study of the transfer of Japanese
technology from Japan to the US. What is proposed is an
understanding of the need for high degrees of
recontextualisation for tacit knowledge when transfer occurs
between industrial sectors. It may also be argued that
recontextualising knowledge is more akin to a process of
knowledge creation (Nonaka and Takeuchi 1995). Adapting
and altering knowledge (tacit or explicit) to other contexts
alters the knowledge itself in such a way that it represents new
knowledge and not necessarily 'tinkered old knowledge' in a
new context. Whichever way this is viewed, the notion of the
receiving context in knowledge sharing being independent
from the knowledge itself must be questioned and addressed.
Altering the context rather than the knowledge, whilst most
likely improbable in most situations, must also not be
overlooked by practitioners. Indeed in some cases this may be
the easier of the options to generate the change reqûired.
However, the notion of comparing 'apples with apples'
inherent in benchmarking seemingly pays little regard to
processes or practices characterised and influenced by
disparate industrial contexts.

An Alternative Process Of Knowledge Sharing

Based on the above, it is argued that any proposed knowledge
sharing method must attempt to address:
o Access to and utilisation of tacit and explicit knowledge
o The inability to separate knowledge from its context(s)
o Sectoral
o Organisational
o Departmental
o The socially embedded nature of knowledge
o Political
o Sociological
o Environmental
567 crB-2002

. Historical
o The environment in which sharing and learning takes
place
. Complexity
r The dominant industry epistemological position -
positivism

The research project 'sharing Knowledge between Aerospace

and Construction Sectors' sponsored by EPSRC at Reading
University undertakes to address some or all of these issues.
What is proposed is an alternative knowledge sharing method
that builds upon the existing benchmarking method within a
constructivist epistemology (see Figure 2). The method is
inf'ormed by Soft Systems Methodology (SSM) (mode 2)
(Checkland and Holwell, 1998) - a process of inquiry
encouraging the immersion of the researchers into the problem
environment. The research will also be conducted in
accordance with the principles of action research, which aims
to contribute both to the concerns ofpractitioners in a real
situation and to the development of knowledge by joint
collaboration within a mutually acceptable framework
(Rapoport, 1970; Stringer,1996; Whyte, 1991). As such the
method is 'problem driven' in response to practitioners
perception of where knowledge gaps exist between aerospace
and construction. The action research approach is also
intended for the purposes of 'sense-making' (Weick, 1995)
rather than as a prescriptive guide to action. It is this emphasis
on learning (from the 'means' and not the 'ends') that makes
the method especially applicable to knowledge sharing within
complex, rnulti-perspective contexts. The method is to be
tested and validated during its iterative application over a
period of two years and will be altered and adapted to suit as
understanding of its application improves.
 568 Knowledge Sharing -Fernie et al

-]
Chosen Understand
Su$ect Lrrerarure
Matter or Kev¡ew
.,,iill"o Explicit
tnterutews
Topic Knowledge

r--- Context

Crcss
lndustry Tacit
Attendâncê Knowledge
F¿cir¡tåred tiätl'J'

I Knowledge Sharlng and LeôrnlnO Envlrcnment

-J

Findings embodied in
disseminated report

Figure 2: Knowledge Sharing Method

Acldressing Context
The method explicitly seeks to avoid the problems associated
with the separation of knowledge from its context. Firstly,
through the findings in the literature review and the semi-
structured interviews, an understanding of knowledge within a
specific field is developed. The method goes further by using
that information to allow a diverse range of workshop
participants from either sector to reflect and debate this
understanding in contrast to their own views. The emphasis
within the method is to generate understanding through sense-
making that acknowledges the socially constructed and
culturally embedded nature of participants' perceptions of
problems and solutions. Knowledge itself is therefore not
artificially isolated from its embedded context.
s69 crB-2002

Accessing Tacít Knowledge

As discussed, the importance of tacit knowledge is highlighted
by the difficulty in accessing and sharing it; it is embedded
knowledge, and as such is highly contextual. To gain an
understanding of the context in which a person operates, it is
necessary to access their tacit knowledge. Within our
proposed knowledge sharing method this is achieved in three
ways. Firstly, through semi-structured interviews we seek to
help the interviewees to externalise their tacit understanding
regarding the workings of their organisation. The interviews
are also used to elicit and code explicit knowledge' Secondly,
the workshop setting creates a knowledge-sharing environment
in which the participants will use reflection and debate to
create new shared and tacit knowledge. Thirdly, the process of
generating and disseminating discussion documents throughout
the knowledge sharing cycle allows for a further process of
reflection and debate.

Creatìng the knowledge-sharing envíronment

The rationale behind the workshop setting is derived from
Nonaka and Takeuchi's (1995) notion that through a shared
environment participants from different contexts can share
their knowledge. To share this knowledge, each participant
must adopt similar mental models, influenced by the
environrnent. Through debate and reflection, current tacit and
explicit knowledge will be built upon to create new
knowledge, which is shared. Socialisation therefore creates a
shared context in which all participants undergo a shared
experience and the workshop setting provides this context.
Presentations by members of the research team generate the
shared experience for the workshop participants' This shared
experience creates shared mental models, which will set the
parameters for communication. Communication occurs
through debate, allowing for previously nonverbalised
knowledge to be built upon and the resulting new knowledge
to be made explicit, making it a process of extemalisation.
This externalised (explicit) knowledge will be captured and
 570 Knowledge Sharing --Fernie et al

codified in the form of a report, prepared after the workshop

for dissemination to all industrial partners. From this
combination phase it is hoped internalisation will occur
through the absorption ofthe report by the industrial partners,
and by the potential implementation of any changes resulting
from the cycle findings and workshop discussions. It is hoped
that through practical application, internalisation will be
achieved (Polanyi, 1966;Nonaka & Takeuchi, 1995).

Initial Application
The project is divided into six cycles, each exploring a topic
relevant to both industries. Supply chain management (SCM)
was chosen as the topic of this first cycle. Using Checkland,s
(1993) understanding of the inability to determine the efficacy
of methodoloW per re, we find in the application of our
knowledge sharing method a similar issue. However, as the
premise of the method as a process of inquiry is to bring
understanding and 'sense-making' to problem situations, the
notion of quantifiable measures of success would be both
subjective at best and impossible at worst. Bringing
understanding and sense-making to a problem situation like
supply chain management, it is argued, allows project
participants to understand what actions can be taken and the
possible consequences of those actions within context.

Findíngs
The initial findings from the first research cycle revealed many
insights into knowledge sharing and supply chain management.
It is not the authors' intentions to cite all of the findings here
but to concentrate on one of the more general frndings. This
highlights the consequence of this 'sense-making' process of
inquiry and the 'usefulness to participants' to be gained from
the application of this alternative knowledge sharing method.

Evident within the literature is the notion of a split between the

571 ctB-2002

application of supply chain management on projects or in the

context of strategic business. Support for this was found in the
interviews, where a distinction between the sectors could be
established such that construction relates supply chain
rnanagement to projects, and aerospace takes a broader
perspective that embraces both projects and strategic business
management.

During debate and reflection in the workshop between the

diverse range ofparticipants from aerospace and construction
it was noted that the structures of the aerospace and
construction sector differed. They were described respectively
as either 'tidy' or 'fragmented'. Tidy related to the limited
number of players in the aerospace sector, which was
perceived to positively impact on their ability to implement
and operate a cohesive and generally widespread supply chain
management philosophy. Fragmentation in the construction
sector on the other hand, due to the large number of players
and low barriers to entry, was viewed to be a barrier in this
respect. It was considered that this fragmentation in the
construction sector is due to short-term project mentality
and/or the absence of consolidation and segmentation within
the construction sector, which has been achieved within the
aerospace sector. This cannot be wholly substantiated since it
can equally be argued that short-term project mentality
embedded within the construction sector supports a market in
which there are low barriers to entry, large numbers of players
and a high degree of fragmentation, Nonetheless, it is clearly
evident that implementation ancl application of supply chain
management in each sector is shaped and influenced by
industry context and the related project or business
perspective.

Conclusion
In this paper the authors have argued that the use of
benchmarking to achieve cross-sectoral learning has specific
 572 Knowledge Sharing -Fernie et al

limitations that require careful consideration by practitioners.

Processes and practices developed within an industry or
organisation are the product of their own environment, being
infl uenced by economic, social, technologic al, legal,
environmental and structural factors. As such, any knowledge
of these practices must be viewed within the context in which
they are developed. Furthermore, knowledge of these
processes and practices will not only be present in
documented, easily accessible and codifiable form. The
unspoken, tacit understanding of how an organisation works
can be accessed through the intervention ofsocialised
processes. These processes occur within a shared environment,
the complexity of which is not captured by current practice.
Benchmarking's emphasis on measurement and reduction
omits the use of such methods, and thus fails to capture and
share this tacit knowledge.

Drawing on the limitations of benchmarking, a method for a

contextually sensitive knowledge sharing method has been
proposed and initially tested within the flrrst cycle of a two-
year research project. The findings support the authors' initial
assumption of the role context plays in knowledge creation and
sharing. This is partially evidenced by the workshop findings,
which highlight some of the more critical contextual factors
within which supply chain management knowledge is
embedded. The findings also indicate within the domain of
supply chain management that those in the construction sector
need to be aware of their own industry sector context, and the
limitations this places on the development of supply chain
management.

This knowledge sharing method will be reviewed and subject

to further testing over more research cycles. It is proposed that
this insight will allow the generation and development of a
robust knowledge sharing mechanism for use both across and
within most industry sectors.
s73 ctB-2002

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s77 crB-2002

Optimal Sequencing of Information Flow on

Fast-Track Projects
Koshy Varghesel & P.S. Ramu2

Abstract
The sequencing ofdesign and construction activities on a fast-track
project is a challenging task as the two phases overlap. The desigr
structure matrix (DSM) technique is a structured approach that has
been used sequence activities in a number of engineering disciplines.
.This work extends the conventional design structure matrix by
quantifying the precedence relationships between documents. The
factors identified for quantification ofthe precedence relationship are
criticality of information, accuracy of estimate, sensitivity to change
and change propagation potential. The quantified relationships are
used as an input for sequence optimization. The optimization is done
using a permutation based genetic algorithm. It was found that the
numerous options can be used for the quantification process and it
should be finalized based on user requL'ements. Once the precedence
relationship is quantifred appropriately, the genetic algorithm
approach was able to generate the optimal sequences very rapidly.

Keywords: information flow, fast-track, precedence relationships,

sequence optimization, genetic algorithm

Introduction
The reduction of project duration is one of the primary
objectives of project management. One of the strategies used to
achieve this objective is to execute projects using the fast-track
concept where, project duration is shorteqed by overlapping

I
Associate Professor, Department of Civil Engineering, Indian Institute of
Technolog¡i Madras, 600036
2
Masters'Candidate, Department of Civil Engineering, Indian Institute of
Technology Madras, 600036
 578 Optimal Information Flow - Varghese & Ramu

the design and construction phases. In the conventional type

of projects, design is complete before construction starts. On
fast-track projects the construction begins when design is 55%
- 70 % complete. This poses numerous management
challenges[5].

One of the key challenges is that the sequence of flow of

deliverables between the Engineering, Procurement and
Construction activities have to be synchronised. However, as
the designer, vendor and contractor view the projects
differently, it has been found that the natural sequence of
executing the work activities are different in each of these
phases. As a result of differing natural sequences in each
phase and inherent uncertainty in the fast-track concept, it has
been found that on numerous projects items to be installed as
per the construction schedule items might be still undergoing
design or fabrication. In contrast, items scheduled later in the
construction phase might have been delivered and will be
taking up storage space at the site. Thus there is a need for a
tool which can assist in the coordination of deliverable flows
within and between the phases.

A tool which has been applied for scientifically managing the

sequencing task is the Design Structure Matrix (DSM)
developed by Steward [a]. In the conventional application of
this tool, the suitability of a particular sequence is evaluated
based on the number of violations of precedence relationship
between the different tasks. In reality, there are numerous
other factors govern the suitability of a sequence. Work done
by VTT Building Technology Group in Finland [3] and
Department of Civil Engineering, Loughborough University,
U.K [] extended the DSM techniques by considering factors
relevant to construction design projects.

This paper further extends these concepts to cover other

factors that can influence sequence suitability and outlines a
methodology for suitability evaluation. The paper also
s79 ctB-2002

describes a Genetic Algorithm approach to determine the

optimum sequence of activities. A description of the
implementation of the optirnization technique in the Evolver
environment and the results from sample cases is also
presented.

Design Structure Matrix

The primary objective of the Design Structure Matrix is to
determine a good sequence in which interdependent/iterative
activities can be executed. The methodology primarily
consists of the following steps:
l. Develop initial matrix and identify precedence
relationships
2. Apply partitioning algorithms to minimize assumed
inputs and identi$, iteration cycles
3. Perform matrix tearing to reduce risks of errors in
assumed inputs

Figure I shows a sample design structure matrix. The rows

and columns represent the activities to be performed and are
arranged in the sequence of execution. Each cellof the matrix
contains a binary value; one state (x) represents the presence of
a precedence relationship between the activity on the column
to the activity on the row. The second state represents no
relationship. For the project represented in the Figure, activity
B requires input from activity A. Further activity A & B has a
cyclic relationship as A also requires input from B .

A B C D A C B D
A X A X
B X X C X
C X B X X
D X X D X X

a. Before Partitioning b. After Partitioning

580 Optimal Inlormation Flow --Varghese & Ramu

Figure 1. Design Structure Matrix Representation

In such a representation, all relationships above the matrix

diagonalwill represent a precedence violation. The objective
of the partitioning step is to re-sequence the activities such
than a precedence violations are minimized. If there are cyclic
relationships in the project, it will be impossible to re-sequence
without violating precedence. The tearing step identifies the
precedence relationships that can be retained above the
diagonal while identiffing cyclic blocks of activities which
need to be done iteratively.

A key limitation in the conventional approach is that the

strength of the precedence relationships is not quantifred. In
the tearing step the planner is expected to identi$ tearing
locations based on a subjective quantification, but the overall
methodology does not rely on quantified inputs.

To overcome this limitation Austin et al, proposed classifuing

the precedence relationship into 3 classes A,B & C based on
the criticality of input [].
The classes are defined as follows:

Class A It is essential to a task that class A information is

available before its commencement.
Class B It is not essential to a task that Class B information is
available before its commencement but it would be
preferable.
Class C It is not essential that Class C information is
available before its commencement.

Extensions
In this work, in addition to criticality of input, the
following three factors that influence the precedence
relationship have been modeled.
l. Accuracy of estimate of input
2. Sensitivity to change in input values
581 ctB-2002

3. Change propagation potential of input values

The accuracy of the estimate models the degree to which an
assumed value is likely to be close to the final value used for
design. This factor can be either estimated based on the
designer's experience or using a historical database. The
extremes values for this factor are (i) the assumed input values
is likely to be close to actual value. (ii) The assumed is very
unlikely to be close to the actual value. Intermediate values to
represent the expected degree ofcloseness can also be modeled
but was not considered for this study.

The sensitivity variable models how sensitive the design

process is to a change in the value being assumed. In a two
point rating, one extreme would be the downstream design is
very sensitive to any change in input values and the other
extreme that the design is insensitive to any change in input
values. For this factor too, intermediate values can be modeled
but only the two extreme values were considered.

Change propagation potential is the degree to which change in

an input value can cause change across documents in the
overall design process. While the earlier factor models the
sensitivity to change, this factor models the extent to which the
change can influence the design process. The extreme values
for this factor vary between changes only to the immediate
successor document, and change in documents even in the
construction phase.

Using this approach if a precedence relationship has to be

violated by assuming the input values, an estimate of the above
factors and criticality should be made. As discussed earlier,
the scale to estimate the significance of each factor can be
defined based on the users requirements. In this study a twò-
point scale was used for each of the variables. Thus a total of
2a = 16 combinations on the nature of the input are possible.
Each combination is assigned a numerical value based on the
impact the assumed input will have on the design process.
 582 Optimal Information Flow - Varghese & Ramu

For example, a non-critical input, which can be estimated

accurately, and has a little sensitivity and error propagation
potential will have a low numerical rating. While a critical
input, which cannot be estimated accurately, and is sensitive
and has a high emor propagation potential will have a high
numerical rating. The rating system used for this study is a
simplistic approach. It was deliberately chosen for this initial
exploratory study. More sophisticated rating systems based of
aFuzzy Logic approach utilizing linguistic inputs can also be
explored.

Genetic Algorithms
Genetic algorithms are a stochastic search approach for
optimization based on evolutionary concepts. The method has
been widely used in a number of problem domains and has
been proven to yield near-optimal solutions although it
searches only a small fraction of the total solution space. The
basic issues in designing and implementing a genetic algorithm
are encoding strategy and fitness evaluation. A simple genetic
algorithm converges to the best solution by iteratively
executing the following three steps: selection (Reproduction),
cross-over and mutation.

Encoding strategy involves the representation of the solution

values in a string format. The encoding in a string format
enables the operations such as crossovers and mutation to be
performed. For example, the integer 50 can be represented as
a binary string 110010. The string is equivalent to a
chromosome and each of the digits are equivalent to the genes.
The normal method for conversion to binary and converting
back can be used for the encoding and decoding purpose. For
the current problem a solution string can be represented as a
string containing the activity numbers in the sequence in which
they are to be performed. This is commonly referred to as the
permutation problem.
583 ctB-2002

The fitness evaluation approach is based on the problem

domain. The decoded value of a solution string is evaluated to
determine the goodness of the solution and this is a relative
indicator of the performance of this solution string compared
to the others. The strings with a better values of fitness are
considered to be closer to the optimal solution. For the
current problem, a specific sequence is evaluated in terms of
the disruption the out of sequence (above diagonal)
relationships will cause to the project' The fitness is basically
calculated as the sum of the numerical values of the violated
precedences. In addition weightage is also given to minimize
the size of the iteration loops within the design process.

The iterative steps in the genetic algorithm process are fairly

standard. This process is shown in Figure 2. Reproduction is
a process in which strings are duplicated according to their
fitness. In each generation of the GA process' the strings
(solutions) with higher fitness are retained based on a
stochastic selection Process.

Create lnitíal PoPulation Mutation

Selection New-Populat¡on

Cross-Over

STOP

Figure 2. Simple GA Process

Parent-l I 100 1l Offspring-l 110 010

iû
Parent-2 I 0t0 l0 Offspring-l 101 011

Figure 3. Crossover OPeration

 584 Optimal Information Flow - Varghese & Ramu

These selected strings have the opportunity to exchange genes

(bits strings) with other selected strings in the crossover
operation. In a simple cross-over operation, two strings are
selected and corresponding location for crossover is randomly
selected and the genes are swapped as shown in Figure 3. The
resulting set ofstrings form the new generation ofsolutions. A
few individuals in this group are subject to random mutation
where one of the bits is switched from 0 to I or I to 0. This
new generation ofsolutions is subject to the selection,
crossover and mutation operators in an iterative manner. The
process is stopped when the improvement in fitness over
successive generation is less than a stipulated value or the
iterations have been run for a specified number of generations.

Only a basic concepts and operators of the simple genetic

algorithm have been discussed in this section. The sequencing
problem falls into the category of permutation problems that
have a specialized set ofcrossover operator options, these are
implemented in the Evolver software package and the concepts
are covered in detail by Goldberg [2].

Evolver Features
Evolver is a spreadsheet based genetic algorithm solver.
Initially, basic spreadsheet features are used to define the
optimization problem in a format readable by Evolver. Next,
the different options available in Evolver are utilized to select
the GA operators to be utilized and the functions of Evolver
are invoked to solve the problem.

In the spreadsheet, the Design Structure Matrix is represented

spreadsheet cells. By selecting the permutation option in
Evolver, the sequence of the activities is defined to be the
variable for optimization. The fitness of a sequence is based
on the total sum ofthe penalties due to out ofsequence
relationships i.e. relationships above the diagonal of the
matrix. The penalty values are calculated based on the logic
585 crB-2002

discussed in Section 3.
When the GA is run, the average fitness of the population at
each generation and the maximum fitness encountered is
tracked. The GA iterations are stopped based on specified
criteria and the best sequence generated until then is written
back to the spreadsheet.

Case-Study & Results

The modified DSM approach was applied to a sample problem.
This example is based on a problem that was initially
formulated by Austin et alfl]. It consists of the design
activities for a plant room. The different activities are shown
the Table l.

ID Activity.
A G.F. Calculations
B G.F. Drawings
c Found. Calculations
D Found. Drawings
E Col Case Drawings
F AHU Drawinss
G Duct Drawings
H AHU/Duct Calculations
I Mezzan. S lab Calculations
J Mezzan. Slab Drawings
K Mezzan. Steel Calculations
L Column Size Calculations
M Brick Wall Detail Drawings
N Steelwork Plan Drawings
o Steelwork Detail Drawings.
P Elec. Switchgear Calc.
o Elec. Switchgear Drawings.
Table 1. Activities Considered for Case Study [1]

The penalty for violating the predecessor relationships are

quantified based on the modified methodology. These values
are summarized in the matrix shown in Figure 5a. The matrix
586 Opfimal Information Flo.re _ Varghese & Ramu
a. Prior to Sequence Ootimization

(¿
A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.90 0.00 0.00 0.88 0.00
B 0.99 0.00 0.00 0.61 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.97 0.00 0.00 0.00 0.73
C ù.97 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.62 0.00 0.00 0.00 0.00 0.00
D 0.00 0.00 0.93 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.79 0.00 0.00
E 0.00 0.00 0.00 0.76 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.71 0.00 0.69 0.00 0.00
F 0.00 0.00 0.00 0.00 0.00 0.00 0.94 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G 0.00 0.00 0.00 0.00 0.00 0.80 0.89 0.00 0.00 0.00 0.00 0.00 0.64 0.00 0.00 0.00
H 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.45 0.00 c.00 0.84 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.50 0.00 0.89 0.00 0.00 0.00 0.00 0.00 0.00
I 0.00 0.00 0.00 0.00 0.00 0.53 0.74 0.00 0.93 0.00 0.00 0.00 0.76 0.00 0.00 0.00
K 0.00 0.00 0.00 0.00 0.00 0.76 0.00 0.93 0.86 0.00 0.00 0.00 0.00 0.00 c.00 0.00
L ).00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.76 0.00 0.00 0.00 0.00 0.00
M 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.72 0.00 0.00 0.00 0.84 0.00 0.00 0.82 0.00
N 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.91 0.56 0.00 0.00 0.00 0.00
c 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.93 0.84 0.00 0.64 0.00 0.00
P 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.68 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.93
587 cIB-2002

b. After Sequence Optimization

PHOFKLNIMGACODEJB
P 0.68 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
H 0.84 0.00 0.00 0.00 0.00 0.00 0.00 0.45 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
a 0.93 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0-00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
F 0.00 0.94 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
K 0.00 0.93 0.00 0.76 0.00 0.00 0.86 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
L 0.00 0-00 0.00 0.00 0.76 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
N 0.00 0.00 0-00 0.00 0.9r 0.56 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
T 0.00 0.s0 0.00 0.00 0-89 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
M 0.82 0.72 0.00 0.00 0.00 0.84 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G 0.00 0.89 0.00 0.80 0.00 0.00 0.64 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A 0.88 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.90 0.00 0.00 0.00 0.00 0.00 0.00 0.00
C 0.00 0.00 0.00 0.00 0.00 0.62 0.00 0.00 0.00 0.00 0.97 0.00 0.00 0.00 0.00 0.00
o ).00 0.00 0.00 0.00 0.93 0.84 0.64 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
D 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.93 0.79 0.00 0.00 0.00
E 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.71 0.00 0.00 0.00 0.69 0.76 0.00 0-00
J 0.00 0.00 0.00 0.53 0.00 0.00 0.76 0.93 0.00 0.74 0.00 0.00 0.00 0.00 0.00 0.00
B 0.00 0.00 0.73 0.00 0.00 0.00 0.00 0.00 0.97 0.00 0.99 0.00 0.00 0.00 0.61 0.00

Figure 4. DSM for case study

 s88 Oplimal Information Flow - Yarghese& Ramu

after the genetic optimization is shown in Figure 5b. The

solution space for this optimization consists of l7! =
3.556878+14 possible outcomes. The genetic algorithm
converged to the shown solution in a few seconds.

It can be seen that in the sequence generated, the overall

impact of the values above the diagonal is minimal. This
sequence gives a base from which further common sense based
re-sequencing can be attempted if required. The sequence
obtained here cannot be directly compared with that obtained
by Austin et al.[] as the input values are different.

Conclusions
This study investigated the extension of the Design Structure
Matrix methodology by including a number of factors that
influence the numerical estimates such as accuracy of estimate,
sensitivity to change and change propagation potential. It was
found that in order to quantiff these factors either extensive
detailed historical database is required or a reliable method of
elicitation from experts. Further work is being done on
investigating methods to assist with this quantification.

A second aspect of this study was the utilization of genetic

algorithms approach to find the optimal sequence of activities.
This approach was found to yield excellent results within a
short time and it is recommended that this should be
incorporated into conventional DSM methodology. As the GA
is capable of generating multiple solutions the tools can be
used to generate sequence options based on which further
common sense based sequencing can be carried out.

References
Austin, S., Baldwin, A. and Newton, A. (1994). "Manipulating
The FIow Of Design Information to Improve The
s89 crB-2002

Programming Of Building Design", ConstrucÍion

Managentent and Economics,Yol. 12, No. 5, pp 445-455.
Goldberg, D.E. (19S9) Genetic Algorithms in Search,
Op t i m iz a t i on an d Ma c hin e L e arn ing, Add i son-Wes ley
Publishing Longman Inc.
Huovila, P., Koskela, L., l,autanala, M., Pietiläinen, K',
Tanhuanpää, Veli-Pekka. (1995). "Use of the Design Structure
Matrix in Construction" International Conference on Lean
Construction, Albuquerque, October 16 - 17.
Steward, D. (1991). "(Jsing Information Flow to Manøge the
Design of Systents", In IEEE, Portland International
Conference on the Management of Engineering and
Technology, New York, October, PP. 189'92.
Williams, G.V., 'Fast-track Pros and Cons: Considerations for
Industrial Projects', Journal of Managentent in
Engineering, Vol. I 1, No. 5, 1995.
i
591 cIB-2002

Evaluation Criteria for Business Process

Alshawi, M.r, Gichuiri, J.r & Goulding, J.r

,dbstract
It is important to develop a process evaluation framework for the
Construction Industry, to enable organisations to objectively assess
the 'value' oftheir current process, and to take the 'right' process
improvement solutions prior to automation or major re-engineering
exercises.

This paper discusses these issues in detail and proposes process

evaluation criteria for effective improvements' Five criteria are
discussed; participant-participant interactions in a project; the nature
to which controls affect the project processes;f nctional dependency
ofpreceding processes as information changes in processes, output
dependency ofsuccessor processes as processes information revises;
and the iterative nqture by which project processes are completed.
Each ofthe five evaluation criterion developed can be rated on a scale
of 0 to 10 (which a process can obtain).

Keywords: Process improvements' process evaluation, evaluation

criteria, business process models

Introduction
Information Technology (IT) has found an increasing role in
the business practices oforganisations, from the need to
replace proximity to markets with more effective management
of supply chains; to delivering products and services to
markets with greater speed; and as a means of accountability
and resource allocation, which was previously provided by
more formalised structures (BT, 1998; Holtham,1994; Prasãd ,
teeg).

I School of Construction and Property Managcmen! University of Salford,

United Kingdom
 s92 Evaluation Criteria - Alshawi et al

The process approach is favoured in investigating effrciency

and effectiveness as it provides descriptions of work activities,
and places little emphasis on the vertical function boundaries
of organisations. It also follows that processes can be mapped
or modelled whilst describing the dynamic behaviour of work
activities, such as with various views provided by process
modelling techniques (functional, behavioural or structural)
(Cichoki et al, 1998; Bhatt, 2000). The study detailed in this
paper is one such example, set to investigate the efficiency and
effectiveness of implementing IT in construction projects
through the development of business models.

Business Modelling Techniques

Business modelling of construction practices requires
investigation into issues of: information flows, goals, and
regulations (such as those arising from statutes or contractual
controls) used in the management and implementation of
construction projects. The process modelling technique
selected must provide sufficient descriptive elements to
investigate these issues and, most importantly, allow the
analyst to verifr the 'correctness' of their information with
domain experts and project specialists producing and
managing these projects (in order to produce effective and
accurate process models). Hence, modelling techniques
focused within this study concentrated on Data Flow Diagrams
(DFD), Role Activity Diagrams (RAD) and Integration
Definition Function Modelling (IDEFØ). It also considered
other factors, such as the review gate technique and progress
fixity adopted from the Generic Design and Construõtion
Process Protocol (GDCPP) model (Kagioglou et al, 1998) and
colour patterns to illustrate project specialists responsible for
co-coordinating process information

The DFD approach models processes with input, ouþu! and

source infoniration, but this does not sufficiently model the
s93 crB-2002

mechanisms and constraints of a process such as contractual

agreements (De Marco, 1979), Furthermore, whilst the RAD
technique is suitable for illustrating interactions within a
process, this does not however adequately model input and
output information necessary for completing a process, which
also makes it unsuitable for the study (Ould, 1995). Finally, the
IDEFØ technique can be used to identiff input and output
information together with mechanisms and constraints, and this
would normally make it the most appropriate tool for
modelling construction information (Ross, 1977; Ross and
Schoman, 1977). In stating this however, the IDEFØ notation
does not adequately model all aspects required for managing
projects.

Thus, establishing the type of information produced and

managed in a process is essential, as various types of
information needs to be verified and managed in certain ways;
for example, verification by an external enforcing body such as
a Local Authority (DETR, 2000). In this context therefore,
these process models fell short in numerous areas, especially in
documenting levels of iterations within processes. This
inadequacy could imply a shortfall in process support, but this
is essential in order to avoid project specialists using
superseded project information. Furthermore, changes in
construction technology may also require new isolated sub-
processes to enable completion of highly specialist content
information in a project (Cox et al,1999; Muir et al, 1995). In
addition, the conventional process models do not accurately
reflect the way in which controls influence process completion,
such as notification notices to statutory boclies or submission
of drawings. However, process models need to analyse issues
of controls, especially with the concerns in construction
industry vis-à-vis the high levels of conflicts, which reflect on
project processes not meeting their controls. In addition,
failure to document the level of inter-dependencies between
processes means there is usually little or no support, as
information is passed to preceding or succeeding processes as
 594 Evaluation Criteria - Alshawi et al

process information revises.

Successful IT implementation Issues

There is an increasing need to develop business models that
bring about effective IT implementation into the management
of projects in the construction industry. Yet, business models
already developed, for example: Integrated Building Process
Model IBPM (Sanvido, 1992); Concurrent Life-cycle Design
and Construction (CLDC) process model (Anumba et al,
1997), have met with limited success. This lack of enabling
has led to an increased pressure to produce business models
which more accurately reflected the working practices found in
the construction industry (Santoyridis et al,1999; Yusuf
1997). Thus, this study aimed to overcomelhese shortcomings
by identifuing the key enablers and constraints for effectively
implementing IT in construction projects through an evaluation
framework.

Development of the Evaluation Framework

Development of the evaluation methodology framework had to
take into account the possibility of ever-changing management
strategies associated with construction projects. Five key
evaluation criteria were identified through a series of
structured interviews with core specialists in project
environments. This investigation was reinforced with domain
experts, project stakeholders and an extensive literature
review. The key attributes identified numerous issues,
including: controls, such as statutes and contracts; and project
information issues, such as interdependency and iteration (as
these have to be created and verified in order to complete a
project). This study identified five key criteria, specifically:
pørtic ipant-part icipant interactions ; controls ; functional
dependency, output dependency; and the íterative natureby
which project processes are completed.
s95 ctB-2002

Criteríon I : Pørtícípønt-Partícipant Inte¡actíons

Construction players participate in different ways whilst
performing in a process, the involvement of which can also
change from the start of a project to the completion of a
process. Evaluation of the interactions must thus identiff the
different types ofproject players interacting, and their
importance to the process initiation and completion.

Research on interactions by organisational theorists tend to

apply theoretical frameworks to describe these relationships,
for example Complexity Theory (to define the richness in
information resulting from the number of directly connected
elements). The level and'richness'of interactions can increase
significantly from two interacting elements up to an upper
limit of eight elements (McKelvey,1999; Mitleton-Kelly,
1998), the details of which can be seen in Figure l. In
addition, further evidence by organisational theorists includes
case studies undertaken on social networking (Rosenthal,
1997; Bodenhausen et al, 1987). These findings supportthe
notion that construction project specialists do not always have
direct connections due to the contractual nature ofthe industry
(Ndekugri, 2000). Thus, the criterion itself should only be
linked to project participants with 'direct' connections, such as
those with direct contractual agreements with the client.
Furthermore, whilst this criteria addresses such issues as
complexity levels in interacting project players (with a
component referred to as the complexity factor - as depicted in
Figure l), this can be scored on a range of0.l0 (for one
participant interacting in a process) to a maximum value of
1.00 (for eight participants interacting in a process or more).

The evaluation value for this criterion can be seen as follows:

:
Initiation values + Completion values Process criterion
evaluationvalue

Where, the process initiation and completion value ate

 s96 Evaluation Criteria - Alshawi et al

obtained from averaging participants' involvement and

differentiating this value with the complexity factor as
illustrated.

I i
Z X Complexity factor : Value

Where I = number of participants

Z i = Participantsinvolvement
Value : Initiation values & Completion values

An illustrative depiction of the values for Criterion I

Participant-Participant Interactions can be seen in Table 1.

NUMBEROT COMPLEXITY
PROJECT FACTOR
1.2
PARTICIPANTS
I I 0.10

III 0.8 2 0.50

I 0.ô
I
3 0.89
ot
0.4
4 0.92
0.2
5 0.95
0
012345678910 6 0.97
Numb.r ot (dlnctly connætad) typer ol con¡trucllon
prcJ.ct p.rllclplnt¡ 7 0.98

8-More Players 1.00

Figure 6 Scale Values for the Complexity Factor (adapted

from McKelvey et al,1999; Mitleton-Kelly, 1998)

Críteríon 2: Controls
Construction information is often influenced by obligations
arising from controls such as contractual and statutory contols
(Utr, 1996). Furthermore, construction players must also try to
mcct their obligations by documenting information in order to
597 cIB-2002

avoid conflicts. Therefore, documenting these obligation

controls or constrainls is undertaken to various levels,
depending on the process type (and whether these processes
are starting or finishing). This criterion should therefore seek
to give a value into the difficulty of obtaining this control. The
level of difficulty can therefore have an impact on the
management strategies employed in the construction project'

gsEdlliq
Esgþr
(From thc Initi¡l¡s¡t¡on ç.:@p!!!!@
numbcr of i4@¡!s I!!@r!s
pl¡ycn) &rcæ! &¡¡¡È
P¡ñic¡D¡nt Evdlrlio! P¡rticio¡nt Evd!Í!c!
Mini vrluc vdlder Y¡!ca-&r Tot¡l
Ð!rÉ! P¡rtic¡p¡ntr &r.9!! Nsl Initi¡Ifu¡lion Ncl Complctlon
V¡luc
Nrmc n¡Íicir¡nls ¡@Í!sl: of Imporl¡nt of
4!S !s P¡rliciD¡nt 4 P¡rlicip¡nt
M¡xi v¡luc YeE Y![
&Lsisl!-q Imoorl¡nt= Import¡nt-
!!!.9!! 5.0 s
E4!sipå!s
=1.00.

Process Panicipânt x 0.92 5.00 2.30 1.00 2.76 5.06

A Participant Y 2.00 5.00
Panicipant z 1.00 1.00
Pôrticipant K
2.00 5.00
hocess Participant x 0.50 5.00 2.50 5.00 2.50 5.00
B Perticipant Y 5.00 5.00
Process Pûriicipsnt L 1.00 1.00 l.8E 5.00 3.13 5.01

c P¡nicipant M 5.00 5.00

Panicipant N 1.00 3.00
Psrticipmt O
2.00 2.00
Panicipsnt P
1.00 3.00
Psrtic¡p¡nr X
P¡rt¡cip¡nt Y 1.00 3.00
P¡rt¡cipmt Z 2.00 1.00
2.00 3.00

Table I Illustrative Values for Criterion I Participant-Participant

Interactions

Combining the difficulty factor of obtaining control in process

can thus provide a more indicative evaluation of how control
can influence the process initiation or completion. For
example, a process with important level of control and high
levels of difficulty, may require different management
strategies compared to processes where controls with a lower
level of difficulty and process control.
 598 Evaluation Criteria - Alshawi et al

An example of Criterion 2 canbe seen as follows:

Initiation values + Completion values : Process
crilerion evaluation value

Where:
Process initiation values and completion values are derived
from the highest control value obtained by differentiating the
importance of a control with the difficulty of achieving the
control, as illustrated:
(Control C X Dfficulty of achieving control C) > (Control B X
Dfficulty of achieving Control B) > (Control A X Dfficulty of
achieving Control A)

Then:
Iniliation Value or Completion values : (Control C X Dfficulty of
achieving Control C).

This can be represented in table format, the details of which

are shown in Table 2,

Criterion 3: Functíonal Dependency

Managing project information in construction often involves
making changes to previously completed process inforrnation.
Most changes or revisions can normally be accommodated
within the project scope; however, others may not. This
criterion limits these concerns specifically to those within the
project scope, since those outside this scope ofthe project are
too numerous - for example, the contractor becoming bankrupt
or war occurring (bringing about the necessity to revise
succeeding or preceding processes). The amount of
information revised depends invariably on the number of the
preceding processes revised, which brings in the issues of
complexity as discussed in Criterion I (due to the inter-
relationships, interaction and inter-connectivity of the
preceding processes and the processes concerned). The link
factor addresses this complexity, the details of which can be
seen in Table 3.
s99 crB-2002

ImDortÂnce
lnrport¡ilce Difïictrllv
of
of irl
Docùnìentine
Obtâinine
Controls for
Controls for for
P¡ocess
Process Completion Tot¡l
lnitialisâtiop
]þ!!'!.JsL¡c Con¡olelion Tot¡l for Evelu¡tion
Controls for Process
Process Process Valtre for
I)ocuilented lilitialistion
NÅ!!g Not Not Completion th€
Not
Import¡nt = DifTicult = P¡ocess
Imnort[il] =
t.0 0.10
1.0
Vefl Ven
Very
In¡Dorloilt= Dilïicult =
InrDo¡tAnt=
5.0 1.0
!s
Process Contrectual 3.00 3.00 3.00
AgÌeernents

Approval 0.40 0 t3 o.26

B by Extemal
III/S body I.00 0.10 2.00 0. l0
Approval
by UA
Planning L00 0. 10 L00 0. 10

Contractual
Agreernents 2.00 0.t0 L00 0.t0
Process Approval 2.00 0. t0 0.20 2.00 0. l0 0.20 0.40
C by extemal
body H/S

Table 2 Illustrative Values for Criterion 2- Controls

Liilk
Fâclor
FUNCTIONAL
Processes w¡th
DeDeildetrcv inrDortÂilcc to
Islst
l'u ncl ioil âl Miili vahrc for otre EvÂlu{tion
Process the Preceditrq process VÂlue
Depcndcilcics Prece(litrq Drocess
N¡xrs = 0.10 For the
Not ltrrportnùf = 1.0
lll¡ri value fo¡ t- Process
V€ry llrport¡nt= 10.0
nore urecedins
n¡ocess = 1.0

Process Process X r 0.0 010 r.00

A

Process Process X 5.0 0.92 s.06

B Process Y 6.0
Process T 6.0
Process S 5.0
Process Process T 9.0 0.50 4.25
c Process S 8.0

Table 3 lllustrative Values for Criterion 3 - Function Dependency

 600 Evaluation Criteria - Alshawi et al

Críterion 4: Output Dependency

Criterion 4 also addresses issues relating to process
information changes and how these can affect other processes.
This time however, it aims to address issues relating to the
successor processes, where Criterion 3 addressed previously
completed process information. Changes to forward processes
can often arise from the same factors as identified for Criterion
3, but the link factor is replaced in this criterion by a
dissemination factor, which again represents the richness
levels brought about by the interactions ofthe processes. Even
though Criterion 3 and Criterion 4 are interlinked, they are
dissimilar and they must be addressed separately (Levitt, 1988;
Austin et al, 1994).

Disseminaf¡on
OUTPUT Dependencv Fâctor
Processcs w¡th Total
import¡nce to thc
Oufput Evslu¡tion
&gc!!r Dcoendencies Ssrgg$9r-prsrs$ Value
N¡me M¡ni v¡luc for one
For ahc
Not lmportant = 1.0 successor orocess = 0.10
Ven lmoortatrl= 10.0 M¡xi v¡lue for 8-morc !¡sss$
succelsor processes = 1.0

Process Process X 4.0 0.50 tt<

A Process Y - 5.0

Process Process X 7.0 0.92 s.98

B Process Y 7.0
Process T 6.0
Process S 6.0
Process Process T 9.0 0.50 4,25
C Process S 8.0

Table 4 lllustrative Values for Criterion 4: Output Dependency

However, whilst evaluating construction processes consider

interdependencies as part of the rationale of completing
construction processes. The Criterion 4 Output Dependencies
can be seen in Table 4.

Críteríon 5: Iterutíon
This criterion concerns itself with the iterative nature of the
601 cIB-2002

processes. Iteration can be considered as 'normal' within a

construction project and can be triggered by factors external to
the project; but again, like Criterion 3 and 4, this limits itself to
the iterations of processes within factors'normal'to the
construction project. Construction iterations are not dependent
on the amount of information created, but on richness levels
arising from the types of interactions necessary to complete the
process. Processes having numerous types ofpersons creating
their information, together with persons veriffing information

for correctness (data cotectness and co-ordination

correctness\ and ensuringbusiness value of the project, will
have high levels of iterations compared to those processes with
one person completing the process.

INTERACTIONS OF THE PARTICIPANTS

Crc¡l¡ng Infom¡tion
Minl v¡lue for one
Verlfylng Infom¡tlon
p¡ñiclp¡na! - 0.$
M¡rl v¡lüe 5.00
M¡ri v¡lue

Crc¡ting
bfom¡l¡on Id¡l
P¡ñ¡c. Ev¡lil V¡l*
P16 fyp.t (MAX s)
Nm Intcr¡cllrg
For lhc
Y.rlfy Ev.lû Pm€B
lConpletlty Ev¡ln. Verify
I f¡..or y¡lue for :orrelnaß
rhc bu!lß! V.hc
lu¡n¡ vrluc- r¡lua For
cr€¡lion Ev¡lu¡alon
I I o¡nlclp¡nt info. Y¡luF 1.00
Ev¡lù¡tlon wrtryl¡g
l'0.r0 Y¡luF 4.00 lnfù
trlrrl vrtuc
I

In*r.h"no
Process Padic. L vt 4.75 4.75
A Padic. M V lo.es
Padic. N vt
Palic. O {t
Palic P vt
hocess Partic. L {t 4.60 1.00 1.00 5.60
B J 10.92
alic. N vt
Padic. O {t
Padic. P I

Partic. L {t 4.45 1.00 {.00 9.45 9.45

c Partic. M v 10.89
Pa¡tic. N vl
I
¡rtic. P I

Table 5 Illustrative Values for Criterion 5 -Iterations

 602 Evaluation Criteria - Alshawi et al

A process with one person implies that information might not

pass to others to verify its cotectness (or perhaps to appraise
the project business value). Thus, process iteration is
dependent on the types ofproject specialists directly connected
in creating and veriffing their information. This criterion
establishes the numbers of types of persons creating
information. It also establishes whether further persons are
needed to interact and veriff the information conectness (data
correctness and co-ordination cowectness) and business value
of the project, thereby placing a value to iterative levels in a
process. A representation ofthis criterion can be seen in Table
5.

Conclusion
The paper details the importance of developing an evaluation
methodology for business process. Whilst several modelling

tcchniques exist for modelling dynamic behavioural needs of

organisations and business environments, it is evident that
defìciencies still prevail.

This evaluation methodology was developed from key issues

deemed important for managing construction projects using
five criterio n of p ar t ic ip ant -p ar t ic ip ant int er ac t i on s, C ontr o I s,
Ftmctional Dependency, Output D ependency and Iterations.
Benefits realised using this evaluation framework have enabled
proc€ss prioritisation to occur within organisations, an
example of which can help develop workflow specifications.
Other important benefit realised include the 'sharing of process
knowledge'to minimise process anomalies between project
specialists, the implications of which can lead to reduced
levels of litigation for example.
603 crB-2002

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607 c I B-2002

Web-Based Procurement by the International

Construction Industry and the North-South
Transfer of Wealth and Technology.
Malcolm Murrayl & Panos Zagaretosl

Abstract
To carry out a construction contract a contractor needs to procure and
organise labour, materials, plant and equipment as well as managers,
supervisors, foremen and technical and administrative staff. These
may be procured in any part of the world where quality is satisfactory
and the cost competitive. Construction is being carried out in three
major regions, Asia, Europe and North America and there is a
tendency for Asia to achieve dominance as a construction market
within the next ten years. Construction is being carried out by a
relatively limited number of large international contractors and they
are establishing systems to procure resources world-wide. The
tendency is for main resources to be purchased in the future in the Far
East.

Engineering designers, which use skilled hunlan resources' will

probably procure these, using electronically-based agencies or
strategic partnerships, in the Far East too' Again, most design work is
carried out by a relatively snlall trulnber of Anlericatt and European
companies, but these are increasingly procuring resources globally'
Conclusions are drawn and recotrrmendations for furlher research in
the field are nradc.

Keywords: web-based procurement, north-south wealth transfer,

north-south technologY transfer

I
School of Construction Economics and Management, University of the
Witwatersrand, Johannesburg, South Africa (email: rntrrral'iml¿.ùicon'co za)
 608 I{eb-Based Procurement- Murray & Zagaretos

Introduction
Murray and Appiah-Baiden (2000) and Murray and
Mavrokefalos (2000) have described the tendency for an
increasing proportion ofconstruction and design contracts to
be concentrated in the hands ofthe top ten international
contractors and consultants respectively. Also, the recent trend
for large contractors to establish web-based procurement sites
(with one case comprising an association of five large
contractors) will, it is believed, lead to world-wide
construction procurement being dominated by a relatively
small number of organizations.

A similar process is occurring in the engineering design

industry where large intemational consultancies are
distributing design work throughout the world to take
advantage of the lower rates prevalent in developing countries
and also to enable production to take place24 hours a day.
Bon and Crosthwaite (2000) have predicted that the Far East,
particularly China, will develop as a major construction market
in the next years.

At the same time, design and construction contracts are

increasingly being advertised on the internet, enabling
organisations from all over the world to compete for contracts,
Finally, open competition is increasingly being encouraged by
the movement to a global, free-trade economy which is being
implemented by such organisations as the World Trade
Organisation.

It is beli'eved that the above trends will be beneficial to

businesses established in developing countries as organisations
established in those countries can easily be included in the
world - wide design and construction procurement network.
This will evidently lead to the transfer of wealth and
technolory. In the following the current world - wide
dishibution of design and construction work is examined. The
evolution of web - based international construction
609 crB-2002

procurentent is described and the probable effects otl

developing economies discussed'

Procurement BY Contractors

Cost item breakdown of constructíon contrscts

To carry out a construction contract, labour, materials, plant
and eqiipment are necessary' as well as supervisory personnel
and a number of minor services.

Table l. sourcing for a typical international construction contract

Local National International
Labour
Skilled N
Unskilled L N
Materials
Cement N
Sand L N
Crushed stone L N
Formwork N
Reinforcement N
Structural steel N
Plant and equiPment
Earthmoving
Trucks N
Concrete
Lifting and placing
Indirect items
Managers and suPervisors N
General foremen N
Foremen L N
Technical staff N I

Administrative staff N I
Offices and other buildings L N I
Financial services N I
Transport N I

The above may be transferred from the contractor's existing

organisation (ior example experienced managers and concrete
 610 Web-Based Procurement- Murray & Zagarelos

batching plants) or may be procured internationally (for

example, cement, reinforcing steel and engineers). Some items
rnay be procured Iocally, such as labour, sand and crushed
stone. Table I lists items of a typical construction contract
which conttibute more significantly to the total cost and
indicates from where they may be procured, locally, nationally
or internationally.

Where is constructíon being cøruíed out?

Murray andZagaretos (2001) have shown the distribution of
constructiorr spending by region, as reproduced in Table 2.

Table 2: Construction spending by region, 2000

Region Construction spending Percentage
billion
Asia l.l 13,5 32.6
Europe 1.016,6 29.8
North America 884,5 25.9
Latin America 241,4 7.1
Middle East 101,2 3.0
Africa 56, I 1,6
Total 3.413,3 100.0
Source: ENR

This spending is, according to Engineering News Record,

from which the figures are derived, " ... spending and
investment .. . for each year from 1998 to 2000". From the
table, it can be seen that about33%o ofrecent construction
spending took place in Asia, 30% in Europe and 26Yo in Nor-th
America. Murray (2000) has indicated that by 2010 the largest
construction market in the world is expected to be China,
closely followed by the United States and Japan.

Table 3 has been adapted from that paper and shows the
expected construction investment in 2010, by region, for the
top ten markets. The expected growth of the Asian market is
evident.
611 crB-2002

Table 3. The largest regional construction markets in 2010 (based on

the top l0 countries)
Region Construction investment Percentage
US$ billion
Asia 2.326 46
Europe 1.586 3l
North America 959 l9
South America (Brazil) 202 4
Total s.073 100

llho are the internatíonal contractors?

Table 4, again extracted from Muray andZagatetos (2001),
shows the revenue of international contractors by home region
of the contractor. Asian contractors head the list with 42% of
the total turnover, followed by Europeans with 37Yo andNorth
Americans with l9%. Japanese contractors account for 70o/o
of the turnover of the Asian contractors, Chinese contractors
t8%.

Tab le 4. Total revenue ofhop225 international contractors, 1999

Home region Totalrevenue Percentage
of contractor US$ billion
Asia 151,325.1 41;l
Europe 133,492.4 36.8
North America 69,564.4 19. I
Latin America 2,932.6 0.8
Middle East 3,707.3 1.0
Africa 2.010.0 0.6
Total 363.031.8 100.0
Source: ENR

Procurement systems
The advertising of tender opportunities on the internet by
government authorities is becoming usual; examples of
agencies that use this procurement vehicle are Mozambique's
National Road Administration (www'dnep,goY'mâ.
 612 llleb-Based Procurement- Murray & Zagaretos

A consortium of l6 mining houses have announced the

establishment of a joint procurement system
(rvrvw.rnmprocurenrent.com) and they have been followed by
contractors. In late 2000 a joint web-site was launched by
Skanska of Sweden, Hochtief of Germany, Amec and Bovis
Lend Lease of the UK and Turner of the USA
(wwrv.aecvsnture.corn). Between them these companies employ
over 100.000 people and have a turnover in excåss of USS'Zí
billion.

On the suppliers' side a number of web sites have been

established offering equipment for sale, by negotiation or
auction (rvwr.v.ye I lotvtrack, com).

Consequences. The results of world-wide procurement being

carried out by a limited number of very large international
contractors or consortia ofcontractors can be seen by
examining trends in the procurement of key construction
resources.

a. Semí-skilled løbour
With on-going drops in transport costs it is becoming usual to
recruit semi-skilled labour in countries such as Thailand,
Pakistan and the Philippines, especially for work in Middle-
Eastern countries and Malaysia. The beneficial effects of the
flow of wages of migrant workers back to their countries of
origin has been registered by economists. Examples of this are
Portuguese workers who have worked in France and Turkish
guest-workers in Germany: the economies of Portugal and
Turkey are believed to have been sustained in the past by
remittances sent home by the workers.

b. Cement product¡on
Table 5 and Figure I show the world production of cement by
the top 15 countries in 1998. The dominance of China is
evident. Figure 2 shows the evolution of the production of
cement from 1993 to 1999 for selected countries. Again, the
growth of production in China is in evidence, with the
6t3 crB-2002

Table 5. World cement production of too 15 countries (in thousand metric tons)
Countrv 1993 1994 1995 1996 1997 1998 1999 Total %
367,88 421,18 475,91 491,19 51r,73 513,50 520,00 3,301,39 44,
China 0 0 0 0 0 0 0 0 I
Japan 98,046 91,624 90,474 94,492 91,938 81,328 80,000 617,902 8,3

United 7,6
States 75,117 79,353 78,320 80,818 84,255 85,522 87,300 570,685
India 53,812 57,000 62,000 75,000 80,000 85,000 87,000 499,812 6,6
Korea 47,313 50,730 55,130 58,434 60,3r7 46,791 55,000 373,715 5,0

Brazil 24,843 25,230 28,256 34,597 38,069 43,000 43,000 236,995 3,2
Germany 36,649 36,130 33,302 31,533 35,945 36,610 37,000 247,169 3,3
3r,241 29,493 33,153 35,214 36,035 38,200 37,000 240,336 3,2
Turkey
Thailand 26,870 29,900 34,900 38,600 37,309 30,000 34,000 231,579 3,1

32,713 33,715 33,327 33,721 35,000 35,000 237,247 3,2

Italy 33,771
22,878 25,150 26,423 25,157 27,632 27,943 28,000 I 83,1 83 2,4
Spain
27,120 29,700 23,366 25,366 27,548 27,744 30,000 190,844 2,6
Mexico
Russia 49,900 37,200 36,500 27,800 26,700 26,000 27,000 23 1,100 3,1

Indonesia r8,934 21,907 23,129 25,000 27,500 22,000 25,000 163,470 )')
2t.537 21.522 19.538 21,000 152,768 2,0
Taiwan 23 97r 22-722 22.478
 614 Ileb-Based Procurement- Murray & Zagaretos

ITaiwan
I lndonesia
I Russia
tr Mexico
trSpain
I ltaly
f Thailand
trTurkey
trChina
IGermany
EBrazil
I Korea
tr lndia
tr United lJapan
States

Figure l. World production of cement by the top l5 countries

1993 - t999

600,000

500,000

400,000

300,000

200,000

100,000

0
1993 1994 1995 1996',t997 1998 1999

+Japan United States

*:Koree r.a-Brazil
-China Russia

Figure 2. Evolution of production of cement (in thousand

metric tons)
615 crB-2002

production of cement by the other five countries showing

negligible change (wivrv. glc¡bal-ccrncn l.cJkili lcsifircts.htrrr)'

The top 15 cement-producing countries accounted for over

70Yo of the world total production in 1998. The countries are,
in descending order, China, Japan, the United States, India, the
Republic of Korea, Brazil, Germany, Turkey, Thailand, Italy,
Spain, Mexico, Russia,Indonesia and Taiwan' Of the l5' nine
have developing status and seven are from the Far East. It is
believed that, as construction work continues to shift to the Far
East, procurement of cement will take place in countries of that
region.

c, Steel consumption
Table 6 shows world steel consumption from 1999 to 2001 and
Figure 3 shows the data in graphical form. China is the second
major producer with 19,4%o of the production and Far Eastern
countries (China, Japan, other Asian, Korea and Taiwan)
account for 46,2Yo of the total. Figure 4 shows the growth of
world steelconsumption from 1999 to 2001 of seven selected
countries and regions. Again, these data indicate the
importance of the Far Eastern countries in steel consumption;
it is believed that these figures mirror steel production and
hence regional production capacity.

d. Equipment
Multinational equipment manufacturers will inevitably
establish plants in countries where construction booms are
forecast. Caterpillar (w\\¡w.cat.colll) exported in 1999 US$ 5,2
billion worth of construction equipment with half of its sales
being outside the United States. The company has
manufacturing capabilities in l8 countries outside the United
States in Australia, Belgium, Brazil, Canada, China, France,
Germany, Hungary, India, Indonesia, Italy, Japan, Mexico,
Northern lreland, Poland, Russia, Sweden and the United
Kingdom. Five of these are in developing countries and four in
the Far East.
 616 I{eb-Based Procurement- Muruay & Zagaretos

Country 1999 2000 2001 Total %

(est)
138.0 144.2 144.8 427.0 20,
EU 15 0 0 0 0 0
130.8 137.0 147.0 414.8 19,
China 0 0 0 0 4
110.7 tt4,9 114.8 340.4 15,
United States 0 0 0 0 9
216.0 10,
Japan 68.90 73.80 73.30 0 I
180.0 8,4
Other Asian s6.s0 6t.20 62.30 0
I13.0 5,3
Korea 34.00 38.60 40.40 0
100.9 4,7
Other European 31.80 33.70 3s.40 0
South America 10.60 27.40 29.00 67.00 3,1
Taiwan 20.40 21.60 22.50 64.50 3,0
Russia 16.90 t7.70 18.00 52.60 2,5
Middle East 15. l0 16.20 16.40 47.70 2,2
Brazil 14.10 15.80 16.80 46.70 212

Africa 14.80 15.30 15.60 45.70 2,1

Australia 6.70 6.30 6.00 19.00 0,9
Table 6. World steel consumption 1999-2001 (in million metric tons)

Used construction equipment will tend to be auctioned in the

country where it has been used on site, using web-based
systems. New equipment can be bought directly from the large
manufacturer, such as Caterpillar or via web-based agencies
(www.yellowtrack. com).

e. Managers, s upervísors, foremen

There has been a marked growth of web-based employment
agencies over the last ten years. Many of these have a wide
range ofinternational staffon their books and supply a range
of multinational companies. www.careersinconstruction.com
for example, has a register of 13.000 job-seekers and filled
10.000 vacancies during 2000. Cunently 60.000 visitors use
the service every month.
617 crB-2002

rMiddle
East
IAfrica
EAustralia
tr Russia
I Other E China
Europe

rEU'15
I Japan

tr South trKorea
America
trTaiwan
I Brazil lOther
E United Asia
States

Figure 3. World steel consumption 1999-2001

Engineering Designers

Cost breakdofi,n of ø desìgn contøct

Engineering designers and consultants sell knowledge and
their major assets are skilled and specialised personnel. A
recent, legal, consultancy contract that the lead author was
involved in had the following breakdown in costs which
confinns the above statement:
Remuneration of professionals: 70%
Reimbursables: (flights, accommodation etc) 9%
Miscellaneous (overheads etc) 2I%

Where ìs design work being cørríed out?

Design has been haditionally carried out in the consultants'
home offices. With the advent of reliable communication
 618 IVeb-Based Procurement- Muray & Zagaretos

160.00

140.00

120.O0

100.00

80.00

60.00

40.00

20.00

0.00
1 999 2000 2001 (est)

--(l*China --l-Japan Korea

+United States ---r- Brazil America
---EU 15 Russia -South
Afr¡ca

Figure 4. Growth of World Steel Consumption

technology three trends have developed. The first involves

outsourcing of work to independent professionals, often
working from a home offìce. The second trend is for the, often
US, company to acquire a company in a country where there
are skilled, inexpensive professionals. An example of this is
the establishment over the last decade of US subsidiaries in the
UK by acquisition. The third trend is for 24 hour a day
working. This involves sending electronic files to, say, India at
the end of the US working day for Indian professionals to work
on them during the (US) night and return them early in the
(US) morning for the US office to work on them during the
day.

In the case ofthe legal project cited earlier, coordination ofthe

l3-month project was carried out in South Africa and (legal)
drafting done in Brazil, Mozambique, the USA, South Africa
6t9 crB-2002

and Portugal and fed by e-mailto the South African office. A

project web-site was established to distribute information
efficiently to the multiple role-players.
Who are the international designers?

Murray and Mavrokefalos (2000) have examined the activities

of the large international consultants. Table 5, adapted from
that paper, shows the share of market taken up by consultants
of different nationalities.

Table 5 shows that 43% of the work carried out by the top 200
international fîrms is done by 80 American companies and
37%by 74 European firms.

Table 5. Share of market by consultants of different nationalities

within the top 200 international desien firms: 1998
Nationalþ No. of International %
Firms Invoicing
IUS$ millions)
American 80 7,359 43
European 74 6,249 37
Japanese 13 993 6
Others 23 1.058 6
Total 200 16.972 100
Source:ENR

Procurement systems
The procurement systems of the international designers
evidently focus on human resources. One US firm known to
the lead author, employing about 200 professionals in its home
offrce, has a computerised data-base of 6.000 independent
professional service providers from around the world on
whom the firm relies on an as-and-when needed basis.
Consequences
It is believed that the result of the evolution of communication
systems, the globalisation of the economy and the advances in
technical education in developing countries is that American
620 Web-Based Procurement- Munay &. Zagaretos

and European international consultancies are tending to rely

heavily on multinational staff and on associated companies
based in 'developing' regions.

Conclusions
A number of conclusions can be drawn from the preceding.
l. International coútractors can, and do, source labour,
materials, plant and equipment and construction
professionals from anywhere around the world where
these resources are available at a competitive price and
within the required quality standards.
2. International manufacturers of construction plant and
equipment, cement, steel and formwork will tend to
establish subsidiaries in those regions where
construction activities are expected to develop.
3. International designers will source their human resources
from those countries where there are skilled,
inexpensive professionals available.
4. International designers will tend to establish partnerships
with consultancies established within time-zones lying
l2 hours from the USA and Europe (i.e. within Asia or
Far-East Asia, including Australia) to benefit from two-
shift working, conducted electronically.
5. Major construction activity in the future willtake place
in Asia, principally China.
6. Wealth will flow from developed to 'developing'
countries as international contractors and consultants
source and pay for labour, key materials, plant and
equipment and professional services from those
countries.
7. Knowledge will flow from 'north' to 'south' and
technology will be accordingly transferred, as
professionals from' developing' countries acquire skills
and knowledge by working with contractors and
consultancies from Europe and North America.
621 crB-2002

Recommendations
Further areas ofresearch include:
l. The use of web-based procurement systems by large
international contractors.
2. The internationalisation of design consultancies'
3. The availability of professional contracting and
consultancy skills in'developing' countries'
4. The availability of key construction materials and
equipment in'developing' countries'

References
Bon R and Crosthwaite D, The Future of International
Constructior¿. Thomas Telford Ltd' 2000
Murray M, New Opportunities in China for South African
Construction Profess ion als. C iv il En gin e e r in g, S out h
Africa Institution of Civil Engineering, September 2000,
vol S no.8, p.7-15
Murray M and Zagatetos P, International Construction
Markets and the Availability of Local Contractor Capacity'
Association of Researchers in Construction Management
(ARCOM Conference, Sept' 2001 (paper submitted)
Munay M and Appiah - Baiden J, Difficulties Facing
Contractors from Developing Countries: Problems and
Solutions Proceedings of the 2nd International Conference
of the CIB Task Group 29 on Construction in Developing
Countries.Nov 2000 P277 -286
Murray M and Mavrokefalos D, Opportunities for Consultants
from Developing Countries in the Global Village'
Proceedings of the 2nd International Conference of the CIB
Task Group 29 on Construction in Developing Countries'
Nov2000p 306-315
www.aecventure.com. Architectural, Engineering and
Construction Venture
622 Ileb-Based Procurement- Mutay & Zagaretos

www.dnep. gov. mz. National Road Administration,

Mozambique
www. globa I -cenren t, clk/fi es/lÌrcts. htrn. Aalborg portland,
I

Denmark
www.cat.iom. Caterpillar
www.mmprocurement.com. Alcan Aluminium Ltd and fifteen
other mining companies
www.)zellowtrack.com Selection and purchase of new
construction equipment in E.U.
www.careersinconstruction.com Recruitment Agency
623 crB-2002

Minimizing the Risk of Construction

Nonperformance
Using an Artificial Intelligent Procurement System and
Information Measurement Theory
Dean T. Kashiwagir

Abstract
The risk to a user in the procurement of construction can be defined
as not getting the construction on-time, on-budget, and meeting
quality expectations. The Performance Information Procurement
System (PIPS) uses Information Measurement Theory or the
measurement of information and an artificial intelligent processor to
transform data into information. PIPS allows the user to use
information generated by an AI processor to make the decision
instead of using it to aid the subjective decision making of experts or
engineers. PIPS has identifîed that the major cause of risk in the
procurement of construction is the subjective decision making and
attempt to control the quality of construction using minimal standards,
and inspection. This article will focus on how subjectivity and bias in
the low-bid environment can be minimized by using PIPS and
performance information. It will discuss the results of two tests, a
$17.25M Physical Education Building and a $800K waterproofing of
a courthouse building in Hawaii.

Keywords : Performance Information Procurement System,

Information Measurement Theory, artificial intelligent processor, risk,
quality

Introduction
Government users and facility managers have had difficulty
procuring construction on-time, on-budget, and meeting quality
expectations. This difficulty in minimizing risk has resulted in
government users and owners moving to design-build,

I Prrformance Based Studies Research Group, Arizona State University,

(Email: dean.Ka^shirvagil4)asu.edu)
 624 Minimizing Risk of Nonperþrnance - Kashiwagi
construction management at risk, and indefinite delivery,
indefinite quantity (IDIQ) and other similar delivery systems.
There are numerous problems that exist in the current low-bid
delivery system environment:
l. Lack of communication and perception. Subjective
desciiption of work including means and methods and
minimum standards by a designer which has to be
interpreted by contractors.
2. No performance information. Low-bid contractors are
inaccurately identified as having equal capability.
3. Illogical business process. The process requires a "price"
for construction. There is no method to confirm if the
price is sufficient to meet the requirements of the owner.
4. Low-bid. The low-bid award motivates low price. The
low-price leads to poor quality, change orders, and
unacceptable risk.
5. Lack of qualitv construction. Users have moved to
construction management @ risk and design build to
minimize quality problems. Craft training in construction
has not been able to maintain the industry's skill level
thus systems are being continually redesigned to meet
minimum standards.
6. No identification of value. There is no identification of
value in the construction industry. The difficulty is
caused by the uniqueness ofconstruction: differences in
level of difficulty, requirement, user expectations,
availability and environment make benchmarking value
inaccurate.
7. Illogicalmanagement concepts. The concepts of control,
inspection, decision making by those without liability,
high risk and low profit, and win-lose relationships are
commonplace in construction.

A process that minimizes risk will be successful to a relative

degree of minimizing the above problems. Many of these
problems are overlapping or dependent problems (Figure L)
625 ctB-2002
Information Measurement Theory (IMT)
IMT is the measurement of differential to predict the future
outcome (Kashiwagi, 2001) IMT proposes that contractor
performance can be predicted. It also states that selecting
contractors and key personnel that have proven capability in
the type of work required can minimize risk.

Figurel: Venn Diagram of Construction Nonperformance

lllogical Business
Process Non-Quality
Construction

Lack of lllogical
Communication Management
Concepts

No ldentification
of Value

f] - Performance n- l-ow Performance

IMT also encourages the minimization of direction, control,

management, and inspection of construction work by third
parties who have no liability or responsibility of perfornance.
An increase in performance will only occur if contractors are
motivated to improve their performance (Deming) Figure 2
compares two extreme options the high information option and
the low information option. It then uses Kashiwagi Solution
Models ("two outcome" charts that assume everything is
relative and related) to show that improvement in performance
 626 Minimizing Risk of Nonperformance - Kashiwagi
can only come with information, minimal decision-making,
control, and inspection.

Figure 2: Improvement of Performance Using Kashiwagi

Solution Models (KSM)

lnformation No Decisions No Control Performance

ln

õ
3
E
o
o
E
o
s
Time No Decisions Control No
lnformation Performance

Performance Information Procurement System

(PIPS)
PIPS was developed using IMT to minimize the seven
problems of non-performing construction. It addresses the
problems in the following manner:
1. Perception of performance. The "best available" options
are described by the proposing contractors. The user,
using a consistent nonbiased approach, uses an artificial
intelligent processor to select the best available option.
The best available option is not described by the owner,
but by the best performing contractor. PIPS minimizes
the need for communication and perception by competing
the options, minimizing the choices, and allowing the
contractor to explain what they can do. The performance
specification would then include the owner's requirement
(full design, partial design or requirement only) and the
contractor's means and methods to perform. The
contractor then takes responsibility for meeting both
requirements.
627 ctB-2002
2. No performance information. PIPS collects and then
traniforms performance data into information (data that
differentiates and predicts the future outcome) by using
an Artificiallntelligent (AI) engine (modified Displaced
Ideal Model (Zeleny, 1985) Kashiwagi, 2001') Each
piece of data is transformed into information on a relative
basis and then measured against a requirement to
minimize the options. The AI processor has the following
characteristics:
oMakes a decision with no bias. The processor does
not have a bias. It makes a new decision, each and
every time, which is not based on past experience' It
is not an expert system or a neural network' Expert
systems simulate experts, and experts are biased'
oMulticriteria decision making processor, that accepts
a biased requirement from the owner (relational
weights.) All owners are biased' IMT identifies that
a biased owner should not have their requirement
translated into something else by an expert.
oThe AI processor prioritizes performance barcodes of
contractors, which includes the past performance and
current capability to identiff and minimize risk, and
then associates a price to the level of performance.
oThe AI system gets more powerfulwith more data,
but uses the same decision making process each time.
Data can be reused, but information cannot be reused.
3.Illogical business process' The process has several gates,
which allows the contractors to make self-assessments to
ensure that they can meet the needs of the owner. The
first is identification of past performance. The second
gate is to be able to identiff the risk to the owner (failure
to meet budget, time, and quality,) identiff how to
minimize the risk, provide a detailed cost breakout, and a
construction schedule. The third gate is the requirement
to provide key personnel who must have past performance
anà who can predict the future outcome on the proposed
project. The fourth gate and most important, is that the
i'beit available option" is then requested to coordinate the
628 Minimizing Risk of Nonperformance - Kashiwagi
drawings with all critical subcontractors and identi$ all
"unconstructable" elements, construction schedule, and
quality requirements. All items are responded to before
the pre-award meeting. The contractor signs a contract,
which includes the owner's requirement (includes plans
and specifications,) the contractor's management plan and
interview information, and pre-award discussions.
Additional cost change orders will only be issued for
unforeseen conditions or change in scope as identified by
the owner's representatives. The fifth gate is that all
critical elements (contractor, subcontractors, project
manager, and site superintendent) will be rated by the
owner's representatives. Everyone receives the same
rating. These five gates ensure that the best business
decision is made. This process minimizes any problems
caused by non-performing contractors.
4.Low-bid. PIPS compares relative performance and price
using the AI model.
5.Lack of quality construction. The contractor must verifu
that their work meets the self-imposed standard. This
oobest
leads to the available quality."
6.No identification of value. Value (performance and price)
is unique to every construction project. The value can
only be identified against the best available options for
the unique project. The best value is identifred by the
PIPS AI processor as the differential between the best
available and the other available alternatives. Value is
then determined by availability, requirement, competition,
price, and performance.
T.Illogical concepts. PIPS encourages the owner's
representative to minimize decision making in identiffing
the requirement and rating the management plans (blind
review) and interviews in terms of differential. The PIPS
AI processor then prioritizes the alternatives. PIPS
encourages the owner not to participate in the
management of the job, and to minimize the inspection of
the job. This makes the contractors' responsible for
quality construction.
629 ctB-2002

The results of the two projects that will be discussed in this

paper include:
i.$tZ.ZStrrt physical education building for the Southem
Utah University camPus.
2.$800K waterproofing of the Kapuaiwa courthouse in
Honolulu.

Southern Utah University (SUU) Physical

Education (PE) Building
The SUU PE building location was in the middle of the SUU
campus adjacent to the major entries into the campus. The
project situation included:
t.The project budget was $17.25M. The project was over
designed with a scope of $ 18 to $20M.
2.If procured the traditional way, a low bidding contractor
who specialized in change orders, was not on-time or on-
budget, had difficulty keeping their site superintendent
and project managers on the projects, and did not always
pay their subcontractors, would have had a good
probability of getting the project.
3.Previous State managed projects of this magnitude were
not on time or on budget.
4.The greatest risks would be the short construction time (16
months,) the shifting soil conditions which the design
would not fully address, the construction of an indoor
Olympic size swimming pool, and the over designed
requirements which would threaten the customer
satisfaction of the Proj ect.

PIPS was run to select the contractor' The following were the
results:
l.The top performer was SlM more expensive than the
second highest Performer.
2.Thø lower bidder selected a pool contractor who had a
lower performance.
 630 Minimizing Risk of Nonperformance - Kashiwagi
3.The top performer selected all their critical subcontractors
based on performance.
4.The biggest difference between the contractors was that
one was team approach while the other was the "I"
apprgach ofthe general contractor. The performance and
cooperation ofthe critical subcontractors has been
identified as one of the major reasons for the success of
PIPS projects. The highest performing contractor on this
project represented the philosophy ofPIPS: use the best
subcontractors and allow the subcontractors to make the
critical decisions, facilitate using information, and
performance is staying within budget, time, and doing
quality work.

The contractor selected for the project had the following

strengths:
l.The project manager was from their main office with the
most experience and volunteered to manage the project.
2.The entire team (critical subcontractors) was selected
based on performance and not price.
3.The swimming pool subcontractor selected was the highest
performing pool subcontractor. The swimming pool
construction was the centerpiece of the construction.
4.The contractor's team had taken advantage ofevery
educational opportunity on PIPS and the information
environment, sending their entire management team to the
presentations.
5.The contractor restructured their operations to implement a
full information system with the owner and
subcontractors.

The following unforeseen conditions were encountered on the

project:
l.The soil was found to be unsuitable, and the soil removal
was twice what was specified. The excavation contractor
quickly enlisted the assistance ofanother excavation
contractor to stay on schedule.
2.The window manufacturer did not deliver the windows as
631 ctB-2002
contracted. The general contractor ended up
manufacturing on site to meet the schedule'
3.The air handling unit manufacturer told the contractor that
they would not deliver on schedule' The contractor
quickly notified the State of Utah, and the State of Utah
project manager assisted the contractor by notiffing the
manufacturer that their products would not be used if they
did not deliver as contracted.
4.The SUU staff made a number of scope changes, which the
contractor completed without extending the construction
time.
5.The subcontractors on the site made value-engineering
changes throughout the project to improve the
construction of the facilitY.

As the information used to make the award predicted, the

performing contractor performed. The following are results on
the project:
l.The PE building was completed and finished on time with
no contractor generated change orders, which increased
the cost ofthe project.
Z.The user was impressed with the quality, the coordination
and cooperation among the subcontractors, and the
management skills of the contractor. A material
manufacturer was so impressed with the coordination,
cooperation, and quality of the project that he wrote a
letter to the State of Utah stating that in his career he had
never seen such a construction environment. The letter
states, "In all of my years as supplying material to work
sites....I have never seen such a cooperative and quality
environment."
3.The State of Utah project manager was impressed with the
design-build attitude ofthe general contractor and
subcontractors who continually brought up improvements
to the design during construction' The subcontractors
used their ingenuity to reduce costs. For example, due to
the poor soil conditions, the pool excavation was deeper
than expected, requiring shoring for the excavation'
632 Minimizing Risk of Nonperformance - Kashiwagi
Instead, the contractor suggested making the excavation
pit footprint larger, thus avoiding the shoring costs. The
mechanical, electrical, plumbing, and roofing contractors
created a total quality and cooperative environment.
4.The price of the contractor was $lM over the low bidder.
The major differences were in the choice of the pool
subcontractor and the ability of the contractor to modiff
the construction without processing change orders. When
asked at the end ofthe project, the general contractor's
site superintendent stated that the project would not have
been completed on time and with the same quality, if the
pool subcontractor had not been selected.
5.The quality of the construction exceeded everyone's
expectation. The construction went so well that the major
question was why did a small university like SUU get
such a high tech PE facility (three floor facility with an
indoor Olympic size swimming pool, three court
basketball court gym with a suspended track 40 feet
above the gym floor, classrooms, racquetball courts and
an architecturally stunning structure.)
6.The SUU president was also asked if they would use PIPS
again to select the contractor and award to a higher priced
contractor, and his answer was, "I would do it again."
(Steven Bennion, 2001) At the time of the selection, a
much larger contractor with a lower price was the
subjective "best value" of many State of Utah facility
management personnel and industry representatives.
However, the State of Utah facility manager stayed with
the PIPS award and the result was as predicted; high
performance, on-time, and on-budget.
7.One of the keys to the successful construction was the high
performance of the critical subcontractors. This was
attributed to the past performance ratings and the entire
construction group being rated the same at the end of the
project. The State of Utah project manager stated that the
full information and facilitation approach of the general
contractor changed the entire construction environment.
He also stated that the approach was totally different from
633 ctB-2002
the previous attitudes of general contractors who used a
"win-lose" attitude that is so predominate in the
construction industry.
8.The factors, which led to the selection of the contractor as
the best value; were past performance, facilitation and
coordination abilities, risk identification and
minimization. The results showed that the information
predicted the outcome. The contractor's site
superintendent stated that there was not a single meeting
on the project that had a negative or finger-pointing
occuffence.

The contractors were given an overall rating of 9.8 (out of l0).

The State of Utah project manager had a great experience with
the PIPS procurement and construction. He stated that what
some State officials called problems were merely bureaucratic
problems caused by the user and facility management
bureaucracy. He stated that the impact of the IMT on the
process was so successful, that he also implemented the
philosophy in his personal life with great results. The project
manager rated the PIPS system over three times better than the
previous low-bid process.

Waterproofing of the Kapuaiwa Courthouse

The Kapuaiwa Courthouse in Honolulu, Hawaii had the
following unique conditions:
l.The project was in design,for ayear, and with lapsing
funds, needed to be bid and awarded in a couple months.
It was a 60-year-old, three story, and 20,000 SF historical
site being monitored by the Historic Preservation Society.
The user, facility management group, and designer were
very unsure about the ability of the contractors to follow
the design and specifrcations and solve the water
penetration problems due to the complexity and age of the
building, the previous results of roofing and
waterproofing projects awarded by the low bid, and the
634 Minimizing Risk of Nonperþrmance - Kashiwagi
lack of funding, The project was designed to stop water
penetration from a leaking roof. It was then decided by
the facility management to use PIPS.
2.The two story-building exterior was constructed of brick,
decorative concrete ledges, decorative reinforced concrete
balusters surrounding the roof, and wood framed doors
and windows. Much of the wood framing was rotted, the
mortar was in poor condition, and the concrete ledges and
balusters were badly deteriorated.
3.The contractors quickly pointed out that the parapet wall
of balusters (inside and outside) were also sources of
leaking. Leaking was also identified in the windows and
decorative concrete ledges, as well as from the
deteriorated masonry.
4.The building had high visibility and is in close proximity
to other historical buildings. There was continuous traffic
around the building.
5.The court'sjudges' cars were parked adjacentto the
building.

There \ilere many different parties involved including the

Judicial Court facility manager, the building occupants, the
State of Hawaii facility management group, and the Historic
Preservation Society. The most difficult to work with was the
Historic Preservation Society. They wanted the water
penetration stopped, the building restored, and they wanted the
building to look exactly as it looked in the past for $800K.
The Director of Facilities for the State of Hawaii was
concerned that funding would be used, only to have the same
problems with the building in two or three years.

The Performance Information Procurement System (PIPS), had

been used by the State of Hawaii for a year before this project.
Thirly projects had been procured using PIPS. The PIPS
environment had the following conditions:
l.Manufacturers and contractors were very cognizant of the
performance based requirements and the impact of the
performance ratings.
635 cIB-2002
2.Performing contractors had learned that if the job had
excessive risk, it was better to pass on the project.
3.Contractors leamed to work with the manufacturers to
provide the best value to the owner.
4.Warranties were much more meaningful. With the
contractors and manufacturers responsible for their own
specifications and drawings, the performances of the
systems were much higher.

The PIPS process had the following advantages:

LDid not exclude any contractors or manufacturers'
products.
2.Did not have to identifu warranty periods. PIPS is looking
for the best available warranty based on proven
performance.
3.Did not have to identiff the "available" level of quality.
4.Did not have to address details and means and methods
which would differ from contractor to contractor

The requirement was "to waterproof the building for the

longest possible period of time." Only one contractor
submitted a proposal to the State of Hawaii. They were within
6.25% of the budget ($862,195, additional scope changes were
also included in this price.) They proposed the following:
l.To restore the restorable balusters on the parapet wall.
The balusters that were too deteriorated, they would
replace by recasting.
2.To restore all decorative concrete ledges.
3.To cover the existing roof system with a sprayed in place
polyurethane foam roof system with a urethane
elastomeric coating (documented performance of over 20
years.)
4.To waterproof the walls, and balusters with acrylic
elastomeric coating. The Historic Preservation Society
had requested that the walls be sealed with a clear sealant
to keep the original look of the brick walls. The
contractor stated in their proposal that there was no clear
sealant that would work on this application for a
636 Minimizing Risk of Nonperþrmance - Kashiwagi
prolonged period of time within the proposed budget.
The contractor proposed to match the existing brick color
as close as possible. The contractor also realized that the
window required sealing. However the user did not have
the funding. The contractor sealed the windows at his
own cost.
5.To give a joint and several wananty contractor and
manufacturer on the roof for l0 years and on the walls for
5 years. The joint and several warranty is the only
wamanty in the waterproofing and roofìng industry. The
warrant¡z was five times what the low bid situation would
have provided.
6.Construction schedule of 179 working days.

The contractor finished the project on time (l I days or 6%o

eaily,) on budget, with no change orders, exceeding the quality
expectations ofthe user. The contractor "tented the roof
during construction to avoid over-spray on cars" and
individually covered ever car with plastic that drove into the
adjacent parking lot. There was one complaint of dust from
the construction site that was quickly rectified during the
construction.

Instead of making many design decisions (means and methods,

level of quality, warranty, safety and construction control
requirements), the PIPS process allowed the contractors to
identiff the "best available options." Even if a full design is
used, the contractor has the option to propose changes to
increase the value of the construction. In the low-bid
environment, the contractor does not make the decision. The
designer tells the contractor what to do, and then makes sure
through inspection that the work was done properly. The
solution will not lead to performance, however, since the
contractor did not participate in the decision. With someone
else making the decision, the contractor has no liability and
less motivation to perform. Thc only decision the user and
designer made in PIPS was to determine whether the option
was acceptable. Once the decision was made, the contractor
637 ctg-2002
was left to meet their own schedule, budget, and quality
expectations. It is very important to realize that the
"dòsigner's option" would not have solved the user's needs
and the PIPS solution was not identified by the designer.

Conclusions
PIPS is a performance based procurement system with a AI
processor that relates an owner's requirement with the best
available performing contractor. The performance level is
dictated by the best performing option. The performance
specification identifies the owner's requirement and how the
performance will be defined, but leaves the definition of
performance to the best available performing contractor. The
contractor is then required to meet the performance level that
is set by their past performance and their proposal to meet the
owner's requirements.

Reference:
Deming, W. Edwards (1986) Out of the Crisis, Massachusetts
Institute of Technology, Cambridge, MA'
Kashiwagi, Dean T. (1999) Construction Delivery System of
the Information Age, Automation in Construction,Yol. S,
Issue 4, pp.4l7-425.
Kashiwagi, Dean T. (2000) Artificial Intelligent Perþrmance-
Based Procurement System, Construction Congress VI,
Orlando, pp. 49-58.
Kashiwagi, Dean T. (2001) Inþrmation Measurement Theory
Fourth Edition, PBSRG, Arizona State University, Tempe,
AZ.
Kashiwagi, Dean T. and Mayo, Richard E' (2001) State of
Hawaii Selects 'Best Value' by Artificial Intelligence, Cost
Engineering, Vol. 43, No. 4, pp.38-44.
Kashiwagi, Dean T. and Mayo, Richard E' (September 2001)
Procurement of Construction in the 2L't Century, COBRA
2001 Conference, Glasgow Caledonian University,
638 Minimizing Risk of Nonperþrmance - Kashiwagi
Scotland, Volume 2, pp. 535-545.
Letter from James P. Morgan, (2000) Grace Construction
hoducts, Park City, UT.
Personal Conversation with Steve Bennion, President of
Southern Utah University, on February 16,2001.
Post, Nadine M. (May 14,2001) Bumpier Road to Finish Line,
Errgineering News - Record (ENR) McGraw-Hill, New
York, VoI.246, No. 19, pp. 56-63.
Zeleny, Milan (1982) Multiple Criteria Decision Making,
McGraw-Hill, New York.
639 ctB-2002

Capability Alignment: the Impact and Effects

Of Corporate Culture on it Training
Jack S. Gouldingr, M. Alshawit & G. Aouadr

Abstract
Construction organisations must reconsider their recruitment
strategies, performance appraisal systems, and education and training
policies in order to benefit from information technology (IT)
capabilities. Trained and skilled operatives can help organisations be
more customer-responsive, and readily adaptable to change initiatives.
However, a lack of training can often adversely affect an
organisation's capacity to respond to market forces, which in turn can
have a detrimental influence on performance and overall prof,ttability.
Thus, training can be said to be an investment that aims to prepare
organisations to adapt to the changing business environment, and
should therefore be part of a capacity-building infrastructure to meet
current and future business requirements.
This research demonstrates the use of a Generic Assessment Process
Protocol model for IT training (GAPP-IT): an IT training model
developed using process protocol (PP). Phase six of this model is
presented, and a method of applying this tool to satisfu (and close) the
'performance gap' between the business strategy (BS) and IT training
is explored, focussing specifically on capability alignment and the
impact of corporate culture.

Keywords: Business Strategy; Information Technology; Training

Strátegy; Process Protocol; Maturity Models; Culture

Introduction
The fragmented nature of the United Kingdom (UK)
construction industry (Emmerson, 1962; Banwell 1964;
Latham, 1994) has been identified as a causal factor adversely

I
School of Construction and Property Management, University of Salford,
United Kingdom
 640 Capability Alignment - Goulding et al

affecting perforrnance and productivity. Contemporary

ochange'
initiatives have tried to address this by focussing on
time, quality or cost elements. However, Kagioglou et al
(1998), noted that these issues were predominantly process
related, and not product related. Furthermore, the micro and
macro issues of process and IT maturation have been identified
as being interrelated (Hinks et al, 1997), which suggests issues
of contextualisation must also be identified.

Advances in communication, networks, and the Internet have

created new rules for working environments. Organisations are
increasingly using IT in an attempt to secure existing markets,
or gain competitive advantage. In addition, they are
restructuring and aligning lheir intemal departments
accordingly, adopting 'enabling' policies in order to sustain
growth and improve efficiency. However, the use of IT in
strategic planning requires major management initiatives to
help deliver strategic objectives (Rockart et al, 1996). These
approaches have undoubtedly helped managers assess their
capability in order to determine the IT and business maxims
needed to clariff the gap between what exists and what is
required, and find if they have achieved a 'reasonable' match
between their actual and desired capabilities (Broadbent and
Weill, 1997). However, cultural boundaries within business
departments can often cause problems (Taylor-Cummings,
1998; Grindley,1992; Mockler and Dologite, 1995), and ,gap,
analysis requires a whole series of strategies to be formulated
and implemented in order to facilitate the appropriate courses
of action (Venegas and Alarcón,1997). Designing stratégies
for implementing IT solutions into the workplace must
therefore include the adoption of new management strategies
in order to be successful (Korac-Boisvert and Kouzmin, 1995).
Furthermore, whilst there is a need for mangers to align their
IT strategy to the company's Information System (IS) strategy
and BS; more fundamentally however, it is equally important
to ensure their IT training strategy is also aligned.
641 crB-2002

This paper presents an IT training model (Goulding, 2000)

based on the principles of Process Protocol, the remit of which
identifies the impact and effects of corporate culture on IT
training.

Organisational Personnel and IT Training

Advances in IT can often place demands on personnel (Heng,
1996),but training and development programmes can also
facilitate and provide changes in organisational behaviour,
which in turn can enhance the organisation's capability to
survive (Kessels and Harrison, 1998). Furthermore, training is
not only instrumental in addressing skill deficiencies (Krogt
and Warmerdam, 1997); it can also be used to integrate with
the long-term needs of the company (Kumaraswamy,l99T).

From a skills perspective, the development of skills can often

take years to build up (Klein et al 1991), and it is therefore
essential that these are managed as a strategic resource, and
carefully linked to the human resource management (HRM)
stratery through the BS. This was reinforced by Dohefy
(1997),who highlighted the importance of maintaining skill
levels within the construction industry, and by O'Connell
(1996), who identified that employees often became more
valuable to the company as a result of their increased
knowledge and skills. Thus, training can be seen as an
investment that aims to prepare organisations to adapt to the
changing business environment. Therefore, managers should
determine what IT skills and capabilities are required to bridge
the gap between what currently exists, to what is needed. This
precept however must not be used to address IT skills gaps per
se, it should be procured through a carefully considered
process (directing resources to areas which are perceived to
have the greatest impact on the BS). A fundamental part of this
process is to determine and classifr the needs requirements
from an IT training perspective. For simplicþ, these needs can
be categorised into three areas, namely executive; managerial;
 642 Capability Alignment - Goulding et al

and operational (Goulding and Alshawi,1997). Within these

sectors, provision should also be made for identifring and
capturing the generic needs (common to all), and specifîc
needs (common to specialist remits).

Organisational Culture
The precise definition of 'culture' tends to embrace many
different notions and meanings, ranging from beliefs, language
and ceremonial acts, through to stories and perceptions
(Young, 1989). From an organisational perspective, it can
often encompass the internal and external environment, and
embody the whole essence and driving force of an
organisation. Corporate culture can therefore be ingrained and
very difficult to influence and change. It is affected by
employees' deep-rooted values and beliefs, the nature and
causes ofwhich, can often have far reaching consequences
(Johnson, 1992; Mockler and Dologite, 1995; Geletkanycz,
tee7).

The term 'culture gap', is the difference between the values

and perceptions held by one person, group, or subset; against
the perceptions held by others (individuals, groups, or subsets).
An example of which is to consider the views of management
against operatives; each have different perceptions ofculture,
and of each other; but neither are able to identiff why this gap
exists, how wide it is, or how this gap can be closed. These
fundamental differences therefore can often instill mistrust and
create communication problems, particularly where no
common agreement has been reached concerning social rules
and protocol. Therefore, key cultural milestones or barriers
must be addressed to maximise shared beliefs, and minimise
any negative effects associated with misunderstanding. The
process ofresolving differences requires an in-depth
understanding into the root causes ofall preconceptions
(Mockler and Dologite, 1995), which may also require
organisational subcultures to be integrated, before any attempt
643 crB-2002

is made to bridge the culture gap (Grindley,1992; Peppard,

l99s).

From an IT perspective, culture can affect the success ofany

IT initiative (Grindley, 1992; Davis, 1993 ; Taylor-Cummings,
1998), and cultural equilibrium (where all share the same
perception) can only be restored when IT becomes part of
organisational culture (Earl et al, 1988)' This can be achieved
through effective management intervention, but this requires
acknowledgement that people by their very nature are averse to
change, and feel uncomfortable with issues that affect their
social standing and working practices (Johnson, 1992)'
Socialisation issues should therefore encompass the sharing of
nonns - knowledge; skills and competence; continuous
learning related to IT needs; cooperative relationships with IT
professionals; and commitment (Taylor-Cummings, 1 998).
Managers should therefore look carefully how they recruit,
manage, train and reward their staff to minimise these
diffrculties (Tonks and Wan, l99l; Samler,1993; Luoma,
2000).

Communication and training issues are therefore

fr¡ndamentally important to organisational success (Mockler
and Dologite,1995; Ward and Peppard, 1996), and whilst
managers may not be able to control culture, they can influence
its evolution (Walsham, 1993). A congruence of shared values
should therefore be sought (Ward and Griffiths,1997), which
links all organisational personnel together - forming a set of
shared beliefs, perceptions and goals, directed towards one
corporate philosophy and vision (Gunning, 1996)'

Perþrmønce Analysís ín Construction

Performance analysis (often termed gap analysis) is a
technique that can be used for measuring performance
achievement against set targets. Various forms of this approach
are used in the construction, manufacturing, and financial
sectors. It is particularly useful for measuring outputs over
 644 Capability Alignment - Goulding et al

time. The difference between the current level of achievement

and the target set for a particular timeframe is known as the
performance gap (or opportunity gap). The scale and
importance of this gap enables managers to assess the
subsequent likelihood of this affecting the key BS deliverables,
thereby enabling corrective action to be taken as appropriate.
In this context, IT training initiatives can be cited as having a
causal link with improved company performance, but no
formal procedures for measuring, documenting, integrating or
evaluating its impact on the BS are widely acknowledged.
However, organisations should aim to balance a range of skills
and competence to meet business goals (Andrews, 1987;
Mintzberg and Quinn, 1991), as'ocompanies which are adept at
using their skillbase effectively are able to use and reuse....
these skills many times" (Klein et al, l99l).

From a resource justification perspective, most organisations

do not have sufficient resources to address all their haining
needs (Sleezer,l993).In this context, training costs are almost
always underestimated, as managers often fail to appreciate the
full resource implications of designing and implementing IT
training initiatives (Robson, 1997). Costs however, may not
always be financial by nature - they can also embrace many
other issues, the main factors of which often include time and
corporate oenergy'. Managers should therefore recognise the
myriad of complexities that exist with haining initiatives
(Miles and Neale, 1997), and the subsequent impact they can
have on corporate resources. Thus, securing resources for the
provision of IT haining can often be difficult to achieve (Philip
et al, 1995), especially where expenditure has to be justified
(Michalski and Cousins, 2000). In addition, construction
organisations need to evaluate the o'real net benefilcost of
haining" (Kumarasw anry, 1997). However, justiff ing IT
training expenditure can often be difficult to achieve,
especially where benefits or improvements a¡e intangible and
unable to be measured. The difficulty therefore is to determine
a framework from which the justification process can be
645 cIB-2002

matched (and measured). From a business performance

perspective, considerable research is therefore required to
investigate the type of training (and competence requirements)
needed to make an impact on organisational performance
(Horwiø, 1999).

From a process perspective, many improvements in

performance have been cited using process (Davenport, L993;
Hammer, 1990; Valiris and Glykas, 1999), as this has enabled
organisations to focus on 'how' work is done, in contrast to
'what' is produced. Furthermore, developments with initiatives
such as the Capability Maturity Model (CMM) (Humphrey,
1989; Paulk et al, 1993) have provided significant benefits in
many industries, including construction (Hinks et al,1997;
Sarsharr et al1999; Barrett, 2000), the remit of which has
extended to incorporate process capability with IT capability
(Aouad et al, 1999). Other process-based models in
construction include Process Protocol (PP), the application of
which can be used to represent all diverse parties in 'process',
and a good example of PP in construction is the Generic
Design and ponstruction Process Protocol (GDCPP) model
(KagioglouJ 1998).

In summary, whilst the construction industry is increasingly

using IT to deliver its core information systems (IS) and BS
strategic and support needs (Betts et al, l99l; Betts, 1992;
Ahmad et al, 19-95; Venegas and Alarcón,1997; Sarshar2 et al;
Andresen, 2000) this requires appropriately trained and skilled
personnel to deliver capability (Samler, 1993; Heng, 1996;
Moreton and Chester,1997; Kumaraswamy,l99T; Ward and
Griffiths, 1997).It is therefore important to assess the
corporate IT skills needed to perform the identified tasks, the
details of which should then be 'matched', 'measured' and
'evaluated' against targets (especially from a BS performance
perspective). A Generic Assessment Process Protocol model
for IT training (GAPP-IT) model is offered as a solution to this
problem, the remit of which is specifically geared to analyse
 646 Capability Alignment - Goulding et al

the key sequential stages and links needed, to satisfu (and

close) the 'performance gap' between the BS and IT training
strategy (ITTS). This model is process-based, uses the
principles ofPP for presentation, and the concepts ofthe
Capability Maturity Model for evaluation. The following
sections explain these issues and the application benefits of
this model.

Generic Assessment Process Protocol Model For

It Training
The GAPP-IT model was developed with two major United
Kingdom (UK) construction industrial partners (supported by
domain experts, process stakeholders and specialist advisers)
to determine and omap'the key generic processes associated
with IT, IT training, and the impact on the BS (Goulding,
2000). In this context, this research aimed to analyse the key
sequential stages (processes) required for evaluating the impact
of IT training on the BS. In this context, IT training issues and
processes were transposed into the GAPP-IT framework for
discussion and subsequent evaluation. Various iterations were
assessed during the prototyping and testing stage to secure
consensus, especially in the validation of processes to achieve
taxonomic understanding.

The first step in the development stage of this process model

had to identiS, and define the target audience. In this context,
training needs were divided into three discreet categories,
specifically: operational, managerial and executive. These
categories were chosen to differentiate between the different
types ofskills sets needed. Subsequent stages considered the
outline stages (processes) and sequence ofevents required for
instigating and deploying IT training within a construction
environment. This included all contextual issues associated
with training, from inception through to evaluation and final
reflection. Consequently, this process needed to appreciate
(and embrace) all human resource enablers and business
647 crB-2002

process issues into one holistic PP framework. Thus, it was

therefore important to identifu (and critically analyse) these
stages, including all key decision points, enablers and drivers.
All interrelated activities, process and sub-process issues had
to be included, from the intricacies of resource allocation,
through to the effects of corporate capability and the impact of
organisational culture.

Seven key phases are offered for discussion, encompassing the

initial preliminary stage (conception of the need for IT
training); through to the final evaluation and feedback phase -
the representation of which is shown in Figure l. Each of these
phases can be broken down to show lower level information,
and analysis of this lower level detail will be discussed in later
works.

The GAPP-IT model is divided into three horizontal levels

(covering the operational, managerial and executive
requirements). It is commenced in Phase ZERO, and exited in
Phase SIX, after sequential progression through each phase has
been achieved (ifrequired). The gaps between each phase
signiff the presence of a physical boundary or barrier (termed
stage gate). Stage gates can be either hard or soft, the
classification of which is determined by the requirements and
conditions set by the preceding/succeeding phases. Upon
completion, users return to Phase ZERO through the feedback
loop (via the process wheel). A brief summary of each of these
phases follows:

Phase ZBRO: This is the initial opening phase, the remit of

which aims to est¿blish the need for IT training from an outline
perspective. It is used to evaluate the existing and future
business needs, contemplating the current and future IS and IT
sûategies (and the potential changes these may have on
resource requirements). The BS is agreed and confirmed in this
phase, the structure and drivers of which help to determine the
overall IS and IT demand. Users subsequently pass through a
 648 Capability Alignment .Gotrlding et al

soft stage gate into Phase ONE - to formally identify and

clarify these needs.

ñì
r*1

t
û
t
û
t
r
ii
l

Ii
I
t
-fnl
Figure 1. The GAPP-IT Model (note this figure had to be
compressed to fit the page and as a result, much of the detail will
not be available)

Phase ONE: This phase uses the infonnation created in Phase

ZERO to establish the processes involved in forming a generic
IT training strategy. It is used to identify the BS deliverables,
and to determine the precise scope and nature of the IS and IT
demand to deliver these needs. A skills audit is used as part of
this process, to verify the existing skill levels, and to ascertain
the subsequent type (and level) of training required. At this
juncture, it is possible to assess whether IT training is needed.
If training is not required, users exit this model through a
decision icon into the stage gate, where a Phase Review Report
is completed (which is subsequently stored in the Legacy
Archive). However, if training is required, an outline generic
649 ctB-2002

IT training strategy is formed at this point. Users then pass

through a soft stage gate (as no financial resources have been
committed) into Phase TWO.

Phase TWO: The exact corporate generic IT training needs

are established in the form of a structured training plan (TP) in
this phase. This requires financial resources to be determined
for the delivery of all operational, managerial and executive
generic IT training needs; the process of which requires
training quotations to be sought. Corporate funds are then
prioritised to those areas perceived to have the greatest impact
on the performance gap. Groups are subsequently informed of
this generic provision - allowing them to make appropriate
arrangements for their specific lT training requirements.
However, as financial commitment is to be made during this
phase, automatic progression is prevented due to the presence
ofa hard stage gate. In this context, a Phase Review board
meeting is required to approve and sanction the anticipated
resource expenditure, and to agree the scope and content ofthe
TP. A Phase Review Report is completed, and users then exit
this phase into Phase THREE.

Phase THREE: This phase is used to establish the training

and control mechanism to ensure critical needs, deliverables,
and deadlines are all met. All IT training needs generated from
the BS are matched to delivery dates, the process of which also
requires the type of evaluation and control mechanism to be
agreed (conscious of the impact on resources and
appropriateness to the task). This information is then reported
and sanctioned in a Phase Review board meeting (where a
Phase Review Report is completed), Users then pass through a
hard stage gate into Phase FOUR.

Phase FOUR: This phase is used to undertake the generic IT

training identified. It is also used to monitor and control
training - in accordance with the training feedback and control
mechanism agreed in Phase THREE. A Phase Review board
6s0 Capability Alignment - Goulding et al

meeting is conducted to assess and ratiff all training

achievements (and to record training progress to date), and a
Phase Review Report is completed. Users then pass through a
hard stage gate into Phase FIVE, where these training
outcomes are subsequently evaluated.

Phase FIVE: This phase is used to evaluate training

experiences and outcomes. Alltraining achievements are
assessed and measured against the original training objectives
(established in the TP), the process of which also evaluates the
effectiveness of the training control mechanism. The existing
TP is subsequently updated at this point. The Phase Review
board meeting is conducted to record all outcomes and
achievements in the form of a Phase Review Report. Users
then pass through the final hard stage gate into Phase SIX - the
feedback stage.

Phase SIX: This is the final (and most important) phase of the
GAPP-IT model. It uses a steering committee to overview and
assess the whole process of IT training at ttre corporate and
group levels. It is used therefore, to evaluate training
achievements contextually - specifically against the
performance gap. An 'open' discussion forum is engaged to
foster and stimulate discussion on training and development
issues. Any new ideas or initiatives are then evaluated,
contemplating the company's current deployment of resources,
level of IT maturity, and prevailing level of organisational
culture. All discussions and outcomes are documented in a
Phase Review Report, the content of which also records
process issues for improvement purposes. Users then exit the
GAPP-ITmodel at this stage.

Each of these phases can be identified in much further detail to

show lower level process information flows - an example of
which can be seen in Figure 2 for Phase Six detail.

Detøíled Anølysis of Phase SIX: Steering

651 ctB-2002

Commíttee
Phase SIX is the final stage of the GAPP-IT model, the
application of which aims to critically reflect upon all issues
related to the provision of generic IT training in a construction
environment. It is divided into two main process streams -
specifically: 'Analysis and Discussion Forum' and
'Consideration of Future IT Training', the detailed phase
athibutes of which are shown in Figure 2.

Phase SIX is commenced in the "Assess Training

Achievements Against Objectives" process box. At this stage,
corporate and group executives focus on assessing the findings
produced in the final report and updated corporate TP
presented in Phase FIVE.

Particular attention is placed on examining the final training

outcomes against the original objectives; specifically - to
determine the achievements secured, or how to address
deficiencies (if evident). This information is then sent to the
sub-process activity "Update Skills Register", the details of
which are used to update and maintain the corporate and group
skill base. These findings are processed in the "Update
Personnel Records" sub-process area, where all these files are
updated. This procedure not only records achievements and
continuing professional development (CPD) information, it is
also used to identiff any future personal development areas for
the next appraisal period. Upon completion, confirmation is
ooAssess
sent back to the Training Achievements Against
Objectives" process box. This allows the next stage to be
comrnenced, specifically: the "Evaluate New Opportunities or
Training Needs" process box.
6s2 Capability Alignment - Goulding et al

I
-t
I updars skllls I I I

Achlsvsments II Prmss
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I
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I
I
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Opportunitles or Change
end Lovèl of lT
Trahhg No€ds ManagomBnt I
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I
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I
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New Slrateglc Rovlâfl/Retlnâ
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Figure 2. Detailed Phase Athibutes Phase SIX

 6s3 c!B-2002

The "Evaluate New Opportunities or Training Needs" process

box is used to identi$ any further training areas or new
initiatives that have arisen from the generic IT training
sessions - as the acquisition of skills and competence through
the application of training can often lead to new business
opportunities being identified. Typical areas often cited,
include innovation (through increased understanding of
process), or through new methods of working (with improved
communication and level of integration). These opportunities
should be developed and outlined in principle (at corporate and
group level), and then subsequently forwarded to the "Analyse
the Corporate Business Strategy and Measure the Contribution
of Training to the Performance Gap" process box for further
analysis.

The "Analyse the Corporate Business Strategy and Measure

the Contribution of Training to the Performance Gap" process
box is the main area where IT training's contribution to the
business performance gap is evaluated and assessed. At this
juncture, all BS critical success factors (CSF's) identified in
Phase ZERO and Phase ONE are systematically scrutinised in
context with the deliverables achieved. This procedure is
assisted by two sub-process activities, specifîcally: "select
Timeframe and Identifu Areas for Assessment" and "Measure
Outputs".

The "Select Timeframe and ldentiff Areas for Assessment".

sub-process activity is used to refine the areas allocated for
assessment, and to define the timeframe (in which to measure
achievements). Once this timeframe has been agreed, it is
subsequently sent (along with the areas identified for
assessment) to the "Measure Outputs" sub-process box for
analysis. This "Measure Outputs" sub-process box is used for
defining and measuring outputs. These outputs are generated
from statistical evidence, the results from which should be
presented in the most appropriate way (for example, graphs,
tables, charts etc). The output medium should be uniform (to
 654 Capability Alignment - Goulding et al

enable comparisons to be made), and clearly indicate

perfonnance achievements levels (and variances from the
expected norm). These findings are then directed to the
"Analyse the Corporate Business Strategy and Measure the
Contribution of Training to the Perfonnance Gap" process area
for final analysis and reflection. Key findings from this stage
are subsequently processed and sent to the "Open Discussion
Forum: Evaluate New Strategic Opportunities and Future
Training Needs" process area for further discussion.

The "Open Discussion Forum: Evaluate New Strategic

Opportunities and Future Training Needs" process box is used
specifically for analysing all training findings (from a strategic
perspective). This is undertaken using an 'open forum' format,
whereby all corporate and group stakeholders are able to
positively contribute and discuss key issues and findings
secured to date. This forum is not however undertaken until
two other identical fora have been accomplished at the
operational and managerial levels - indicated by the process
boxes: "Open Discussion Forum: Evaluate New Operational
Opportunities and Future Training Needs", and "Open
Discussion Forum: Evaluate New Managerial Opportunities
and Future Training Needs" respectively. The information
generated by these sessions can be fundamental to the
progression of the strategic meeting, as these findings often
shape (and influence) the final strategic decision-making
process.

The operational and managerial open discussion sessions are

used therefore to gain insight into 'grass root' perceptions and
beliefs (the equivalence of a conventional osuggestion box').
These sessions offer stakeholders an opportunity to directly
contribute to the business, the consequence of which could
lead to new opportunities being developed and exploited, or
may highlight more efficient methods of working (or
improvement measures). These sessions are assisted by two
sub-process activities to help facilitate and direct outcomes,
655 cil)-2002

specifically: "Assess Impact on Company Performance and

Document Potential Benefits", and "Prioritise".

The "Assess Impact on Company Performance and Doculnettt

Potential Benefits" sub-process box is used to test ideas and
concepts generated by the discussion sessions with seniors and
peers. These findings are refined and subsequently prioritised
in the "Prioritise" sub.process box, and are then redirected to
the discussion group for final reflection. In this context, all
findings generated from the "Open Discussion Forum:
Evaluate New Operational Opportunities and Future Training
Needs" process area are then sent to the "Open Discussion
Forum: Evaluate New Managerial Opportunities and Future
Training Needs" for evaluation. The combined results from
these sessions are then refined and forwarded to the "Open
Discussion Forum: Evaluate New Strategic Opportunities and
Future Training Needs" process area for strategic analysis.
When all data, ideas and concepts have been evaluated at the
strategic level, the combined findings are then directed to the
"Review/Refine Updated Training Plans with the Information
Provided by the Discussion Sessions" process area for final
reflection. In this remito the main task is to update and relìne
the group and corporate TP's. This is undertaken with two sub-
process activities, specifically: "Assess Areas Most Likely to
Improve Company Performance", and "Document Findings".

The "Assess Areas Most Likely to Improve Cornpany

Performance" sub-process box is used specifìcally to identify
'quick wins' (or factors perceived to make an immediate
impact on business performance). This process activity also
investigates high potential areas deemed likely to have an
impact on closing the performance gap. These findings are
then sent to the "Document Findings" sub-process box. The
'oDocument Findings" sub-process box is therefore used to
document (and prioritise) all evidence; the confirmation details
of which are then redirected to the "Review/Refine Updated
Training Plans with the Information Provided by the
 6s6 Capability Alignnent - Goulding et al

Discussion Sessions" process area for ratifrcation. The updated

TP's are subsequently forwarded to the "Evaluate Cunent
Deployment of Corporate Resources, Contemplating other
Factors which may have an Impact on the Business Stratery"
process box for evaluation. This process area is thus used for
assessing the impact and subsequent ovalue' derived from the
generic IT training sessions (from a corporate perspective).

From a strictly â resource perspective, executives often have

the opportunity to direct corporate resources in a variety of
different ways. These decisions are normally directed towards
achieving maximum benefits (tangible or otherwise). For
example, should resources be used to upgrade a computer
network?, purchase new software?, or perhaps recruit more
stafP. Inespective of outcomes, a formal strategy must exist
that is capable of rationalising data into decisions that can be
justified accordingly. Thus, part of the discussions within the
"Evaluate Current Deployment of Corporate Resources,
Contemplating other Factors which may have an Impact on the
Business Strategy" process box would debate these issues in
depth. All interim findings from these sessions are then sent to
the "Identifr and Prioritise all Factors that Conhibute to the
Delivery of the BS CSFs" sub-process box for evaluation. In
this sub-process arena, anticipated resource issues are matched
to expected outcomes. For example, allocating f 'x' to 'y'
area, will have 'z' probability of achieving success. These
scenarios should however be flexible enough to encompass
subjective (or unconventional) outcomes. These findings are
then redirected to the "Evaluate Current Deployment of
Corporate Resources, Contemplating other Factors which may
have an Impact on the Business Strategy" process box for final
reflection - and subsequently forwarded to the final process
box "Evaluate Corporate Culture and Level of IT Maturity",
for closing analysis.

The "Evaluate Corporate Culture and Level of IT Maturity"

process box is used to evaluate the company from an holistic
657 ctB-2002

perspective. This is achieved by assessing overall corporate

and group performance, placing particular attention to factors
(positive and negative) that influenced outcomes. Part of this
evaluation process should also endeavour to determine the
change in corporate culture (if any), and overallemployee
willingness to accept (and respond to) change initiatives. The
latter element in particttlar, is undertaken in the sub-process
activity "Determine Suçcess of Change Management
Initiatives". Another fundamental part of this evaluation
process is undertaken in the "Check IT and Process Maturity"
process box. In this remit, the level of IT maturity is assessed
(from a CMM perspective), placing particular importance on
the impact this technology has made on the business (from a
strategic and supporl perspective).

The frnal stage in the GAPP-IT model culminates in the

"Evaluate Corporate Culture and Level of IT Maturity" process
box. At this point, all results and findings^are documented in
the final Phase Review Report. Users then progress through a
final hard stage gate (as the steering committee has been
cornpleted) and the model is subsequently terminated at this
point. However, for the purposes of reflection and review, all
Phase Review Reports are then directed through the Legacy
Archive conduit into the 'Organisational Learning Wheel' and
'Process Management/Change Management Wheel'. These
mechanisrns are used to adjust (and re-align) the mechanics of
the GAPP-IT model to match company-specifìc requirerllellts.
All process-related issues are then re-visited (by the Process
Manager) to reflect best practice and improve the
organisation's quality assurance (QA) systems and procedures'

Conclusion
The generic nature of this nlodel is designed specifically to
accommodate smatl to medium enterprises (SME)' through to
large construction conglomerates. IT training's contribution to
the 'performance gap can be determined using this approach,
 6s8 Capability Alignment - Goulding et al

the details of which can also help assess the need for (and
impact of) IT training initiatives on the BS. Moreover,
investment decisions can be evaluated against the performance
gap using targets that measure IT training's contribution to the
delivery of BS key performance indicators. In this context, this
model can also be used to improve process by capturing (and
sharing) best practice to facilitate continuous process
improvement. This philosophy is in keeping with the concepts
of organisational learning (OL), as identified by Argyris and
Schon (1978), Senge (1990), Huber (1991) et al (where the
collective actions of individuals are structured to improve
organisational knowledge and performance).

The use of PP was particularly appreciated by process

stakeholders (as the Integration Defînition for Function
Modelling (IDEF0) methodology still presents some users with
difficulties due to complexity). However, whilst the pp
approach instilled users with a greater understanding and
awareness of process (especially from an holistic perspective),
certain limitations were noted, specifîcally regarding it,s
inability to 'map' lower-level detail (which makes it difficult
to determine process flow and connectivity below the first
level), and some restrictions regarding process rules,
conditions, and constraints. The GAPP-IT model identifies
seven key process phases, each ofwhich contain a series of
process activities interconnected by hard or soft gates. This
seven-phase arrangement was considered 'optimal' (in the
trade-off between practicality and complexity). However, the
'
exact number ofphases used could equally be condensed (or
expanded) to accommodate individual company requirements.

From an organisational performance perspective, construction

companies can benefit from understanding how skills
contribute to company performance (especially IT skills).
However, it is important to note that the effectiveness of any
IT haining initiative can be influenced by many factors, not
least, the prevailing level of organisational culture and overall
659 c I ß-2002

commitment to training. Furthermore, the use of CMM

concepts can be used to highlight progression stages, from
'immature unrepeatable processes', through to 'mature well-
managed processes', the results from which can help
organisations improve their appreciation of process maturity
Finally however, it is important to note that all findings and
data generated from the GAPP-IT model should be routinely
and systernatically updated, as inaccurate (or out-oÊdate)
infonnation can adversely affect outcomes.

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665 ctB-2002

A Rating System for AEC E-bidding that

Accounts for Rater CredibilitY
Martin A Ekströmr & Hans C Björnssonr

Abstract
We believe that a rating system can substantia.lly improve the
effectiveness of an AEC e-commerce market since it can provide a
means for market participants to share information about
performance. One critical issue in the design of rating system is how
to weight the ratings depending on who is the rater. Source credibility
theory from the area of communication science offers a solution to
this problem since it provides a means for user's to explicitly rate the
reliability of a given rater. Vy'e also claim that it is important what type
information that is available for assessing the raters' credibility. In this
paper we propose a model for calculating ratings of AEC
subcontractors based on the user's different types ofinformation
about the credibility of the rater. When comparing this model to a
standard un-weighted model in an experiment we found that users
using the credibility weighted model both varied decisions more and
also were more confident in the ratings. Finally we found rater
agreement and the total credibility of all raters that had rated a
subcontractor, as well as the aggregate ratings to influence bidding
decisions.

Keywords: Rating system, e-commerce, bidding, construction

industry, source credibility, trust

Introduction
The Internet offers the opportunity for buyers and sellers to
find new market partners at a low cost (Bakos 1997)' The
large and fragmented Architecture Engineering Construction
(AEC) industry would therefore offer a potentially excellent

' CIFE, Stanford University, Terman Eng Cntr, Stanford, CA 94305-4020

(lì'lekstromldlstanford.edu) (hansllirîlstanford.edu)
666 A Rating Systemfor e-bidding - Elestram & Björnsson

arena for e-commerce. In April 2000 approximately $1 Billion

had been invested in around 200 AEC e-commerce start-ups
(Bass 2000). In reality the amount of transactions conducted in
these new e-market places turned out to be very low, and only
a few of them are still in business today (August,2001). We
argue that one barrier to adoption is the lack of trust in the
participants in e-market places. AEC General Contractors,
subcontractors, and suppliers are unlikely to do business with
firms about which they do not know anything. Zolin has
identifîed 3'o party information and gossip as one important
source of trust in a model that has been validated in the context
of AEC virtual teams (Zolin 2000). In this paper we investigate
how a rating tool can formalize such 3'o pu.ty information in
order to support trust in AEC e-commerce.

The current practice among US general contractors to evaluate

the potential bidders on a project is what one chief estimator
described as a "vague" process. The estimator uses his
judgment in combination with information from a variety of
sources to evaluate the quality ofpotential subcontractors.
Efforts to create web based formalized prequalification
systems have been undertaken in, for example, Norway (etat
2000) and Finland (Ralacon 2000). A prequalifrcation system
warrants that a market participant's goods or services are
above a certain minimum standard but do not provide an
accurate measure of their quality.

E-commerce has in general had a faster penetration into the

consumer market compared to the Business to Business (B2B)
field. It is therefore natural that the earliest and most adopted
commercial rating systems can be found in consumer-to-
consumer (CZC) e-commerce. eBay (eBay 2000) is the largest
and most successful Internet Auction, enabling transactions
between private parties. It currently (Aug 2001) has over 29.7
million registered users. These users buy and sell items that are
varied, often difficult to describe, and cannot be easily
evaluated, and trust is therefore a prerequisite for the
667 ctB-2002

transactions to take place. To foster trust, eBay has created a

system by which the market participants rate each other after
each transaction. The buyer will give the seller a good rating if
he or she received the items in good condition (Kaiser and
Kaiser 1999). A seller's aggregated positive and negative
ratings are then displayed on the eBay web site. The advantage
of eBay's rating system is that it is simple and intuitive to use.
The problem is thaf all ratings weigh the same. It assumes that
all raters are equally credible and trustworthy. This assumption
may be valid in C2C auctions but we doubt that it will be for
complex B2B transactions, such as AEC bidding. More
sophisticated rating solutions have been presented in the
Business to Consumer market comprising ratings of multiple
criteria (e,g.,Bizrate), and weighting of ratings depending on a
network of trust (e.g., epinions.com). In the B2B area
openratings.com have presented a solution that relies on
sophisticated statistical analysis of past performance and rating
behavior to calculate an overall rating (isource 2000).
However, we argue that none of these solutions directly
addresses the problems facing an AEC e-commerce market,
being overly simple (ebay and Bizrate), and requiring a
substantial amount of transaction data to calculate the ratings
(Openratings). We therefore believe that a new approach is
necessary and in this paper we investigate how different
theoretical frameworks can be used as a basis for an AEC
rating system. We describe a prototype rating tool and present
the results from an experiment that tested the performance of
different rating tools.

Theoretical Foundations of the Study

There are several candidate methods that can be used for
synthesizing uncertain information from sources of varying
reliability. Zacharia et al (Zacharia, Moukas et al. 1999) have
proposed a complex rating mechanism (partly commercialized
as Openratings.com described above) where the weight of the
ratings is dependant on to what extent the user trusts the rater
668 A Rating Systemfor e-bidding - El<stram & Björnsson

along with previous rating behavior. It does however equate

trust in a business partner with trust in a rater. It is far from
certain thatjust because a general contractor is be regarded as
a trustworthy employer of subcontractors they are therefore
also a credible rater.Fuzzy set theory offers a formalized
manner with uncertain information and Zimmerman
(Zimmerman and Zysno 1983) and others (Chen and Chiou
1999) (Romaniuk and Hall 1992)) has applied fuzzy set theory
to the credit rating processes conducted by banks, a process
similar to an AEC rating problem. Another potential solution is
subjective probabilities where the reliability of the sources can
be modeled by adjusting the variance of the output function.
Such a model could be operationalized using for example
Howard's 5-step interview process (Howard 1984). A common
feature of all the methodologies discussed above is that they
work very well once you have the right input information. If
you model and accurately measure the reliability of a source
and how it interacts with the message (rating) the synthesizing
of the information can be done in a consistent and unarbitrary
manner. However, without the correct input they provide little
value in themselves. We argue that the major problem in
creating a functioning rating mechanism instead seem to be to
accurately model and measure the reliability of the sources.
Unless this can be done in a non-arbitrary manner the
algorithms serving to calculate the overall rating add little
value in a real world situation. One way to approach this
problem is to take recourse in communication where source
credibility theory has been developed to explicitly judge the
credibility of media sources. In the following paragraphs we
investigate how source credibility can be operationalized and
extended in order to "rate the rater" in an AEC rating system.

Source Credibility theory

The foundations to source credibility theory were laid by
Hovland, Janis and Kelly (Hovland, Janis et al. 1953), who
identified the perceived trustworthiness and the perceived
669 ctB-2002

expertise as the main dimensions of a source's credibility. The

higher the trustworthiness and expertise a source are perceived
to have, the higher will be the importance given to information
coming from that source. Early work in the field applied source
credibility in the context of public opinion (Hovland and Weiss
l95l;Hovland, Janis etal.1953; Berlo, Lemert etal.1969)
and interpersonal communication. (Berlo, Lemert et al. 1969).
Later studies have shown that source credibility theory applies
also applies to commercial settings where the receiver of
information is evaluating possible transactions. Examples can
be found in areas such as advertising (Vandenbergh, Soley et
al. 1981), evaluations ofused cars (Birnhaum and Stegner
1979),job offer acceptance (Fisher, Ilgen et al.1979), buy or
lease decisions (Harmon and Coney 1982), job performance -
evaluations (Albright and Levy 1995), admitting students to
business schools (Higgins 1999) and price-perceived risk
relationships (Grewal, Gotlieb et al. 1994). Our conclusion is
that the task of a contractor evaluating the performance of a
subcontractor share similar characteristics with the situations
listed above, and we therefore hypothesize that source
credibility can also be used to assign weights to different raters
in an AEC rating system. The McCroskey (McCroskey 1966)
12 item Likkert scale that has emerged as the predominant
measure of source credibility is very similar to Hovland's
original concept. McGroscey's Authorativeness and Character
correspond to Hovland's Trustworthiness and Expertise,
respectively. We have therefore chosen to use this scale to
operationalizethe evaluation the credibility of message sources
in the model below. It has been cited over 100 times and
"seems to have emerged as the predominant method of
scaling"(Rubin, Palmgreen et al. 1994).In order to avoid
confusion, I will still use the terms Trustworthiness and
Technical Expertise (the most commonly used definitions)
throughout this note.

Types of information available to judge rater

670 A Rating Systemfor e-bidding - El<ström & Björnsson

credibility
Given that source credibility is used as the basis of a rating
application the first step is to assess the credibility of the
source, the rater. Based on interviews with potential users
(AEC project managers and estimators) and previous research
we have identified the following types of information that can
be used to deduct rater credibility.

Fìrst Hand Knowledge- If the user personally know the rater

they can themselves directly asses the credibility of this
person.

2nd Hand Knowledge - If the user knows a credible person

who states that the rater is credible, this is likely to positively
influence the user's assessment of the rater's credibility (Rohit
Khare 1997; Zacharia, Moukas et al. 1999). However, one
cannot assume that trust is perfectly transitive (that you trust a
friend of a friend as much as a fi'iend) (Abdul-Rahman and
Hailes 2000).

o m n etw o r k- Another
C r e di b i lity me o s ur e i nfe rr e d fr
interesting measure of credibility of a rater is to measure how
many other users find particular rater credible. Similar models
have been proposed by other researchers (Rohit Khare 1997;
Higgins 1999; Zacharia, Moukas et al. 1999).

Credibility of the Orgøniaüioz - Newhagen and Nass

(Newhagen and Nass 1989) point out the importance of
differentiating between an organization and an individual when
evaluating the credibility of a message source. Our interviews
with industry practitioners show that this is certainly true for
the construction industry. An estimator may regard a GC as an
organization that is the definition of dishonesty and corrupt
behavior but still trust those of the GC's employees that he/she
knows on a personal basis.

Pøst ratings - Statistical analysis of past ratings can provide a

67r crB-2002

measure of the expertise and trustworthiness of raters in the

AEC e-commerce market. This solution has been proposed by
Avery et al. (Avery 1999) for an Internet market for consumer
evaluations. They suggestthat a statistical analysis will
provide a means of monitoring the quality of subjective
information such as ratings. The idea is that someone whose
ratings deviate substantially from those of the rest of the
market may not be honest or do not posses the expertise to rate
properly. However, as Avery et al' point out, if you only
penalize raters that are too far from the mean, this may
àir"ou.ug. actors from posting idiosyncratic opinions and
result in a universal "avetage" rating' In their article they
suggest that raters should be penalized both for staying too
close to and too far from the average.

Other factors affecting weight of ratings

Rater credibility is not the only factor that influences the
weight of a rating.

Zacharia et al (Zacharia, Moukas et al' 1999) point out that

time is another important factor. Based on interviews we have
found that ratings that were more than 2 years old were
regarded as substantially less credible than recent ones, even
thóugh the discount factors seemed to be highly individualized.

Stone and Stone (Stone and Stone 1984) reported that

information from two sources was perceived to be more
credible than from a single source. As a result, a potentially
useful indicator to the user would that of total rater credibility
corresponding to the sum of the credibility of all raters that
have rated a given subcontractor. A user may want to know
whether only one rater with low credibility has rated a
subcontractor or ifthe overall ratings are based on those from
several very credible raters'

They also found (Stone and Stone 1985) feedback consistency

 672 A Rating Systemfor e-bidding - Ekström & Björnsson

to be an important indicator when assessing the accurateness of

performance feed back from multiple sources. Similarly,
Albright and Levy also found that (Albright and Levy 1995)
rating discrepancy to b be an important factor affecting
recipients reactions to ratings. We therefore propose the
calculation of an agreement index that is displayed to the user.

Grewal, Gotlieb and Marmorstein (Grewal, Gotlieb et al. 1994)

identified the importance of message framing when assessing
risk. Our initial investigations indicate that some AEC decision
makers tend to attribute greater importance to negative ratings
compared to positive ones. We propose that this effect can be
accounted for by modeling each user's risk preference.

A rating tool operationalizing source credibility

theory
In order to investigate in what ways source credibility theory
can support AEC ratings we designed a rating tool. The first
version of the tool is limited to two of the types of information
that can support credibility: direct knowledge and organization.
This credibility weighted rating tool follow a 3-step process :

Step 1: Credibilíty Input

The tool lets the user rate three different types raters on the 12
item McCroskey credibility scale:

Unknown Røter: The user is asked to evaluate a person that

he/she is unfamiliar working for a unknown organization. The
user's z-scores for each item are added together to obtain
credibility of an unknown rater C". This conesponds to the
base line credibility that the user attributes to attributes to
anybody working on the AEC industry.

Unknown Rater, Known Organìzøtioz.. The z-scores added in

the same way as above. The credibility of the organization Co
673 crB-2002

then equals the sum of z-scored minus then credibility of the

unknown rater (C"). This way Co reflects the net credibility
attributed to the organization that the rater works for.

Direct Knowledge;In this case the user knows the rater (and
therefore also the organization. The personal credibility of the
rater Co now equals sum of the z-scores minus the credibility
of an unknown rater (C" ¡ minus the credibility attributed to an
unknown rater working for the same organization ( Co.)

Step 2: Cølíbration
To aggregate the three measures of credibility (Cp, Co and Cu )
it is necessary to calculate the weights (o, Fp and Bo¡ that the
user attributes to credibility information relating to the three
measures. These measures reflect the user preferences when
aggregating credibility information. A user may consider direct
information about the rater or the organization much more
important than any other information while another user may
find all rater more or less equally credible. To estimate these
weights we use a methodology of pairwise comparisons that
have been widely adopted in decision-making tools that apply
the Anal¡ic Hierarchy Process (AHP). Normally in AHP, an
eigen-vector method is then used to calculate the weights of
the different criteria allowing for inconsistencies among the
pairwise comparisons. However, one obtains similar results
using a least-square method (Hwang and Yoon 1987), which
has the advantage that it can be readily adapted to account for
the added complexity of our 3-level model. The users are
shown a user interface where a painting subcontractor
("PaintA") had been rated by two of the seven raters' Rater I
rated PaintA's performance as "Good", the Rater 2 claims it
was 'oPoor". Participants were asked to submit their evaluation
by dragging a continuous slide-bar in between the values
"Poor" and "Good". This value (w12¡ corresponds to the weight
that the user attributes to rater I's ratings vis-à-vis rater 2's. By
modeling the credibility of each rater as an exponential
function we then obtain the following model for w¡2:
674 A Rating Systemfor e-bidding * El<strAm & Björnsson

wr2= crl(cr+c2)

where
C¡ = l/1-exp(-(a+Bo*Cpj *Fo*Coj)
::1'
J t,¿

We can then estimate cr, Bo and Bo by minimizing:

l{r, -ro),
K,I

The estimation will then correspond to a logistic regression.

The overallrating R¡of a subcontractor i willthen equalthe

ratings provided by each rater j multiplied by the rater's
estimated credibility. As a result, we obtain the following
straightforward formula:

R,=I Rr*c,l>c,
jj

' +0
Rii
Having calculated a numeric
value for the credibility ofeach rater, the system then asks the
user to rate the rater with the highest and lowest numeric
values on a 10 point Likkert scale in order to the translate the
numeric values to a symbolic values.

In order to calculate rater agreement we use an adoption of a

raw agreement index (see for example (Uebersax 2001)). The
adoption consists ofincorporating the notion ofrater
credibility when calculating rater agreement. Total credibility
is simply the sum of all the raters individual credibility. The
user can also see a symbolic measure ("Fligh"," Medium",
"Low") of the agreement between the rater and their overall
credibility.
675 crB-2002

Step 3: Dßpløy Ratings/Select bìdders

In the prototype user interface the user can see the calculated
values for two different subcontractors. An example of the
final user interface is shown in Figure I below. . The user can
see oveiall rating (weighted by credibility) both on a
continuous scale and as a symbolic vale. She can also see the
agreement raters of each contractor along with their assessed
credibility. The prototype also allows the user to input
contingency for each bid and select the best bidder.
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An experiment to evaluate rating systems for

bidding
In order to test the applicability ofsource credibility theory as
a basis for an AEC rating system we designed experiment that
compared three different rating mechanisms:

Unweighted Ratings: The subcontractor's overall ratings are

calculated as the average rating where all raters weigh the
676 A Rating Systemfor e-bidding- Ekstrom & Bjornsson

same. The user is shown the number but not the identity of the
raters that have rated the subcontractor. This is the standard
mechanism similar to for example eBay's and Bizrate's
systems.

Credibility weighted Tool: This tool is described above and

ach subcontractor rating is weighted by the user-defined
credibility of"the rater. The rater is shown the overall rating
along with the total credibility of and agreement between the
raters. The major purpose of the experiment was to compare
the performance of this mechanism with the unweighted
mechanism.

No ratings: The users do not have any ratings to support the

subcontractor evaluation.

prototype rating tool. We included this mechanism to have a

base-line measure to which we could compare the two above
rating mechanisms.

The participants used a prototype tool to evaluate

subcontractors bidding for the trades subcontracted in the
construction of a recently completed $5M office building in
San Francisco, California. The purpose of the experiment was
to investigate whether taking into account rater credibility will
aid the decision-maker that is evaluating bids from a
previously unknown subcontractor.

The experiment was designed to test the following hypotheses:

Hl: In the context of making pairwise comparisons
credibility measures based on the McCroskey scale is
no better than a unweighted (constant) model when it
comes to predicting the weights users attribute to
different raters.
H2: Users will vary their bid evaluations more when using
credibility weighed rating tool than when using an
unweighted rating tool.
677 crB-2002

H3: Users will be more confident in the correctness of their

decisions when using the Credibility weighted rating
toolthan when using an unweighted tool.
H4: When using a credibility weighted rating tool to
evaluate bids users will take into account agreement
and total credibility as well as the overall rating'

Method

Participants
The participants were l6 construction management students,
faculty and professionals (ages ranged between 24 and 55, M=
34.5, SD=9.3). They were all familiar with AEC bidding. They
were all fluent in English even though they were of various
origin (European= 8, Asia:6 and North America=2). The
participauts were randomly assigned to the condition regarding
the order in which the different rating tools were presented'

Procedure
The experiment was a within subject design that carried out on
an individual basis where each participant was supervised by
an instructor. The experiment was carried out on a personal
computer at the participant's place of work. The instructor
began by showing the participant a l0 minute tutorial
introducing the concept of rating systems. The instructor then
opened a Microsoft Excel program and asked the participant to
press "Run" to start the Program.

At the start of the application, participants read an introduction

telling them that they were going to act as a project manager at
a general contractor in charge of composing a bid to the owner
to construct a small office building. To their aid they would
have three different Internet based rating systems'

After having read the instructions, participants were asked to

name three different people in the construction industry
678 A Rating Systemfor e-bidding - Elçström & Björnsson

working for different organizations. Next the participants were

asked to rate seven different people using the McCroskey
source credibility scale. The rated people were; the three
persons the participants had named, three unknown project
managers working for the same company as the 3 named
persons, and finally an unknown project manager working for
an unknown contractor.

After having completed the subcontractor ratings, the

participants were asked to calibrate the rating tool. This was
done by having the participants make pairwise comparisons of
the credibility of the different raters as described above. This
was repeated for all possible (21) pairs of raters before the
system performed a logistic regression. Finally, the users were
asked to "for statistical purposes" re-enter those values where
the regression found a particularly high error in order verifu
that the entered value was not a mistake.

After having finished the calibration, the participants evaluated

one pair of subcontractor for each ofthe I 7 trades on the job.
The participants were shown bids from each of the two
subcontractors and asked to add contingency to each bid along
with selecting the best bidder. To support their decisions they
had ratings ofthe subcontractors in one ofthe three rating
tools.

After having frnished the evaluation of the l7 pairs bidding

subcontractors, the participants were asked to provide
information for the general contractor's "risk management
program" by assessing the likely performance (along with the
confidence in their judgment) of a pair of bidders rated using
each of the three tools.

Finally, the participants filled out a final questionnaire about

their attitude towards rating system and their experience during
the experiment.
679 ctB-2002

Manípulation
Given the exploratory nature of the study we decided to work
with hypothetical data. For each of the 17 trades we invented
two competing subcontractors. We also created 8 raters who
each had evaluated some but not all of the subcontractors. We
then randomly generated ratings of the subcontractors. The
subcontractors also bid random amounts but for each trade the
two bids were corelated so that they did not differ by more
than 5o/o. The tool provided three different user interfaces
corresponding to the rating systems (unweighted, credibility
weighted, and no ratings.) The user interface for the credibility
weighted system was the most complex and is shown in Figure
l. Both the agreement and the total credibility measures were
relative and with arbitrarily chosen cut off values. The 40% of
subcontractors where the raters agreed the most were assigned
to have "High" agreement, the30Yo with the lowest agreement
were shown as "Low" and the midrange as "Medium"'

The unweighted rating tool was a sirnplified version of the

credibility weighted rating tool. The user could see the average
rating on both a symbolic and continuous scale along with the
number of people that had rated the subcontractor' However he
did not know who had rated the subcontractor.

The tool without ratings was very simple. It consisted of the

two subcontractors' names and bids.

Measures
Rater credibilitywas measured with the McCroskey l2 item
credibility scale.
Goodness offit of model was measured using the sum of
squared errors in the pairwise comparisons for the two
models.
Bid contingencywas measured with a single item. The users
entered a number between 0-100% for bid contingency.
This number was intended to reflect both their assessment
680 A Rating Systemfor e-bidding - El<ström & Björnsson

of the risk buffer that should be added to the bid both and
the extra cost of managing an under-performing
subcontractor,
Users' confidence in their assessments was measured with a
single item "How confident are you in your judgment?"
Risk Attitude: We measured the user's risk attitude by letting
them make pairwise assessments of two pairs of unknown
subcontractors. Participants who put on average more than
55% weight on the negative rating was categorized as risk
averse.

Results

Goodness of Fit
To test Hl we performed a generalized maximum likelihood
ratio test (see for example (Rice 1995)) to compare the
unweighted and the credibility weighted models. The errors
were considerable larger for the unweighted model (see Table
r.)
Credibility
Unweishted Weiehted
l7.52 5.1 I

Table I Sum of Squared Error (N=336)

The result was that H1 could be rejected (p<0.001). This

indicates that the credibility-weighted is superior to the
unweighted modelwhen it comes to predicting weight of
raters.

We also perfonned a principal component factor analysis to

check whether the McCroskey scale did factor into the two
factors "perceived expertise" and "perceived trustworthiness".
We limited this analysis to those cases where participants
knew the raters personally. The results were encouraging but
non-conclusive. As shown in the appendix when using varimax
rotation and a cut-off eigen value of 1 we obtained 3 factors.
681 cr8-2002

The frrst two corresponded to the expected perceived

trustworthiness and expertise respectively. However, two items
expected to belong to the expertise factor ("reliable" and
"intelligent") were evenly distributed over the two factors. The
word "reliable" was expected to cause some problems given its
dual meaning in English. The even distribution of the world
"Intelligent" was more surprising. One explanation may be that
this was seen as a sensitive item by some of the Europeans,
two of which pointed out that they did not feel comfortable
rating their peers on this item. Furtherrnore, the analysis
shows "selfish" as a third separate factor.

However, even though the credibility weighted model se'emed

to perform better than the unweighted model it was not
problem free. Problem areas in the calibration phase was to
accurately find the zero point for Co and Co. Some users gave a
known rater lower credibility ratings on than a rater where they
only knew the organization but still found theformer more
credible when making a pairwise comparison. When later
asked about the reason for this behavior they explained that
even though the person was not very credible it was "someone
you know". This indicates that a more elaborate model than
simply subtracting by the appropriate Co and C, is called for.
We believe that most problems can be addressed by refining
both the operationalization of the McCroskey and the user
interface design.

Contíngency
The contingency added to the bid varied significantly more for
the credibility weighted tool compared to the unweighted tool
and the tool with no ratings, as shown in Table 2. H2 is
supported since the difference in variance between the
credibility weighted tool and the unweighted tool are
statistically significant (F-Test: N= 176, p<0'01). This
indicates that the users will vary their decision regarding the
evaluation of subcontractors more using a credibility-weighted
tool. As a result the bidding price will be of less importance.
 682 A Rating Systemfor e-bidding - El<ström & Björnsson

Unweighte Credibility No
d weighted Ratings
Variance 0.12 0.23 0.07
Table 2 Credibility weighted tool

ConJidence
The participants also expressed higher confidence in the
unweighted tool compared to the two other tools. Again the
difference between the credibility weighed and the unweighted
tools were statistically significant (T-test: N:32, p<0.01). This
is consistent with the results for the bid contingency described
above. A confident user will be more likely to vary her
decision depending on the information provided by the rating
tool.
Credibility
Unweighted Weighted
ratings ratings No Ratings
5.00 5.95 3.t7
Table 3 Confidence in judgment

Agreement ønd Total Credibílíty

Agreement and Total Credibility - Both agreement (p<0.01)
and total credibility (p<0.05) proved to be determinants (along
with Final (Overall) Rating (p<0.01)) of bid contingency as
shown Table 3 below. Overall Rating, Agreement and Total
Credibility

Slandârdl
zed
Unstandardlzod Cosffc¡on
Coofiìcignts ts 95% Confdðnæ lntoNel lor B
Model B std. Eror Beta I sls. Lowêr Bound Upper Bound
(Constânt) 2.948 .260 1'f .341 .000 2.431 ¡.409
Final Rating -.213 ,036 -.500 -5.896 .000 -.284 ..141
Agresment ..23E ,065 -.349 -3.674 ,000 ..36E ..109
Total Cre.lihil¡tv -.123 055 - 212 .2 340 o21 -.236 ..020
a. Dep€ndônl Variablsi Bld Conlingg

Table 4 Linear Regression of Bid Contingency

The results are therefore consistent with H4 presented above.

683 clB-2002

Nonetheless, we should mention that due to a

methodological

;*ú theiotal credibility index did not prove to be all that

a limited
useful. This is because the experiment only included
the users could easily
number of raters (<8)' Consequently
by herself.
iãentirv the ratersand assess their total credibility
ü. credibility measure was therefore less useful
"íg*g"te not have been the case if the participants had
tf,"" *ñ"tîould
been dealing with 40-80 to raters instead of
4-8'

Rísk Attitude
The
4 out ofthe 16 users turned out to be risk averse'
,"tuining 12 turned out to be risk neutral' This supports the
concept of modeling each user's risk attitude'

Discussion
promising basis
The study suggests that source credibility is a
depending .
for an aÉC rating system. By filtering the ratings
óf the rater, users are likely to both
on af,. p"r"rive¿-cré¿iUility
to a larger extent
let the rating tool influence their decisions
judgments'
and also be more conftdent in their

and total
Furthermore the study indicates that both agreement
iaier credibility to be importance factors when evaluating
iuiingt. Especially agreement seemed to be an importantfactor
i;maty uått' ritititudy suggest a number of avenues for
future research.

First,Themodeltomeasurecredibilitycanalsobeelaborated
expertise
in a number of ways. A first step would be to keep
andtrustworthinessasseparateindicatorsofcredibility.We
these two
observed that users put varying importance into
cases a trusted
factors when assessing rater .ttOiUitity' In some
ùut in"*p"tienced friend was even considered to
be less
credibleìhan an unknown rater working for an unknown
that it would be interesting
ãL""r"r contractor. we also believe types of
io explore the importance of time as well as the other
 684 A Rating Systemþr e-bidding - Elqtröm & Björnsson

information supporting credibility assessments outlined above

(network, past ratings, and 2nd hand knowledge). Finally, an
elaboration of the model suggested by several participants
would be to deal with more than one criterion as an indicator
of subcontractor performance. We have currently identified 7
criteria suited for subjective evaluations of AEC
subcontractors.

Secondly one should repeat the experiment in more realistic

conditions. This requires working with a group of participants
that act in the same market and which are familiar with one
another to a certain extent. These participants can rate a set of
subcontractors before using the tool to complete the rating
exercise. Such a study could also investigate the likelihood that
different rating mechanism would have when it comes to
influencing bidding decisions. Under what circumstances will
a rating prevent the decision-maker from choosing the lowest
bid?

Furthermore, such a study would enable researchers to

statistically test the importance of the different types of
credibility information using the user's own rating of the
subcontractor as the target function.

A final interesting area of study would be to compare the

performance of different rating tools in intra-company and
marketplace settings. In an intra-company setting the general
level of credibility would be higher than when dealing with
raters from other contractors in an e-market. Still, several
participants expressed the need for a credibility weighted
rating system internally for a general contractor arguing that
the credibility could vary substantially between different
potential raters within the organization

Finally, we want to emphasis that a rating system that accounts

for rater credibility will not be able to enforce truthful behavior
in an Internet rating system. A prerequisite is an altruistic
685 ctB-2002

(truthful) behavior from a substantial fraction of the

participants in the rating system. Still, we predict that a
credibility weighted tool would provide the user with a means
to filter out ratings of dubious nature. Such a tool could an
important building block in a framework to create trust in AEC
e-commerce. By rating the rater the user can come one step
closer to trusting new business partners in AEC e-market
places.

Appendix - Results from factor analysis

Rotated Gomponent Matrif'b

Component
1 2 3
RELIABLE .549 .544 .127
Uninformed 2.8488-02 .815 -8;04Ê-02
Unqualified 9.688E-02 .886 -.103
lntelligent .470 .491 1.4538-02
VALUABLE .429 .776 -6.79E-02
INEXPERT 6.736E-02 .884 -7.748-02
HONEST .740 .316 .117
Unfriendly .843 8.093E-02 5.2368-02
PLEASANT .906 9.179Ê-02 2.2128-02
SELFISH .360 -2.148-02 .857
AWFUL .875 6.8148-02 -1.408-02
VIRTUOUS .473 .330 -.629
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 4 iterations.
b. Only cases for which SELECTED = 1 are
used in the analysis phase.
686 A Rating Systen þr e-bidding - El<stri;m & Björnsson

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689 clB-2002

On the Economic Characteristics of

Construction Procurement Systems
Chen-Yu Changr & Graham lve

Abstract
This paper examines the economic characteristics of procurement
systems mainly in terms of transaction cost economics. This is an
important founding block for a positive theory of construction
procurement behaviour. This paper puts forth the theoretlcal principle
of an inconsistent trinity, according to which, to determine the most
efficient procurement method, the client will inevitably face the trade-
off between (l) fastest delivery of the project, (2) high flexibility in
accommodating changes (lower transaction costs arising from process
specificity) as well as (3) single point of responsibility for design and
construction (lower transaction costs from measurernent problems).

Keywords: transaction costs, asset specifìcity, me?surement costs,

procurement route :;r

Introduction
The stUdy of construction proeurernent routte in recent years
havé'ieceived lots of acader¡ic interest. The iinit of arralysis
can be either an individual pr{ecï or the rvhole supply chain of
the client's company (eg., Cox,1997,1998). In view of the
paucity of systematic investigations on the basic
microeconomic properties of procurement systems, it wili be
useful to place the focus of analysis on the individual project
first with the hope of extending the basic model to the issues
on the supply chain level .

Of the project-based researches, one line of inquiry departs

from crude observations or experiences in practice, then on the

I
Bartlett School of Graduate Studies, University College Lonclon
690 On the Economic Characteristics - Chang & Ive

basis of these facts infening the conditions under which each

procurement route is claimed to be suitable (eg. Curtis et al.,
1991, Masterman,lgg2). Not content with these qualitative
methods, some attempts have been made to apply the multi-
attribute utility approach to develop a procürement route
selection technique (eg., Ambrose and Tucker,2000; Love et.
al. 1998) or use statistical methods to investigate the relations
between the performance of procurement systems and some
explanatory variables (eg. Molenaar and Songer,l998).
Another recognized line of inquiry is due to the dedicated
efforts by CIB's W92 committee, as evidenced by the collected
essays of Rowlinson & McDermott (1999), which is
characterised by viewing the procurement systems through the
lens ofdifferent perspectives, such as trust and culture. The
vibrant development in this field has enriched our
understanding to procurement systems. However, the
underlying economic mechanism is still opaque and some
efforts should be directed to develop a systematic framework
for discovering the causal relations behind the client's choice
of procurement systems.

In recent decades, transaction cost economics, almost single-

handedly established by Williamson(1975,1985,1996), has
emerged as a mainstream approach to the economic analysis of
organization. A complete transaction cost-based construction
procurement theory must contain three components: first,
operationalisation of the concept of the construotion
transaction aiming to discover the key factors, called
transaction attributes in the literature, that are best able to
discriminate the relative efficacy of procurement systems;
second, dimensionalisation of governance structures for
identifuing the inherent characteristics of procurement systems
that are responsible for this differential competence in dealing
with the projects with different sets of transaction attributes;
finally, alignment of the procurement systems with transaction
attributes in an economising way. In consideration of its
length, this paper will focus on the analysis of the second
691 crB-2002

component - economic characteristics of procurement systems.

Section 2, however, gives a very brief outline of the first
component. For a complete version of this theory please refer
to Chang and lve(2001a).

Operationalisation of construction transaction

Generøl concepts
Williamson's transaction cost reasoning starts with the premise
that the rationality of decision-makers is bounded (competence
gap) and radical uncertainty will be present in the future
(information gap), both of which leads to the impossibility of
relying on the complete contract in which all contingencies are
stipulated so that the transaction process can be effectively
governed. The incompleteness of the contract won't be '
harmful if switching to alternative traders incurs slight costs.
However, when the durable investment sunk in this transaction
is of little redeployable value, the flexibility of the investor
will be markedly shackled. In theory, the investor will stick to
the contract as long as the expected revenue of maintaining the
tansaction relation exceeds the ex post opportunity costs of
the investment. Because of the reduced value of the sunk
investment, there appears an excessive return, which is not a
reward to the investor but an appropriable rent to another
trading parly, which is called appropriable quasi rent. Asset
specificity is used to describe this sort of bilateral dependency.
However, why is this situation sometimes troublesome? This is
due to the assumption of opportunism.

Opportunism strands for the likelihood that a trader is not only

self-interest seeking but also acting sometimes in the dishonest
way. This implies that, when the appropriable rent is present,
the informed party is likely to take an opportunistic stratery to
seize the extra rent by the excuse of unanticipated event with
asymmetrical dishibution of information between traders. This
kind of rent-seeking behaviour is called hold-up problem.
 692 On the Economìc Characteristics - Chang & Ive

When the intention to redistribute the share of gains from trade

occurs, the defender, even in the disadvantageous position,
may not yield to the unreasonable demands. Along with the
battle of defence, haggling is unavoidable. resorting to third-
pafi arbitration or even litigation may be necessary. The bitter
experience of incurring these ex post costs may pass on to the
next decision so that some precautionary actions may be taken,
including increased stock, lower level of investment or less
specific technology being employed, and additional credible
commitment (often in the form of bonding) being required. The
excessive risk exposure from behavioural uncertainty can be
shielded by choosing hierarchy as governance structure due to
its better adaptability to deal with uncertainty and its higher
efficiency in resolving the ensuing disputes.

Key trønsactíon øttríbutes of constructíon projects

Since construction cannot square with the basic standard
propositions of TCE (Chang and lve,2001b), the key variables
pointed out as essential in TCE cannot be directly applied.
This makes it imperative to reexamine the process of
construction transaction operationalisation. We found degree
of process specificity, defined as the extent of difficulties in
switching to a replacement contractor, and degree of
measurement difficulties (in identifuing the liabilities of the
client's agents, such as designer, contractor and subcontractor)
are the key variables (Chang and lve, 2001c). Besides, client's
time value is also a critical attribute that affect both the
discounted revenue from the project and the vulnerability of
the client.

Dimensionalisation of procurement routes

This step aims to answer the question: why three main types of
procurement systems will display differential competence in
dealing with projects with different transaction attributes? The
explanation lies in their different contractual arrangement.
693 crB-2002

In principle, the procurement systems can be characterised by

two dimensions (see Table l): (l) the extent to which design
and construction can be overlapped and thus faster completion
be achieved and (2) degree of fragmentation. Fragmentation is
defîned as the inverse of concentration of responsibility to the
client. According to the arrangements of the three main types
of procurement systems to be examined in this paper,
fragmentation can be achieved by two ways: one is to delegate
design and construction to different agents (ie., designer and
main contractor); another is to split the whole construction
work into small parts and assign them to different work
package contractors. As will be explained later, the
fragmentation of procurement systems will give rise to two
opposite forces at work (see Fig.l). More exactly, as the
degree of fragmentation increases, adaptability to change will
be better, while the efficacy of ensuring conformance quality
becomes weaker.

An attempt is made to explain why different contractual

anangement is an intrinsically decisive determinant affecting
the efficacy of procurement systems with respect to three
dimensions: time value, process specificity and measurement
difficulties. An overview of the expository framework is
exhibited in Figure 2.The analysis is made up of two steps:
l. The first step aims to wrestle with the problem of the
characteristics of contractual arrangement across
procurement routes and their effects on the differential
efficacy of procurement routes;
2. The second step is to fill up the gap between the
dimensions of procurement routes and their effects on
the elements of the objective function of the client, ie'
profit function, defined as the revenue from the project
net oftransaction costs from process specificity and
measurement difficulties for fixed production cost.

The traditional method is characterizedby the sequence of

694 On the Economic CharacteristÍcs - Chang & Ive

design then tender strategy. This makes it harder to use fast

hacking strategy. As a matter of fact, it is possible to use
accelerated traditional method to speed up the completion of
the project. However, it may subject the client to the costs of
sequential bargaining on price with the contractor. In contrast,

Table 5. Comparison of procurement systems in terms of

contractual characteristics
Degree that design and construction can be
overlapped
H M L
Management
É
o H systems
(! ¿d
o:
(1)o M
Traditional
9É method
0ô 0f Design and
{')d
O4ã L Build

this strategy can be more easily implemented by design-build

and management contracting. Nonetheless, to help the bidding
D&B contractors formulate a proposal based on sufficient
information, it takes more time for the client to prepare

Figure 1. The effect of fragmentation of procurement routes

H c
q
L
9
cÊ Managemen
q'
c: M system
É E
EI
o Traditiona
àt) Þ¡
c
q!
method
o
I
o o H Design
å¡ and
o build
Ê c
E
LM H
L fr¡ Adaptebility to design ch¡ngc

Dcgrcc of fragmcnt¡tion H
 69s cIB-2002

Figure 2The matching of characteristics of procurement routes with the components of the objective function

Characterizations of .Dimensions of Effects of each dimension on

procurement systems procurement systems the objective function

Degree of design and I\PV of revenue from

construction being
overlapped
I Time of project delivery
I the project I
transaction costs from
Adaptability to
design changes I process specificity
I
I)egree
Fragmentation
of
I How easily the liability of transaction costs from
agents can be identified I me¡surement diflTcultie.s
I
 696 On the Economic Characteristics - Chang & Ive

Figure 3 Comparison of ûaditional method and fast-track method

I I
I 2 J 4 5 6 7 8 9
0 2
Design
CË
Review
o
Tender
(d Constructio
L
- n
Design
Review

c.)
Tender
Sub-
J! re S¿ ve(L
o
contractor I
J¿
o
(! Sub-
contractor 2
Ø Sub-
(Ë
6, contractor 3

preliminary design in advance. As a result, the benefits of fast

tracking in shortening delivery time can be more fully
crystallised by management system. The above inference is
consistent with empirical evidence. According to Building
Economic Development Council's Faster Building for
Commerce ( 1988), regardless of site time or total time,
management contracting is most likely to deliver the earliest
date of completion. Design and build comes second and the

traditional method is the slowest route.

Yet, why do we need to be concerned with the time of

delivery? That's due to its effect on the discounted revenue
from the project. In principle, for the commercial or industrial
clients, time is money. It seems safe to assume that the
697 crB-2002

discounted revenue is a decreasing function of delivery time.

The order of delivery time by three procurement routes is tMC
< tDB < tTM, so we can infer that the order of the
corresponding discounted revenue will be R(tMC))> R(tDB) >

R(tTM). This is the effect of procurement route attribute on

revenue from the project.

Adaptability to design changes

The second dimension of procurement systems is the
differential flexibility in accommodating design changes
during construction. The degree of flexibility mainly depends
on the bargaining power on the client's side. For the cases
where the client is able to resume a project with low costs,
were it disrupted, the client will be in a strong position to
negotiate with the contractor over disputes. In the face of this
situation, the contractor's proclivity to behave
opportunistically will be much mitigated. Accordingly, the cost

of switching (COS) to a replacement contractor is a good

indicator for showing the degree of flexibility facing the client.
This can be defined as
COS=vx(t¡+t2)+C"+C,p+C¿ Eq.l

where (l) t1 and t2 stand for the time for finding a replacement

contractor and the time for the replacement contractor to carry

on the unfinished project. v is the average cost of time. Thus,

the first term indicates the potential loss arising from the
 698 On |he Econontic Characteristics - Ohang & Ive

opportunity costs of time, were the project to be disrupted. C.

is the extra costs due to repeated set-up on the construction

siter. C,p is used to indicate the risk premium asked by the

replacement contractor for unceftaitr quality of work done by
first contractor. The last tenn, C¿ is indicative of the cost
incurred due to difficulties in identifying liabilities between
original and replacement coutractor, were defects found in the
interface between them.

The key issue here is how this cost varies as the contractual
arrallgeurellt of procurement systems. We want to argue from
two respects: contractual arrangement of procurement systems
will, on the one hand, alter the extent of process specificity
and, on the other, the efficacy ofcourt ordering. Both ofthem
have bearing on the cost of making changes to the client's
requirement. In the following two subsections, we lvill try to
build up these two links.

Procurement systems and process specirtci| effect

Let's discuss this problem from two scenarios. At the pre-
contract stage, the client can elicit market prices of any
constructed product with given design from all the potential
bidders. However, at the post-contract stage, the price of a

I
This cost includes costs for installing construction machinery,

administrative facilities (say temporary office), management hardware (say

computers), and so on.

699 ctB-2002

change is determined by the outcome of negotiation between

the client and the winner contractor. The difference is, in the
latter case, the loss of options for switching to alternative
contractor without costs. The issue of interest is why the
degree of process specificity will change as contractual
arrangements.

In principle, as the route becomes more fragmented, the

process specificity becomes less severe. In other words, the
time spent in finding a replacement contractor and the time the
replacement contractor needs to 'warm up' will decrease as

degree of fragmentation. When the responsibility is more

concentrated on one party (like design and build), more of the

tacit knowledge obtained in carrying out this project (in
particular defects in design and construction) cannot be
transferred, and the more difficult it is for other agents to
continue the unfinished tasks (longer t) ,the fewer contractors
that are willing to take over this task, so the more time is
needed to find the replacement contractor (longer 17).

Moreover, using an integrated procurement system will

increase the danger ofquality uncertainty since the problem of
information asymmetry as to quality will be more severe. This
will increase the risk premium required by the replacement

contractor C, orland the difficulties in handling the interface

problem, ie., higher C¿. In respect of C., if design-build or
traditional method is used, temporary works and construction
machinery or equipment have to be set up by the main
 700 On the Economic Characterístics - Chang & Ive

contractor. When the original main contractor is replaced, all

these set-ups need to be removed. In the management system,

thought the major part of ternporary works are arranged by the

management contractor, the individual trade contractor is
responsible for installing machinery for his own use. Thus, C.,
is much smaller in the management system than in other
systems. 'Ihe above discussion is summarised in Table.2. It
evidently shows that it is most costly to replace the contractor
in the design-build, implying this route puts the client in the,
weakest position to bargain with the contractor for the pricing
of ex post requirement change. This means that design-build is
least appropriate to deal with these projects with high

nossibility of changing the original requirements in the brief.

For such projects, traditional method comes next and
management system is the most desirable one.

Table 6 The effect of contractual arangement on process specificity

Traditional Design-build Management system
method
t1 Medium Long Short
tz Medium Long Short
c- Medium Hieh Low
C¿ Medium Hish Low
C. Medium Hieh Low

Procurement systems ønd eflïcacy of court

orderíng
The presence of quasi-rent is the ultimate reason inducing rent-
701 cIB-2002

seeking behaviour. The severity of this problem is dependent

on both the magnitude of the rent and the likelihood of
successfully appropriating it. The later is considerably affected
by the differential effrcacy ofcourt-ordering under different
circumstances. The origin of this differentiation mainly lies in
the plasticity of the decision at issue. Plasticity involves two
aspects: (1) the range of legitimate options that can be chosen

by decision-makers, and (2) the costs of monitoring [Alchian &

Woodward,l987l. Others things being equal, the more choices
the agent can take, the more plastic is the case. However, the
number of choices just reflects half of the story, and the other
half depends on whether reliable and less costly monitoring
instruments are available. If it is easy for the principal to check
the performance of his/her agents, how many options are open
to the agent to choose won't be of concern to the principal. On
the contrary, if monitoring cost is prohibitive, even though
options were few, the principal's interest is still not secure.

When the procurement route becomes plastic, the efficacy of

court ordering will be weakening because it is relatively more
diffrcult for the third-party to make a judgment on the basis of
an ambiguous yardstick. Of the three main procurement routes,

design and build is most plastic since the detailed design is

open at the time when the contract is placed and the contactor
is given more latitude in determining undecided design as well
as selecting technology and construction procedures. In the

management system design is also not finished at the stage of

702 On the Economíc Characteristics - Chang & Ive

appointment of the management contractor, but what differs is

that drawing and specification are offered by an independent
agent ofthe client, the architect. In contrast, in the traditional
method design has completed before tendering, while, as far as
the plasticity ofthe contractor's decision is concerned, these
two routes are of the similar level.

A conclusíon
It is claimed that adaptability to design changes of a

procurement system is conditional on both its effect on process

specificity and differential efficacy of court-ordering under
different contractual arangements. The results of the above
discussion can be summarised in Table3. It manifestly shows
that, in terms of both of the two dimensions, design-build is the
least efficacious route to accommodate design changes ex post.

Table 7 A comparison of adaptability to design changes of three

procurement systems
Traditional Design- Management
method build system
Extent ofprocess Medium High Low
specificity
Efficacy ofcourt High Low High
ordering on design
qualiw

In contrast, management system gives rise to slightest process-

specificity effect for given attributes ofthe project and the
similar level of court-ordering effect as traditional method, so
703 cIB-2002

it follows that management system would be the most desirable

route to carry out these projects with high process specificity.

Degree of effîcacy in assuring construction

quality

Apart from cost of monitoring design discussed in the previous

section, measurement costs are made up of two other
components: (1) costs of inspecting the completed parts of a
project; and (2) costs of getting defects corrected. To make
these costs comparable under the three procurement routes, the
following analysis proceeds on the basis of the same design.

The costs of inspecting should be of the similar level across

procurement routes. Thus, we will focus on the difficulties in
getting defects corrected. Single point of responsibility is more
effìcient in dealing with this problem. Design and build
contractor has no scapegoat to get rid ofresponsibility once
something has gone wrong. In the traditional system, the grey
area of liability between designer and contractor may give one
party the opportunity to impose charge upon another.

The arrangement of management system would make the

situation even \¡/orse since in this setting, designer,
management contractor, subcontractors are all autonomous
entities who are responsible for their own faults. For the client,
this would lead to a big trouble in clearly identifing the bearer
 704 On the Economic Characteristics - Chang & Ive

of liabilities. On the basis of this logic, it implies that marginal

transaction cost arising from measurement difficulties will
increase most substantially by using management system.

Table 8 Characterizations of procurement systems

Characterizations of Traditional Design & Management
procurement systems Method Build System
Extent to which design
and construction can L M H
oossiblv be overlaooed
Fragmentation of
M L H
procurement routes

An Inconsistent Trinity

The meøníng
The overriding task of procurement systems
dimensionalisation is to discover the attributes of procurement
systems that have direct bearing on the profit function.
Contrasting Table5 with Table6, we can find that the intrinsic
distinctions in terms of the extent to which design and
construction can be overlapped and of fragmentation manifest
themselves in the differential competence of procurement
systems in the three dimensions of delivery time, adaptability
to changes and degree of measurement difficulties.

As exhibited in Fig.2, fast delivery is mapping to higher net

present value ofrevenue stream from the project, lower degree
of fragmentation (or single point of responsibility) reflects less
705 ctB-2002

severe burden on the measurement of performance (of each

participant) and high adaptability to design changes gives
contractor less opportunity to take advantage of the client's
quasi-rent. As a consequence, to maximise profit function, a

Table 9 Micro-economic characteristics of three main procurement

routes
Traditiona Design
Management
I and Build
Contracting
Method
Delivery time Slow Fast Very fast
Adaptability to design Very
Weak Strong
changes Weak
Ease of identif,ing Less
Easy Difficult
liabilities of asents difficult

procurement route with the feature of fast delivery, single

point of responsibility and high adaptability would be the ideal
option. Unfortunately, this is unobtainable. Thc dilemma
facing the client in selecting the procurement route is similar to
that facing a monetary authority in selecting exchange rate
policy. 1999 Nobel laureate Robert Mundell put forth a very
famous "impossible trinity": a country cannot pickfree capital
movement, afixed exc.hange rate and an effective monelaty
policy at the same time. Likewise, it is impossible for the client
to choose a procurement route meeting these three conditions
simultaneously. This inconsistent trinity connotes the necessity
of seeking balance between counteracting factors.
706 On lhe Economic Characteristics - Chang & Ive

A formal presentation

Assume the same project is carried out by three procurement

routes, the profit function conesponding to each route can be
expressed as

Í1y= R(t1y) - TCrM - PC Eq.2

Íps = R(tps) -TCDB - PC Eq.3
7ryç= R(ty6) - TCMC - PC Eq.4

where discounted revenue stream R(t) is a function of total

time of design and construction; TCrv,TCos and TC1À,r are

transaction costs ofthree routes; PC is production cost, kept

constant across procurement routes by following the standard
assumption of TCE.

In the discrete structural analysis, the determination of the

efücient governance structure is a comparative undertaking.
Thus, we subtract Eq.2*F,q.4 permutively by each other, ie.,
nps-æ1y=[R(tos)-R(try)]-[TCDB-TCrM] Eq.5
ßys-î1y=[R(tMc)-R(trM)]-[TCMC-TCrM] Eq.6
?ryç-?Tps=[R(tDB)-R(trM)]-[TCDB-TCrM] Eq.7

For ease of notation, the average cost of time, v, is introduced

to express the difference in revenue of two different delivery
times. For example,
R(tDB)-R(trM)= v"( trv-tos)

Besides, from Eq.1, we can find two categories of project

707 ctB-2002

attributes affect process specificity: average cost of time and

technology. If we denote technology-derived process
specificity as s and assume a constant average cost of tirne,
Eq.5-Eq.7 can be transformed into
Ttoe-lr-rv:vx(try-tps)-[TCps(v,s,k)-TC1y(v,s,k)] Eq'8

Trvs-7I'rv: vx( t1y-ty5)-[TCys(v,s,k)-TCry(v,s,k)] Eq'9

îvs-fios:vx(tps-ty5)-[TCys(v,s,k)-TC¡s(v,s,k)] Eq.10

where k is the degree of measurement difficulties.

To get a more specifìc finding, we assume there is a fixed

relation between ttu , Ít¡u and lw:. For simpliciÍy, tyç and tt¡t¡

are assumed to be proportional to t7¡,7 witlt a given ratio of a

and B respectively (l>ct,B>0). For a project, the expected
delivery time by traditional method can be estimated ex ante.
This is, t7¡a is given. Then, Eq.8-10 are simultaneous
equations, consisting of three equations and three unknown
variables. The problem of interest is whether there is a
condition under which the desirability of the three routes are
indifferent to the client. Put it in a mathematical way, this
problem requires to find the solution of Eq.4-6 by setting 27.¡¡-

ftyy:lty¡;-ftl'u--Tut:Itoa:0' Its solution 6*,sr,k*1, if any, stands

for a set of transaction attributes where the three routes will
perform equally well, In other words, in dealing with the
project with the attributes of ¡t*,sr,k*¡,the client will be

indifferent over using any of the three procurement systems,

Except for this type of project, the choice of procurement
routes will influence the efficiency of project implementation.
708 On the Economic Characteristics - Chang & Ive

Conclusions

This paper examines the microeconomic properties of three

principal types of procurement systems in use today in terms of
transaction cost economics. Three dimensions pointed out as
essential to explain the differential competence of procurement
systems in delivering the project with respect to the objective

of revenue maximization and minimisation of transaction costs

from process specificity and measurement difficulties: duration
ofdelivery adaptability to design changes and degree of
difficulties in identiffing liabilities of the client's agents. From
this analysis, we derive an essential theoretical conclusion that
in selecting an apposite procurement system, it is inevitable for
the client to choose the tradeoff among three countervailing
factors: fast delivery high flexibility to design changes and
single point of responsibility. Theoretically, it is possible for us
to find a set of project attribute s 6.,i,k.¡ which can be equally
efficiently carried out by three main types of procurement
systems. Apart from this point, the most desirable procurement

system will be decided by the relative strength of three

countervailing forces. It implies that there is no procurement

system absolutely dominant over others. This result provides
us a key to understand the nature of procurement system

selection. The right question that should be put in the future

research agenda is: under what conditions is a procurement

option more desirable than others?

709 crB-2002

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710 On the Economic Characteristics - Chang & Ive

Responsibilities and Risks in Management Contracting,

CIRIA special publication 81.
Love, P.E.D., Skitmore R.M. and Earl G. (1998) Selecting A
Suitable Procurement Methodþr A Building Project,
Construction Management and Economics, 16, 221-233.
Masterman, J.W.E. (1992) An Introduction to Building
Procurement Systems, E & FN Spon, London.
Molenaar, K.R. and A.D.Songer (1998) Model For Public
Sector Design-Build Project Selection, ASCE Journal of
Construction Engineering and Management, 124(6), 467 -
479.
Rowlinson, S. and P.McDermott (ed), 1999, Procurement
Systems: A Guide to Best Practice in Construcfibz, E&FN

Spon, London.
Williamson,O.E. (I 975) Markets and Hierorchies : Analysis
and Antitrust Implications, The Free Press, New York.

Williamson, O.E. (1985) The Economic Institutions of

C ap ital i s m : F ir ms, Mar ke ts, Re I at i onal C ontr ac t in g, The
Free Press, London.

Williamson, O.E. (1996) The Mechanisms of Governance,

Oxford University Press, New York.
7tt crB-2002

Building Services: A sub-optimality in

procurement decision making
Christopher J Marshr, & Roy Morledge2

Abstract

Increasing sophistication in building services technology demands a

more strategic approach to technology and supply strategies. Clients

are adopting more sophisticated supply strategies to energy use, and

facilities servicing, causing an increase in service-based supply

strategies for building services. Therefore the project business case is

now extremely complex, requiring a considerable input from all

parties.

However a review of current literature shows there to be a paucþ of

research in the way building services is procured. This paper puts

forward the theory that to bring construction procurement inline with

current industry developments the notion of the value proposition

must be considered.

The value proposition is not considered during the procurement

I
Centre for Operations Research, BSRIA, Bracknell, England (email

christopher. marsh@bsria. co. uk)

2
Construction Procurement Research Unit, The Nottingham Trent

University, Nottingham, England

 712 Building Services - Marsh & Morledge

phase, and therefore procurement becomes a monopolistic process.

The satisfaction rated by the client is based on their level of

understanding, rather than optimal service delivery. Through the use

of modalities, the value proposition comes into play, thereby

delivering greater value and increasing client satisfaction.

Keywords: value proposition, satisfaction, modalities

Introduction
Building services is largely an assembly industry, where the
skill and knowledge of each technical system is held by a
number of unique specialist companies, consultants and
component producers. Supply chains are well established and
although temporary, operate within a determined environment,
therefore display some characteristics of a mechanistic system.

Two independent research projects undertaken at BSRIA were

used to test whether the assertions made within the curent
literature were comparable.

The first research project determined that highly experienced

procurers seem to be incapable of distinguishing difference
aspects of service. However the same criticism could be

levelled against contractors in that the value proposition being

offered to clients is inferior.
'713 crB-2002

The second set ofresearch found that ranking ofimportance by

client's shows a difference in concerns between occasional,
regular and large type clients. The occasional client is
primarily focused on the current project, with little evidence of
long-term issues, with the traditional factors of cost, time and
quality rated as the highest. Although quality is expressed as
work being completed to the set specification. Strategic
thinking only becomes more evident as the client becomes
more a regular procurer.

Detriment
M&E services in buildings have become more complex'
Clients now require a higher standard of M&E'services
performance and provision; and generally have higher
expectations of quality. These changes in M&E services
requirements, together with changes in procurement methods,
shortening ofdesign periods and the increase ofspecialist
subcontractor design; have resulted in complications in the
design, procurement and cost control of M&E services
(Swafield and Pasquire 1997).

Traditional belief is normally held within procurement

research that the abilities of the main contractors to procure the
correct specialist contractors is due to their strategic abilities
of dealing with the supply chain. It normally assumes the main
contractor holds a dynamic relationship with the market, with
714 Buildíng Services - Marsh & Morledge

the consultants determining strategic objectives from the

client. However this assumes the sub-contractor has no
strategic influence and will make the best possible choice in
terms of resources and methods. Furthermore, the critical
success factors for project success are compatible with the sub-

industry delivery process.

In reality, main contractors are management contractors sub-

letting almost allthe construction works to domestic sub-
contractors on documentation that does not recognise this to be
the case. Shoesmith (1995) states that the main contractor has
little strategic control over risk or price on the projects, as their
role has become that of a co-ordinator only.

Pasquire (1994) asserts that specialists claim management

contractors do not have detailed understanding of requirements
or technical knowledge of systems, and appears correct when
calling for "a much more open approach to conslruction
procurement is needed and this stems from a greater
knowledge ofthe processes involved. The tools already exist
within current drocumentation what is required is that they are
used to their fullest potential by a flexible approach to
procurement. "

However a paradox develops when the clients themselves are

questioned over the success ofalternative procurement routes.
It appears that clients preferred traditional routes due to clear
7t5 crB-2002

management structure (Gunning and McMullan 1996) or that

research showed no clear preference on main contract
procurement alternatives, but some involvement of the client in
specialist contractor procurement was considered beneficial
(Price and Gibb 1996).

Part of this disparity can be explained by evidence that

discounts the affect of a procurement arrangement. Ireland
(1983), Rowlinson (1998) and Shoesmith (1996) all conclude
that management variables of a project rather than procurement
form, has the most effect on project performance' Lam (et al
1997) summarises the general consensus of opinion in
academia; "all results suggesl that the procurement path is not
a determiningfactor but that the use of an appropriate

procurement path for particular se t of proj ect c haracteristics

and environments, together with the most suitable management

strategl would have a significant effect on quality
management."

Traditional research thought has concentrated on the concept

that best value was achieved through procurement of the
project principals, namely designers, engineers and main
contractor, with the inherent supply chains being enabled by
these principals.

This belief assumes the project procurement strategy enables

value for money to be developed in the supply chain, in line
7t6 Building Servíces - Marsh & Morledge

with the project objectives. Moreover, it assumes the

managerial strategy is in with supplier requirements and
therefore the enabled processes are compatible with the
established process inherent within the supply industries.
Although Tookey (et al200l) states that the traditionally
parochial view of construction, where the industry is
considered as a separate entity operating by its own rules, has
largely disappeared, it is postulated that developing thought in
procurement appears to be lagging behind other industries.
Developments in procurement strategy have yet to fully
encompass the notion of supply chains and understand the

value process from raw materialto finished product.

The need for greater sophisticated thought in procurement is

opined by Rwelamila and Hall (1995), who contend that there
is little or no cognisant thought that procurement is a
management issue, instead it is still seen as a technical subject,
underpinned by a lack of complex thought. The argument is
further added to by Sheath (et al1994), who criticises
Masterman (1992), Turner (1990) and Latham's (1994) work
on procurement selection as a contractual rather than an
organisational arrangement, citing that it was probably due to
the UK's high concern with appointing risk in construction.

Ireland (1984) set the tone for this debate, as far back as 1984,
with his seminal paper in which he states that differences
between alternative procurements frameworks are down to the;
717 crB-2002

arrangements for determining cost; process of selecting

contractor; role of specialists; process structure; and the
conditions of contract. The paper highlights that using the role
of the specialist to differentiate between procurement
arrangements - construction management and lump sum
arrangements are equal, other than specialist being able to
participate in design phase with construction management.

Building services is largely an assembly industry, where the

skill and knowledge of each technical system is held by a
number of unique specialist companies, consultants and
component producers. Supply chains are well established and
although temporary, operate within a determined environment,
therefore display some characteristics of a mechanistic system,
Furthermore each technical system is unique to its suppliers,
contractors and methods of operation. Therefore the building
services industry can be seen as a complete system, but highly
influenced by its own environment and stable sub-systems.

A New Approach
Two research projects recently camied out at BSRIA, were use
to test the assertions made within the current literature. The
first involved a quantitative survey to determine key

performance indicators, the second being a qualitative survey

of 170 regular procurers ofbuilding services.
718 Building Servíces - Marsh & Morledge

BSRIA Key Performance Indicators

The collective findings of this first area of research were
derived from the completed questionnaires of 274 building
services 'clients' - of which 70%owere end users, 24o/o main
contractor and 6Yo were consultants. This group gave insights
into critical success factors and general level's ofsuccess.

Approximately 90% of the respondents stated they were

regular procurers of building services with great experience.
Although experienced, it would appear that an element of
strategy is not evident within their procurement decisions. Of
the I I aspects of service scored, the mean score is 7 (6.9 -7.3
on categories), with a median score of 9, consistent over all I I
categories. Therefore it is evident that clients are incapable of
distinguishing difference aspects of service. However the same
criticism could be levelled against contractors in that the value
proposition being offered to clients is inferior.

Complexity is a dominating issue in satisfaction. The level of

integration between the two major disciplines appears to affect
satisfaction. Lower satisfaction is had with multi-disciplinary,
with a median of 7 .9, as apposed to projects with separate
mechanical and electrical, scores of 8.4 and 8.3 respectively.
This also evident in the mean satisfaction scores for projects -
housing 7.4, offices 7 .2, education 6.7 and health 6.I -
suggesting that the greater the complexity the lower the level
of satisfaction available.
719 ctB-2002

The greatest factor in satisfaction is the actual procurement

arrangements, with specifrc regard to the relationship between
contractor and client. A diversity of experience with
contractors is evident with only 34o/o of projects undertaken
with a preferred contractor, while 36Yo of clients had never
worked with the contractor before and 30Yo had only
occasionally worked together before. This shows that 66%o of
clients had little or no experience with the contractor,.despite
95% of client stating they are serial procurers. Yet the level of
satisfaction achieved on the project is correlated to experience
with contractor - 6.5 never work with before, 7.3 occasional
exp, 8.3 preferred /regular contractor.

Equally the poorest satisfaction was with m&e contractors

used for the first time and selected on price only basis. Despite

the highly reported moves of construction to a more

partnership based management style, price still dominates the
procurement of building services. The assessed project
selection methods used price 3lo/o of the time, with the use of a
price/quality mechanism 47Yo of the time, rvith negotiation
being used only for l6Yo of projects. Procurement decisions
appear to be habitual, rather than strategic, with this

dominance on using a price based decision offer lower levels

of satisfaction (6.8 price only, 7.3 price/quality, 8.1
negotiation).
720 Building Semices - Marsh & Morledge

The focus on traditional decision making in building services

procurement, is particularly evident in partnering, with only
14%o of projects including partnering agreements. Moreover
the m&e contractor was only included in 54Yo of cases, i'e. 8o/o

in total. Yet the lowest satisfaction by clients was held when

the main contractor (6.9) procured the m&e contractor. The
satisfaction levelwas raised to 7.9 when the m&e contractor
was involved directly in a partnering agreement with the client.

BSRIA Customer Satisfaction Research

The second set of research from BSRIA is based on 130
person-to-person interviews, allowing a contrast against the
quantitative answers given in the other research project.

The ranking of importance by clients shows a difference in

concerns between occasional, regular and large type clients.
The occasional client is primarily focused on the current
project, with little evidence of long-term issues, with the
traditional factors of cost, time and quality rated as the highest.
Although quality is expressed as work being completed to the
set specifrcation

The top six aspects of service registered as critical by clients

L good safety record -9.2
2. work completed to specification-9.2
3. work completed to time - 9.1
72t crB-2002

4. quality of workmanshiP - 9.0

5. low number of defects - 9'0
6. work completed to budget - 8'9

Although these factors do not appear to be evident within final

contractor selection, with "selected lowest bid to meet
specification" and "quality/price balance" are the most
frequented cited factor. This is further reinforced with 85% of
main contractors and 77Yo of clients, stating the 80% of
contracts are awarded to the lowest contactor, although private
clients show a greater variance.

Generally the data shows that there is a inconsistency between

the level of service expected by clients, that áctually being
delivered by contractors. ofthe l8 categories stated, nearly all

scored between 6.2 and 7.6, showing a high degree of

indiscriminate marking by clients. Further supporting the
assertion that clients have an inability to fully differentiate
between aspects of service; calling into question their ability to
make strategic judgements'

A disparity exists between the client ratings given for project

success against those used in the selection of an m&e

contractor. From a list of 27 factors, quality issues dominated

the top 5 responses, with quality installation (9.0), good quality

of workmanship (8.8), low number of defects (8.7) and work to

specification (S.5) being listed. Good safety record (8'7) was
 722 Building Services - Marsh & Morledge

the fifth factor. The disparity exists mainly with the factors for
time - rated as of the most important project factor, is rated I I
(8.0) for contractor selection, while completing work to
budget, is rated l8 for contractor selection.

It is inconclusive as to the reasons behind this disparity.

Although two possible conclusions could possibly be drawn;

Either that client's do not make the link between project
success and the modalities needed by contactors to fulfil them.
Or clients are able to divide the specifics need for the overall
project, with those of a successfulbuilding services
installation.

Preferred procurement arrangements vary between client

classifications. Serial procurers prefer the two arrangements of
traditional and design/build (39% and 34Yo respectively).
Regular and occasional procurers favour the traditional
anangement (57% and 47%o respectively), with design and
build being much less (13% and l6Yo respectively).
Construction management and management contracting were
favoured only 5o/o and 8o/o respectively by all ofthe sector
groups. Interestingly "other" procurement routes were
favoured 24o/o of the time by occasional clients, which is much
greater than the other two groups (average 16%). However
public sectors still favoured traditional routes 80% of the time.
723 crB-2002

Conclusion

It would be fair to begin the conclusion of any research into the

nature of building services procurement by firstly
acknowledging the paucity of research and lack of attention
this subject has received in academic thought. However what is
evident, and attentively observed by Tookey (et al 2001), is
that current academic thought does not appear to be inline with
developments in industry, nor does it appreciate the
complexity of both the marketplace or the actual decision that
must be made.

The other major factor that appears to affect procurement, but

is neither researched or fully understood within current
literature is the idea of value propositions. The work of BSRI.A
shows that clients are not able to differentiate between service
aspects, nor do they procure in a strategic fashion.

Despite the call for specialist contractors to be engaged within

the project process, no constructive approach has been put
forward. To ensure this idea is sustainable, the offered value
must be equal or greater than the required value' If not, then
value for money is not achieved.

References

Barton, P.K., (1976) Co-ordinating Services Sub-contractors: a

systems approach, Building Technologt and Management,
724 Building Services - Marsh & Morledge

October 1976
Gunning, J, G and McMullan, J (1996) Procurement Practices
in Building Services Engineering in Northern lreland,
Conference Proceedings, North Meets South: Developing
Ideas, University of Natal, Durban, South Africa, January 14-
l6
Ireland, V. (1984) Virtually Meaningless Distinctions Between
Nominally Dffirent Procurement A[ethods
Lam, K.C., Gibb, A.G.F., Sher, W.D. (1997) Quality Building
Services - Co-ordinationfrom Brief to Occupation,
Conference Proceedings; CIBSE, Virtual Conference,
London
Pasquire, C, (1994) Early Incorporation of Specialisr M&E
Design Capability, Conference Proceedings, East Meets
West, Hong Kong, December 4-7 1994
Price, G.M. and Gibb, A.G.F (1996) Management of Specialist
C ontr ac t or D es i gn for Me c han ic a I an d E I e c tr ic al LIto r ks, The

Organization and Management of Construction: shaping theory

and practice,Yol.2, pages 492-501
Rowlinson, S (1998) A Definition of Procurement Systems, in
Procurement Systems; a guide to best pracllc¿, E&FN
Spon, London

Sheath, D.M., Jaggar, D., and Hibberd, P (1994) Construction

Procurement Criteria; a multi-national study of the major
infl ue n c in g fac t or s, C onference Proceedin gs, East Meets
West, Hong Kong, December 4-7 1994
Shoesmith, D.R. (1996) A Study of the Management and
725 crB-2002

Procurement of Building Services Work, Construction

Management and Economics, Y ol. 96, pages 93- 1 0 l.
Shoesmith, D.R. (I 995) lVhither Nominated Subcontracts þr
Building Semices, Conference Proceedings; Changing Roles of
Contractors in Asia Pacific Rim, Hong Kong,
Swaffreld, L M and Pasquire, CL. (1997) Defining the Quality
of M&E Services During the Early Design Stages: A Yalue
Engineering Approach
Tookey, J.E., Munay, M., Hardcastle, C and Langford, D.,
(2001) Construction Procurement Routes; redefining the
contours of construction procurement, Engineering, .

Construction and Architectural Management, Vol. 8, Issue

1, pages 20-30
727 crB-2002

The Sustainabitity of Vernacular Built

Heritage
Branka Dimitrijevicl

Abstract

This paper examines the signifrcance and role of vemacular built

heritage in sustainable deyelopment regarding cultural, social,

economic and environmental issues. Caution about unnecessary effort

to'reinvent the wheel' applies to the sustainable design of buildings

and thus to the lessons that can be learned from vernacular built

heritage. The aim is to develop a framework for assessing these

aspects ofvernacular architecture, and for integrating the results into

new building design and development projects' The framework is

based on sustainability principles of public participation, cultural

equity and futurity. It also includes an assesstnent of the global

(national) and local (community) economic impact of vernacular built

heritage.

Key words: built heritage, sustainabilþ, vernacular

l Department of.Civil Engineeri¡g, University of Strathclyde, Glasgow

G4 ONG, United Kingdom

728 Sustainability of Vernacular Heritage -Dimítrijevic

Introduction
The International Council for Research and Innovation in
Building and Construction (CIB) emphasises that successful
improvement strategies for sustainable construction will have
to be compatible with climate, culture, building traditions, the
stage of industrial development and nature of the building

stock (CIB, 2000). This draws attention to the significance of

research and the preservation ofthe built heritage, and
especially vernacular architecture, for future sustainable
building design. In the seminal work Encyclopedia of
Vernacular Architecture of the lV'orld, Oliver (1997) offers the
following definition of vernacular architecture: "Vernacular
architecture comprises the dwellings and all other buildings of
the people. Related to their environmental context and
available resources, they are customarily owner- or
community-built, utilizing traditional technologies. All forms
of vernacular architecture are built to meet specific needs,
accommodating the values, economies and ways of living of
the cultures that produce them". Since the majority of the
people in the world still live, work and worship in vernacular
buildings, which are responsive to local environmental, social
and economic conditions, research about vernacular

architecture can significantly contribute to finding solutions to

the problems of sustainable design and construction of the built
environment in different regions, societies and economies.

Research into the sustainability of vernacular architecture

729 cI8-2002

draws upon studies which have already dealt with some

aspects of design, construction and the relationship with the

surrounding landscape, and studies which aim to establish

principles of good practice, e.g. Tomorrow's Architectural
Heritage (Fladmark et al, 1991) and regional building design
guidelines (Scottish Office 1991, 1993, 1994a,1994b).
However, the design and construction of the built environment
can benefit from more comprehensive research in the

sustainability of vernacular heritage, which will include and

further develop the existing methods for assessing the
sustainability of inherited built environment and new
development plans. The aim of this paper is to propose a
framework for such a comprehensive sustainability assessment
of the vernacular heritage within the planning policy. The
paper examines existing sustainability assessment methods,

their scope, and ways in which these methods can be applied to

the vernacular heritage.

Assessing the sustainability of the built

environment

Assessment scope
The scope of sustainability impact assessment (SIA) is the
built environment, which comprises all architectural and civil
engineering artefacts together with their natural and man-made
environment. Within this scope the concept of built heritage
has been continually broadened in the last few decades
730 Sus t ainab ility of Ve r nacul ar He r it age - D i mi tr ij ev ic

throughout the world as proposed by the International Council

on Monuments and Sites (ICOMOS). The first definition stated
that "the concept of an historic monument embraces not only
the single architectural work but also the urban or rural setting
in which is found the evidence of a particular civilization, a
significant development or an historic event" (ICOMOS,
1964). The concept of built heritage was further widened to

include historic gardens (ICOMOS, 1982), historic urban areas

(ICOMOS, 1987), archaeological findings (ICOMOS, 1990),
underwater cultural heritage (ICOMOS, 1996a), and built
vernacular heritage (my emphasis) (ICOMOS, 1999). The
concept ofbuilt heritage has thus evolved from that ofa
"monument", which can be limited to signify a specific
aesthetic value or historical importance of an element of the
man-made environment, to a much broader concept which
embraces all built arlefacts bearing ethical and spiritual values

of human communities.

Research on the built heritage is being further extended in

order to improve our understanding of the values which are

promoted by different cultures or by social groups within the
same culture. This has two significant effects on the evaluation

of the built heritage. First, the scope of the assessed built

heritage is widening, and second, the assessors are not only the
professionals in the field of built heritage but the concerned
social groups who have the right to participate in the decisions
about the built heritage. This right was affirmed at the
731 crB-2002

ICOMOS meeting in Stockholm in 1998, when it was declared

"that the right to cultural heritage is an integral part of human
rights considering the irreplaceable nature of the tangible and
intangible legacy it constitutes" (ICOMOS, 1998). In 1996, the
ICOMOS explored the meaning of authenticity in preservation,
and concluded that the cultural values of the majorities and the

minorities must be recognised "without imposing a

hierarchical predominance of any one culture and its values
over those of others" (ICOMOS, 1996b)' Thus, in the process
of defining the assessment scope for the built heritage,
ICOMOS has also integrated sustainability principles of public
participation, cultural equity and futurity.

Env íro n me ntøl imP act os s e s s me nt

New, if not yet definitive, approaches in the assessment of the

environmental impact of buildings are being developed. Life
Cycle Analysis (LCA) is one such method for assessing the
total environmental impact of building materials. However,
reliable details on the environmental effects of building
materials and certain technical operations are not readily
available (Anink et al, 1996). Environmental Preference
Method (EPM) (Anink et al, 1996) has been developed as a
pragmatic alternative to LCA. EPM is based on the
information which is available about the environmental impact
ofbuilding products and it offers three ordered preferences and
gives advice about products which are not recommended. The
Green Guide to Specification (Howard et al, 1998) is a similar
732 Sustainability of Vernacular Heritage -Dimilrijevic

guide for selecting building materials with reference to their

environmental impact. Concerning the use of these
environmental impact assessment methods on the built
heritage, it is necessary to complement them with analysis of
the impacts of traditional local building materials used in
vernacular architecture, which are being used for restoration
works and for new buildings.

Apart from building materials and building components,

extensive research has been undertaken in the field ofenergy
conservation, the use ofrenewable energy sources and energy
related design concepts. Some technological solutions to the
use and management of buildings which were btlilt in the
recent past rely on extensive use ofenergy. The oil crisis,
concerns about finite natural resources and pollution created
by some energy production processes, have prompted
designers to look back to design solutions which were used in
the past and which did not require the use of energy. Analysis
of such examples from the built heritage is a valuable
contribution to the sustainable design of new buildings.

Environmental assessment methods aiming to capture the total

environmental impact of buildings have been developed in
several countries, e.g. BREEAM 98 (Baldwin et al, 1998),
BEPAC (Cole et al,1993), GB Tool 98 (Cole and Larsson,
1998). These environmental impact assessment methods could
be adapted for the assessment of the environmental impact of
I JJ ctB-2002

vernacular buildings

Economic impøct øssessment

Environmental economics assesses the economic importance
of environmental degradation, examines the economic causes
of degradation, and proposes economic incentives to slow, halt
and reverse that degradation (Turner et al, 1994). The

established methods for assessing economic impacts of

proposed developments are the following:
¡ cost-benefit analysis which evaluates alternative
developments regarding relevant social costs and
benefits,
o cost-effectivenessanalysiswhich selectsalternatives
with the lowest monetary cost,
¡ fiscal impact assessment which focuses on changes in
revenues and costs,
. logical framework analysis which tests the logic of a
plan of action in terms of means and end,
o input-output analysis which assesses the secondary, or
indirect, impacts of development,
. multiple-criteria analysis which seeks to make a multi-
dimensional evaluation of expected impacts (Barrow,
tee7).

These methods can be combined (van Pelt et al, 1995) in the

assessment of the global (national) and local (community)

economic impact of the preservation and re-use of architectural

734 Sustainability of Vernacular Herítage -Dimitrij evic

heritage. On the macro level of the economy of countries,

cultural tourism is recognised as a substantial source of
revenue, and this needs to be emphasised in the economic
impact assessment. However, the economic concerns for
tourism revenue cannot be allowed to be the overriding
criterion in a site's conservation and interpretation. This is
especially true when the authenticity of fabric and its context,
and of the site's broader values and message are altered,

diminished, or threatened (ICOMOS, 1996b). On the local

community level, the preservation and re-use of vernacular
buildings supports continuity of local building crafts and other
employment opportunities related to the re-use of buildings
and improvement of the built environment.

Social ønd cultural impact øssessment

There are numerous definitions of social impact assessment
(Barrow, 1997), and one of the most concise defines the social
impact assessment as 'a process examining proposed projects,
programmes and policies for their possible effects on
individuals, groups and communities' (Buchan and Rivers,
1990). Concerning the built heritage, social impact assessment
should especially examine the impact of proposed projects on
cultural identity, cultural equity and related human rights. It
has been recognised that there is a need for promoting the role

and importance of the built heritage, particularly in the light of

the need for cultural identity and continuity in a rapidly
changing world, since they represent an important element of
73s ctB-2002

stable and humane social life (UN, 1996)

Judgements about values attributed to cultural properties as

well as the credibility of related information sources may differ
from culture to culture, and even within the same culture.
Thus, it is not possible to base judgements of values and
authenticity within fixed criteria, but the respect due to all
cultures requires that heritage properties must be considered
and judged within the cultural contexts to which they belong
(ICOMOS, 1994). Respect for the values embraced by
different social groups and local communities demands their
active involvement in the assessment process, because
"historic research and surveys ofthe physical fabric are not
enough to identiSz the full significance of a heritage site, since
only the concerned communities that have a stake in the site
can contribute to the understanding and expression ofthe
deeper values of the site as an anchor to their cultural identity"
(ICOMOS, 1996a). The consequence of such an approach is
that an assessment of the built environment should include its
social significance for the concerned communities.

A framework for SIA of the inherited built

environment

A þroposed framework of SIA of the built environment (Table

1) includes the base-line for the assessment of the development
plans (e.g. appraisal of inherited built environment) (Column
736 Sus 1 ainab ility of Vernacul ar He r i ta ge - D i mi t rij ev ic

l), the objectives (environmental, social, economic), the

principles (public participation, equity - intragenerational and
intergenerational, futurity - long term value and impact), the
scope, the stakeholders, the assessment criteria and scoring

system, the assessment results, the conclusions and

recommendations to decision makers. The assessment

identifies positive and negative impacts of the proposed
developments (or no development) in relation to the
environmental, social and economic characteristics of the
existing built environment.

Application of the principles of public participation and equity

in the appraisal of existing built environment is checked in
Column (2). Development goals are provided as brief
statements and indicators in Column (3). Proposed
development options (e.g. Options 1 and 2) and a non-
development option (Option 3) are assessed against the
appraisal of the existing built environment, and development
goals regarding added economic, social and environmental
value (EV), equity (E) and futurity (F). Public opinion is
sought regarding local economic impact and social/cultural
values, and it is presented together with experts' assessment.

Expert assessment is only provided for the national economic

impact, lifecycle cost of buildings, and environmental impact,
because of the necessary specialist knowledge about
assessment methods.
tJt ctB-2002

The scoring system awards +l or *2 points for positive impact,

0 (zero) points for no change in relation to the base-line, and -
I or -2 points for negative impact. In a hypothetical example
negative points are awarded for Option 3 (no development)
regarding the futurity principle in the national and local
economy, life cycle costs of buildings, and environmental
issues, This means that without further development the long-

term effects on the national and local economy, building value,

natural resources, energy conservation and prevention of
pollution would be negative. Experl assessment is presented in
Column (7) and public assessment in Column (8) as the
options which obtained the highest positive score. In this
hypothetical case public perception of cultural identity and
equity in the proposed developments differs from expert
opinion. The final decision is presented in Column (9) giving
advice for improvements which will meet public requirements.

Conclusions

In order to examine whether the existing built environment and

planned developments contribute to sustainable development it
is necessary to assess their environmental, social and economic
impacts. Since vernacular buildings represent a significant part
of the existing built environment, it is especially important to
include them in the sustainability assessment. This is necessary
not only because of the human rights issues related to cultural
738 Sustainability of Vernacular Heritage -Dimitrijevic
Table l. A framework for SIA of development proposals with a hypothetical example of SIA process
(l) Eømmic, mcial ud (2) Appliøtion of (3) (4) Development (5) Development (ó) Option 3: (7) (8) (9) Finål
øvircmtal appnisl of susuinability Develop- Option I Option 2 No developmenl Expen Public Decision
dcvdopmqt 4€ (bæeJine for SIA) principles in the ment goals ðse5s- æsess-
aDDraisal
PP E F,V F F EV E F EV E F Ootion ODtron ODtion
Economic National N/A Defined +l +2 +l 0 0 -l Opt. I N/A; EA Option I,
Appnisd simiñmæ EA toals but with improvement
lÆcal +l +l +l 0 0 Opt. I Option I regdding cultural identity
sisnifi@ce +2 +2 +2 +l +2 +l 0 0 0 æd equity to mæt public
LCC of N/A; 12 +2 +l +l +l 0 0 -l Opt. I N/,\, EA fequirements
buildings EA
Sæi¡l0d Cultural +2 +2 +2 +I +l +l 0 o o opt. I Option 2
q¡ltur¿l identitu rl +l +l +2 +2 +l 0 0 0
proñle CulturaÌ ed sociâl +2 +2 +2 +l +l +l 0 0 0 Opt. I Option 2
quitv +l +l +l +2 +2 0 0 0
Oth€r issues of +7 +) +l +l +l 0 0 0 Opt. I Option I
imponmce for +2 +2 +2 +l +l I 0 0 0
communitv
Envircn- Nalural resources N/A +2 +l +l +l I I Opt. I N/A: EA
møt¡l FA
ùdit Ener$/ N/A: +2 +2 +I +l +l I -2 Opt. I N/A; EA
conseration EA
Prwention of N/A; +2 +2 +2 +l +l rl -l -l I Opt. I N/A; EA
pollution (outdoor EA

PP - public participation Scorins system:

E - equrty (intragenerational, intergenerational) Positive impact: +l to +2
EV - environmental value, i.e. added economic, social and environmental value No change: 0
F - futurity (long term value and impact) Negative impact: -l to -2
N/A - not applicable; EA - expert assessment
739 c I B-2002

and social aspects ofvernacular buildings, but also because of

the lessons that might be learned and transferred to the design
of new buildings with regard to their social, economic and
environmental impact.

The proposed SIA framework provides a checklist of

sustainability issues and sustainability principles in the
decision making process. It allows for the inclusion of expert
repofts and public opinion. Other cornponents of econornic,
social and environtnental appraisal can be included to meet the
specific local and natiollal requirentents.

ln order to engage the public in the proposed SIA, it would be

necessaly to provide succinct information aboLrt the principles
of sustainable development, the appraisal of existing built
environrnent, the clefined development goals arlcl the
development options. This informatiotl shotlld include a
corlparative list of econontic. social and etlvironntental
indicators regarding the existing bLrilt environlreltt,
development goals, development options and the case of no
developrnent. Within the SIA, the built heritage, including the
vernacular buildings, is assessed as an integral part of the built
environrnent. This approach ensures that sustainability aspects
ofthe vernacular bLrilt heritage are assessed and integrated into
new developrnents.

References
Anink, D., Boonstra, C. and Mak, J. (1996) ITandbook of
Sustainable Building: An Environntental Preference
Method for Selection rf Materials for Use in Conslruction
and Refurbi,shment, James & James (Science Publishers)
Limited, London.
Baldwin, R., Yates, 4., Howard, N. and Rao, S. (1998)
BREEAM 98for Offices: An Environntental Assessment
Method for Office BuiIdings, Construction Research
740 Sustainabi I ity of Vernacular Heritage - Dimitríj evic

Communications, Watford.
Barrow, C. J. (1997) Environmental and Social Impact
Assessment: An Introduction, Amold, London.
Buchan, D. and Rivers, M. J. (1990) Social impact assessment:
development and application in New Zealand.Impact
Assessment Bulletin, 8(4), 97- I 05..
CIB (2000) Proposalfor an Action Plan to Implementt the
Agenda 21 on Sustainable Construction,
www.cibworld.nl/pages/beginÆro2.hlml, 20.6.200L
Cole, R. J. and Larsson, N. K. (1998) GBC'98 Assessment
Manual: Volume I, Overview, Natural Resources Canada,
Ottawa, Canada.
Cole, R. J., Rousseau, D. and Theaker, I. T. (1993) Building
i a : Vers ion
Env ironment al P e rformanc e As s e s sment Crit er
1 - Office Buildings, The BEPAC Foundation, Vancouver,
Canada.
Fladmark, J.M, Mulvagh, G.Y. and Evans, B. M. (1991)
Tomorrow's Architectural Heritage : Landscape and
'
Buitdings in the Countryside,Mainstream.
Howard, N., Shiers, D. and Sinclaire, M. (1998) The Green
Guide to Specification: An Environmental Profiling Systeim
for Building Materials and Components, BRE, Watford.
ICOMOS (1964) Venice Charter,
www. intemational. icomos. or gy'e venice. htm, 20 .6,200 L

ICOMOS (1982) Florence Charter,

www.international.icomos,org/e-florence.htm ) .

20.6.2001
ICOMOS (1987) Washington Charter,
www.international.icomos.org/e towns.htm,
20.6.2001.
ICOMOS (1990) Charter for the Protection and Management
of the Archaeological Heritage,
www.international.icomos.org/e archae.htm, 20.6.2001,
ICOMOS (1994) The Nara Document on Authenticity,
www.international.icomos.org/naradoc-eng.htm, 20.6.2001,
ICOMOS (1996a) Charter on the Protection and Management
of Underwater Cultural Heritage,
741 cIB-2002

www.international.icomos.org/under-e.htm, 20.6.2001 .

ICOMOS (1996b) The Declaration of San Antonio,

www. intemational. icomos.org/san-antonio.htm, 20.6.2001 .

ICOMOS (1998) Declaration of ICOMOS marking the 50th

anniversary of the Universal Declaration of Human Rights,
www.international.icomos.orgy'e-stocdec.htm, 20.6.200I.
ICOMOS (1999) Charter on the Built Vernacular Heritage,
www.international.icomos.org/VERNAC-ENG.htm, 20.6.2001,
Oliver, P. (Ed) (1997) Encyclopedia of Vernacular
Architecture of the lVorld, Cambridge University Press,
Cambridge.
van Pelt, M.J.F., Kuyvenhoven, A. and Nijkamp, P. (1995)
Project appraisal and sustainability: the applicability of
cost-benefit and multi-criteria analys is, lT ageningen
Economic Papers, Faculty of Economics of the Wagenigen
Agricultural University, Netherlands.
Scottish Office (1991) Siting and Design of New Housing in
the Countryside,SO.
Scottish Office (1993) Farm and Forestry Buildings,SO.
Scottish Office (199aù Fitting New Housing Developments
into the Landscape,SO.
Scottish Office (1994b) Timber Framed Housing in the
Countryside, HMSO.
United Nations (1996), Istanbul Declaration on Human
Settlements and the Habitat Agenda,
www.undp.org/un/habitat/aeenda/index.htm, 20.6.2000.
743 ctB-2002

A Model For Supporting Inter-Organisational

Relations
Peter E.D. Lover

Abstract
The construction industry is highly fragmented and adversarial
in nature, which has resulted in it being criticized for its poor
project performance and lack of innovation. To improve
performance, particularly inter-organi zational relations,
organizations need to consider the formation of alliances with
their project parlners. Some construction organizations are
beginning to initiate short-term alliances with their customers
and suppliers as part of a supply chain management strategy.
However, such shorl-term alliances inhibit feedback, which in
turn supports learning and the development of mutual trust and
cooperation. It is proffered that construction organizations
should consider developing long-term alliances, so as to enable
parties to form learning alliances (i.e. a strategic cooperation
that is based on creating an environment that encourages
mutual and reflective learning between supply chain partners),
The implications of forming different types of strategic
alliances/parlnering in construction are discussed. A learning
framework that is founded on the principles of Total Quality
Management (TQM) is presented. The proposed framework
supporting the formation of cooperative alliances between
parties in the construction supply chain is then discussed. A
case study is used to demonstrate that cooperative relationships
can be used to cultivate a culture for reflective learning and
mutual trust, beyond merely project-specific performance
improvements.

I
Department of Information Systems, Edith Cowan University, Churchlands,
Perth WA 6018, Australia
744 Supporting Inter-Organisational Relations - Love

Keywords: Construction, strategic alliances, partnering, learning,

TQM

Introduction
Many organizations are unable to remain selÊsufficient in
today's turbulent and changing environment where focus and
flexibility are highly demanded by customers. The traditional
mode of operation that is inflexible and unresponsive to
changes in customer needs and demands is no longer effective
in today's competitive environment (Love et a1.,2000a).To
acquire a competitive advantage many organizations, such aò
those in manufacturing have formed alliances with other
organizations as part ofa stratery to enhance their production
processes and service delivery (Bronder and Pritzl, 1992).
Pursuant to the manufacturing industry, which incidentally has
taken the lead in developing closer business relationships with
customers and suppliers, the construction industry as a specific
form of manufacturing, has also embraced strategic alliances.
Instead ofusing the term "strategic alliance", the construction
field refers to such a close relationship as "partnering" (C[,
l99l; CIB, 1997;Barlow et a|.,1997; Holt et a|.,2000).

Since strategic alliances are becoming an important means of

survival for organizations operating in the manufacturing
industry, relevant theories have been proposed during the past
decade (Lindsay, 1989; Spekman and Sawhey, 1990; Wood
and Gray, l99l). Similarly, research on partnering in
construction has been ubiquitous (Abudayyeh, 1994; Larson,
1995; Matthews ø/ a1.,1996; Brooke and Litwin, 1997; Cheng
et a|.,2000a;Li et a|.,2000a; Bresnen and Masrhall,2000).
As these two terms are often seen as being synonymous
(Cheng et a1.,2000a), it is suggested in this paper that further
effort should be put to relate the relevant literature in the two,
but with different work practice areas (construction and
745 cIB-2002

manufacturing). According to Cheng et al' (2000) strategic

alliances can improve project performance (in terms of cost
effectiveness and improved quality), and overall customer-
supplier satisfaction. When forming a strategic alliance,
construction organizations should be aware of the following
changes that may be imposed on their organization (Li et al.
2000; Holt et a\.,2000):
o self-governance (i.e. understanding its own capabilities
relative to demand);
. responsiveness (i.e. able to recogûize those changes in
demand that will have an adverse impact on its
operations as soon as possible); and
o flexibility (i.e. able to respond to changes in customer
needs and demands).

In order to address these demands effectively, construction

organizations should strive to become leaming organizations
(Ford er a1.,2000;Love et a|.2000b;Holt et a1.,2000).
According to Borzsony and Hunter (1996), a learning
organization should recognize the needs for changing the way
it conducts its business and has the ability to change. [n fact,
the key to strategic alliances lies with the ability of
construction organizations to form "learning alliances"
(Morrison and Mezentseff,l99T;Holt et al',2000)' Many
construction organizations are however often left in the
quandary on how best to strive to become a true learning
organization (Love et a1.,2000a; Morgan and Brightman,
2000; DeVilbiss and Leonard, 2000; French and DeVilbiss,
2000; Knuf, 2000; Ford et a1.,2000). In fact, Morgan and
Brightman (2000) have made the following observations about
change in the context of organizational learning:
change is non-linear and is often no clearly definedfrom
beginning to end - Learning organizations might be
viewed as organic in the sense that their learning is a
continuous process;
ffictive change interweaves multiple improvement efforts
- Organizational learning needs to be motivated not
746 Supporting Inter-Organis ati onal Re latiow - Love

only by improved financial performance but also by

increasing the focus on the customer, improving and
managing work processes and strengthening employee
involvement;
driving change through both end of the continuum -The
need to develop into a learning organization needs to
be motivated through change that is driven from the
top down to create vision and structure. However,
there also needs to be a bottom up drive, which
encourages participation and involvement.
Fundamentally, the creation of a learning organization
needs to be the shared responsibility of everyone in an
organization1'
human side of learning and change - The development of a
learning culture might impact an organization in such a
way that it requires employees to reexamine their own
values and beliefs. Clearly, unless employees are able
to articulate change from a personal dimension, then it
is questionable whether they will be ablê to do so from
an or ganizational perspective ; and
b e nc hmar kin g p e rfor mance - Measurable performance

indicators need to be in place, which in turn should be

able to support the business in pursuit of its goals
(Ituuf,2000).

This paper discusses the implications of forming different

types of strategic alliances/partnering in construction. A
learning framework, based on Senge's (1990) five learning
dimensions, the work of Morrison and Mezentseff (1997) and
the principles of total quality management (TQM), for forming
of cooperative alliances between parties in the construction
supply chain is then presented and discussed. A case study is
used to demonstrate that cooperative relationships can be used
to cultivate a climate for reflective learning and mutual trust,
beyond merely project-specific performance improvements.
747 ctB-2002

Strategic Alliances Versus Partnering

Numerous definitions of strategic alliances have been proposed
(Takac and Singh, 1992; Bronder, and Pritzl,1992; Mason,
1993; Dowsing et al., 1994). For example,Lamming et al.
(2000) and Walters and Lancaster (2000) have suggested that a
strategic alliance exists when the value chain between at least
two organizations with compatible goal structures are
combined for the purpose of sustaining and achieving
significant competitive advantages. The leitmotf however with
all definitions is that an inter-organizational relationship is
established for a specific purpose where all involved parties
are engaged in collaborative behavior. The term collaboration
has become very fashionable in the social science and
management I iterature (Kanter, 199 4; Mintzber g e t al., 1996).
Yet, according to several prominent authors such as Hamel
(1989), Bronder, and Pritzl (1992) and Morrison and
Mezentseff (1997) alliances can be either collaborative or
cooperative in nature. In other words, collaborative strategic
alliances refer to parties working together for the short-term
and cooperative strategic alliances for the long-term.

In the construction literature, two types of partnering tend to

predominate strategic and proiect (Li et al., 2000; Cheng et
at.,2000). Project partnering (a relationship established for a
single construction project) focuses on short-term benefits,
while strategic partnering (a long-term relationship beyond a
discrete project) seeks gains for the long-term. Cowan (1992)
defined project partnering as a method of transforming
contractual relationships into a cohesive project team that
comply with a common set of goals and rely on clear
procedures for resolving disputes in a timely and effective
manner. CII ( I 99 I ) defined strategic partnering as a long-term
cooperation between fwo or more organizations committed to
achieve specific business objectives by maximizing the
effectiveness of each participant's resources.

Figure I presents the relationships that exist between the two

748 Supporting Inter-Organisational Relations - Love

different types of strategic alliance and construction

partnering. Long-term alliances refer to a cooperative
relationship between at least two organizations, which is
established for achieving long-term goals and objectives, for
the purpose of achieving a competitive advantage. More
specifically, long-term alliances are a manifestation of inter-
organizational cooperative strategies, and entail the pooling of
skills and resources through the cooperation oforganizations
aiming to achieve common goals, as well as goals specific for
individual partners. In such instances, intellectual capital and
organizational intelligence might be seen as suitable
motivations for developing long-term partnerships (Morrison
and Mezentseff,1997; Joia, 2000). Short-term alliances, on
the other hand, are collaborative and established between two
or more parties who strive for short-term project-related
benefits. Usually, parties in short-term alliances have clear
alliance objectives - these being project-or-business-specific.
However, as these objectives may not be compatible (perhaps
even conflicting) with each individual parties, intêrnal
organizational objectives, mutual trust and commitment cannot
be easily developed.

Long-term Alliances
Cooperativo(-þ Strategic
Strategic I lr Partnering
Alliance
4l¡
CollaborativÉ|tÞ Project
Strategic {þ Partnering
Alliance a]}
Short-term Alliances

Figure 1: Long-term and short-term alliances

Collaborative strategic alliances and project partnering can

provide opportunities for parties to work together and create
value rather than a basic commercial transaction (Williamson,
749 ctB-2002

1991; Bronder, and Pritzl,l992; Voordijket a|.,2000). It is

proffered however that organizations that look for short-term
benefits may inhibit learning and the ability to critically
analyze and improve themselves. Therefore, the type of
relationship formed between constructiott organizations may
influence the structure, objectives and learning capabilities of
the parties involved in the supply chain partnerships (Voordijk,
1999; Voordijk, 2000). In other words, cooperative strategic
alliance or strategic partnering should be the means for
establishing a learning alliance in a supply chain.

Short-Term Alliances
As the constructiort industry is dorninated by one-off projects,
it appears that short-term alliances will likely take the leading
role in prornoting a closer relationship in construction projects
(Matthervs et a|.,19961, Cheng el a|.,2000;Li et a|.,2001).
Hamel ( 1989) suggests that organisations that enter into short-
term alliances are aware that their paftners are capable of
'disarmingz them by acquiring knowledge about work
practices. Furthermore, Hamel (1989) states that acquiring
skills and knowledge from their partners is not a devious act,
rather it can enable organisatiorrs to examille what their
competitors are doirrg best and therefore benefit fiom the
knowledge acquired. Shoft-term alliances not only provide an
opportunity to internalise a partner's skills but, can be used as
an mechanism to de-stabilise a partner who does not
understand the risks inherent in such arrangements (Bronder,
and Pritzl, 1992; Morrison and Mezentseff, 1997).ln addition,
short-term alliances can encourage competition between
organisations; for example an alliance between a contractor
and sub-contractors may lead to competition in both learning
of new skills and refining of organisational capabilities in their
products and processes.

Organisations entering into collaborative relations initially

looking for reduced complexity of their environment and more
control over environtnental factors may suffer from increased
750 Supporting Inter-Organisatíonal Relations - Love

environmental complexity and turbulence due to the creation

of new dependencies (Wood and Gray, 1991). They further
argue that increases in complexity may increase transaction
costs, the need to manage bilateral and multilateral relations,
and the need to develop new skills. Minzberg et al. (1996\
argue that joint learning may occur through interaction without
partners conceptualising it as such, and without a collaborative
agreement in place; therefore, the best collaboration may be
the one least recognised. It is noteworthy that alliances formed
for discrete construction projects may not be useful due to the
lack ofjoint learning, which is established by the short-term
work environment.

Long-Term Alliunces
As stated previously, long-term alliances encourage partners to
commit their resources to the development of a relationship
based on mutual learning (Bronder, and Pritzl, 1992; Momison
and Mezentseff, 1997). With a sense of less competition,
partners may feel more committed to work together and
exchange their knowledge and resources. In the area of
construction, Ellison and Miller (1995) used the term synergy
to explain such a long-term intimate relationship. A synergistic
relationship is to develop core competence in pursuing
corporate and business strategies. Organizations that rely on
cooperation have been found to obtain lower costs for as long
as they maintain trust - internally among employees, and
externally among members of their network (Ketelhom, 1993;
MacBeth and Ferguson,1994;Holt et o1.,2000;Black et al.,
2000).

Cooperation generates a reflective and mutual learning

environment, encouraging the effective transfer of knowledge,
and acts as a mechanism for stimulating mutual satisfaction as
well as improving the competitive advantage of partners
(Hamel, 1989). Notwithstanding, the success of the strategy is
dependent on an organisation's ability to evolve and learn. A
learning alliance is crucial to a cooperative environment where
751 cIB-2002

leaming is encouraged and reflective in nature and through

which participating parties will strive together to meet the
objectives of the relationships (Monison and Mezentseff,
1997). Moreover, Minzberg et al. (1996) suggests that within
some cooperative arrangements, partners may begin to lose
their competitiveness and vision once they have become
dependent on the capabilities of other parties. If this occurs in
the relationship, the less reliant and well sufficient partner may
cause a threat to their alliance partner(s) by becoming a direct
and powerful competitor. To avoid this derived barrier of
cooperative alliances, its structure should include a learning
framework that enables alliance partners to openly reflect their
knowledge and information whilst retaining the visions for the
alliance as well as their individual organisation. According to
Morrison and Mezentseff (1997) this mechanism should be
integrated into the relationship to allow all parties to benefit
from the shared knowledge. The sharing of knowledge may
stimulate learning, which is considered to be the fundamental
ingredient for continuous improvement within strategic
alliances (Bronder and Prizl, 1992).

Actions Mismatch
or Errors

Figure 2. Single-loop learning (Argyris, 1990)

Learning And Unlearning In Construction

Long-term alliances are constructed in order to transfer
knowledge, skills and resources to involved partners. This
entire process relies on a learning mechanism to complete this
cycle. Without a learning environment to encourage the
7s2 Supporling Inter-Organisøtional Relatíons - Love

effective and accurate transfer of information, the benefits to

the formed alliance are minimal. Cooperative learning is more
intense and evacuative in comparison to those that are
collaborative in nature. Senge's (1992) definition of a learning
organisation addresses the issue of cooperative learning.
Similarly, Crossan and Inkpen (1995) emphasise that the
ability of alliances to extract knowledge and skills from each
other is important for survival. Crossan and Inkpen (1995)
have noted from their research that the process of learning is
based on single loop learning as illustrated in Figure 2. They
found that learning opportunities are not typically exploited in
a form consistent with their initial learning objectives.
Consequently, the primary barrier to learning is considered to
occur at an individual level where learning opportunities are
not exploited because the alliance experience conflicted with
the existing set of managerial beliefs.

Double loop learning, as illustrated in Figure 3, can help

overcome such problems stated by Crossan and Inkpen (1995).
Double loop learning incorporates a high level of evaluation
and analysis of information into knowledge that enables
changes to be made accordingly. It also leads to the
development of creativity in the problem solving process,
which Argyris and Schön (1978) refer to as deutro-learning,
that is, learning about leaming. Essentially, deutro-learning
occurs when organisations learn how to carry out single-loop
and double-loop learning simultaneously.

Goveming Actions Mismatch

Values or Errors

Figure 3. Double-loop learning (Argyris, 1990)

753 ctB-2002

Long-term alliances aim to incorporate a learning environment

that encourages mutual understanding and benefits from the
relationships. With this in mind, such alliances should
essentially be viewed as learning alliances as the relationship
appears consistent with those of a learning organisation
(Morrison and Mezentseff, 1997).

As well as learning, Nystrom and Starbuck (1984) suggest that

organisations must also unlearn to survive. Noteworthy,
however, unlearning is not the opposite of learning. Unlearning
involves breaking with current behaviours land or mental
modes, while learning can either lead to a whole new ways of
understanding and acting, or build on those that exist. Hedberg
(l93l) defines unlearning "as the process through which
learners discard (previous) knowledge (that is outdated)".
Hamel and Prahalad (1994) note that unlearning must take
place before learning can begin. McGill et al. (1992) further
stated that much of the basis for productive learning resides in
unlearning. Whether we can actually ever erase outdated
knowledge as if we were deleting files from a computer hard
drive is a contentious issue and its discussion is outside the
scope of this paper. In practice, unlearning is an imporlant
element of strategic renewal and organisational transformation
(Talwar, 1994;Love et a|.,2000a). For construction
organisations to adopt and learn new approaches to work and
management, they must first begin to unlearn (Love et al.,
2000a). For example, implementing inter-organisational or
cross-functional teams may well mean that traditional
definition of boundaries, roles, responsibilities and authority
have to be abandoned. Fundamentally, it is suggested that
before construction organisations consider forming a strategic
alliance, a degree of unlearning must take place. That is,
current modes of operation should be disregarded so that a
different behaviour can be encouraged and induced, which can
subsequently lead to the formation of an effective learning
alliance.
154 Supporting Inter-Organisational Relations - Love

The Learning Organisation

The notion of organizational learning is not entirely new but
we can usefully differentiate between a long time interest in
learning as a concept in organizaTion theory, and the more
recent focus on the idea of the learningorganization. The
former is concerned with enhancing the processes of learning
in order to improve individual and collective organizational
actions via improved knowledge and understanding. The latter
focuses on the design of organizalions to deliberately facilitate
the Iearning of lnembers and therefore improve collective
adaptation (Coopy, 1995). The authors suggest that the debate
concerning the anthropomorphism of claiming that
organizations have memories can be set aside. Indeed, memory
initially resides in individuals but can also occur in systems,
structures and many dimensions of organizational culture
(Walsh and Ungson , 1991). Love et al. (2000a) suggests that at
present, there is a wide debate in the area, and while consensus
seems far off, there is some overall agreement in that:
. organizational learning is more than the sum of
members' Iearning;
. environmental alignment is vital; and
o the probability of learning is affected by the degree of
environmental turbulence, the rigidity of
organizational structure, the adequacy ofthe
organization's strategy and the strength of its culture.

Many organisational theorists place emphasis on the systems-

structural approach focusing on information systems, while
others prefer the interpretive path and much less tangible
dimensions of the phenomenon centred on meaning. Far less
frequently are the two brought together to enhance
understanding, analysis and a richer picture of this complex
concern. The complexity of organisation learning grows when
one considers the different types of learning that exist, ranging
from adaptive to institutional experience embedded in
accumulated organisation efficiencies in terms of experience
and tradition. Others suggest single loop or adaptive learning;
75s (-Iß 2002

double loop or generative learning; and triple-loop learning as

dialogue (Argyris, 1993; Isaacs, 1993)'

The aforementioned learning types involve incremental and

adaptive learning focused on changing routines; learning
pushing towards a new framework for learning and practice;
and learning about learning tlirough revealing and altering the
tacit irrfrastructure of thought. When the different levels of
learnirrg are aggregated - individual, group and organization-
wide and the problern of knowledge types - explicit and tacit -
as expounded by Nonaka ( l99l ), the problem grows.
Cousidering the above, the authors suggest that for
construction alliances to itnprove cttstomer satisfaction, the
involved parties must be able to learn collectively' Essentially,
the concept of the learning organization provides a paradigm
for collective learning. Traditional notions of the organisation
see it as a place where learttiltg takes place automatically and
rvhere indivicltrals acquire new knowledge and/or experience'
This concept, however, suggests that in a stlcccssful
organizatiotr, it is itself tltat leartts. If an illdividual leaves the
organizatiotr. the knowledge acqLrired renlaitts irr it. In a
learning organization, tealns develop knorvledge by working as
a unit.

At both strategic and operational levels, cooperative alliances

can be used to establish long-tertn relationships, which over
time will enhance their capacity to provide value to customers
and suppliers throughout their supply chains. As nrenrbers of
the alliance develop new skills and capabilities, they alter what
tlrey can do and understand in the supply chain etlvironment.
Consequently, the individuals that make up the alliance learn
to learn together (e.g, inter-organizational teams).
Mechanisms, such as those ingrained within the alliance (e'g'
customer-supplier focus and benchmarking) can allow
effective learning to take place (Hill, 1996;Nesan and Holt,
1999; Mand al et a\.,2000). Essentially, the organization,
besides being a place where kinds of activities and operatiotls
 756 Supporting Inter-Organisational Relatiow - Love

Figure 4. A model for construction alliances

Changing D€velopment
Collcctive læaming Collective læaming
Mental Modes of tæaming
Environment Environment

Long-tcrm Long-term
Alll¡ncc Thinking Alliance i,,
1'

Knowledge and Joint Leaming

Communication

Culture Commication

Feedback þroces Feedback

Ccustome

Ssupplier

Tools
Commitment

are perfonned, becomes a'ogiant laboratory" where people at

all levels are constantly experimenting with and testing new
practices and techniques.

Sometimes, construction organizations can rely on other

management tools to develop the "learning disciplines", which
are identified by Senge (1992) - including personal mastery,
ment¿l models, shared vision, team learning, and systems
thinking, that can institutionalize the learning habit (Love el
a1,,2000a). For example, organizations that readily adopt and
are conrmitted to TQM will be uniquely prepared for the
"learning disciplines" (Garvin, 1993). Yet, none of the above
757 crB-2002

can be effectively applied without the constant cooperation of

all persons in the involved organizations. That is why
successful organizations put a special emphasis on practices
such as empowerrnent, mobilization and motivation, making
sure that they penetrate the entire workforce, from the top
management down the hierarchy of authority (Nesan and Holt,
teee).

A Model For Construction Alliances

The model for construction alliance founded on TQM and an
integrated supply chain is illustrated in Figure 4. As can be
seen in the Figure 4, the essential components of the
framework include: systems thinking; learning culture;
knowledge and communication; changing mental modes; joint
learning structure/processes; and development of learning
relationships. These key components are described herein
after.

Systems Thinking
According to Jackson and Keys ( 1 99 I ), most models of
leaming organisations are little more than descriptions of
effective organisations and do not offer many solutions for
solving complex problems. The underlying theme of the
learning organisation models, that are genuinely different from
the traditional approaches, is systems thinking (Senge, 1990;
Senge et a1.,1994,1999). This form of thinking has a systemic
and holistic focus, and can facilitate organizational learning
within alliances. This framework places emphasis on the
philosophy of TQM to establish the alliance environment
whereby partners attempt to become process-focused. Thus,
this can enable benchmarking to be used as a feedback
mechanism, with respect to alliance performance (Li et al.
2000b). In other words, feedback processes need to be in place
to provide information about what has to be learned as well as
what has been undertaken (Figure 3). Benchmarking can also
758 Supporting Inter-Organisational Relations - Lwe

be used as a mechanism for providing financial (business

performance), technical (productivity measurement) and
effrciency (human contribution measurement) indicators for
comparing the performance of alliances over a period of time
(Love et a1.,1999). Apparently, benchmarking should be
viewed as an operational process of continuous learning and
adaptation that results in the development of an effective
alliance (Li et a\.2000b).

Project managers and the like within the alliance need to have
an understanding of how its sub-systems are interconnected,
and how they can individually influence the quality of the final
product or service. This involves the ability to see relation'ships
between issues, events and information as a whole or as
patterns, rather than as a series of unconnected parts. Systemic
thinking involves adopting a holistic rather than fragmental
approach to problem solving. A systems perspective
concentrates on understanding how relevant factors
collectively interact to give rise to the problem. Within a TQM
environment, systemic thinking can be used by organisations to
develop strategies for relationship building, as a primary
principle of TQM is customer-supplier relationship (Oakland
and Sohal, 1996). Subsequently, this stratery becomes the
focus of the relationship, particularly if the alliance is formed
throughout the construction supply chain. With effective
leadership provided by management throughout all levels of
the organisations involved in the alliance, behaviour can be
guided by jointly agreeing on the goals of the relationship.

Leørning Culture
It is suggested that if an allianceis to enhance its potential for
learning, there is a need to build a learning culture, which is
also founded on TQM. In order to foster organizational
learning, it is necessary to concentrate on both individual and
group skills, design of support structures and the creation of an
overall organizational attitude that encourages learning. As
mentioned above, managers at various levels within the
759 crB-2002

alliance organisations need to create and stimulate an

appropriate organizational environment for learning. Mistakes
must be seen as opportunities to learn and there need to be
honesty and trust within the alliance for learning to.take place
(Crossan and Inkpen, 1995). Essentially, the alliance must
recognise that learning requires openness to new ideas' There
must be a frrm commitment from senior management to free up
employees so they can have some time to reflect and review
their actions. This approach is embedded in the process of
double-loop learning. By encouraging the use of this process of
learning, alliance members are required to act as change
participants and advance with a dynamic relationship where
the transfer of knowledge and information is intense and
valuable. Such an innovative thought process may encourage
successful outcomes to problems experienced by the alliance
partners.

Research undertaken by Osland and Yaprak (1995) indicates

that organisations that effectively cooperate with one another
a¡e better able to adapt to dynamic environmental changes and
satisff their customers. An important factor of learning is the
€ncouragement of dialogue among alliance members. All
partrers of the alliance must be able to receive and disseminate
information across of the boundaries of the construction supply
chain and external environment. For example, advance
information and communication technologies for electronic
and Internet commerce can be used to improve communication,
and the time to market products and services to customers.
(Cheng et a1.,2000b). Yet, the effectiveness of the alliance
will be dependent on frequent day-to-day correspondence
between all members of the alliance in a supply chain
environment. Again, information and communication
teohnologies have a significant role to play in improving inter-
organizational relations, as distributed information
management systems can be used for constânt communication
between alliance partners' which can faciliøte learning (Deng
et aL,2001)
760 Su¡tporting lnter-Organisational Relations - Love

Kn owl edge o n d Comm un icfltion

Critical to organizational learning is how knowledge is
communicated. Nonaka ( l99l) believes that successful
organisations consistently create new knowledge and are able
to transnrit it widely through technological innovations. A
critical part of the exchange between alliance parlners is the
ease of access to various forms of knowledge, from knowledge
about people, facilities, management systems and practices, to
critical infonration about differences in values and beliefs,
Levinson and Asahi (1995) suggest that alliances can sustain
joint learning structures if the following steps are integrated
into the relationships:
. becoming aware and identifying new knowledge;
o transferring/interpreting new knowledge;
. using knowledge by adjusting behaviour to achieve
intended outcomes; and
¡ institutionalising knowledge by reflecting on what is
happening and adjusting learning behaviour.

Knowledge and communication are valuable components of

the framework and need to be constantly monitored and
extended by senior management.

Changing Mental Modes

The nrost significant learning that can take place in
organisations involves changing mental modes (Senge, 1990;
Crainer, 1998). Essentially, people have to learn how to
surface, challenge and adapt their mental modes to cope with
change. Mental modes concern deeply held assumptions,
images and generalisations that influence how people
understand the world and the actions they take. In order to
move toward a learning alliance people with strategic
relationships need to surface, test and share their mental
modes. This process can facilitate decision-making, action and
learning. Small changes in everyday mental modes,
761 crB-2002

accumulating over a period, may gradually reflect on changes

in long-term deep-seated beliefs.

People within the alliance should try to develop two distinct

skills in order to maximise the process of surfacing, testing and
sharing mental modes. Firstly, reflection, the slowing down of
thinking processes, to the extent where people can become
aware of how mental models are formed. Secondly, inquiry,
being able to hold conversations where they can share their
views and develop an understanding about people's
assumptions and beliefs about the alliance.

Joint Leørníng Structure/Process

To support a learning climate within the alliance, joint learning
structures, strategies and processes need to be developed. This
should include designing reward and incentive systems that
motivate both individual and organizational learning, and
establish mechanisms for collecting and transferring
information from within and without the alliance. Shared
learning within the alliance may enable participants to develop
multiple and overlapping technologies and skills into future
products and services. In essence, an alliance that incorporates
shared learning encourages a strong foundation for a
relationship built on trust and mutual commitment.

Development of Learning Relationships

To improve the effectiveness of a supply chain, long-term
alliances are needed to stimulate learning. However, to build
learning relationships can be an arduous process. Individuals
involved in the process may have a firm commitment to their
own organisation, their own personal agenda and unique
mental model of the situation. Thus, there is a need for senior
management to encourage and assist with the development of
the relationship. For the alliance to learn, the role of managers
may need to change; that is, to become designers, teachers and
stewards (Senge, 1992).It is important for managers to
762 Supporting Inter-Organisational Relations - Love

recognise that their main role in establishing learning

relationships is that of coordinator and as a result this will
require an effective management style that is able to extend
across the relationship. It is envisaged that a consistent
management style across the alliance will enable participants
of the relationship to be focused and to provide a shared
vision. The level of and the processor of the power within the
alliance will, however, affect its vision and as such parties
must agree on the facilitator for the alliance.

Case Study
This case study attempted to identif, the major aspects and
their associated key characteristics ofa learning alliance from
a real life project. More specifically, it uses an analytical
strategy to demonstrate how a consultant organisation formed a
long-term cooperative alliance with parties in a project who
joined to form a learning alliance. The strategy was based on
the six major aspects of the learning framework, which were
system thinking, learning culture, knowledge and
communication, changing mental modes, joint learning
structure/process, and development of learning relations. The
related key characteristics ofthese six aspects are shown in
Table l. In practice, these characteristics were expected to
form the rules that might be able to establish the major
components for a learning alliance.

To secure the confidentiality of the information provider and

prevent the intent to make any guesses, the project has been
disguised, the parties' and actors' names are fictitious, and
narratives have been modified. However, the essence of the
case was preserved to ensure the provision of real information
for analysis.

Excel Consultant provides structural and architectural design

consultancy in the areas of building design and civil
engineering. This firm attempted to establish an informal but
763 ctB-2002

highly communicative relationship with parties of a large

project that was successfully secured. As the project would last
for a period of eight years, an alliance that would encourage
teamwork was sought. Although the project has only been
running for two years, the alliance team has performed well as
rated by thejoined parties. It has also been treated as a
benchmark in the Hong Kong construction industry. It was
considered that such an alliance would naturally improve
project time and cost performance as well as quality'

Prior to the formation of the alliance, an external facilitator

was hired to organise the formation of the alliance meetings, to
promote trust and commitment as well as to focus each party
on the goals and objectives of the project' An inter-
organisational team was formed and members met each other
during scheduled meetings to appraise alliance performance, to
set progress goals, and to solve problems that arose. There
were several major establishments by the facilitator that were
particularly useful for initiating a learning alliance, which
included:
envisaging the acquisition of lvtowledge - The facilitator
encouraged the participating companies to learn from each
other and to be aware of their competitors. Benchmarking
was a word that was commonly used during meetings.
encouraging open lines of communication - Communication
was treated as an important function that helped to link the
parties together. He stressed that every kind of possible
communication channels should be developed. New
information and knowledge must be circulated within the
alliance network as fast as possible. This forms a
supportive structure for a learning culture.
highlighting the importance of setting up alliance goals and
objectives - Goals and objectives specific to the alliance
were created. As the relationship was extended bgyond the
formal contract between the parties, project objectives
could not reflect the real performance they wanted. To
764 Supporting Inter-Organisational Relations - Love

Table 1: Major aspects and key characteristics of a learning

alliance and the is results
Major Associated Key Characteristics Analysis
Aspecf resülts
Systems Rule l. The leaming alliance adopts a holistic ++
thinking rather than fragmental approach to
problem solving.
Rule 2. Benchmarking is used as a feedback ++
mechanism with respect to the
performance of the alliance. Feedback
processes need to be in place to provide
information about what has to be leamed
as well as what has been undertaken.
Rule 3. Collective establishment of common ++
goals with frnancial (business
performance), technical (productivity
measurement) and efficiency (human
contribution measurement) indicators for
comparing the performance of alliances
to achieve the goals over a period of time.
Rule 4. Emphasis on customer-supplier ++
relationship to develop a strategy for
relationship building for alliance partiês.
This involves the establishment of an
inter-organisational team that consists of
members along the supply chain.
Rule 5. Using jointly agreed goals to guide +
behaviour.
Leaming Rule l. Selecting the right people into the inter- ++
culture organisational team who have the ability
and the necessary skills to develop a
learning culture within the team and an
appropriate organisational climate for
learning.
Rule 2. Design of support structures and the +
creation of an overall organisational
attitude that encourages leaming.
Mistakes seen as opportunities to learn.
Rule 3. Some factors are critical to such a +
learning culture. For example, honesty,
trust, openness to new ideas, commitment
from senior management, are all critical
factors to free up employees to leam.
Rule 4. Dialogue with alliance members is ++
encouraged. Workshops or meetings are
the place for experiencing the learning
765 crB-2002

culture. IT such as Internet helps to

receive and transmit information in a
virtual environment.
Knowledg Rule l. The learning alliance becomes aware of ++
e and and identifìes new knowledge.
communic Rule 2. The learning alliance is able to transfer +
ation and interpret new knowledge.
Rule 3. The learning alliance can use the new ++
knowledge by adjusting behaviour to
achieve anticipated outcomes.
Rule 4. The learning alliance can institutionalise +
the new knowledge by reflecting on what
is happening ancl adjusting learning
behaviour.
Changing Rule l. The alliance team always challenges the ++
mental existing practices when perlormance is
modes not favourable.
Rule 2. A problem that cannot be solved in one ++
joint meeting will be put forward to the
next meeting and so on until the problem
can be solved.
Rule 3. Measures are used to evaluate the ++
perforrnance and agcncla is used to raise
the issues for discussion. so those team
members can study the issues
independently or collectively through
other possible means such as email
before attending the meeting.
Joint Rule l. Setting reward and incentive systcms that +
learning encourage both individual and
structure/ organisational learning.
process Rule 2. E,stablishing mechanisms for collecting ++
and transferring infonnation from inside
and outside the alliance.
Rule 3. Shared learning is encouragcd within the ++
alliance team.
Developm Rule l. There is a need for senior management to ++
ent of encourage and assist with the
learning development of the inter-organisational
relations team.
Rule 2. Representatives in the team are the ++
change agents and should be ernpowered.
Rule 3. An independent facilitator is hired for ++
developing shared vision and goals.
Note: + = partly achieved; +*: well achieved.
766 Supporting Inter-Organisational Relations - Love

create new goals and objectives is a crucial component to

induce learning that aims at higher levels of performance.
Figure 5 is the charter established by the parties who
signed and agreed to commit. The charter consisted of ten
goals to achieve.
emphasising joint problem resolution - Solving problems
together is an effective means for developing learning
alliance. During the problem solving process, parties
joined together to understand the problem, to raise
discussions, to express own opinions and ideas, to learn
from each other, to find out the solution collectively, and
frnally to experience a collective learning process.
promoting the cooperative effort to trace performqnce ' -
Tracing the performance that was to achieve the alliance
goals and objectives gave a clear picture of what to
improve, resulting in knowing what to learn to improve.
They held meetings discussing the performance charts as
well as the areas to improve.

For a more detailed analysis to test whether the cooperative

alliance is able to represent a learning alliance, the rules (ie,
associated key characteristics) of the six major aspects of
learning alliances were tested. Ordinal measures (i'e. not
achieved, partly achieved and well achieved) of the rules were
sufficient to test the items established for the case study. Table
I indicates that most of the rules were well achieved, showing
that the tested alliance has developed a learning climate,
similar to that of a learning alliance identifred above. Findings
from the case study indicate that a long-term relationship can
be used to cultivate a climate for mutual learning, and enhance
the development of trust, commitment and communication.
Whilst remaining focused on the project objectives, such as
reduced costs and improved quality, such a cooperative
relationship will create a strategic and sustainable competitive
advantage in today's competitive environment. It is suggested
that construction organisations forming long-term alliances
that incorporate the essential elements of the proposed learning
767 crB-2002

framework can gain an advantage over their competitors

through the implementation of a customer-supplier focus and
strategic relationships.

The Charter

L To meet or even shorten the project completion dates.

2. To accomplish the financial budgets of all parties.
3. To construct a quality product which satisflres the client's
requirements.
4. To recognise the expectations of other parties in a co-
operative work environment.
5. To achieve the best safety standard according to local legal
practice.
6. To of problem resolution for
recognise the importance
minimising disputes and conflicts as early as possible,
leading to no litigation.
7. To establish and sustain open communications'
L To attain a successful project that can enhance the
reputations of all parties.
9. To take ethical consideration of the social and
environmental responsibility.
I 0. To recognise and manage inherent project risks.

Figure 5. A charter for a strategic alliance

The learning alliance has enabled the joined parties to be more

reliable and durable, and highly competitive and responsive. It
is noteworthy that the case also reveals the benefits provided
by the long-term alliance, which include improved:
problem solving process - Previously, they solved problems
individually. Presently, they solved them together so that
they could think out more available solutions faster than
before;
project perþrmance - Project performances in terms of
quality, time, schedule and cost have been achieved. Other
performances having been stated in the charter including
safety and social responsibility have also been achieved -
768 Supporting Inter-Organisational Relations - Love

not to mention that other associated project issues such as

rework, waste, claims, etc., were reduced when compared
to other project alliance members had been involved in;
lorcwledge and competence of worlcforce - A learning
alliance not only acquires updated knowledge but also
improves ability of their staff. Such a workforce is
considered to be more productive and less likely to make
mistakes;
inter-organisational relationships - Parties are able to
communicate in an open manner, which also improves
coordination. While parties are mutually dependent in
dealing with project matters, they are independent in
running their own organisations. Thus, they are able to
learn externally as well as internally; and
stakeholder satisfaction - The parties revealed that they had
satisfied their stakeholders, which included clients, design
consultants, contractors, suppliers and end-users. In
addition, continuous improvement was fostered (improved
productivity and profits) within the alliance, which has
resulted in a strategic competitive advantage (when
bidding for new projects), as those organisations involved
in the alliance have been invited to procure additional
projects.

The alliance has been in place for two years and positive
outcomes have enabled the alliance team with a good
foundation to improve their learning capabilities over the next
six years project. The cooperative alliance is seffing standards
within the construction industry for its ability to foster working
together in a harmonious and diligent manner. The alliance is
beginning to establish the benchmarks for best practice in the
construction industry.

Conclusion
This paper has demonstrated that cooperative learning
alliances can create a shared vision of mutual learning. Such
769 ctB-2002

learning can enhance a construction organization's capacity to

learn aJ well as improve the effectivèness of their business
operations, which can result in internal and external customer
satisfaction. The authors suggest that construction
organisations looking for long-term alliances that incorporate
the essential elements of the proposed learning framework
(founded on TQM) can gain a competitive advantage over their
competitors through the implementation of a customer-supplier
focus and strategic relationships. The case presented in this
paper revealed the relationship between a cooperative long-
term alliance and the learning alliance. The findings produced
indicate that cooperative relationships can be used to cultivate
a climate for mutual learning, and trust whilst remaining
focused on the alliance objectives. It may not only reduce
costs, but can also ensure a strategic and sustainable
competitive advantage in today's environment.

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777 ctB-2002

Index Of Contents By KeYwords

Airport, 89 Construction , 386, 533, 7 48
alternative tender, 429 construction industry, 669
analytical hierarchy process, Construction procurement,
25 180
artificial intelligent processor, construction projects, 443
627 Construction-industry, 5 I 5
asset specificity,693 context, 560
attitudes, 196 Contextual Analysis, 473
behavioural parameters, 25 contextual embeddedness, 245
benchmarking, 560 contractors, 545
best value, 275 contractu al arr angement, 429
Best Value, 420 contractual arrangements, I I I
bidding,669 control, 453
BOOT procurement,35T Convergence, 533
BOT projects, 341 co-operative behaviour, 499
Building procurement cost, 487
systems, 170 cross-cultural study, 196
built heritage, 731 cultural traditions, 500
Business process Culture, 386, 515, 533,643
development, 170 DBFO,297
business process models, 595 Design, 89
Business Strategy,643 Design & Build, 69
Caribbean, 196 design management, 53
case study, 357 design programming, 53
case-studies, 131,147 developing countries, I 5
Change, 170 development of firms, 545
claims, 235 Disputes,22l
Claims,22l Divergence, 533
claims consu ltants, 23 5 dysfunctional mechanisms,
collectivist, 500 453
communication,3lT e-commerce,669
communications, 443 Emerging regions, 515
competitive, 500 energy efficiency, 289
conceptual framework, 3 17 ESCO,289
concurrent design, 53 Ethics,473
conforming bid/ tender, 429 evaluation criteria, 595
consolidation, 245 face-to-face, 443
constructability,263 Facilities Management, 89
778 Index of Keywords

fast-track,58l management, 180

fooçrints, 147 Performance, S9
genetic algorithm,5Sl performance contracts, 289
Ghana, l5 P erformance Information

Globalisation, 533 Procurement System, 627

higher education buildings, performanc e spe c i ftcation,
263 275
Hong Kong, 500 Pocahontas parkway,4l
human enor,487 precedence relationships, 58 I
Incentive Contracts, 2 prime contrac|ing,245
industry sectors, 560 private finance initiative, l5
industry structure, 245 process evaluation, 595
information flow,58l Process improvements, 595
Information Measurement Process Protocol, 643
Theory,627 procurement, 15, 131
Information Technology, 643 Procurement,386, 420
Infrastructure, 341 procurement melho d, 429
infrastructure challenge, 357 procurement programming, 53
infrastructure development, procurement route, 693
4t procurement strategies; 373
innovation, 373,429 Procurement Systems, 147
innovative approaches, 406 Professional Ethics, 473
Integrated Project Teams, 2 Project delivery systems, 170
Ireland,69 Project leadership, 487
knowledge sharing, 560 project management, 3 17
learning,748 project success, 500
Maturity Models, 643 project typo\ogy, l47
measurement costs, 693 public sector, 297
modalities,716 Public sector, 420
Murphy's Law,l47 public sector projects, I I I
Mutual Trust,2 public-private parnerships,
Non-adversarial contracting, 406
420 public-private partnership, I 5,
north-south technology 297
transfer, 6 I I Public-Private partrnerships,
north-south wealth transfer, 4l
6ll public-private procurement,
organizational culture, 373 lll
parhering, 25,748 quality, 406,627
Partnering, 2,386,420 Quality,69
partnering, information questionnaire, 545
779 crB-2002

Rating system, 669 success factors, 487

rational models, 453 supplier chains, 463
Relational contracting, 3 86 supply chain management,
relationships, 463 245
relative performance surveys, 25
differentials, 275 sustainability, 731
research methods, l3l teams, 463
risk, 147,627 technology clusters, 53
risk allocation, 297 Technology-transformation,
risk factors, 357 515
Risk Management, 341 tendering contract/process
safety, 196 contract,429
safety management Practices, tolls, I I I
196 TQM,748
satisfaction, 7I 6 TQM implementation, 406
scenario-based, 235 Training Strategy, 643
Selection, 386 Transaction Cost Economics,
sequence optimization, 58 I 222
Singapore,545 transaction costs, 693
site management,4ST trust, 453, 463,669
source credibility, 669 uK, 15, 196
South Africa, 406 value proposition, 7 l6
Stadium Australia, 357 vernacular, T3l
strategic alliances, 748 web-based procurement, 6l I
strategicrisks,3lT workshops, 263
success,147
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