Poor payment systems could lead to inefficient behaviours and influence productivity rates. This sub-category was formulated based on four themes that emerged out of the data:
Low and late payments to S&S
Low payments to designers
Payment methods for site labourers based on daily wage
Interim evaluations (monthly payments based on traditional BoQ prepared by client's QS)
In an interview with a ‘Head of Innovation’ at a contracting company (with an architectural background), he blamed buyers for using unfair payment terms and for imposing low profit margins on to their suppliers. He considered these poor payment practices to be major sources of inefficiencies in construction. According to him:
“The problem is that clients behave very badly. Now, they'll do something to collaborate to a certain extent because there is a lack of resource in the industry. And, you know, you see that with main contractors, then, refusing to do single stage tenders and only wanting to do two-stage tenders. And equally the supply chain members if they were treated badly in terms of payment terms or in terms of number of subcontractors on the tender lists. They will behave exactly the same. Treat others the same way you would like to be treated yourself” (Head of Innovation and Director of National Frameworks, Nov 2015).
Low payment to designers, through fee competition, has also been identified by various participants as very problematic, because it leads to design errors, missing information or poor quality and coordination of design works; thus, leading to all sorts of waste. The author was told during interview, for example that:
“Design errors or missing information is a major source of conflict in traditionally procured contracts. And I suspect that is due to, you know, designers facing an ever increased fee competition. Competition is a good thing; but I have been in situations where quite frankly the design has been wrong and where the information has been missing. So, you know how can you expect somebody to price something in that particular situation if he needs competition for it?” (Senior Consultant (FICE), Oct 2015)
“You know designer fees have been reducing. You know when I first started my career, there used to be a prescribed fee scale, for architects and designers, which was in a great deal higher than it is now. And that allowed perhaps more resource to be put into the design, which would actually help the designers actually coordinate the design better” (Head of Innovation and Senior Architecture, Nov 2015).
4.2.8 (Price-based) tendering as an expensive non-value adding activity (IP8)
Tendering arrangements can lead to wasteful behaviours, unnecessary delays and financial losses in construction projects. This sub-category was developed based on the emergence of several themes:
Competitive fee tendering when appointing professional consultants,
Costly and speculative two-stage pre-qualification questionnaires,
Lump Sum Price Competitive Tendering,
Target-Cost contractual arrangements based on price competition,
Tendering exercise regarded as a game,
Two stage tendering,
Unrestricted (open) bid invitation pro in public procurement
One of the major problems of price-based competitive tendering approaches is that they can create zero-sum game situations, where the construction client (buyer) and the supplier(s) compete against each other. This in turn obviously leads to wasteful behaviours and poor project performance. An interesting example was provided by a senior consultant, as follows:
“I certainly recall a Target Cost scenario held up initially as a model form of collaborative contract, which rapidly became very adversarial. This was when a contractor had been asked to price the cost of building a railway station extension and modification but had not been provided with full details of the existing structure. The existing structure was then found to require extensive redesign of the intended new roof and a large claim developed. The accusation levelled at the contractor was that they had calculated the initial Target Cost to
win the job and then maximised their claims in relation to the re-work required as a result of finding out the true nature of the existing station structure” (Senior Consultant (FICE), follow up email, 2016).
Another major inefficiency of tendering arrangements is the amount of time and costs spent on selecting and procuring project partners. It was regarded by some of the interviewees as an expensive and time consuming non-value adding activity. Tendering expenses are actually hidden transactional costs that many clients may not be aware of. This was explained by a business development manager working for a main contractor, as follows:
“I would say that the cost of procurement is increasing the cost of the industry…Hmm, and procurement is a non-value added cost…We don't dig any hole; we don't pour any concrete; we don't erect any steel for the cost of bidding. And, also customers must understand that although contractors don't actually send them an invoice for the tender they do actually pay for it…Because contractors in the scene of making the profit have all of their costs paid by their clients. So every penny they spend on tenders, even the unsuccessful ones, are reimbursed by their clients; and more frequently the wrong clients” (Business Development Manager, Dec 2015).
In an interview with the ‘Head of Supply-chain’ of a major Tier 1 contractor, the author discussed with the interviewee how client’s major procurement arrangements influences their own practice with their supply-chain. It appeared from the responses received that many clients do not realise how that their desire for seeing competition as a means to reducing project costs, may often lead to opposite results. So, competitive tendering can restrict major contractors from being able to collaborate with their preferred tier 1 suppliers during early stages of projects; thereby hindering value-creation. It is also seen as a non-value adding activity which consumes unnecessary time and costs. This could be summarised, as follows:
“I think if you want to get value out of the supply chain or the procurement exercise, in my opinion, you need to shorten that process as much as you can, so you are giving the people at the operational level and the suppliers themselves
enough time to come up with the value-added solutions. In some instances, you could argue that you should not conduct a procurement exercise traditionally at all…I mean we should be in a position where we would appoint people from the very outset and develop the solution with them...Projects need to be done quicker and with less costs, so if you do it quicker, then in theory the cost drops anyway because you have got less preliminaries, etc. And the cost does not necessarily be the erosion of somebody's margins” (Head of Supply Chain, Nov, 2015).