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Construction procurement systems in use in Malaysia

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 Malaysian Construction Research Journal; Vol. 23 | No.3 | 2017 71

CONSTRUCTION PROCUREMENT SYSTEMS IN USE IN

MALAYSIA
Khairuddin Abdul Rashid1 and Samer Shahedza Khairuddin2
1 Professor, Department of Quantity Surveying, Head of Procurement and Project Delivery System Research
Unit, Kulliyyah of Architecture & Environmental Design (KAED), International Islamic University Malaysia
(IIUM), Jalan Gombak 53100 Kuala Lumpur.
2 Currently reading for his PhD at a university in the UK.

Abstract
This paper reports on a study on the systems of construction procurement in use in Malaysia.
Specifically, the study’s objectives were to identify the systems of construction procurement in use,
to assess whether the systems used matched the criteria as proposed by the theory on procurement
systems and to identify Clients’ top priority in procurement and whether their objectives were met or
otherwise. Data for the study was obtained from records and interviews with project team members
from twenty on-going and completed construction projects and analyzed using descriptive statistics.
Findings from the study suggest that: the traditional design-bid-build (DBB) system of procurement
remained Malaysia’s most dominant system of procurement, Clients’ top priority in procurement is
speed of completion and in terms of meeting the Clients’ overall objectives on time, cost and quality,
these objectives, combined together and in most projects they were not met. In addition, problems
that caused delays and constraining the processes of procurement were identified, the top two being
contractors’ related (lack of expertise and time overrun) and local authorities’ related (delay in
obtaining approvals). The paper concludes with ideas as way forward in effort to increase the chances
of Clients achieving their objectives when they procure construction projects. They include capacity
building and the need for a systematic selection matrix to assist Clients in choosing the most
appropriate system of procurement that suit their procurement needs, priority and risk appetite.

Keywords: Building, client, contractor, consultant, construction, project, procurement, statutory approvals

INTRODUCTION

Procurement, in the context of construction, refers to the processes of acquiring built facilities
(Khairuddin, 1998; 2002). The processes, starting with the process of initiation of the project and
all the way to completion and handing over of the completed facility may be arranged in various
styles: sequential, some to run earlier than the others, or some of the processes may be arranged to
run in parallel or overlapped. Each style is distinct and has its own merits and demerits (see e.g.
Khairuddin 1998; 2002; 2003; 2004; 2006).

Generally, Clients’ objectives in procurement are time or speed of completion, cost or budget,
and quality of the works. Among these, one will become the top priority. It is therefore highly
likely that the Client’s objectives and top priority in procurement would be met if the most
appropriate system of procurement is designed, adopted and used. For instance, if the system is
arranged for the processes to run in sequence then time and cost may suffer while overlapping the
processes may save time and perhaps costs but quality may suffer.

In the 1990s and through the early 2000s reports on studies related to systems and processes of
construction procurement were frequently published in journals and presented in seminars and
conferences. However, in recent years and in particular during the last five years or so such frequent
publication has receded implying that the subjects are losing their significance. Consequently, in
an effort to re-ignite interest on the systems and processes of construction procurement and to
highlight their significance, given that the selection and application of the most appropriate
procurement would greatly enhance the chances of meeting Clients’ objectives (Khairuddin, 2002),
a report on a study on the systems of construction procurement in Malaysia is herein presented.
 72 Khairuddin Abdul Rashid and Samer Shahedza Khairuddin

The study has 4 main objectives: (i) identification of the system of construction procurement
in use, (ii) assessing whether the system used matches those criteria as proposed by the theory on
procurement system, (iii) identification of Clients’ top priority in procurement, and (iv) assessing
whether their objectives were met or otherwise.

This paper is structured into 5 sections. The first section introduces the paper. The second
section provides a review on the systems of construction procurement in use in Malaysia. This is
followed by the third section that describes the methodology used in carrying out the current study
namely desk study and interviews with key players of on-going and completed projects. Section
four presents the results of the study including the dominant systems of procurement used, Client’s
top most priority in procurement and on whether the Client’s objectives in procurement were met
or otherwise and the ensuing discussions. Finally, section five concludes the paper and proposed
ideas considered useful as way forward.

LITERATURE REVIEW ON SYSTEMS OF PROCUREMENT

According to Khairuddin (1998; 2002) the term procurement refers to the processes of
acquiring built facilities. He developed a conceptual model on the processes of construction
procurement that comprises of the processes of initiation, funding, design, statutory approval,
tendering, construction and allocation of risks (Khairuddin, 1998; 2002,). However, his model is
only relevant to works adopting the traditional way of procurement that separates the processes of
design and construction and the processes stop once a project reaches physical completion.

In the more modern styles of construction procurement the processes of design and construction
are increasingly being integrated; the source or sources of funds, especially for public projects, are
no longer within the ambit of the Clients and/or their funders but expand to include private investors
and even the end-users under the concepts of Public Private Partnership (PPP), Private Finance
Initiative (PFI) and Privatization. These newer approaches focus on the total costs of the built
facility that spends over its entire life otherwise known as Life Cycle Costing (LCC) and contract
for a built facility may be as long as 20-60 years that takes into accounts funding, reimbursement
and income generation, design and construction, commissioning and completion, maintenance and
management of the completed facilities, delivery of services, refurbishment, handing over and
perhaps even demolition and rebuilding (Khairuddin, 2009; 2012; 2013). In addition, authors have
reported on the move by Clients to embrace co-operation and relationship and alliancing styles of
procurement systems that they contended would enhance achieving the best performance (Liu and
Fellows, 2009; Mahesh and Kumaraswamy, 2009; Rowlingson and Cheung, 2009; Chew, 2009).

The environment of a construction project is like an enterprise. Perhaps more than that for it
may be akin to a melting pot. In a typical construction project there would be the presence of a
myriad of activities, utilization of economic resources, involvement of people of various skills,
expertise and backgrounds, the Client’s objectives, contractual relationships between the various
parties, site requirements, conditions and constraints, risks, politics, commercial and other external
and internal factors, etc. Above all the works must be performed and completed to a specified time
frame, quality and budget. It requires that the entire processes of procurement to be managed in the
most efficient and effective manner. Khairuddin (2002) argued the management of the entire
processes of procurement is the function of the system of procurement.

In Malaysia the three most dominant systems of procurement, dominant refers to the most
frequently used, in order of importance are: Traditional or Design-Bid-Build (DBB), Design and
 Construction Procurement Systems in Use in Malaysia 73

Build (D&B) or Turnkey, and Management Contracting (MC). Full review of the systems is not
within the scope of this paper and readers may refer to the works of Khairuddin (1998; 2002; 2003;
2004), Turner (1997), Masterman (2002), Chang, Chin and Khairuddin (2005), Khairuddin (2006),
etc.

Traditional system of procurement

The Traditional or DBB system of procurement works on the basis that the seven processes of
procurement are performed in a sequential manner, the process of design is separated from the
process of construction and that the various parties: Client, Contractor and Consultants, carries their
respective risks. The Traditional system allows the contract price to be fixed in advance of
construction and that the designers have full control of the design while the contractor takes care
of all construction related risks. This system often required longer development period and that the
style of the distribution of risks encourages adversary between the parties. The traditional system
of procurement is most frequently used by the public sector for it satisfies the requirement for the
procurement processes to be transparent and for the various parties to be accountable for the works.

Design and Build and Turnkey system of procurement

The Design and Build (D&B) system of procurement is an integrated and single source
procurement system. The system allows the design and construction processes to be integrated and
overlapped and the Contractor acts as the main player responsible for the entire processes of design
and construction until the works is completed. The single point responsibility allows better
coordination of the various processes of procurement hence reduce the potential of disputes among
the parties while the overlapping of the processes of design and construction would lead to shorter
overall development period (as opposed to the sequential style of the traditional system). Among
the key criticisms of the D&B system include the system often lacks aesthetic values (probably due
to the incorporation of the concept of buildability by the Contractor). When the responsibilities of
the Contractor include the supply, installation and commissioning of furniture and equipment for
the entire built facility then the system is often referred to as Turnkey system of procurement. Like
the Traditional system of procurement, the D&B and Turnkey systems of procurement allow the
contract price to be fixed in advance of construction. The D&B and Turnkey systems are used when
time is the top most priority, i.e. speed of completion.

Management contracting system of procurement

Under the Management Contracting (MC) system of procurement, the system is broadly similar
to the Traditional system in the sense that a Main Contractor is employed for the works. But his
main responsibility is not to construct but to manage the works. This includes planning of the works
that would permit overlapping of not only the processes of design and construction but of the
various sections of the works itself. Works are split into packages, each package to be tendered out
to different works’ contractors. The act of splitting the works and tendering them out would lead to
increased competition, hence the probability of achieving a much lower overall costs for the project,
while the overlapping of the processes of design and construction and of the various works’ sections
would increase the probability of a much shorter development period (as opposed to the two earlier
systems of procurement). However, MC system of procurement would not permit the contract price
to be fixed in advance of construction as the price would only be known once the final package is
let out to the works’ contractor.
 74 Khairuddin Abdul Rashid and Samer Shahedza Khairuddin

Selection of the most appropriate system of procurement

According to Khairuddin (2002) in Malaysia most Clients are not quite aware of the choices
available to them in terms of the presence of the various systems of procurement and they do not
have the skills and expertise to conduct a thorough assessment of the systems.

In most cases the Traditional system is adopted simply because most consultants are familiar
with it while in the public sector the system satisfies the requirements of transparency and
accountability. In addition, design consultants may influence Clients to adopt the Traditional
system it allows them to take command of the design and construction processes on behalf of the
Clients as opposed to the Design and Built, Turnkey or Management Contracting wherein these
systems the design consultants would have to work under the command of Contractors.

Elsewhere methods have been developed that could assist Clients in choosing the most
appropriate system of procurement. One such method is the UK’s National Economic Development
Office’s (NEDO) Procurement Assessment Criteria (PAC) (NEDO, 1985). A full review of
NEDO’s PAC or other methods is not within the scope of this paper but readers may refer to the
works by NEDO itself (NEDO, 1985), Turner (1997) or by Ng, Luu and Chen (2002).

METHODOLOGY FOR THE STUDY

The methodology involved review of literature on systems of construction procurement,

collection and examination of projects’ documents and interviews with their key personnel. The
study’s objectives were set as follows: (i) identification of the system of construction procurement
in use, (ii) assessing whether the system used matches those criteria as proposed by the theory on
procurement system, (iii) identification of Clients’ top priority in procurement, and (iv) assessing
whether their objectives were met or otherwise.

The collection of the data was conducted, initially as a class exercise for the course AQS3140
Systems of Construction Procurement, cohort for the academic session 2013/14 of the Bachelor of
Quantity Surveying (Honours) at the International Islamic University Malaysia. A total of 96
students were involved. They were divided into 14 groups, each comprising of between 5-7 persons.
The first author acted as the class tutor and coursework supervisor. Steps taken in carrying out the
study is as shown Figure 1 below.

Start Week 1

1 Literature review on systems

of procurement

2 Setting objectives for the

study
Set out students’
3 Identification of projects and
coursework
collection of projects’ documents

4 Interview with projects’

team members

Students submit coursework, 5. Analysis and synthesis of

graded and returned data

6 Writing and completion

Week 15

Figure 1. Steps taken in carrying out the study

 Construction Procurement Systems in Use in Malaysia 75

Documents and personnel from 28 (twenty-eight) ongoing and completed construction projects
were gathered by the students. All data was obtained from firms that were willing to share data for
the study. Sampling was not done, the key reason being to facilitate harvesting as much data as
possible. However, in this study data from 8 (eight) projects was found to be incomplete and
therefore was excluded from the study.

Tables 1 and Figures 2 to 6 provide basic information of the 20 projects. In summary, the
majority of the projects are public projects (85%); new works (70%); are of the research and
education category of buildings (40%) followed by training and residential (15% respectively); the
majority of the projects’ contract sum is within the category of not exceeding RM10 million (9
projects); the majority of the projects’ contract duration falls within the category of exceeding 12
months but not exceeding 24 months (57%); and the majority of the projects were managed by in-
house experts assisted by Consultants (60%).
Table 1. Information on projects studied
Contract Contract
Project brief /
sum (RM, period
Client’s Main Representative
million) (months)
Project 1 Upgrading of a Training Centre / Consultant. 5.3 12
Construction and completion of a New Training Centre (Fishing
Project 2 14.0 10
Industry) / Consultant.
Construction and completion of a Sports Training Centre.
Project 3 8.8 10
Project Management Consultant (PMC).
Construction and completion of a Multi-purpose Centre and
Project 4 6.0 18
Kindergarten /Government Agency (assisted by Consultants).
Upgrading of Office Space of an institutional building.
Project 5 4.5 3
Government Agency (assisted by Consultants).
Construction and completion of a Green House.
Project 6 3.2 10
Government Agency (assisted by Consultants).
Construction and completion of Low cost apartments.
Project 7 49.2 19 ¼
Consultant (Private project).
Project 8 Upgrading of a Training Centre /Consultant. 22.4 19 ½
4.6 (Final
Construction and completion of Students’ Self-catering Apartments /
Project 9 Account 9
Government Agency (assisted by Consultants).
pending)
Construction and completion of Terrace Houses.
Project 10 27.8 18
Consultant. (Private project).
Completion of Abandon Research Facility Building.
Project 11 6.7 6
Government Agency (assisted by Consultants).
Construction and completion of a School.
Project 12 7.5 18
Project Management Consultant (PMC).
Construction and completion of a Police Station.
Project 13 Project Management Consultant (PMC) (This project is under the 42.9 24 ¾
Government’s PPP scheme, i.e. Built-Lease-Transfer, BLT).
Construction and completion of a Mixed Housing Development /In-
Project 14 46.9 15
house (assisted by Consultants).
Project 15 Construction and completion of a school / Consultant. 16.8 18
Completion of Abandoned Students’ Hostel.
Project 16 23.4 18
Government Agency (assisted by Consultants).
Athlete Training Centre.
Project 17 13.3 12
Government Agency (assisted by Consultants).
76 Khairuddin Abdul Rashid and Samer Shahedza Khairuddin

Contract Contract
Project brief /
sum (RM, period
Client’s Main Representative
million) (months)
Construction and completion of a School.
Project 18 27.0 18
Government Agency (assisted by Consultants).
Construction and completion of a Hotel.
Project 19 147.0 30
Project Management Consultancy (PMC).
Upgrading Works to a Surau.
Project 20 2.0 5
In-house (assisted by Consultants). (Private project).

Figure 2. Types of Client

Figure 3. Nature of project

 Construction Procurement Systems in Use in Malaysia 77

Figure 4. Types of project

Figure 5. Size of project (RM million)

 78 Khairuddin Abdul Rashid and Samer Shahedza Khairuddin

Figure 6. Contract duration

Figure 7. Client's representatives

RESULTS AND DISCUSSIONS

Table 2 presents the overall results of the study in terms of the five (5) variables that were
collated and synthesized from the data gathered namely: procurement system used, system that
should have been used as suggested by the Procurement Assessment Criteria (PAC; NEDO, 1985),
Client’s top most priority (time/cost/quality), whether price is known in advance or otherwise, and
is the Client’s overall objectives met or otherwise.
Table 2. Procurement systems used, Procurement Assessment Criteria (PAC) and achievement of objectives
Construction Procurement Systems in Use in Malaysia
79
80 Khairuddin Abdul Rashid and Samer Shahedza Khairuddin
Construction Procurement Systems in Use in Malaysia 81
 82 Khairuddin Abdul Rashid and Samer Shahedza Khairuddin

Identification of the system of construction procurement in use

The results from the study (Figure 8) show that the traditional or the Design Bid Build (DBB)
system of procurement is the most frequently used or the most dominant procurement system in
use (70%). Other systems of procurement in use are the Design and Build (D&B) (20%), Turnkey
and the D&B Novated (5% respectively).

Figure 8. System of procurement used

The D&B Novated system refers to an arrangement whereby the Client would initially appoint
design consultants to prepare preliminary designs. He thereafter appoints a D&B contractor. The
D&B contractor would then take over the responsibilities and risks in completing the design and
construction works and the responsibility in the employment of the design consultants. In some
cases, the design consultants were not novated to the D&B contractor, only their designs.

Detailed examination of the results (Table 2) suggests that there is no particular preference
detected in terms of the procurement system used. It seems that the traditional system (DBB) is
simply the most frequently used system, notwithstanding the types of client, the nature, type and
size of the projects, contract duration and who represents the clients. In addition, the fact that all
the Clients or their Principal Advisors stating that they want the price of the contracts to be known
in advance of construction suggests that Management Contracting would not become a preferred
system of procurement. Such a requirement would only benefit either the traditional/DBB or
D&B/Turnkey systems of procurement.

The findings of the present study, in terms of the dominant procurement system is the
traditional/DBB followed by D&B, is consistent with the findings of past studies (see for example
Khairuddin 1998; 2002; 2003; 2004; 2006). It suggests Malaysian Clients and their Principal
Advisers are deep rooted in their belief and practice that the processes of design and construction
are to remain separate and construction projects are better managed by Consultants rather than
Contractors; the traditional/DBB is familiar to almost all design consultants, Clients and
Contractors; and perhaps matters related to transparency and accountability and knowing the price
in advance of construction are best achieved via the traditional/DBB system of procurement.
 Construction Procurement Systems in Use in Malaysia 83

Assessing whether the system used matches those criteria as proposed by the
theory on procurement system

The NEDO’s PAC (1985) proposed a matrix comprising of key criteria and priority in
procurement and matching these with the various types of procurement system. Through applying
the NEDO’s PAC a Client or his Principal Adviser would be able to identify an appropriate system
of procurement for the Client’s particular project, taking into consideration the Client’s aims,
objectives, priority and risk appetite in the procurement endeavour.

In the present study, it appears that the systems used for each of the 20 projects are consistent
with the systems as proposed by the theory on procurement system i.e. each of the 20 projects’
systems of procurement matches the PAC’s recommended systems of procurement (Table 2). This
conclusion is drawn after each project’s personnel were administered the NEDO’s PAC matrix and
the outcomes recorded and compared with the actual system of procurement used for each of the
projects. However, given that the Clients and their representatives were not aware of the existence
of the NEDO’s PAC matrix or similar methods of selecting procurement system, it has to be pointed
out that the consistency recorded herein is merely a coincidence.

Identification of Clients’ top priority in procurement

The majority of Malaysians seems to be a living in a hurry. It is therefore hardly surprising to

note that the results from the study show that majority of the Clients place time, i.e. speed of
completion, as their top most priority (45%) followed by cost (30%) and quality (25%).

Detailed examination of the results (Table 2, Figure 9) suggests that there is no particular
preference detected in terms of the procurement system used and time being the top most priority.
In theory, whenever speed is required, the preferred procurement system should either be the D&B
or MC.

Figure 9. Top most priority in procurement

Are Clients’ objectives met?

The results show that in 55% of the projects the Clients’ top most objectives, either time, cost
or quality, were met (Table 2 and Figure 10).
 84 Khairuddin Abdul Rashid and Samer Shahedza Khairuddin

Figure 10. Achievement of top most priority

However, when the Clients’ objectives are taken together, i.e. speed in completion, cost within
the budget allocated and the Clients’ satisfaction with the quality of the works done, the results
show that only 30% of the projects met the said collective objectives (Figure 11). The majority of
the projects (70%) failed to meet the Clients’ overall collective objectives of time, cost and quality.

Table 3 shows the breakdown of the two categories of procurement systems in use namely
Traditional (DBB) and D&B including Turnkey and Novated D&B. From the table it suggests that
when the traditional system of procurement is used there is a 36% chance that a project might be
able to meet the Client’s overall objectives in terms of time, cost and quality while if the D&B
system of procurement is used, similar chance is rated at only 16%. The results therefore suggest
that the chances of Clients being able to meet their overall objectives in procurement is low
notwithstanding whether the system is traditional or D&B but the chances of failure in meeting the
overall procurement objectives is much higher when the D&B system of procurement is used.
Overall and notwithstanding the system of procurement being used the chances of Clients meeting
all of their objectives in procurement stood at only 30%.

Figure 11. Overall achievement of procurement objectives

 Construction Procurement Systems in Use in Malaysia 85

Table 3. Meeting overall objectives in procurement

Projects meeting overall objectives of time, cost and quality
System
Yes No Total

Traditional 5 (36%) 9 (64%) 14 (100%)

D&B (including Turnkey &

1 (16%) 5 (84%) 6 (100%)
Novated D&B)

Total 6 (30%) 14 (70%) 20 (100%)

The reasons why the Clients’ objectives were not met were probably due to the presence of
constraints in procurement. Constraints identified and listed here in order of importance are;
constraints related with the contractors (such as lack of expertise), delay and other problems related
to obtaining statutory approvals, Clients related problems (such as design change), Consultants’
related problems (such as poorly prepared needs statements) and delay arising from the
unavailability and or untimely supply of construction materials (Figure 12). Khairuddin (1998;
2002) identified a set of constraints that inhibited the flow of the processes of construction
procurement. From his list of identified constraints, most of them appear to remain as constraints
as identified in the present study.

In projects utilizing the Industrialized Building System (IBS) approach the results show there
was no time and cost overruns. Based on 2 projects in the sample size, one of the projects was
completed ahead of time.

Figure 12. Key constraints/problems identified

CONCLUSION

This paper reported on a study on the dominant systems of construction procurement in use in
Malaysia. Data for the study was obtained from records and interviews with project team members
from twenty on-going and completed construction projects and analyzed using descriptive
statistics. Consequently, the findings should be interpreted within the context of the study.
However, broad inferences on the state and practice of construction procurement in Malaysia may
be drawn from the findings.
 86 Khairuddin Abdul Rashid and Samer Shahedza Khairuddin

Findings from the study suggest that:

• The traditional or design-bid-build (DBB) system of procurement remained Malaysia’s

most dominant system of procurement notwithstanding types of project, types of Client or
their key priority in procurement;
• Clients’ top priority in procurement is time or speed of completion;
• In terms of meeting the Clients’ overall objectives on time, cost and quality in procurement,
these objectives, combined together were not met. This suggest that chances of Clients
meeting their overall objectives in procurement is low notwithstanding the system of
construction procurement used; and
• Problems that caused delays and constraining the processes of procurement were identified
i.e. problems arising from and/or related to the Clients, Contractors, and Consultants and
constraints in the availability and timely supply of materials and in obtaining statutory
approvals.

Drawn from the findings from the study, the following are proposed as way forward in effort
towards a more efficient and effective implementation of construction projects;

• Capacity building comprising of a well-structured and sustainable style of knowledge

sharing and transfer in construction procurement among Clients and key players of the
construction procurement processes are urgently required;
• Strategies are required in effort to address constraints in the processes of construction
procurement; and
• A systematic selection matrix or method is required in effort to assist Clients and their
Principal Advisors in choosing the most appropriate system of procurement that suit their
procurement needs, priority and risk appetite.

ACKNOWLEDGEMENT

The authors would like to acknowledge the Ministry of Higher Education Malaysia for the grant
TRGS 16-01-001-0001 "A study into procurement and project delivery system to empower Wakaf-
Zakat in the provision of housing for the Ummah."

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