building abroad

build ing abr oad

colloque sur le montage et le développement de projets d’aménagement dans le contexte international

®2008 Groupe de Recherche IF, grif, Université de Montréal Tous droits réservés. La reproduction d’un extrait quelconque de cette publication, par quelque procédé que ce soit, est formellement interdite sans permission. Éditeur Groupe de Recherche IF, grif Faculté de l’aménagement, Université de Montréal C.P. 6128, succursale Centre-ville, Montréal (Québec) Canada H3C3J7 www.grif.umontreal.ca Dépôt légal: Bibliothèque nationale du Québec, 2008 Bibliothèque nationale du Canada, 2008

ISBN 978-0-9811282-0-7 Imprimé au Canada Responsable de la publication: Gonzalo Lizarralde, Groupe de recherche IF, grif Image de la couverte: Gonzalo Lizarralde

building abroad, Montreal, October 2008

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procurement of construction and reconstruction projects in the international context

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colloque-atelier, 23-25 octobre 2008 rédacteurs : Gonzalo Lizarralde Colin Davidson Andrea Pukteris Michel de Blois et le comité scientifique du colloque Groupe de Recherche IF, grif © Université de Montréal, Canada


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conference-workshop, 23-25 October 2008 edited by: Gonzalo Lizarralde Colin Davidson Andrea Pukteris Michel de Blois and the scientific committee of the conference

The IF Research Group, grif © Université de Montréal, Canada 2008. Montreal. Québec.

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avec la collaboration de : CIB W92, CIB TG63, CIB W107 Information et recherche pour la reconstruction, i-Rec PMI- Montréal La Chambre de commerce du Montréal métropolitain The International Journal of Managing Projects in Business

nous remercions la contribution:

du Conseil de recherches en sciences humaines du Canada

du Centre de recherches pour le développement international

de Lavery De Billy, avocats

de SNC_Lavalin

du Groupe Arcop


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about grif - The IF Research Group grif studies the process-related aspects of the development of construction projects in general - and architectural projects in particular. This mission is achieved through four main activities: Research, Supervision and training in graduate studies, Consulting and Networking. The grif provides the scientific base for the programs in project management for the built environment (mgpa) of the Faculty of the Built Environment of Université de Montréal. The grif works in three main areas of research: (i) Initiation, planning and management of construction and architectural projects; (ii) Procurement and organizational design; and (iii) Housing and habitat (including post-disaster reconstruction).

about CIB - The International Council for research and innovation in building and construction CIB was established in 1953 to stimulate and facilitate international cooperation and information exchange between governmental research institutes in the building sector, with an emphasis on those institutes engaged in technical fields of research. CIB has since developed into a world wide network of over 5000 experts from about 500 member organizations active in the research community, in industry or in education, who cooperate and exchange information in over 50 CIB Commissions including: - CIB W92 is the working commission on procurement issues - CIB W107 is the working commission on construction in developing countries - CIB TG63 is the task group on disasters and the built environment.

about i-Rec – Information and research for reconstruction i-Rec is a web-based international network focused on the study of reconstruction after disasters. iRec deals with information exchange between its members in order to contribute with knowledge related to building activities in situations of crisis, particularly disasters in developing countries. Every two years, i-Rec organizes an international conference and an international students competition of architectural solutions for post-disaster situations. i-Rec creates links between more than 200 specialists in the field of post-disaster reconstruction, particularly in the areas of: architecture, engineering and construction, humanitarian aid, international development and social sciences. about PMI-Montréal - The Project Management Institute, Chapitre Montréal PMI-Montréal is a chapter of the Project Management Institute (PMI). It brings together project management practitioners from Quebec who are members of PMI. Its mission: (i) Promote professionalism in project management and its recognition; (ii) Increase and disseminate project management knowledge; (iii) Establish forums for the exchange of information and training; (iv) Offer a slate of quality products to members and to the community; (v) Ensure a liaison with other organisations in project management and related fields; (vi) Increase regional and international visibility of local know-how. The Board of Trade of Metropolitan Montreal – Chambre de commerce du Montréal métropolitain The Board of Trade of Metropolitan Montreal has some 7,000 members. Its primary mission is to represent the interests of the business community of Greater Montreal and to provide individuals, merchants, and local businesses of all sizes with a variety of specialized services to help them achieve their full potential in terms of innovation, productivity and competitiveness. The Board of Trade is Quebec's leading private economic development organization.

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organizing committee Gonzalo Lizarralde, Université de Montréal, grif, i-Rec Colin Davidson, Université de Montréal, grif, i-Rec Steve Rowlinson, CIB W92 Alfredo Serpell, CIB W107 Clément Demers, Université de Montréal Cassidy Johnson, Univ. College London, grif, i-Rec, CIB TG63

scientific committee Gonzalo Lizarralde Colin Davidson Cassidy Johnson Steve Rowlinson Peter McDermott Alfredo Serpell Rohit Jigyasu Andy Dainty Timothy Mike Lewis Richard Haigh T.P. Knoetze Andrew Fox Stephen Ogunlana George Offori Dave Root Mark Massyn Isabelle Thomas Roger Richard Vikram Bhatt Daniel Alain Dagenais Malik Khalfan Paul Lewis Costas Katsanis Jennifer Duyne Jingmin Zhou Reagan Potangaroa Charles Egbu Daniel Forgues Mario Bourgault

with the special support of: Giovanni de Paoli, Dean of the Faculté de l’aménagement, Université de Montréal Tiiu Podma, Vice-dean graduate studies/research, Faculté de l’aménagement Anne Cormier, Director of the École d’architecture, Université de Montréal Gabriel de Puyjalon, Executive Director PMI-Montréal Inc.


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importance of the subject Participate in an international competition for a project in China, design a project for Dubai, build a school in the favellas of Brazil. Those are some of the challenges that firms in the fields of architecture, urban planning and construction must now face in a globalizing construction sector. However, the international context of construction shows different faces, ranging from prestige buildings designed by foreign “star” architects in world-class cities, to emergency shelters produced by humanitarian international initiatives in rural areas in developing countries. For many, this context offers great commercial opportunities, but also risks and threats. Participants from different countries working in foreign contexts are confronted with major challenges that range from cultural adaptation to contractual know-how. A careful understanding of organizational design and procurement is crucial in this context. The procurement strategies - that is, the initial decisions made by the client(s) to create the temporary multi-organization in charge of the project – can determine the success or failure of the initiatives. This 2008 conference-workshop discusses these challenges and seeks to clarify the scope of and opportunities for construction projects in the international context. It focuses on the procurement-related aspects of international construction projects, and it opens the door to a wide range of subjects related to the performance of these initiatives. example About 200 houses were recently built in Netreg, a township located in Cape Town, a coastal city of the 2010 soccer world cup host: South Africa. At first glance there is nothing important about this project. However, it is managed by an Irish NGO and funded by a multinational construction company. It is promoted by a local community-based organization. Roof trusses for the houses come from Durban, the architect is German, the urban planner is Indian, the construction inspectors are Cuban, the project evaluator is Canadian. But this is not a special project. An increasing number of design and construction companies now work in a highly competitive international market, joining in multi-national teams. More than ever before, North American architects are building projects in Europe, Asia and in developing countries. Well-known architects from Europe have important commissions in the United States and Canada. Most large-scale construction companies are looking at the attractive markets of emerging economies such as China, India, Chile, South Africa and Brazil. issues to be addressed The conference-workshop addresses the following issues: • How to procure a building project abroad? • How do architects participate in international construction? • What are the main risks of international procurement? What are the main risks of working abroad? • Is there such a thing as a real international supply chain? • What are the differences between local procurement and international procurement? • What are the main opportunities for construction companies interested in working abroad? • How must the relations between foreign organizations and local actors be established?


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• What are the opportunities for participation by international organizations in post-disaster reconstruction projects? the conference is intended for both academics and practitioners in the fields of: • • • • • • • •

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Architecture, Project Management and construction management, Urban planning and regional studies, Engineering, Construction, Law (procurement and contractual arrangements for international construction), Humanitarian aid, reconstruction and international development, Public work and urban management.

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le colloque en chiffres

some facts about the conference

Propositions d’intervention

130

Texts and proposals for intervention

Articles acceptés et présentés

46

Articles accepted and presented

Compagnies représentées

17

Companies represented

Universités représentées

29

Universities represented

Membres du comité scientifique

29

Members of the scientific committee

Pays représentés

25

Countries represented

Partenaires impliqués

5

Partners involved

Étudiants participant à l’organisation

6

Students involved in the organization

Coût réel par personne (en dollars canadiens) pour faire l’événement

800

Real cost per person (in Canadian dollars) of doing the event

Nombre de subventions et commandites

5

Number of sponsorships and grants

Nombre de conférences plénières

6

Number of keynote presentations

Nombre moyen d’évaluations pour chaque intervention académique (2 évaluations pour le résumé, 2 évaluations pour l’article, 1 révision du rédacteur)

5

Average number of reviews for academic presentations (2 reviews of the abstract, 2 reviews of the article, one review of edition)


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AVANT PROPOS Gonzalo Lizarralde, Université de Montréal courriel : [email protected] Colin Davidson, Université de Montréal courriel : [email protected]

Les compagnies du secteur du bâtiment (les firmes d’architecture, d’ingénierie, de construction, de design, consultants, etc) sont soumises à plusieurs risques inhérents au fonctionnement de l’industrie, laquelle est caractérisée par : •

•

Une fragmentation élevée : l'industrie du bâtiment est un ensemble fragmenté et hétérogène d'agences professionnelles et d'entreprises. Elle est « une multi-industrie » où chaque participant s'implique dans une série discontinue de projets en tant que membre d'une équipe temporaire (une « multi-organisation temporaire ») créée pour chacun de ces projets. Cette façon de travailler augmente la vulnérabilité des entreprises face aux changements dans l'environnement commercial, en particulier la vulnérabilité des petites et moyennes entreprises qui composent près de 90% de cette industrie (Davidson, 1988). Un manque d’information adéquate : la fragmentation de l’industrie rend difficile la production de connaissances nécessaires pour réduire l’incertitude propre à cette industrie et à ses projets. De plus, sa fragmentation diminue la possibilité de transfert des informations entre les acteurs (Leslie et McKay, 1995).

Dans le contexte actuel de la mondialisation, les projets de construction deviennent de plus en plus complexes (Langford et Male, 2001; Ngowi, Pienaar et Mbachu, 2005). Ces projets exigent souvent : • • • • • • •

Des participants plus spécialisés et des équipes plus interdisciplinaires (Mawhinney, 2001). Des mécanismes de financement internationaux fort complexes (Langford et Rowland, 1995; De Serres, 1999). Le travail asynchrone réparti dans plusieurs endroits et le travail collaboratif à distance. La collaboration entre des équipes ayant différentes façons de travailler et diverses cultures de travail (Porter, 1990; Aleshin, 2001). Des mécanismes d’adaptation aux conditions du marché et aux conditions économiques toujours changeantes (Bee Lan et Drew, 2005; El Sayegh, 2008). Des systèmes sophistiqués pour l’évaluation de risques (Han et al., 2008) Des stratégies de montage de projet innovatrices (CIBW92, 1998; Davidson et Moshini, 1990).

Selon Kim et al. (2008), « Despite the expanding world construction market that currently reaches approximately 4,6 trillion USD, the performance of overseas construction projects has a strong tendency to be weaker than domestic projects ». De plus, dans les pays en voie de développement et dans les pays émergents (tels que l’Afrique du Sud, le Brésil, la Chine, l’Inde) cette complexité est augmentée et les projets sont influencés par : (i) un environnement politique parfois peu prévisible (Ogunlana, 1997); (ii) un contexte sociopolitique qui peut créer des tensions importantes entre les acteurs provenant « du Nord » et ceux provenant du pays


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d’accueil (Sliwinski, 2007; Lizarralde et Massyn, 2007; Kumaraswamy et al., 2007); (iii) un contexte économique très dynamique et parfois hostile (Boussabaine, 2007); et (iv) un cadre légal qui rend difficiles les relations entre le secteur formel et le secteur informel de l’industrie de la construction (Lizarralde et Root, 2008) Deux approches différentes sont souvent recommandées pour mitiger ces risques et ces difficultés propres à « l’internationalisation » de l’industrie. D’un côté, l’école de pensée basée sur le design organisationnel (l’identification des rôles et des liens entre les acteurs) préconise une meilleure compréhension et une amélioration des mécanismes d'interaction (i) à l’intérieur d’une compagnie ou d’une organisation (Mintzberg et al. 1996; Green, 1996); et (ii) entre les agents qui oeuvrent au sein de ces équipes temporaires internationales (Abdel Meguid, 1997; Masterman, 2002; Moshini et Davidson, 1991). Selon cette première approche, bien comprendre le « design organisationnel » et les stratégies de montage de projets s’avère primordial. Les stratégies de maîtrise d’ouvrage – c’est-à-dire les décisions prises par le client d’un projet en vue de créer l’équipe qui sera chargée de ce projet – détermineront dans une large mesure le succès ou la faillite d’une initiative dans le contexte international. En effet, les stratégies de maîtrise d’ouvrage ne sont pas figées. Elles peuvent être adaptées à une pluralité de conditions économiques, culturelles, politiques et sociales. Le contexte actuel a, ainsi, incité les clients à chercher des solutions innovatrices basées sur la coopération entre les acteurs publics et privés, ainsi que sur les partenariats (Black et al., 2000). Plusieurs travaux de recherche ont déjà démontré l’existence de liens entre la maîtrise d’ouvrage et la performance des projets de construction (Roberts, 1972, Haviland, 1984; Masterman, 2002; Mawhinney, 2001; Walker et Hampson, 2003; et Hebert, 1996) ont analysé les risques associés à différentes stratégies de maîtrise d’ouvrage. Par exemple, Masterman (2002) a identifié et catégorisé les différents processus adoptés par les clients en fonction de leurs besoins et des changements récents dans l’industrie du bâtiment, ainsi que les tendances futures prévisibles. De l’autre côté, une deuxième approche préconise les avantages de la planification stratégique (la mise en place - en amont du projet - d’un plan et d’une structure de travail basés sur un positionnement présent et futur dans l’environnement). Selon cette approche, une vision stratégique peut (i) éviter et réduire les contraintes des approches tactiques basées sur un projet à la fois; et (ii) réduire les influences négatives causées par l’environnement des pays émergents ou en voie de développement, et ainsi améliorer la performance des projets (Langford et Male, 2001; Edwards et Bowen, 2004; Lizarralde, 2008; Lizarralde, Johnson et Davidson, 2003). Plusieurs recherches démontrent que les PMEs sont les entreprises les moins préparées et les plus vulnérables au travail dans le contexte international. En effet, seulement les PMEs canadiennes d’une certaine taille ont une véritable capacité d’exportation de produits et de services (St-Pierre, 2003). Les PMEs travaillent parfois à partir d’une gestion « artisanale » qui augmente leur isolement dans l’environnement (Fourcade et Polge, 2006). Dans le secteur industriel, ces compagnies font face à plusieurs obstacles pour préserver leurs partenaires internationaux (Bueno Merino, 2003) et même celles qui réussissent (les PMEs multinationales) ne réalisent pas des investissements directs à l’étranger sans avoir franchi une certaine maturité (Claver et Quer, 2003). Les PMEs de l’industrie de la construction ne réussissent pas facilement à monter un plan stratégique - particulièrement les firmes d’architecture (Katsanis, 1998). De la même façon, nos recherches précédentes ont démontré qu’un grand nombre de compagnies d’architecture, d’ingénierie, de design et de construction cherchent activement une 14

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participation plus importante dans les projets internationaux mais rencontrent elles aussi des barrières importantes pour atteindre cet objectif. Notre approche de recherche propose que la concertation des deux approches mentionnées ci-dessus (celle basée sur le design organisationnel et celle basée sur la planification stratégique) peut améliorer le travail des PMEs canadiennes dans le contexte des pays en voie de développement et des économies émergentes. Ainsi, cette réflexion prolonge les travaux de recherche et d’enseignement de notre équipe, en particulier sur : (i) L'organisation de l’industrie du bâtiment et des entreprises qui le composent (Lizarralde et Root, 2008; Davidson et al., 2008; Kumaraswamy et al, 2007) ; (ii) Les impacts des stratégies d’organisation de l’équipe de projet (Moshini et Davidson, 1991) ; (iii) Les relations entre les agents de l’industrie du bâtiment dans le contexte de la reconstruction suite aux catastrophes naturelles (Davidson et al, 2007; Johnson et al., 2006) ; (iv) Les risques qu’encourent les organisations gouvernementales et non gouvernementales menant des projets de bâtiments à caractère social (Lizarralde, 2008; Lizarralde et Massyn, 2007). L’industrie du bâtiment a souvent été étudiée à partir de ses aspects techniques, à partir des volets légaux et financiers de la gestion d’entreprise ou bien encore à partir des outils associés à l’analyse micro ou macro-économique. Cependant, lors de ce colloque nous proposons de regarder l’industrie du bâtiment –une industrie qui travaille « par projet » - en tant qu’un système intégré et complexe (Groak, 1992; CIB, 1997). «L’écologie » de l’industrie sera analysée à partir des dynamiques des interactions entre ses agents. Selon cette approche, ces agents sont en constante compétition; cependant, ils doivent également coopérer pour pouvoir travailler dans des équipes multidisciplinaires temporaires. Leur comportement et leurs mécanismes d’adaptation – comme agents d’un milieu écologique – sont déterminés par les influences d’un environnement hostile qui demande l’évolution de mécanismes performants et le rejet de solutions moins appropriées. Remerciements Nous remercions Mario Bourgault et Alicia Sliwinski pour leur contribution à la préparation de cet article. Références Abdel Meguid, T. (1997) Managed claims procurement strategy: A comparative study of the performance of alternate building procurement strategies. Thèse de doctorat. Université de Montréal. Aleshin, A. (2001) Risk Management of international projects in Russia. International Journal of Project Management. Vol. 19 (4), pp. 207-222. Black, C., Akintola A. et Fitzgerald, E. (2000) An analysis of success factors and benefits of partnering in construction. International Journal of project management. Vol. 18. pp. 423-434. Bee Lan, O. et Drew, D. (2005) The effect of market conditions and number of bidders on contractors’ bidding behaviour across countries. Information and Knowledge management in a global economy: CIB W102 International conference. Ribeiro et al. (Réds.). Instituto Superior Técnico : Lisbonne. Boussabaine, A. (2007) Cost planning of PFI and PPP building projects. New York. Taylor & Francis.


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Bueno, P. (2003) Portage commercial et PMI exportatrice : Nature et déterminante de la création de valeur. Revue Internationale PME. Vol. 16. No. 2, pp. 82-103. CIB - International Council for Research and Innovation in Building and Construction (1997) Future Organization of the Building process, (rédacteur Bakens, W.), Rotterdam, CIB. CIB W92 (1998) Procurement: The way forward – La maîtrise d’ouvrage de demain. Davidson, C. H. (rédacteur). Rapport 217, Conseil International du Bâtiment : Montréal. Claver, E. et Quer, D. (2003) L’investissement direct à l’étranger de la petite et moyenne entreprise: La PME multinationale. Revue Internationale PME. Vol. 16. No. 1, pp. 104-129. Davidson, C. H. (1988) Building Team. Wilkes, J. A. et Packard, R. T. (rédacteurs) Encyclopedia of Architecture, Design, Engineering & Construction, New York, John Wiley and Sons. Vol.1, pp. 509-515. Davidson, C.H. et Moshini, R. (1990) Effects of organizational variables upon organizations’ performance in the building industry. Ireland. J. & Uher. T. (rédacteurs) CIB-90. Building Economics and Construction Management. Vol 4. Davidson, C. H., Lizarralde, G. et Johnson, C. (2008) Myths and realities of prefabrication for post-disaster reconstruction. 2008 International i-Rec Conference on post-disaster reconstruction "Building resilience: Achieving effective post-disaster reconstruction", Christchurch, New Zealand. i-Rec website : http://www.grif.umontreal.ca/i-Rec.htm. Davidson, C. H., Johnson, C., Lizarralde, G, Sliwinski, A. et Dikmen, N. (2007) Truths and myths about community participation in post-disaster housing projects. Habitat International. Vol. 31, 2007. pp. 100-115. De Serres, A. (1999) L'allocation de capitaux aux projets innovateurs : étude des pratiques émergentes dans le domaine des infrastructures publiques, Thèse de doctorat en administration, Université du Québec à Montréal. Edwards, P. et Bowen, P. (2004) Risk management in project organizations. UNSW Press: Sydney. El Sayegh, S. (2008) Risk assessment and allocation in the UAE construction industry. International Journal of Project Management. Vol. 26, pp. 431-438. Fourcade, C. et Polge, M. (2006) Diversité des TPE de métier : entre tradition et modernité. Éditorial. Revue internationale PME. Vol 19, No. 3-4. Groák, S. (1992) The Idea of Building – Thought and Action in the Design and Production of Buildings, London, E. & F.N. Spon. Han, S., Kim, D. Y., Kim, H., Jang, W. S. (2008) A web-based integrated system for international project risk management. Automation in construction. Vol. 17. pp. 342-356.

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Haviland, D. (1984) Managing architectural projects : The project management manual, Washington (D.C.), American Institute of Architects. Herbert, A. S. (1996) The Sciences of the Artificial, (3rd Edition), Cambridge, Mass., MIT Press. Johnson, C., Lizarralde, G. et Davidson, C. H. (2006) A Systems View of Temporary Housing Projects in Post-Disaster Reconstruction. Journal of Construction Management and Economics. Vol. 24, No. 2, pp. 376-378. Katsanis, C. (1998) An empirical examination of the relationships between strategy, structure and performance in building industry organizations. Thèse de doctorat. Université de Montréal. Kim, D. Y.; Han, S. H., Kim, H. et Park, H. (2008) Structuring the prediction model of project performance for international construction projects: A comparative analysis. Expert systems with applications. In press : doi:10.1016/j.eswa.2007.12.048. Kumaraswamy, M., Lizarralde, G., Ofori, G., Styles, P. et Suraji, A. (2007) Whole industry management perspective of revaluing construction: Focus on developing countries. Revaluing Construction, Sexton, M., Kähkönen, K. et Lu, S. L. (rédacteurs). CIB W65. Langford, D. et Male, S. (2001) Strategic management in construction. Blackwell science : Malden, USA. Langford, D. et Rowland, V. (1995) Managing overseas construction contracting. Thomas Telford : London. Leslie, H. S. et McKay, D. G. (1995) Managing information to support project-decision making in the building and construction industry. CSIRO Division of Building, Construction and Engineering and the National Committee on Rationalised Building: North Ryde. Lizarralde, G. (2008) The challenge of low-cost housing for disaster prevention in small municipalities. 2008 International i-Rec Conference on post-disaster reconstruction "Building resilience: Achieving effective post-disaster reconstruction", Christchurch, New Zealand. i-Rec website : http://www.grif.umontreal.ca/i-Rec.htm. Lizarralde, G. et Root, D. (2008) The informal construction sector and the inefficiency of low-cost housing markets. Construction Management & Economics, Taylor and Francis Journals. Vol. 26(2), pp. 103-113. Lizarralde, Gonzalo et Mark Massyn (2007) “Unexpected negative outcomes of community participation in low-cost housing projects in South Africa”. Habitat International. Volume 32, Issue 1, March 2008, pp. 1-14. Lizarralde, G., Johnson, C. et Davidson, C. H. (2003) Strategic planning for post-disaster reconstruction projects in developing countries. Ofori, G. et Ling, Y. Y. (rédacteurs), Knowledge Construction, Proceedings of the Joint International Symposium of CIB Working Commissions, Singapore, National University of Singapore, Department of Building. Vol 1, pp. 588-600.


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Masterman, J. W.E. (2002) An Introduction to Building Procurement Systems, 2nd Edition, London, Spon Press, 239 pp. Mawhinney, M. (2001) International Construction, Oxford, Blackwell Science. Mintzberg, H., Jorgensen, J., Dougherty, D. et Westley, F. (1996) Some surprising things about collaboration—Knowing how people connect makes it work better. Organizational Dynamics. Vol. 25, Issue 1. pp. 60-71. Moshini, R. et Davidson, C. H. (1991) Building procurement : Key to improved performance. Building research and information. Vol. 9, No. 2. pp. 106-113. Ngowi, A. B., Pienaar E., Talukhaba, A. et Mbachu, J. (2005) The globalisation of the construction industry; A review. Building and environment. Vol. 40. pp. 135-141. Ogunlana, S. (1997) Build operate transfer procurement traps : Examples from tansportation projects in Thailand. Procurement – A key to innovation. Davidson, C. H. et Abdul Meguid, T. (rédacteurs) CIB: Montréal. Porter, M. (1990) The comparative advantage of nations. The Free Press: New York. Roberts, C. J. B. (1972) Project analysis and organization design in building: An investigation into the performance of building projects, St-Louis Washington University. Thèse non publiée. Sliwinski, A. (2007) Désastre humanitaire dans la vallée hamacs. Les logiques de la reconstruction au Salvador. Anthropologie et Sociétés. Vol. 31, No. 2, pp. 113-131. St-Pierre, J. (2003) Relations entre l’exportation, le développement organisationnel et la situation financière des PMEs canadiennes. Revue Internationale PME. Vol. 16. No. 2, pp. 61-81. Walker, D. et Hampson, K. (2003) Procurement strategies: A relationship-based approach. Blackwell Science: Malden.

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Biographies des auteurs :

Dr. Gonzalo Lizarralde is a specialist in management, implementation and evaluation of architectural projects. He has long experience of research and consulting for architecture and construction projects particularly in the field of lowcost housing. Dr. Lizarralde has taught at the University of Cape Town, McGill University, Université de Montréal and Universidad Javeriana and has lectured in universities in Europe, USA and Latin America. He has a PhD from the Université de Montréal and a post doctorate from the Department of Construction Economics and Management of the University of Cape Town. He is the director of the grif – The IF Research Group of Université de Montréal.

Emeritus Professor and architect, Colin Davidson taught and conducted research at the Faculty of Environmental Design (Faculté de l’aménagement”) at the University of Montreal, where he was Dean from 1975 to 1985, and where he is responsible for the graduate programs in Project initiation and management (“Montage et gestion de projets d’aménage-ment”). Prof. Davidson’s research brings a systems approach to project organization and procurement, information and communications within the building team, and to reconstruction after natural disasters in developing countries. Prof. Davidson has participated in the work of various CIB commissions, including coordinating W102, since 1972. He has also practiced in the U.K., the USA and Italy.


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TRANS-DISCIPLINARY MANAGEMENT AND PARTNERING TO BETTER COLLABORATE AND INNOVATE IN A GLOBAL CONTEXT

Clément Demers, Université de Montréal email: [email protected] In collaboration with Joël Thibert, B.A., MUP

Abstract At the beginning of a project, each stakeholder starts with financial capital as well as with a capital of energy and enthusiasm. However, the lack of collaboration both within and outside of participant organizations often consumes parts of these vital resources. Furthermore, given mounting international competition, constrained government budgets, and the rapidity of technological and societal changes, project managers today are constantly called upon to find ways to do more and achieve better results with fewer resources. As a result of these trends, the project management team in the international context is faced with the need to collaborate more efficiently with professionals and stakeholders, and innovate continually throughout a project. Based on the successful management and realization of several large-scale construction, infrastructure, and urban design projects in Montreal, several factors were identified which promote collaboration and innovation: a common threat, outside competition, common values and objectives, transparent communication, and adequate organizational structures. In order to create the conditions for collaboration and innovation, two approaches were particularly successful: 1) the transdisciplinary approach, which is based on the involvement of and transparent communication between key actors from the early stages of a project until its delivery, and 2) the prevention of conflicts through partnering. These observations, in turn, point to the necessity for a new kind of leadership in project management based more on emotional intelligence than on technical skill. Keywords: Project Management; Innovation; Stakeholder Involvement; Partnering. Introduction In the early phases of a construction project, all stakeholders: the public or private promoter, the project manager, the contractor(s) and subcontractor(s), the engineers, the architects, etc.,come with a given amount of capital, i.e., with a reserve of funds, energy and enthusiasm, or motivation. This capital is not only crucial for starting up a project but it is also crucial for the well-functioning of a project throughout its realization. Furthermore, these reserves may be abundant but they are not unlimited, and must therefore be preserved. Yet, projects often fail because financial resources run out, because managers put time and energy in the wrong areas or simply as a result of demotivation. Indeed, even if only one of the stakeholders in a project is faced with such a predicament, the project as a whole can be compromised. The need for collaboration and innovation in project management As for the realization of any project, the main factor which causes the exhaustion of financial capital, energy, and motivation in construction and urban design projects is the lack of building abroad, Montreal, October 2008

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collaboration between stakeholders and participant organizations. For instance, a lack of collaboration between the work provider, the project manager, the engineers and architects, and the general contractor can result in the repetition of tasks by different people, time delays in the production of plans and specifications, cost overruns and the general feeling that stakeholders work for themselves, to their own benefit, and not to the benefit of the project. That being said, the money, time, energy and motivation of a project’s stakeholders can be preserved if the individuals and organizations involved are able to collaborate effectively. Creating the conditions for effective collaboration, in turn, is the project manager’s responsibility. The project environment in the Quebec context today is also characterized by other important factors. First, given mounting competition from proactive organizations both in Canada and on the international stage, project managers today cannot simply apply traditional project management recipes and expect to be successful; the success of a large-scale project today is largely determined by its originality and by the ability of those involved to break new ground. Second, Quebec is relatively less affluent than other Canadian provinces and other developed countries; to stay competitive, project managers in Quebec must therefore keep reinventing their practice. Third, social, economic, and technological changes in our society happen ever more rapidly; the changes, in turn, affect the project environment and our objectives become moving targets. As a consequence, project managers have no choice but to apply adaptive and flexible solutions, and cannot simply recycle solutions designed for simple problems and stable objectives. Finally, because of resource constraints there is constant pressure to increase productivity which means, concretely, that project managers have to achieve better results with fewer resources. Considering that the realization of a successful project is rarely repetitive and that project managers rarely adopt humdrum solutions to solve complex problems, a successful project must necessarily imply collaboration and innovation. In order to face unexpected difficulties or integrate new critical information, the project manager must rely on the collaboration of participant organizations and their ability to design “custom-made” solutions for specific situations. Given these premises, it follows that collaboration and innovation, whether technological, methodological, or organizational, are integral to problem-solving in project management. The aim of this research, then, is to identify the conditions which contribute to collaboration and innovation, and to propose methodological and organizational models which might help create these conditions. Research methods This research is based on the realization of several medium and large-scale construction and urban design projects in Montreal over the last 20 years, as well as on a review of several other case studies. Among the projects which were studied and analyzed, the following are notable: Projects realized in partnership with public and private funds • •

The Montreal World Trade Center and Montreal Intercontinental Hotel (1987-1992) The Chaussegros-de-Léry Complex (1988-1992)

Cultural project realized in partnership with three different sources of Public funds •

The Pointe-à-Callières Museum (1990-1992)

Projects in brownfield development • • 22

The restarting of the Anjou-sur-le-lac project (1994-1999) The Anjou Business Park (1994-1999)

Projects in urban design • •

The Quartier international de Montréal project (1997-2007), (recipient of 29 prizes, including the 2005 PMI Project of the year Award) The Quartier des spectacles project (2007 - )

Throughout these projects, several factors leading to innovation and collaboration between stakeholders were noted, and several methodological tools and organizational models were tested in order to identify the best conditions and methods for successful project management. Below, the research questions and objectives are presented.

Research questions: • What conditions contribute to collaboration and innovation in project management? • How can these conditions be created in the management of complex and sophisticated projects?

Research objectives: • Identify the conditions which promote collaboration and innovation in project management. • Identify and describe the management approaches and practices which contribute to creating these conditions. Research results and discussion

Factors and conditions Several factors and conditions were identified which lead to or promote collaboration and innovation in the project environment. These conditions, as well as the management approaches which help create them, are presented below. Conditions promoting collaboration First, experience shows that a common “threat” from the outside – whether it be competition for the same resources or the same client – promotes a constructive attitude among the partners and participant organizations of a project. It was also found that partners and participant organizations are more disposed to collaborate if they have common objectives and values, which allows them to see that their ultimate goals are not at odds (even if their proximate objectives might be). Second, effective communication was found to be a key factor in all cases mentioned above. Indeed, the ability to communicate the right information clearly and transparently to all stakeholders in the early phases of a project was crucial to a project’s well-functioning. If all participant organizations and stakeholders feel that they are “in the loop” and that they are being listened to before and during a project’s realization, they are less likely to oppose a project partly or wholly. It is important to mention, however, that good communication does not necessarily mean more information; indeed, to communicate effectively means to choose what information is relevant and to make it accessible to those who will receive it. building abroad, Montreal, October 2008

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Third, the possibility and prospect for both individuals and organizations involved in a project to gain something – whether formal recognition, career advancement, or a financial reward – through collaboration, also promotes an open and constructive attitude among stakeholders. Indeed, the stakeholders in a project must be made to understand that there can be mutual gain and that someone’s gain does not necessarily imply someone else’s loss. That being said, it is also important to make stakeholders realize that each stakeholder’s share of the pie will be larger if the pie is made larger before it is divided. In other words, all those involved in a project must realize that the project’s amelioration and enrichment is to their personal benefit and to the common benefit of all participant organizations. Lastly, the importance of adequate organizational structures and appropriate leadership was also noted. In effect, certain organizational structures are more conducive to effective participation and communication than others; for instance, small and multi-disciplinary project management teams tend to be more responsive than large organizations where it is often difficult to identify who is responsible and accountable for what. The way decisions are made throughout a project also impacts the propensity for collaboration; if participation in decision-making is encouraged, for instance, individuals will likely be more motivated to share their ideas and preoccupations. In summary, it appears as though a common threat, common values and objectives, the effectiveness of communication tools and the participation of stakeholders upstream from the project’s realization, the prospect for gain, the size and composition of the management team, as well as the leadership style of the project manager all have a significant impact on stakeholder collaboration. Condition promoting innovation The first condition which promoted innovation is similar to that which promoted collaboration: a common threat. Indeed, it was found that in most projects – as in most situations – necessity breeds invention. It could also be said that stakeholders, when faced with a situation where each individual and/or organization stands to lose, have a much higher level of motivation and are more likely to find an appropriate solution to the problem at hand. The second main factor which encourages innovation in project management is the effectiveness of the communication channels within and between organizations. The choice of information here is also important, but beyond that, the ease of communication and the ability to both emit and receive information are also crucial. In other words, communication must be interactive if the goal is, indeed, to arrive at the best possible solution. The third condition, which must necessarily be concomitant with the second, is collaboration within and between organizations. In the context of project management, where problems are complex and no one organization can claim all expertise, innovation must be based on the sharing of know-how and experience. Moreover, innovative solutions usually arise from the clash of ideas, which requires synergy and collaboration between the different stakeholders involved. Above and beyond that, collaboration is also necessary to actually implement innovative solutions; it is one thing to come up with a solution, it is quite another to put it in practice. The last factor which was identified is the importance of adequate organizational structures. As for the promotion of collaboration in the project environment, the promotion of innovation requires flexibility and adaptability in the project’s management structure. This, in turn, requires the project management team to be small, dynamic, and trans-disciplinary. Innovation also comes from the ability to form ad hoc partnerships to solve specific issues.

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Management approaches and practices The factors and conditions identified above all promote collaboration and innovation and, ultimately, the synergy between them. However, these conditions do not always come about spontaneously; in fact, it often takes time before effective communication channels are put in place and before the different stakeholders trust one another enough to share sensitive information and collaborate fully. From the case studies which form the basis of this research, we know that certain management approaches are more effective than others in creating these conditions. Two of these approaches, and the set of management skills that they imply, are described below. The trans-disciplinary approach to project management The first one is the “trans-disciplinary” approach which posits the management team not as a strict hierarchy or pyramid, but rather as professional community. This approach is based on three main premises: 1) individuals in this day and age, whether generalists or specialists, cannot manage sophisticated projects alone, 2) multidisciplinary organizations with strict lines of command and strict disciplinary boundaries lack flexibility and responsiveness, and 3) complex problems in project management today require an open working environment and sophisticated solutions which cross over disciplinary boundaries.

Complexity of the environment

The transdisciplinary approach

The organized multi disciplinary approach

Specialization in trades

The Renaissance Man

Multiple intelligences in one individual

Fragmented intelligences in a disorganized group

Organized intelligences in a hierarchical group

Multiple intelligences in a group working as a collective

Time

Fig. 1. From the global view of the individual during the Renaissance to the global view of the project management team today As illustrated in Figure 1, there was a time in human history when an individual could acquire the necessary knowledge and skills to think about an issue globally; he or she could use multiple intelligences to tackle different problems in different ways. With time, individuals became more and more specialized, such that the intelligences required to deal with complex problems became fragmented. Eventually, organizations tried (in vain) to recreate the global view of the “Renaissance Man” through hyper-specialization, the hierarchical organization of disciplines, fields of knowledge, and skills; this is the organized multi-disciplinary approach, such as that of most large bureaucracies. The trans-disciplinary approach takes us one step closer to the holistic building abroad, Montreal, October 2008

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view of the “Renaissance Man”, with individuals working together in an environment where there is no strict hierarchy and where professionals are informed about and involved in the activities of professionals in fields of practice other than their own. The trans-disciplinary approach in project management promotes both collaboration and innovation as it relies on the sharing of knowledge and expertise, the exchange of ideas, and the participation of all professionals and stakeholders involved in decision-making. Furthermore, this approach to project management requires smaller, more flexible organizational structures, which also tends to promote effective communication, solidarity among team members, as well as greater adaptability and flexibility. The “partnering” approach to problem-solving and conflict prevention The second approach or method which helps create the conditions described above, and which is complementary to the trans-disciplinary approach, is the “partnering” approach. Partnering exercises aim to involve and integrate all important stakeholders from the early phases of a project and give them a sense of common purpose. Partnering is based on the premise that problem-solving and negotiations between stakeholders should be based on the sharing of concerns, interests, and objectives rather than on the confrontation of positions, which generally leads to a lowest denominator compromise rather than to a solution that is beneficial to all. Figure 2 illustrates how the utility of stakeholders can be maximized when negotiations are based on mutual gain rather than on positions.

Adapted from a document prepared par John G. Wofford

Fig. 2. The maximization of stakeholder benefits under different negotiating conditions The three main goals of partnering are: 1) to help prevent conflicts, 2) to consolidate and solidify the “community of professionals” and other stakeholders that the project depends on, and 3) to find innovative solutions to existing and/or potential problems. Concretely, it consists of intensive workshops or work sessions with the stakeholders and the “extended” project team, usually held over two consecutive days and facilitated by an external party. Participation in these workshops is voluntary, but it should be supported by the leaders and decision-makers of each organization. Partnering promotes collaboration through: 1) the sharing of sensitive information with all participants in the early phases of a project, 2) the revelation, clarification, and (sometimes) elimination of unknowns, 3) the sharing of individual and collective interests, objectives, and concerns, and 4) the clarification of responsibilities among key players and actors in each 26

organization. This, in turn, allows participants to find, a priori, innovative solutions to face potential or hypothetical problems; in other words, partnering allows participants to evaluate risks and opportunities, and respond as a group. More generally, partnering allows for the building of a common perception of the issues, risks, and opportunities at hand among the stakeholders and professionals involved in the project. This, in turn, helps create a sense of solidarity and common purpose among participants, as it makes clear that the difficulties faced by one organization will affect the project as a whole and all other stakeholders. Emotional intelligence as a prerequisite to trans-disciplinary management

Fig. 3. The combination of abilities required from a project manager The approaches described above may indeed help create the conditions which will promote and encourage collaboration, communication, and innovation; however, the approaches in and of themselves will have little effect unless they are carried out effectively. This, in turn, requires the project manager and his team to develop not only technical skills but also more importantly, human skills. Figure 3 describes the main competencies and qualities required from a manager and his/her team. More specifically, the most important abilities and qualities that need to be developed among the project management team members are: the development of a global perspective on the issues at hand, self-sufficiency and self-discipline, the ability to react quickly, to adapt, to anticipate and to seize opportunities, creativity and self-initiative, the ability to negotiate, convince and establish one’s legitimacy, empathy and self-confidence, professionalism and a concern for ethical principles, political flair, optimism, and a sense of humour. In order to develop these abilities, it is important that each member of the team be willing to share his or her know-how, and learn that of the others. Thus, the project environment must foster curiosity and humility rather than over-specialization and complacency. These two qualities must be at the basis of any management approach which tries to bridge over varying professions, decision-making levels, interests and objectives. Indeed, only if each and every professional involved becomes aware that he or she needs the experience and know-how of others, will he or she accept to become an integral part of the professional community.


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Conclusions The solving of complex problems in the global project management context requires the collaboration of all stakeholders in order to find innovative and adaptive solutions which will benefit all parties involved. By and large, the conditions that promote collaboration and innovation are the same: a common threat, common values and objectives, effective and transparent communication, the prospect of gain, and adequate organizational structures. As expounded above, these conditions can, in turn, be created through trans-disciplinary management and partnering. However, it is not sufficient to preach the importance of inter-disciplinary project management; it is one thing to recognize the importance of crossing over disciplinary boundaries but it is another to actually carry it out. On the one hand, given international competition and the mobility of the labour force, it is relatively easy to sensitize stakeholders to the “threats” which we face from “the outside”. However, establishing effective communication channels and building a sense of common purpose among variegated individuals and organizations in today’s global context is more of a challenge because of cultural and linguistic barriers. For these reasons, it is important to emphasize the importance of the project manager’s emotional intelligence, as well as his or her ability to develop emotional intelligence among the members of his team. Indeed, the real challenge of the project manager today is not to manage budgets and schedules, but human beings with different apprehensions, beliefs, values, interests, and objectives. The only way to implement trans-disciplinary management, then, is to put human beings at the centre of the project, rather than bricks, and mortar. Project management is first and foremost a psychological and emotional exercise, and not strictly a technical challenge.

Key Lessons Learned: • The successful realization of sophisticated projects requires collaboration and innovation. • The conditions promoting collaboration and innovation are more or less the same: a common threat or challenge, common values and objectives, effective communication, and adequate organizational structures • Trans-disciplinary management and partnering both contribute to creating these conditions. • The successful implementation of these approaches depends largely on the emotional intelligence of the project manager and his/her team.

References Fisher, Roger, William Ury, Bruce Patton. (1991) Getting to yes: Negotiating agreement without giving in. Boston: Houghton Mifflin Books. Gardner, H. (1983) Frames of mind. New York, Basic Books. Goleman, Daniel. (1998) “What Makes a Leader?” Harvard Business Review, January 2004, pp. 82-91.

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Goleman, Daniel, Richard Boyatzis, Annie McKee. (2004) Primal Leadership: Realizing the Power of Emotional Intelligence. Cambridge, Harvard Business School Press.

Author’s Biography Clément Demers, architect (OAQ, RAIC), urban planner (OUQ, CIP), and project manager (MGP - PMP) obtained a Bachelor’s degree in architecture from Université de Montréal in 1973 and a Master's in Project Management from the Université du Québec à Montréal (UQAM) in 1984. He has built a distinguished career in the fields of urban planning and project management, most notably at the City of Montréal, where he held the positions of Deputy Director of the Urban Planning Department and Deputy Director of the Housing and Urban Development Department, at the Société du patrimoine architectural de Montréal, and at Cadev, the Real Estate Group of the Caisse de dépôt et de placement du Québec (CDPQ). Throughout the years, he was involved in several important real estate projects, such as the Museum of Pointeà-Callière, the World Trade Center of Montreal, the InterContinental hotel, the Chaussegros-de-Léry Complex, the Bagg and Cuvillier-Ostell buildings, and the 1 McGill condominiums project. He is currently General Director of the société Quartier international de Montréal (QIM), which led the urban revitalization project by the same name that has earned 29 national or international awards, including Project of the Year 2005 from the Project Management Institute (PMI). Governor of the PMI Montréal Chapter and professor (part-time) at the Faculté de l'aménagement (Faculty of Urban Planning and Architecture) of the Université de Montréal, Clément Demers has received a number of awards including the Hans Blumenfeld Prize in 2003 from the Ordre des urbanistes du Québec (Quebec chapter of Canadian Institute of Planners), the MGP Excellence Meritas Award in 2002, and the Management Performance Award in 2004 from the Réseau Gestion de l’UQÀM (the Management Network of the Université du Québec à Montréal). His accomplishments also earned him the title of Personality of the Week (journal La Presse) in 2005 and the Institut de design de Montréal’s Personality of the Year Award in 2007.


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EUROPEAN PUBLIC PRIVATE PARTNERSHIPS IN A GLOBAL WORLD Jean-Jacques Terrin, École Nationale Supérieure d’Architecture de Versailles email: [email protected] Abstract Complexity is increasing in both architectural and urban design. There is a strong demand for expertise, the objects are more complex, risks are higher, and end users are more demanding. In order to answer collectively to this situation, stakeholders implement collaborative standard procedures leading to various types of partnerships, especially between upstream (customers, designers) and downstream (builders, facilities managers, end users) expertises. At the same time, facing the financial disengagement of governments, the public sector needs financial partners and looks forwards to transfer parts of its responsibilities. This contributed to the emergence of new financial stakeholders and to stronger downstream management. To meet the constraints of this new environment, Public Private Partnership were created in U.K. in 1992. The EU Service Directive extended the scope of this public procurement system by redefining “public services” as “general services” that can be provided by public or private entities. Most European countries have adopted PPPs to varying degrees. In France, there is still a heated debate and some people oppose the system, particularly the designers. Yet, the whole European urban environment is slowly being privatized. Private companies use and create the urban space. Services are managed by private operators. Globalisation leads to a fierce competition between cities. Architectural and urban development projects are entering the financial and marketing sphere. They are confronted with new constraints called: profit margins, current assets, risk coverage, and stranger words like “branding” or “naming”. The merchandizing of urban design and architecture questions the role of culture, sports events, university, and their derived products, in Europe and in the rest of the World. Keywords: Public Private Partnership; Collaborative Design; European Union; European Cities; Globalization. Partnerships and Dynamic Professional Collaboration A Growing Complexity For several decades, project management had to meet increasingly complex challenges. Nowadays, architectural and urban design requires the participation of a growing number of stakeholders with wide ranging competences and skills. They are assigned tasks and responsibilities in a production process meandering through an increasing number of political and administrative obstacles. In addition, the objects to be designed are becoming more complex: they now include a variety of integrated services and must evolve over time, which poses additional engineering challenges and functional difficulties; their self-regulation requires the use of sophisticated technologies. The collective and individual responsibilities of the decision makers are also heavier, from an economic, social, environmental, or political point of view. Risk prevention is now part of the decision-making process. End users play an increasing role in feasibility studies, negotiations, and decision making processes. This again contributes to building abroad, Montreal, October 2008

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the project complexity. Similarly, the need to take into account the future performances of the structure during its full life cycle requires the participation of the downstream stakeholders in the whole design process. Collaborative Design and Partnership Process This increased complexity forces the various design participants to collaborate more efficiently. Collaborative design and negotiation facilitate the dialog between professionals working on the same project. Meeting the challenges of public policies, planning constraints, project strategies, and residents’ expectations, is now a concern shared by all the stakeholders. Collaborative design has become a sustainable issue. It provides a way to find a common thread between opposing logics: between long term and short term, global and local, public and private. Furthermore, in the current competitive and global environment, urban and architectural design must feed on innovation. In other business sectors like car manufacturing, aerospace, or cultural industries, the innovation process is a collective effort. Car manufacturers are developing coinnovation strategies with their suppliers/subcontractors to increase their creative resources (Christophe Midler). Finally, risks (as mentioned above) and uncertainties threatening the projects are controlled via a negotiation process that takes place at the same time between the design professionals themselves, and also between the latter and laymen stakeholders such as politicians and users. This is why manufacturers and politicians alike use “hybrid forums” such as « focus groups » to dispel some of the project uncertainties (Michel Callon). A double flow of knowledge and know-how is thus created between upstream (the client/designer couple) and downstream (builders, managers, and life cycle experts). Collaborative design, co-innovation, coexperimenting bring designers, customers, companies, managers, and users closer. This translates into various types of partnerships based on local regulatory specificities, on the scale and complexity of the project, on the urgency level and risk exposure. The Development of Public - Private Partnerships Reduced Government Funding As clients (project owners) were feeling the burden of increased responsibilities, mainly due to the strong political content of local projects, they started looking for partners to help them fund their projects and take away part of the technical and financial responsibilities that were becoming too burdensome. As public authorities were pulling back and wanted to transfer the risks to third parties, they turned to the private sector in their search for partners. Independent engineering firms do not offer the financial guarantees required in large projects of that scale. Partnership policy contributed to establish the leadership of multinational building firms looking for new markets in their national territory and in export markets. In recent years these firms were the object of a number of mergers and acquisitions in order to channel their resources back to their core business. As a consequence they outsourced non-core activities to independent service providers. They used subcontracting agreements, alliances, and partner networks to broaden their offer of services. These parallel strategies, born from the withdrawal of public authorities and the search for private financial partners, accelerated the development of partnership agreements between public authorities and private operators. As a consequence new financial players entered the market. While the financial clout was shifting from public to private sector, the private financial partners imposed their rules on a sector which had not endorsed them yet. A growing number of architecture and urban planning projects must now provide answers to issues like: profit margins, cash flow, risk coverage, and globalization.

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Public clients are increasingly looking for facilities management services as they are concerned by the future consequences of the design: maintenance, future refurbishing, and upgrades, etc. The growing attention paid to these tasks linked to use and life cycle, led to the development of various types of contracts. Despite their different legal makeup, all these contracts are based on a concession granted for a certain period of time, by a public organization to a private operator who takes full responsibility for the building, from design to construction and operating phases. Until now, these contracts were mainly used for large scale projects and were often legitimated by urgency and better risk sharing with the private partner. In fact, these procedures can be used in all the contracts awarded by public authorities. They are well suited to building and urban development projects. As they are becoming widely accepted, the resulting downstream impact on all the architecture and town planning projects will significantly change the production process and its stakeholders, the designers in particular. People in charge of facilities management and maintenance will be much more involved in the decision making process. The tasks of clients and architectural design will undergo major changes, leading them to a performance oriented approach and to a collaborative implementation of the project processes. The client / designer relation is supported by two new functions: a financial function provided by real estate professionals and financial specialists (equity managers), and a service function provided by the people responsible for maintaining and operating the building (facilities managers). A Parallel European Evolution. The GIS Directive (General Interest Services) initiated by the E.U. Commission promotes the replacement of the Public Service principle by the concept of General Interest Service that can be provided either by a public or a private company. It is now called “SGEI” ( “Service of General Economic Interest”). The phased introduction of the Directive in E.U. countries, in spite of the criticisms voiced by some (we will forget about the ridiculous argument about the Polish plumber that made the headlines of the French media a few years ago), induced a liberalization of the public service sector and brought significant changes to many aspects of the European public culture: transport, telecoms, distribution networks for instance, are increasingly managed by private companies. For urban planning projects in France for example, public companies, which were the main vehicle used by local government agencies for land acquisition and urban development, are now competing with private real estate companies, calling into question the sometimes feudal strategies of certain local governments. The emergence of Public - Private Partnerships (PPP) in Europe The British Model The British PFI (Private Finances Initiative) model appeared in 1992 (at a time people were talking about: individual partnering or multi-project partnering). This type of contract covers roughly 15% of public investments in the UK. The initial objective was to find funding for public infrastructures but soon it became a deliberate attempt to change the nature of the relations with private companies in order to reduce the risks carried by the end client, and let the concession grantors cover these risks. The arguments of British authorities in favor of the PPP system are well-known: speeding up of the process with a pre-financing for the project realization, innovation which benefits the community thanks to the dynamism of the private sector, total cost of ownership approach, performance guarantee over time, and risk sharing between public and private partners, each of them covering the risks that it controls best. When the system was adopted there was a debate on the contradictions in the system between the client’s search for improved profitability and the reduced competition resulting from the PFI (Graham Winch). Some claimed that companies would not be ready to align design and costs; that marketing would take over and that the lack of trained project managers and subcontractors would become problematic. The role of the project manager on the other hand would not be seen as an addedbuilding abroad, Montreal, October 2008

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value but as a separate mission governed only by intellectual property rights. Nevertheless, the system has been spreading in recent years and is now used in a large number of economic sectors. UK showed the way and European countries are gradually adopting the system while adjusting it to their own legal environments. A Procedure That is Spreading Throughout Europe In 2004, the European Commission released a Green Book on PPP. Here is the definition of PPP given by the Commission: “type of cooperation between the public authorities and the corporate world aimed at insuring the financing, construction, restoration, management, or maintenance of an infrastructure or the supply of a service”. Most European countries copied this procedure, more or less, making adjustments to their local environments. The institutional and legal framework, the design process and even the terminology differ from country to country, as they follow the national administrative procedures and professional rules in force. It is difficult to compare one country with another, but the political and business management of these projects contributed to a progressive standardization of the procedures. Even when the definitions and the underlying business models are different, the PPP system is increasingly seen as a complex procedure focusing on the life cycle analysis. Furthermore, beyond the objectives of budgetary optimization and economic efficiency (« Best Value for Money »), the need to modernize public administration also appears everywhere. This is particularly true in Central and Eastern European countries, which joined the EU recently. They are short of funds and must clarify a legacy of ambiguous relations between public and private sectors. With the exception of the United Kingdom, which deployed PFIs in most economic sectors, the rest of Europe first used PPPs to develop transport infrastructures (railway tracks and rolling stock, airports, roads, and highways, etc). Now, a number of public facilities like hospitals and prisons are built with PPP contracts. The university renewal programs planned in several countries are also considering the use of this type of procedure in the coming years. The French Situation France authorized public-private partnership contracts in 2004 and extended them in 2006. Preliminary experiments took place, generally in the form of concessions, with entities like « Aéroports de Paris » or for large projects like the « Stade de France ». Various procedures were used with questionable results, mainly for public procurement contracts awarded to public works companies (METP), and for “design and build” calls. The example of « Val d’Europe » in Marne la Vallée, a project born from negotiations between the French government and the Walt Disney Company, is representative of the way new relations were developed between public and private sectors, in a French public planning environment that was not particularly prepared for such alliances. Overall some 130 PPP projects could be identified in France at the end of 2007. So far, 27 of them have ended in signed contracts for a total investment amount of 500 million Euros. These contracts deal mainly with transport infrastructures, urban facilities, and buildings for the penitentiary, military, cultural, and hospital sectors (for the latter, the contract took the form of a Hospital emphyteutic lease – « BEH- Bail emphytéotique hospitalier »). The legislative and institutional debate is not over yet in the country. The 2004 Law provides that these contracts must remain an exception to the rule and are restricted to urgent or complex projects. With the recent vote of a new Law (July 08) the government tried to extend and even generalize the practice to a large number of sectors, identified as priority sectors: universities, research, environment, transport, urban planning, construction of schools, etc. The Constitutional Council partially cancelled the Law (July 24th, 08), considering that generalizing this type of contract was against “an equal access to public contracts, the protection of public property, and the proper use of public money”. Moreover, they introduced a third criterion making it possible to 34

use PPPs when the benefits v/s drawbacks ratio is higher than with any other type of contract. This refers to the concept of evaluation, with all the problems linked to that approach. Debate and Criticisms PPPs are the object of a heated debate in France and in other UE countries that resist its general adoption for a number of reasons that differ from one country to another. Certain countries object to foregoing their national standards, in particular in France where there is a tightly regulated public procurement system (Code des Marchés Publics). A number of issues are hotly debated everywhere: the lengthy negotiations with their huge costs, protection of property rights in collaborative projects, and lack of performance indicators to assess and compare completed projects. Some argue against PPPs because of the overall increase in project costs, caused mainly by the increased risk coverage of private operators. Another risk identified relates to the post-contractual period and the sustained service performance level. Conversely others lean in the favor of PPPs because they favor design processes that are less sequential and linear, but more interactive and more collaborative. They also stimulate the development of new skills, in particular in the project planning and mediation phases during the contract negotiation and design work. A number of professionals criticized the new system. Architects were the most critical, but SMEs (Small and Medium companies) were also concerned with the burden of new procedures becoming too heavy, too long, and too expensive. Designers fear loosing their responsibilities, they are no longer involved in the selection of the team members during the bidding phase. They fear losing their direct contact with the client responsible for the final decision. One of the main criticisms of PPP projects is based on the risk of producing a succession of standard projects. The PPP system itself requires the use of standard procedures, contracts, management methods, specifications, and assessments. One may wonder about the consequences of this standard approach on the quality delivered. In other words, does the concept of “Best Value for Money” kill creativity? Does the system lead to quality architecture and innovative solutions? Or does it turn architectural production into a routine activity? So far, results are not completely convincing, but it is not sure that the procedure itself is the culprit either. In many cases it seems that the briefing and the preliminary design work was not always properly carried out by the end client and this impacted the whole design. PPPs do lack flexibility. The heavy decision-making process for technical and economic issues does not facilitate later reviews of the project objectives. This may also impact the definition of the expected quality level. It is proven that PPPs promote team co-optation, access to public procurement for large agencies that are well organized, and appear reassuring to the financial partner. They also facilitate access to public procurement agencies specialized in the object of the contract, thus limiting the risk taking, and to engineering firms with enough financial clout to undertake expensive studies without getting paid quickly. The perception of architectural quality appears to be changing. It becomes a component of the marketing presentation by the real estate operator and it must provide a financial return as well. It must appeal to both the building owner and the financier. Unfortunately they may not give the same meaning to the word « sustainability ». Public - Private Partnerships and Globalization Cities are Being Privatized Looking beyond the PPPs, European cities are now becoming the object of privatization. Companies create and use a significant part of urban space. They are managing an increasing number of public services like water distribution, energy supply, waste collection, and most of the environment services. They are usually granted a concession to provide the service. Often they building abroad, Montreal, October 2008

35

become full scale urban partners in the management of cities and contribute to their economic development, as residents, service providers, and financial partners via the taxes they pay and the investments they make. More and more local authorities call on the financial and organizational skills of private companies for innovative and complex projects. Private companies are frequently awarded the management of urban development projects formerly entrusted to public administrations, including projects located in tough suburban districts, or for social housing projects traditionally carried out by specialized public operators (Isabelle BaraudSerfaty). Private operators are used to boost the image of dynamism that cities want to project nationally and internationally. Global Competition As competition between large metropolises is getting tougher, cities feel the need to enhance their force of attraction on companies and residents, by offering better services and better living conditions. Public areas, cultural facilities, transport networks, schools, recreational centers, retail shops, all contribute to the urban environment quality. The city’s image as projected in international media, on the world stage, is the key to success in its attraction strategy. Buildings designed by famous architects, prestigious urban developments, renowned cultural facilities are also part of the strategy, as well as the annual events scheduled by most cities: festivals, international exhibitions, sports events, congresses. These became the object of a fierce competition between cities, leading them to fight for the services of private operators of national or international fame. Bilbao played pioneer in that field with its daring « reconquista » strategy to regain its role of regional capital, when it commissioned Frank Gehry to design the Guggenheim museum, which became the emblematic icon of its revival. In no time the project fame spilled over the borders of the Spanish Basque Country. Similarly Barcelona took a major step when it launched an incredible urban planning effort after being awarded the Summer Olympic Games in 1992. There are many examples of architectural or urban projects undertaken in Europe and in the rest of the world to boost the cities’ image and attraction. Results were not always in line with expectations. The best known examples are: the ambitious projects of Seville and Lisbon for the World Fairs hosted by both cities: or the Spina project in Torino, centered on a high speed train railway station built for the 2006 Winter Olympic:; or Beijing’s efforts to promote its Olympic Games: or Shanghai’s plans for the 2010 World Fair. Urban Merchandising Recently the Louvre Museum made headlines in France. Following in the steps of the Guggenheim museum in Bilbao and Venice, the French museum offered to build and manage, for thirty years, a museum bearing its name in the Emirate of Abhu Dhabi, at a cost of 1 billion Euros. The promoters of a major real estate leisure project located in the Saadiyat Island (it is part of a gigantic tourist center intended to redirect the whole economic development of the country) want to create a huge “cultural project” with the construction of four museums and an entertainment center which will become the island’s “cultural district”. The plan is aimed at boosting the international prestige of the project by calling on world famous names in the museum culture. This is what is meant by « merchandising of urban space ». The concepts of “landmark projects” and their “derivative products” are now part of the urban planning and architecture vocabulary. The agreement signed between the city of Lyons and Emirate of Dubai is another example. The Emirate wants to launch a real estate project to create a whole district inspired by Lyons’ “heart and spirit” by duplicating “the best Lyons has to offer in terms of style and quality of life”. The projected small town will have three thousand residences, offices, and retail stores and will be built around squares, pedestrian streets, buildings and cafés re-creating the ambiance of Lyons. How about derivative products? A cinematheque (branch of the « Institut Louis Lumière ») a hotel school managed by the « Bocuse Institute », a football training center managed by the « Olympique Lyonnais » football club, a branch of the Lyons famous fabrics 36

museum. The first investment round of the Lyons Dubai project amounts to 500 million Euros. “Dreams are priceless and in Dubai we make dreams come true”, says the Dubai developer, Buti Saaed Al Gandhi in an interview with the French newspaper « Le Monde ». The strategy is spreading. There are now countless museums, stadiums, theaters that became the “icing on the cake” of prestige urban development programs: the « Confluences » museum in Lyons, the Georges Pompidou Centre in Metz, America’s Cup in Valencia in Spain. The Principality of Monaco announced “the construction of a `' landmark facility with a cultural purpose” ( status still to be defined) to sell a titanic 15 hectares project built on the sea. We have to wonder about the role played by culture, major sports events, education, universities, in this competition for world preeminence, and about the role played by architecture and urban planning when they are used to promote large scale financial transactions. As a proof that we are entering a new era is the marketing terminology entered recently into the language of urban planning. Words like «naming» or «branding» are now used to identify the development practices of hypermodern cities. According to the American economist Richard Florida these practices are developed by a “new creative class” also called the “manipulators of symbols” by François Ascher. References Ascher, F. (2000) Ces évènements nous dépassent, feignons d’en être les organisateurs, essai sur la société contemporaine, L’aube, Paris. Baraud-Serfaty I. (2005) Capitales et capitaux : l’entreprise urbaniste ? », Revue Urbanisme n°344. Bougrain F., Carassus J., Colombard-Prout M. (2005) Partenariat public-privé et bâtiment en Europe : quels enseignements pour la France ? Retour d'expériences du Royaume-Uni, d'Italie, du Danemark et de France, Presses de l'ENPC, Paris. Callon M., Lascoumes P. et Barte Y. (2001) Agir dans un monde incertain, essai sur la démocratie technique, Le Seuil, Paris. Florida R. (2005) Cities and the creative class, Routledge, New York. Midler Ch. (2001) Partager la conception pour innover : nouvelles pratiques de relation interfirmes en conception, Actes du congrès de l’AFITEP, Paris. Terrin J.J. dir. (2005) Maîtres d’ouvrage, maîtres d’œuvre, entreprises, de nouveaux enjeux pour les pratiques de projet, Eyrolles, Paris. Winch, G. & Symes M. (2004) Les Mutations dans l'industrie du Batiment Britannique: partnering, financement prive et renouvellement urbain, in O Chadoin & T Evette (ed.), Activités d'architectes en Europe Nouvelles Pratiques, Editions de la Villette, Paris.


37

Author's Biography Jean-Jacques Terrin graduated as an architect, and has a Phd in architecture. He has worked on numerous design projects and urban planning assignments both in France and abroad. From 1996 to 2001 he ran a major research program for the French Equipment Ministry on the development of new architectural and planning practices. He has been the French delegate to the Europan Community. From 1998 to 2003 he created and managed an Urban Engineering Department at the Compiegne University of Technology. He is currently professor at the Versailles School of Architecture. He has undertaken numerous research projects and has published articles and books on the changes in design practices and their new relations with technology.

38

building

abroad


IMPACT OF CHINA IN THE INTERNATIONAL CONTEXT OF CONSTRUCTION

Francis K.W. Wong, The Hong Kong Polytechnic University email: [email protected]

Abstract This paper provides an overview of the development of the Chinese construction industry in the past 30 years. Statistical data indicates that the construction industry is one of the major economic sectors in China. The growth rate of Chinese construction, both in terms of construction GDP; construction areas; number of construction companies and total profit levels, were particularly high in the last few years. There is also substantial increase to foreign investment in China, as well as an increasing number of Chinese construction companies working overseas. The paper concludes that China is working towards integration with the international construction market as one of its key players. Keywords: China; Construction; Market; International Context. Introduction China is a huge country with a population of 1.3 billion people, which represents 22% of the total population in the world. In the last 5 years, China’s economic growth has remained very strong and its GDP remains at a comparatively high level, from 10 to 12% per annum. Construction, as always, is one of the most important pillars for the economic growth in China. The purpose of this paper is to highlight the impact of China in the international context of construction. International construction can be defined as construction projects where one company, resident in one country, performs construction works in another country (Mawhinney, 2001). Development of the construction industry in China can be divided into different stages throughout the past thirty years. There were milestones such: as the announcement of the ‘Open Door Policy’ by the Chinese government in 1978, the ‘Housing Reform Policy’ in 1988, and China’s entrance into the World Trade Organization (WTO) as a member in 2001, etc. This paper introduces the Chinese construction industry in the past, follows with the current construction market performance, and ends with the possible ways forward in the future.


39

China’s construction and housing industry in the Past Before 1979 The People’s Republic of China was established in 1949 and since then a planned economy has been adopted. Hence, there has been no private ownership of land and housing. Individual families were allocated housing from their ‘units’ (factories or enterprises) for which they worked. Construction of housing depends entirely on the availability of public funding and, as a consequence, housing provision has fallen far behind the increasing demand, particularly in urban cities (Wong, Yeung & Howes, 1995). From 1979 to 1997 Since implementation of Deng Xiao-ping’s idea about “marketization” of housing in China in 1980, the socialist in China has implicitly accepted the mechanism of “market” that resulted in many changes to the urban housing system in which home purchase is encouraged. The changes include the sale of state-owned housing, rent-increases, and the participation of private developers in housing construction. The reform, however, made only little progress. Considerable housing needs and low affordability are two of the major difficulties. The living conditions were far from acceptable with 45% of the housing units throughout China lacking the basic facilities, such as kitchens and lavatories. It is estimated that 3.25 million staff and workers were still living in quarters less than 4 m2 per capita, in 1996. According to an investigation by the Ministry of Construction in the early 1990s, the average price of commodity housing was twelve times the annual income of the middle-income group in Shanghai. On the other hand, the vacancy rate of commodity housing is 9.9%, equivalent to a total area of 50 million square meters (Urban Housing Reform in China - A Review of Welfare Housing Development in Beijing 1987 - 1997). During the period from 1979 to 1997, up to 15 billion m2 of urban and rural housing was built nation wide. The urban residential floor area per capita got up to 8.8 m2 by the end of 1997 compared with 3.5 m2 in 1978 (Nie, 2008). From 1998 to 2007 The policy to encourage Urban Housing Reform and to accelerate the pace of housing construction was delivered by the central government by the end of 1998, with the purpose to maintain the development of the national economy through housing investment and consumption. Since then, the allocation of welfare housing has been terminated and replaced with the encouragement of home purchase. The new housing policy reform can be summarised as: “Force” - the cessation of housing allocation, “Guide” - guidance to housing consumption, “Push” - development of the second-hand housing market, and “Help” - development of housing mortgage facility. The reform has since gradually activated the real estate market. The average annual housing production was at 800 – 900 million square meters during the period 1987 to 1997 and the number reached 1,230 million square meters in 1998 (Science & Technology Department, 1999). Yet, there is still an immense demand for housing in China. It will not be able to satisfy the housing demand, both in quality and quantity, with reliance on the traditional methods of construction (Wong, et al, 2001). China has benefited from an extraordinary economic growth in the last 5 years, 2003 to 2007 with; its GDP growth rate maintained at above 10% throughout this period; and particularly in the 40

secondary industry which includes construction, at a GDP growth rate of 13% in 2006. China’s GDP in 2007 was at about 25 trillion RMB (refer to Table 1). Table 1. China’s GDP and growth rates 1998-2007 YEAR

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

GDP (RMB 100 million)

84402.3

89677.1

99214.6

109655.2

120332.7

135822.8

159878.3

183084.8

210871.0

249530.6

Growth Rate

7.8%

7.6%

8.4%

8.3%

9.1%

10.0%

10.1%

10.40%

11.10%

11.90%

Primary Industry Growth

3.5%

2.8%

2.4%

2.8%

2.9%

2.5%

6.3%

5.2%

5.0%

—

Secondary Industry Growth

8.9%

8.1%

9.4%

8.4%

9.8%

12.7%

11.1%

11.7%

13.0%

—

Tertiary Industry Growth

8.4%

9.3%

9.7%

10.3%

10.4%

9.5%

10.1%

10.5%

10.8%

—

Per Capita 6796 GDP (RMB/person)

7159

7858

8622

9398

10542

12336

14103

16084

18868

GDP was calculated by using the nominal dollar value (RMB) Current exchange value between US dollar and RMB is 1 : 6.8522 Source: China Statistical Yearbook (From 1999 to 2007) The Chinese economy has enjoyed continuous growth in the past years as indicated in Figure 1. Per capita GDP was increased from about 7,000 RMB in 1998 to about 19,000 RMB in 2007.

2000 1800 1600 1400 1200 1000 800 600 400 200 0

199

199

200

200

200

200

200

200

200

200

Fig. 1. Per Capita GDP of China from 1998 to 2007

Contribution of the construction GDP to the overall national economy maintained an average level of 5.5% in the last few years. The value of construction GDP was 1,185 billion RMB in 2006 (refer to Table 2).


41

Table 2. GDP of China's construction industry YEAR

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Construction GDP (100 million)

4621.6

4985.8

5172.1

5522.3

5931.7

6465.5

7490.8

8694.3

10133.8

11851.1

Growth Rate of Construction GDP

2.6%

9.0%

4.3%

5.7%

6.8%

8.8%

12.1%

8.1%

12.6%

13.7%

Contribution of Construction GDP to economy

5.9%

5.9%

5.8%

5.6%

5.4%

5.4%

5.5%

5.4%

5.5%

5.6%

Construction Gross Output Value (100 million)

9126.5

10062.0

11152.9

12497.6

15361.6

18527.2

23083.9

29021.5

34552.1

41557.2

Growth Rate of Construction Gross Output Value

10.19%

10.25%

10.84%

12.06%

22.91%

20.61%

24.59%

25.70%

19.10%

20.30%

2783.8

3022.3

3341.1

4023.6

4698.3

4654.7

5665.9

6899.71

8116.39

Value Added of Construction 2540.5 (100 million)

Source: China Statistical Yearbook (From 1998 to 2007) The growth rate of construction GDP was in an upward trend with gradual growth from 5% in 1997, to 14% in 2006, as shown in Figure 2. The growth rate of construction Gross Output Value within the same period had enjoyed a similar increase, from 10% in 1997 to above 20% in 2006.

30.00 25.00 20.00 15.00 10.00 5.00 0.00 199

199

199

200

200

200

200

200

200

200

Growth Rate of Construction Gross Growth Rate of Construction Growth Rate of National GDP Fig. 2. The growth rate of national GDP, construction GDP, and the construction Gross Output Value (GOV) Concerning the investment in housing, a total area of 1,900 million m2 of works were completed, with another 4,800 million m2 of works in progress in 2007, as compared to 750 million m2 of completed works and 1,300 million m2 works in progress in 1998 (refer to Figure 3). In the first half year of 2008, the total area of housing construction was at 3,695 million m2, a year-on-year increase of 20.1% (National Bureau of Statistics of China, 2008).

42

million square t 500 400 300 200 100 0 199

199

200

200

200

200

200

Area under

200

200

200

Area

Fig. 3. Construction areas - housing The growth in size of the construction market in China can be reflected by the increase in number of registered construction companies in the country. As observed in Figure 4, there were about 44,000 registered construction companies in China in 1997 but in 2006, the number was increased to above 60,000, an increase of 36% in 10 years (China Statistical Yearbook, 1998 to 2007).

7000 6000 5000 4000 3000 2000 1000 0 199

199

199

200

200

200

200

200

200

200

Number of

Fig. 4. Rate of development of Chinese construction companies Another performance indicator for the construction companies in the China market is the increase in their profits. Figure 5 indicated the total profits of Chinese construction companies where 20 billion RMB in 2000, which increased to 120 billion RMB in 2006. That represented an increase of 500% in total profits in 6 years (China Statistical Yearbook, 1998 to 2007).


43

Total profits (RMB 100 140 120 100 80 60 40 20 0 199

199

199

200

200

200

200

200

200

200

Fig. 5. Development of Chinese construction companies (Total Profits) The recent development of the local construction market has attracted a number of foreign investments in China. As shown in Figure 6, the total amount of foreign investment had maintained at a relatively stable condition in a 5 year period from 1997 to 2001. However, there was a clear sign of rapid increase in foreign investment in terms of Gross Output Value in the following 5 year period, from 9 billion RMB in 2002 to above 27 billion RMB in 2006. This signifies that more foreign investors and companies are looking for investment opportunities in the newly opened market in China (China Statistical Yearbook, 1998 to 2007).

300 250 200 150 100 50 0 1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Gross output value from foreign investment (100 million)

Fig. 6. Gross output value from foreign investment The investment for construction and installation of fixed asset was 6,677 billion RMB, which equalled to 60.7% of the 11,000 billion RMB total investments, in 2006. The growth rate of investment for construction and installation of fixed assets was an average of 25.8%, from 2003 to 2006, and remains at a very high level.

44

Table 3. Fixed asset investment 1997-2006 YEAR

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

(100 million Yuan)

24941.1

28406.2

29854.7

32917.7

37213.5

43499.9

55566.6

70477.4

88773.6

109998.2

Growth Rate

8.9%

13.9%

5.1%

10.3%

13.0%

16.9%

27.7%

26.6%

26.0%

23.9%

Investment for construction and installation 15614 (100 million Yuan)

17874.5

18795.9

20536.3

22954.9

26578.9

33447.2

42803.6

53382.6

66775.8

Growth Rate

14.4%

5.2%

9.2%

11.8%

15.8%

25.8%

27.9%

24.7%

25.1%

62.9%

63.0%

62.4%

61.7%

61.1%

60.2%

60.7%

60.1%

60.7%

Total Investment

3.3%

Percentage of Investment construction and 62.6% installation fixed asset investment

Source: China Statistical Yearbook (From 1998 to 2007) and Lu (2006)

As shown in Table 4, the industry and construction (i.e. the secondary industry) has the biggest share in the composition of the national GDP, at 48.9% in year 2006.

Table 4. Composition of the GDP in term of different economic sectors YEAR Agriculture Industry & Construction Tertiary Industry Gross Domestic Product

1985 28.4% 42.9% 28.7% 100.0%

1990 27.1% 41.3% 31.6% 100.0%

1995 19.9% 47.2% 32.9% 100.0%

2000 15.1% 45.9% 39.0% 100.0%

2005 12.5% 47.5% 40.0% 100.0%

2006 11.7% 48.9% 39.4% 100.0%

Source: China Statistical Yearbook (From 1986 to 2007)

There are signs of growing economic co-operation between China’s construction enterprises, and foreign investors and organizations. The total contracted value of these joint economic cooperations increased from US$ 13 billion in 1999 to US$ 27.3 billion in 2004, which represented an increase of 110% in 5 years. Foreign investors are now more willing to participate in the Chinese construction market after China’s entry into the WTO in 2001. It is because foreign companies are now better protected by the General Agreement on Tariffs and Trade (GATT), and there is a more level playing field between the local and foreign construction companies.


45

Table 5. Selected indicators for economic cooperation with foreign countries & territories of China’s construction enterprises Economic Cooperation with Foreign Countries & Territories (USD 100 million) Contracted Value

1999

2000

2001

2002

2003

2004

130.02

149.43

164.55

178.91

209.3

273.4

- Contracted Projects

101.99

117.19

130.39

150.55

176.67

238.4

- Labor Services

26.32

29.91

33.28

27.52

30.87

35 212.2

Value of Business Fulfilled

112.35

113.25

121.39

143.52

172.34

- Contracted Projects

85.22

83.79

88.99

111.94

138.37

174.7

- Labor Services

26.23

28.13

31.77

30.71

33.09

37.5

Source: Lu (2006) The construction Gross Output Value of the Chinese construction industry was at 4,156 billion RMB in 2006 and the average growth rate of construction Gross Output Value was 22.1% from 2002 to 2006. In the first half-year of 2008, all the construction enterprises in China combined achieved a total construction output value of 2,266.5 billion RMB, a year-on-year increase of 24.4% (National Bureau of Statistics of China, 2008). Table 6. Gross output value of construction industry Year

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Construction Gross Output Value (RMB100 million)

9126.5

10062.0

11152.9

12497.6

15361.6

18527.2

23083.9

29021.5

34552.1

41557.2

Growth Rate of Construction Gross Output Value

10.19%

10.25%

10.84%

12.06%

22.91%

20.61%

24.59%

25.70%

19.10%

20.30%

Source: China Statistical Yearbook (from 1998 to 2007)

In additional to the opening up of the local construction market in China for foreign construction companies and investors, there are also an increasing number of Chinese construction companies willing and able to secure construction works overseas. The number of international Chinese construction companies (CICC) increased from 33 in 1999, to 49 in 2006, on the Engineering News-Record (ENR)’s list of top 225 international contractors. According to ENR, China State Construction and Engineering Company (CSCEC) was ranked number 18 in year 2006.

46

Table. 7. A brief summary of CICCs on the ENR’s top 225 international contractors Year Number of Chinese Contractors in the Top 225 List

1999

2000

2001

2002

2003

2004

2005

2006

33

35

40

43

47

49

46

49

Construction Revenue of the Chinese Contractors (US$100 million)

60.98

53.84

59.47

71.34

83.32

83.33

100.67

162.89

Percentage of the Construction Revenue in the Total 225 Contractors

5.10%

4.60%

5.60%

6.10%

5.96%

5.30%

5.30%

7.3%

NA

NA

NA

16

17

17

20

18

Ranking of the CSCEC

Source: Engineering News-Record (ENR) (2007; 2006; 2005; 2004; 2003; 2002; 2001; 2000) and Lu (2006) Table 8 indicates that Chinese construction companies participated in the international market mainly for engineering works (92% in terms of contracted value), with 7% for provision of labour services, and less than 1% for architecture and consultant services.

Table. 8. A brief summary of CICCs in the international market (After China entered WTO) 2002 Foreign contractual engineering

Labor service cooperation

2003

2004

2005

2006

Value of Business Fulfilled (US$ 100 million)

111.9

138.4

174.7

217.6

300

Contracted Value (US$ 100 million)

150.6

176.7

238.4

296.1

660


30.7

33.1

37.5

47.9

53.7


27.5

30.9

35

42.5

52.3


NA

NA

NA

2.27

3.3


NA

NA

NA

3.57

3.3

Foreign architecture and consultant

Source: China Statistical Yearbook (NBS, 2006), MOFCOM website and (Lu, et al., 2008)

A research study on the competitiveness of construction companies in the China construction market identified the following factors which are important for success in competition (Lu, 2008). The top 5 key factors (in priority) included: bidding strategy, competitive strategy, relationship with the government departments, cost management, and sustainable development of human resources.


47

Table 9.

Factors of success for competition in China’s construction market

Ranking

Factors

Total Score

Mean

Standard deviation

Source: (Lu, Shen & Yam, 2008) Discussion and Conclusions China is now one of the largest providers of construction materials, with annual output of cement, plate glass, and ceramics ranking the world at number one (China Knowledge Press, 2004). However, the huge output of China’s construction materials is mostly at the middle to low quality level. It is the high-end, high quality niche area that foreign construction materials have found their market.

Quite a number of foreign construction material manufacturers, namely, the Salux Group, Owens Corning, and B&Q, etc. have successfully ventured into the Chinese market. The Chinese import data indicate that the Italian and Spanish are very strong foreign suppliers of marble, granite, and tile products; the Japanese, Belgians, and Taiwanese are top suppliers of glass products; and the Japanese and Germans are key providers of sealants (China Knowledge Press, 2004).

Development of China’s construction industry can be reflected by the production of cement as one of the most important construction materials. Cement manufacturing is the largest sector in China’s construction materials industry. Among China’s top 100 construction materials companies in 2003, 59 were cement manufacturers.

About 42% of the cement exports are from the Shandong province. Foreign invested manufacturers contribute 40% of China’s total cement export and their products are also sold in the domestic market. South Korea was the largest buyer of Chinese cement in 2005 (People’s Daily Online, 2005). 48

Cement exports amounted to 15.24 million ton in the second half of 2007 and around 8 million ton in the first quarter of 2008. There is a sign of shifting China’s cement export from Advanced Industrialized Countries (AICs), to Newly Industrialized Countries (NICs) and Less Developed Countries (LDCs). Export to the EU and USA is falling, while the export to Africa and the Middle East is increasing dramatically. The most staggering rise has taken place in export to United Arab Emirates (UAE) (People’s Daily Online, 2005). China exported 1.8 million tons of cement to the EU, 37.8% lower than that in the first quarter of 2006. Cement export to Spain decreases by 45.3%, to 1.33 million ton and accounts for 73.8% of that of EU. Export to USA fell by 13.5% to 0.76 million ton. On the contrary, exports to Africa enjoyed an increase of 64.3% which amounts to 1.85 million ton (http://www.cementchina.net). With the rapid growth of the international construction industry, global demand for cement is expected to increase.

In addition to the export of construction materials, there are now more and more Chinese construction companies securing construction projects overseas. In 2008, the China International Trust and Investment Corporation (CITIC) started the construction of a housing project valued at 3.5 billion US$, in Angola. The project is to develop a modern satellite town, which can houses a population of over 200,000 in a rural area of Angola’s capital, Luanda. The project will be completed in 2011 (http://www.chinaview.cn).

Conclusion

This paper has provided an overview of the construction industry in China in an international context. In 2005, there was a 43% (561 million) urban population and 57% (745 million) rural population in China (http://www.chinatoday.com). The rate of urbanization is expected to increase in future. More house and infrastructure development have to be built in the coming years in order to satisfy the needs induced by urbanization, particularly in the major cities.

To conclude, the Chinese construction industry, as a whole, is developing rapidly and it is in transition from a planned economy to a socialist market economy. Geographically, China is a large country with 9.6 million square kilometres. Its construction industry is too big to be generalized. Construction markets at difference regions and provinces will have different characteristics. It is important for foreign investors to know more about these characteristics before investment to be made.


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Key Lessons Learned: •

Construction in China is a huge market with its distinguishing characteristics at regional levels.

•

China’s construction industry went through rapid transition from a centrally-planned economy to a socialist market economy.

•

China’s construction industry is working towards increasing integration into the global community.

•

International construction is the trend for future development.

•

With foreign investors and joint-ventures, the boundary between local and overseas markets are less clear.

References China Knowledge Press (2004) China Building Materials Market, June, pp. 152, http://www.researchandmarkets.com/reportinfo.asp?report_id=225038. China Statistical Yearbook (1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007). Lu, W.S. (2006) A System for Assessing and Communicating Contractors’ Competitiveness, Thesis Submitted to the Degree of Doctor of Philosophy in the Department of Building and Real Estate, The Hong Kong Polytechnic University, Hong Kong. Lu, W.S., Shen, L.Y., and Yam, C.H.M. (2008) Critical Success Factors for Competitiveness of Contractors: A China Study, ASCE Journal of Construction Engineering and Management, accept for publication. Mawhinney, M. (2001) International Construction, Blackwell Science Limited, London. National Bureau of Statistics of China (2008) Business Climate Index (Second Quarter, 2008), http://www.stats.gov.cn/english/statisticaldata/Quarterlydata/t20080811_402497455.htm Nie, M.S. (2008) Current Situation and Development of the Housing Construction in China, Housing Industrialization Office, Ministry of Construction, PRC, http://www.housingauthority.gov.hk/eng/events/conf/conferen/pdf/eniems.pdf People’s Daily Online (2005) China’s Cement Export Grows Rapidly but Expects Slowdown, http://english.peopledaily.com.cn/200504/19/eng20050419_181778.html Science and Technology Department (1999) Ministry for Construction Advanced Technology, Suggestions on Ways, Objectives, and Strategies of Industrialized Housing (in Chinese). Wong, K.W., Hui, C.M., Li, S.R., Howes, R. & Wu, M. (2001) A Study of Manufactured Affordable Housing in Chongqing, Research Monograph, Department of Building and Real Estate, The Hong Kong Polytechnic University, ISBN No. 962-367-326-4, 77pp. Wong, K.W., Yeung, C.W., & Howes, R. (1995) A Comparative Study of Affordable Housing Development in the United Kingdom, Hong Kong and the People’s Republic of China, Research Monograph, Department of Building and Real Estate, The Hong Kong Polytechnic University, 95pp. 50

Author’s Biography Professor Francis Wong is the Director of the Research Centre for Construction and Real Estate Economics (RCCREE) and was the Head of the Department of Building and Real Estate (2005-08) at the Hong Kong Polytechnic University. He has 28 years of both academic and practical experience and has published more than a hundred papers in the form of refereed journal articles, refereed conference papers, professional journal papers, research monographs, and consultancy reports. His main research interests include affordable housing development and construction safety. Professor Wong obtained his BSc (Hons) in Building from the Brighton Polytechnic, his MSc in Architecture from the London University, and his PhD from the South Bank University in the United Kingdom. He is a Fellow Member of the Chartered Institute of Building (FCIOB), a Fellow Member of the Hong Kong Institute of Construction Managers (FHKICM), and a Fellow Member of the Hong Kong Institution of Engineers (FHKIE).


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building

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FORMULATING A HOLISTIC MODEL TO DESCRIBE INTERNATIONAL DIVERSIFICATION OF CONSTRUCTION COMPANIES

A.-R. Abdul-Aziz, Universiti Sains Malaysia email: [email protected] S. S. Wong, Universiti Sains Malaysia email: [email protected] A.-U. Awil, Iskandar Investment Berhad email:[email protected]

Abstract Several scholars have analysed the internationalization of construction companies by using various available models. These models are the Eclectic Paradigm, Stage Growth Theory, and Diamond Framework. Each model has its respective strengths and weaknesses. This paper proposes that a holistic approach combining the various models, not only the ones mentioned above but others as well (International Entrepreneurship, Network Approach, etc.), is a more appropriate portrayal of the complexities and realities of international diversification of construction companies. For example, the Eclectic Paradigm, which is primarily focused on foreign direct investment, excludes other forms of international involvement such as strategic alliance but is compensated by the network theory which illuminates how a variety of network relationships can influence internationalization. The disregard of the decision-maker or top management by most of the models is compensated by the international entrepreneurship school of thought. By unifying the various models, the shortcomings of one is compensated by the merits of another. In this paper, the extant internationalization models are presented individually before the holistic model, which combines all of them, is presented. The scholastic community should be prompted to examine construction companies in a holistic, rather than uni-model, manner. Keywords: Holistic Model; Internationalisation; Construction Companies. Introduction There are several extant models that explain the internationalisation of businesses, the ones most commonly referred to being Eclectic Paradigm (Dunning, 1977; 1988), Stage Growth Theory (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977, 1990; Cavusgil, 1980), Diamond Framework (Porter, 1990), Network Approach (Johanson and Mattsson, 1988), International Entrepreneurship (McDougall, 1989; Oviatt and McDougall, 1994), and the latest to come into currency Liability of Foreignness (Zaheer, 1995; Zaheer and Mosakowski, 1997). Past researchers have looked at international diversification of construction companies using one of these models; Seymour (1987), Chang (1987), Crosthwaite (1998), Cuervo and Low (2002a, 2002b and 2005) used the Eclectic Paradigm, Awil and Abdul-Aziz (2002) relied on the Stage Growth Theory while Oz (2001)applied the Diamond Framework. building abroad, Montreal, October 2008

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Each of the models has its own set of strengths and weaknesses. A few scholars have expressed the need to look at internationalisation of the firm holistically (Ricart et al., 2004) and to consider their multidimensional aspects (Coveillo and McCauley, 1999). Responding to this call, this paper presents a holistic approach by combining the various extant models so as to combine their strengths and to mitigate their individual weaknesses with the aim of examining Malaysian contractors that have gone overseas. The paper begins by presenting the various extant models which explain the internationalisation of businesses. It then presents the adopted model for the research which amalgamates these models. Literature Review A literature search was conducted for articles in mainstream business and management journals which focus on international business and international construction. The purpose of this exercise was to determine the models used by scholars when examining the internationalization of businesses. For this, databases such as Ebscohost and Proquest were, mainly but not exclusively, used. Articles published over the last ten years were covered. However reading the relevant articles required referring to articles preceding the set time-frame. Dunning’s Eclectic Paradigm By using Hymer’s (1976) Ownership Advantages (O), Vernon‘s (1966) Locational Characteristics (L) and Buckley and Casson’s (1976) Internalisation Advantages (I) as foundation, Dunning (1977, 1988) developed the Eclectic Paradigm to explain the inclination of firms (i.e. multinational firms and potential multinational firms) to engage in foreign direct investment (FDI) or foreign value-added activities. According to the Eclectic Paradigm, there are three important decisive factors that determine the firm’s FDI: 1) Ownership Advantage: this advantage refers to the firm-specific and country-specific competitive advantage and of Multinational Enterprise (MNE). It explains the ‘why’ question of FDI. Ownership advantage emphasises the extent to which MNE possesses internal transferable advantages over its local and foreign competitors in the host country. 2) Locational Advantage: this advantage refers to the degree of attractiveness of certain locations where an MNE has the intention to invest. It explains the ‘where’ question of FDI. Locational advantage is influenced by political, economic, and social factors. 3) Internalization Advantage: This advantage refers to the benefit that a firm obtains from direct internal control instead of other market entry modes (e.g. licensing). It explains the ‘how’ question of FDI. Internalization advantage emphases the extent to which the firm is able to manipulate its internal competitive assets (i.e. ownership advantages) and integrates its ownership advantages with locational advantages in the host country. Stage Growth Theory Stage Growth Theory explains the internationalisation of a firm as an incremental, step-by-step process. Initially, a firm is a low commitment exporter. After gaining sufficient international knowledge and experience, and overcoming the psychic distance phenomenon, it becomes a committed exporter. The psychic distance concept explains the movement of a firm initially from the nearest region, which has a culture and a language similarity, to later moving towards outer regions. The theory identifies four main stages: (1) irregular export activities, (2) indirect exporting through agents, (3) direct exporting, and (4) overseas production/manufacturing (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977; 1990). Cavusgil (1980) proposes another Stage Model by referring to the export/sales ratio of a firm. He divides a firm’s internationalisation process into five stages: (1) domestic marketing with an export/sales ratio of 0; (2) pre-export with an export/sales ratio of at or near 0; (3) experimental involvement with an export/sales ratio of 54

from 0 – 9%; (4) active involvement with an export/sales ratio of from 10 – 39%; and (5) committed involvement with an export/sales ratio of or more than 40%. Diamond Framework Porter (1990) came up with the Diamond Framework to explain the major determinants of competitive advantages and their interactions. Under the framework there are four competitive advantages: (1) demand conditions, (2) factor conditions, (3) related and supporting industries, and (4) context for firm strategy and rivalry. Additionally, there are two exogenous factors: (1) role of government, and (2) chance events; which play an important role in influencing those four competitive advantages. Porter (1990) argues that the role of government is only a partial determinant towards enhancing competitive advantage. It is indirect and the results can only be observed after a period of time. The government’s role includes policy setting for capital market, providing educational support, establishing standards, and demands and service procurement. Chance events are those phenomena that are normally outside the powers of the firm and government. These events (e.g. changes in production factors, changes in exchange rates, new inventions, surges in demand, and wars) can alter the conditions of competitive advantage. Network Approach Johanson and Mattson (1988) have applied the Network Approach to explain the internationalization of firms. They argue that firms establish and develop their foreign markets by using their foreign network partners through international extension, penetration, and international integration. They use the term “net” to categorize certain networks, such as national net (networks in other countries) and production net (relationships in a specific product area). Johanson and Mattsson categorize firms into four types: (1) Early Starter; (2) Lonely International; (3) Late Starter; and (4) International Among Others. The firm’s network can act as catalyst for international business expansion (Merrilees et al., 1998; Coviello and McAuley, 1999) by overcoming internal resource deficiencies (Westhead et al., 2001), gaining access to knowledge and experience which the firm lacks internally (Vida et al., 2000), minimizing disadvantages of smallness, and overcoming unknown markets and psychic distance issues (Rutahobya and Jaensson, 2004). Therefore, the Network Approach explains the internationalisation of firm from the behavioural perspective (Jones and Coviello, 2005). International Entrepreneurship Model As early as in 1969, Perlmutter mentioned a firm’s management team’s role in the internationalisation process. Johanson and Wiedersheim-Paul (1975), in their psychic distance concept, also emphasise the same aspect. Dichtl et al. (1983) propose four indicators of management’s international orientation: (1) psychic distance, (2) management objective characteristics, (3) management subjective characteristics, and (4) managerial attitude about export. Furthermore, McDougall (1989) has grouped ‘International new ventures’ as entrepreneurial firms. Uncertainty is positively related to entrepreneurship (Balabanis and Katsikea, 2003; Miller, 1983). Entrepreneurship moves firms from certain conditions in the home country to international activities (Oviatt and McDougall, 1994) and helps them to encounter contingency effects of uncertainty in the foreign/host country, where the main terrain of a firm’s internationalization activities is located (Dimitratos et al., 2003). This happens particularly in SMEs, as decision-making is concentrated in the hands of one or a few persons and the entrepreneur has a unique and crucial role in the organization (Bloodgood et al., 1996; Westhead et al., 2001). Hence, we cannot deny that entrepreneurship plays an important role in firm’s internationalisation. Liability of Foreignness Arguably, the attraction of foreign location is normally confined to one of two factors, regardless of whether the multinationals are resource-seeking, market-seeking, efficiency-seeking, or assetseeking (Narula and Dunning, 1998). For resource-seeking multinationals, the attraction of the building abroad, Montreal, October 2008

55

host country is the availability of otherwise scarce resources (mineral, cheap labour, etc.). For market-seeking multinationals, the untapped demand of the products or services in the host country is what draws them to enter its market. For efficiency-seeking or asset-seeking multinationals (which are quite similar), sub-national clusters and agglomeration of related activities are the attraction of the host country. All other host country factors conspire against foreign multinationals which, at best, can only be attenuated. Hence, it has been argued that due to the challenges of operating on foreign soil, it is more appropriate to reverse the concept to ‘locational disadvantages’ that host countries are endowed with (Abdul-Aziz, 1991). Zaheer’s (1995) liability of foreignness (LOF) concept presents the same argument, but much more eloquently. It has found favour by a number of scholars (e.g. Miller and Parkhe 2002, Chen et al. 2006, Daamen et al. 2007). Firms going into particular overseas markets, especially for the first time, suffer from a broad range of deterring factors, from spatial distance between home and host countries, unfamiliarity with host country environments, economic nationalism and a lack of legitimacy in the host country to sales restriction impositions by the home country, which can all come under the scope of LOF (Zaheer, 1995; Zaheer and Mosakowski, 1997). Basically, LOF has been defined as “all additional costs, a firm operating in a market overseas, incurs that a local firm would not incur (Zaheer 1995, p. 343). Other scholars have added to the list of sources of LOF (Eden and Miller 2001). ‘Cost’ here is the generic term meaning not only various costs but also ‘foreignness’; induced hazards and uncertainties that obstruct the generation of earnings (Luo et al., 2002). Coming Up With A Holistic Model Coviello and McAuley (1999) argue that it is difficult to capture internationalisation of firms through the use of any single theoretical framework and it is beneficial for researchers to adopt a combination of theoretical frameworks to best capture both the dynamic process and broad concept of internationalisation. Jones (2001) argues that achieving a better understanding of internationalisation depends on accommodating a wide range of theories in the research framework and generating richer data by focusing on a homogeneous set of firms. Dunning (2001) himself asserts that there is no single theory of internationalisation that can encompass all kinds of industries, for the simple reason that motivations to internationalise vary a great deal. Ricart et al. (2004) recommend that to better understand internationalisation, it is advisable to use an integrative framework and pay implicit attention to industry contexts. In the same vein, Ofori (2003) has also argued for the application of an integrative framework to analyse international contractors. Axinn and Matthyssens (2002) argue that it is important to take note that the internationalisation theories were based on specific environmental contexts, to explain a specific industry. Therefore the ability of these theories to explain and predict internationalisation by firms in different environments and periods of time, and in different industries has diminished: British firms in the case of the Eclectic Paradigm (Dunning, 1977; 1988), Swedish firms for the Stage Growth Theory (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977, 1990), Scandinavian firms for the Network Approach (Johanson and Mattson, 1988) and computer software industry for International Entrepreneurship (Oviatt and McDougall, 1994). Research methods The study adopted both the qualitative and quantitative methods, ensuring that the conclusions are strong by triangulating the data. Yeung (1995) argued that research in international business requires researchers to consider contextual factors in method selection. The adoption of a mixed method was therefore based on pragmatism in order to best meet the research objectives of uncovering as much as possible about the internationalisation of Malaysian housing developers 56

(Johnson and Onwuegbuzie 2004). The mixed method involves the collection and analysis of both quantitative and/or qualitative data in a single study in which data are: collected concurrently or sequentially, are given priority, and involve the integration of data at one or more stages in the process of research. The advantages of using multiple methods include guarding against the inherent methodological bias (Brewer and Hunter, 1989) and providing opportunity for presenting greater diversity of divergent views (Teddie and Tashakkori, 2003). Even if mixed methods have been criticised for their lack of rigour compared to single method approaches (Tashakkor and Teddlie, 2003). However triangulation, whereby several sources of data are relied upon, helps overcome this weakness (Jicks 1979). The present research not only adopted a mixed approach but also the triangulation strategy. From the outset, it was decided that getting the cooperation of the Malaysian Construction Industry Development Board (CIDB) was a necessity. CIDB is assigned, by a statute, to ensure the proper development of the construction industry. Among its responsibility is the promotion of Malaysian contractors overseas through market-opening initiatives such as trade delegations and match-making with local contractors. The results of the study will be forwarded to CIDB for their own internal use. Thus the study promises to bear academic, as well as pragmatic, value. Research results The data, which has been collected thus far from postal questionnaire surveys (14 out of the 74 contractors known to have gone overseas returned the completed questionnaires) and follow-up interviews (six companies which returned the questionnaires agreed to be interviewed), tentatively validates the holistic approach presented above. The Eclectic Paradigm, Diamond Framework, Stage Theory, International Entrepreurship Model, Network Approach and the Liability of Foreignness concept, when combined into a holistic model, mutually overcome each other’s limitations while capitalising on strengths. Discussion and Conclusions Based on the arguments presented above, the present research opted for a theoretical framework that combines the extant models of internationalisation so that their respective strengths are utilised and drawbacks are compensated. In terms of their strengths, for example, the Ecletic Paradigm (Dunning, 1977; 1988) creates awareness of a firm’s need to build and maintain sustainable competitive advantages if it is to succeed in foreign market exploitation (Porter, 1990; Prahalad and Hamel, 1990), the Stage Growth Theory draws attention to how firms internationalization incrementally by accumulating experiential knowledge (Whitelock, 2002; Bell et al., 2004; Mtigwe, 2006), and Porter’s (1990) Diamond Framework brings to the fore the competitive strategy analysis, thereby enhancing the dynamic context of the framework (Grant, 1991). In terms of drawbacks, the Diamond Framework is static (Narula, 1993) which the Stage Growth Theory can help overcome. The location aspects are ignored by the Diamond Framework, which the locational advantage (Dunning, 1993) and by extension the liability of foreigness concept can help compensate. The International Entrepreneurship theory prevails over the Eclectic Paradigm’s limited predictive power (Lundgren, 1977; Jones, 1996) and its focus on the equilibrium state (Johanson and Vahlne, 1990) overcomes the weakness of Stage Growth Theory’s explanation for the internationalization process, which is too deterministic (Buckley and Pearce, 1979; Reid, 1986; Bell, 1995) and must follow specific stages (Buckley and Chapman, 1997). It has been argued that the Eclectic Paradigm is less applicable for today’s ‘alliance capitalism’ (Li, 1998; Madhock, 1997: Matthews, 2002) or network economy (Axinn and Matthyssens, 2002). building abroad, Montreal, October 2008

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The Stage Growth Theory also ignores the importance of social interaction and relational exchange (Vahlne and Nordstrom, 1988,) and the role for networks (Rutashobya and Jaensson, 2004). It fails to explain the networks and relationships between firms as well (Hutchinson et al., 2006). However, the Network Approach can complement the Eclectic Paradigm and Stage Growth Theory as it is able to illuminate how the resources, activities and actors within the networks affect various dimensions (Håkansson and Snethota, 1995; Kundu and Katz, 2003). By incorporating the Network Approach, the holistic model recognises that firm internationalization is never a “solo” effort but that is a product of network relationships that are both formal and informal (Mtigwe, 2006). However, the Network Approach does not acknowledge the importance of the decision-maker and the firm’s characteristics in taking advantage of the international opportunities which emerge from the networks (Chetty and Holm, 2000). In this sense, the International Entrepreneurship model complements the Network Approach, as it does with the others.

Eclectic Paradigm Diamond Framework

Network Approach Firm’s internationalisation

Stage Growth Theory

Liability of Foreigness

International Entrepreneurship

Fig. 1. Holistic model to explain internationalisation of Malaysian contractors

This approach promises to yield interesting results which cannot possibly be obtained from single model approaches. While data collection for international Malaysian contractors using a postal questionnaire survey and follow-up interviews have yet to be concluded, the tentative findings are promising. The more apparent contribution of this paper lie in presenting the theoretical framework which combines the extant literature on internationalisation of businesses. This holistic approach promises to generate rich data which better represent the complexities and realities of international diversification of construction companies. Other scholars are encouraged to adopt this approach when examining international construction companies in other countries.

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Every model on internationalization of businesses has its own inherent shortcomings and strengths.

•

By combining the various models into a holistic approach, the shortcomings of the various models can be compensated for by the merits of the others.

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Author’s Biography Professor A.-R. Abdul-Aziz teaches at the School of Housing Building and Planning, Penang, Universiti Sains Malaysia. He has published articles in various international journals. His research interests focus on international construction.

S.-S. Wong is a research officer attached to the School of Housing Building and Planning.

A.-U. Awil completed his PhD in 2005 under the supervision of Prof A.-R. AbdulAziz. He is now attached with a semi-private organisation in charge of developing one of the largest development in South-East Asia.

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KNOWLEDGE MANAGEMENT APPROACH FOR ENHANCING PROMPT AND EFFECTIVE POST-DISASTER RECONSTRUCTION: LEVERAGING ON INFORMATION TECHNOLOGY

Faisal Manzoor Arain, Southern Alberta Institute of Technology (SAIT) email: [email protected] Abstract Information technology (IT) has become strongly established as a supporting tool for many professional tasks in recent years. A knowledge management system can undertake intelligent tasks in a specific domain that is normally performed by highly skilled people. Typically, the success of such a system relies on the ability to represent the knowledge for a particular subject. Post-disaster reconstruction and rehabilitation is a complex issue with several dimensions. Government, nongovernmental, and international organizations have their own stakes in disaster recovery programs, and links must be established among them as well as with the community. Concerning the post-disaster reconstruction scenario, the most significant factor is prompt decision making based on best possible information available. Effective post-disaster response is crucial and lies at the heart of disaster management agencies in almost every cautious country around the globe. This paper presents a theoretical framework of leveraging on information technology for developing a knowledge management approach for enhancing prompt and effective postdisaster reconstruction. The conceptual model consists of two main IT based components of knowledge management systems, i.e., a knowledge-base and a decision support shell for making more informed decisions for effective and timely response in post-disaster reconstruction scenarios. The system is expected to assist in improving reconstruction project processes, coordination, and team building process because the most likely areas on which to focus reduce unwise decision and can be identified during the early stage of the post-disaster scenario. Tapping into the past experiences of post-disaster scenarios, the knowledge management system provides a wealth of pertinent and useful information for decision makers and will eventually enhance collaborative ventures. Development is a dynamic process and disasters provide the opportunities to vitalize and/or revitalize this process, especially to generate local economies, and to upgrade livelihood and living condition. The success of the reconstruction phases, i.e., rescue, relief, and rehabilitation, is mainly dependent on the availability of efficient project teams and timely information to make informed decision. By having the knowledge-base and a systematic way to make well-informed decisions, combined with the efficiency of a project team and strong coordination, project success should increase. The study would assist professionals from academia and industry involved in research and reconstruction projects. The system would be helpful for them to take proactive measures for reducing uninformed decisions related to team building and project coordination processes undertaken by disaster management agencies. Professionals need to work in close cooperation with each other to give rise to a better and more efficient system. Hence, the study is valuable for all professionals involved with research and development. Keywords: Knowledge-Base; Management; Reconstruction; Decision Making; IT.


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Introduction Post-disaster reconstruction and rehabilitation is a complex issue with several dimensions. Many professionals in both fields tend to focus on planning and immediate response and have only recently begun to consider the requirements and opportunities inherent in long-term mitigation and reconstruction (Vale and Campanella, 2005). The complex and multi-faceted processes of post-disaster recovery and reconstruction extend well beyond the immediate period of restoring basic services and life support infrastructure. While immediate restoration of services can be a matter of weeks, full recovery can stretch out 10-15 years (Pelling, 2003). Government, nongovernment, and international organizations have their own stakes in disaster recovery programs, and links must be established among them, as well as with the community as shown in Figure 1 (Shaw et al., 2003). In other words, a post-disaster rehabilitation and recovery programs should be seen as an opportunity to work with communities and serve local needs. Relief and development often leads to burdens on the recipient government, and also often fails to serve the actual purpose and to reach the people in need.

Fig. 1. Disaster cycle, development process and stakeholder involvement [Source: adapted from Shaw et al., 2003] Environmental management professionals are now concentrating on the sustainability of environmental quality and environmental improvement; emergency managers and planners are re-focusing their efforts on the survivability of systems, organizations, and communities (Vale and Campanella, 2005). Sustainability and survivability are, in truth, two aspects of the same concept, namely: how to encourage and achieve continual improvement in ecosystems, the built environment, and human society (Pellow and Brulle, 2005). Both environmental management and emergency management have much to contribute to, and to gain from, the planning and implementation of post-disaster reconstruction. Development is a dynamic process, and disasters provide the opportunities to vitalize and/or revitalize this process, especially to generate local economies, and to upgrade livelihood and living condition. Shaw and Sinha (2003) suggested the ideal level of involvement of different stakeholders after the disaster, as shown in Figure 2. The standard time frame of rescue, relief, and rehabilitation are defined as short term, long term, and longer term respectively. As shown in Figure 3, the rehabilitation process has three major stages i.e., Principles and Planning, Implementation, and Ensuring Sustainability (Shaw and Sinha, 2003). Rehabilitation was not just a short term, gap filling exercise. There is a huge amount of information flow between professionals involved in the rehabilitation project (Arain, 2005). The process is initiated by setting up the basic principles for planning the rehabilitation intervention. The process has to be participatory, with a gradual increase in the involvement of the community. The implementation stage of the post-disaster reconstruction project consists of three steps i.e., need assessment, 66

capacity building, and implementation. The effort initiated by the professionals involved in postdisaster reconstruction project needed to be sustainable long after the interventions were over. In effect, intervention should have been designed to ensure that the community was able to take care of its development needs and was resilient against future disasters. For this, strengthening local institutions is necessary (Shaw and Sinha, 2003). STAKEHOLDERS

RESCUE

GOVERNMENT

NON-GOVERNMENT INTERNATIONAL ORGANIZATIONS COMMUNITY

INTERVENTION RELIEF RECOVERY

Fig. 2. Ideal levels of intervention of different stakeholders after disaster (Size of the box is proportional to the level of interventions) [Source: adapted from Shaw and Sinha, 2003]

Fig. 3. Different stages of the recovery process in a post-disaster management scenario [Source: adapted from Shaw and Sinha, 2003] Increasing discussions and debates within disaster mitigation interest groups have raised questions regarding the practicality of adopting developmental approaches to disaster reconstruction (Ahmed, 2005). The chaos surrounding the disaster period following a disaster could easily lead to short-term and hasty decisions adversely affecting the community’s ability to achieve sustainable, long term reconstruction goals (Hidellage and Pullenayegem, 2008). To minimize the occurrence of these unwise decisions, it is important to plan proactively for postdisaster restoration in order to provide general guidance for decision-makers and a framework for the professionals involved in reconstruction processes (Iglesias, 2007). For proactive plans and decisions, an integrated approach is required that may empower to implement the developed reconstruction strategy and monitor its results and progress. Reconstruction usually requires building a large number of shelters within a shortest possible time using limited available resources (Ahmed, 2008). Practical action discerned early in the rebuilding phase, that there was dire need to ensure construction quality, have competent construction tradesmen, minimize use of construction material, and use construction technology that is readily replicable (Hidellage and Pullenayegem, 2008). The recent sudden increase of natural disasters has taught many valuable lessons (Iglesias, 2007). Unfortunately, the need for preparedness is greater than ever before, given the increasing building abroad, Montreal, October 2008

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frequency and worsening intensity of weather-related storms and the escalation of technological threats. No geographical area is immune or protected from the threat of emergencies and disasters. The importance of a proactive approach in responding to a disaster scenario in term of learning from past projects cannot be overstated. Pre-planning with local public safety and emergency response agencies can decrease confusion when a jobsite incident occurs (Ahmed, 2008). A quick response due to proper pre-planning and preparedness can expedite saving lives and rehabilitation process. Numerous researches suggested that factors about IT considerations and communications continuity should be defined and stored because the link between a source and consequence is mainly determined by these factors (Shaw and Sinha, 2003; Arain, 2005; Arain and Low, 2006a; Ahmed, 2008). As the decisions need to be made in short time, the availability of prompt and useful information has the highest potential to affect future decisions (Arain and Low, 2006b). Lessons learnt with respect to those rather controllable factors may result in better management of emergency risks in the forthcoming projects. Further, it is clear that the major benefit of the approach is not the development of a fit-for-all emergency preparedness plan but rather capitalizing on past experiences of similar projects and a customizable strengths and weaknesses based emergency preparedness plan, which is dynamic in nature (Cameron et al., 2004; Arain and Low, 2006b). Information is a pre-requisite in all research and development activities, and can be regarded appropriately as the life-blood within which business interactions unfold (Low, 1993). Knowledge acquisition is the major bottleneck in the industry (Skibniewski, et al., 1997). In view of the transfer and acquisition of knowledge and experience, a Decision Support System (DSS) can help to disperse the knowledge and experience and make these more widely, easily, and quickly available for assisting in the decision making processes (Arain, 2007a). The decision aid can also facilitate the knowledge-acquisition process once it has acquired the necessary knowledge and experience and transferred these into a usable form (Arain and Low, 2007a). The decision aid also enables the professionals to consider more factors that can affect project team formation during the decision making process, conduct more thorough decision processing, and influence their preferred information (Poe, et al., 1998). Information technology (IT) has become strongly established as a supporting tool for many professional tasks in recent years. One application of information technology, namely the knowledge-base system, has attracted significant attention requiring further exploration as it has the potential to establish the close coordination between construction processes, based on the expertise of the decision-makers (Low, 1996). A knowledge-base is a system that can undertake intelligent tasks in a specific domain that is normally performed by highly skilled people (Arain and Low, 2007b). Typically, the success of such a system relies on the ability to represent the knowledge for a particular subject. Concerning the post-disaster reconstruction scenario, the most significant factor is the prompt delivery of materials and pertinent team building based on best possible information available. Management decides and implements the ways and means to effectively and efficiently utilize human and non-human resources to reach predetermined objectives (Low et al., 2007). Project managers are expected to marshal resources to complete a fixed-life project on time, on budget, and within specifications. Project managers are the direct link to the customer and must manage the interface between customer expectations and what is feasible and reasonable (Arain, 2007b). They provide direction, coordination, and integration to the project team, which is often made up of part time participants loyal to their functional departments. Project managers must ensure that appropriate trade-offs are made between the time, cost, and performance requirements of the project (Low, 1996). Unlike their counterparts, project managers generally posses only rudimentary technical knowledge to make such decisions. Instead, they must orchestrate the completion of the project by inducing the right people and resources at the right time, to address 68

the right issues, and make the right decisions. Certainly, resource optimization for successful project management is a unique and challenging task (Arain, 2007b). There are always more actions required and more project proposals than there are available resources. The priority system needs to prioritize the scenarios that best contribute to the teams’ objectives, within the constraints of the resources available (Arain, 2007a). If all emergency activities and their respective resources are computer scheduled, the feasibility and impact of adding a new project to those in process can be quickly assessed. With this information the project team will add a new project only if resources are available and formally committed to that specific project or through resource optimization skills and techniques. As mentioned earlier, reconstruction projects are complex because they involve many resources and variables (Arain and Low, 2007b). They usually have ranges of short to long duration, various uncertainties, and complex relationships among the participants. The integration of resource allocation knowledge and experience at the early design phase provides the best opportunity to improve overall project performance (Arain and Low, 2006a). From the outset, project strategies and philosophies should take advantage of lessons learned from past similar projects. Learning from the past projects is very important because professionals can improve and apply their experience in the future (Arain, 2008). No projects can be executed without people. Not even the purest, technical project. The more the world moves into a knowledge society, the more obvious it is that managing people in projects is equally important as managing the technical and financial side. This soft people approach must not be so focused that one forgets that projects, after all, exist to come up with hard technical and financial solutions to a problem (Parker, 1985). Today, lessons learned are that we should not let the pendulum swing too much to any one side. If it swings, it must do so in harmony with which we happen to be, in the lifetime of the project we are working on. In the first place, the development phase and the type and the size of the project should affect the pendulum’s amplitude and direction. Next it is clearer now that this undulation of the pendulum is as much a responsibility of the project manager as it is a random phenomenon, desirable or undesirable. In the future, modern project management will probably have to incorporate this responsibility to ensure that the swings (or leadership) of the pendulum are both sensible and beneficial (Arain and Low, 2008). It became vital, in consequence, to strengthen the relations between the people taking part in the project, to ensure that they understand and accept the goal, communicate sensibly with the project manager, and view the system of the project to be an important support without being a straightjacket (Shaw and Sinha, 2003). There are other types of “tools” for this purpose, i.e., varied selection of reward and punishment systems. The project manager should be familiar with them too, and be able to apply them sensibly and creatively. Or to say it differently, it is just as important to spend efforts on the cultural aspect as it is to care for the systems side, for better project resource allocation and optimization (Ahmed, 2005). Considering significance of the team approach especially during post-disaster scenarios, the project leader must be able to encourage the team to make a contribution, within reasonable limits, and understand how to improve relationships among them (Ashworth, 1999). The leader can use psychological and financial mechanisms here, and weigh up carefully what might be considered a good reward (or punishment) in each individual case. A reward need not to be understood in terms of wages alone, but as a sensible bonus system or the allocation of stimulating tasks with a view to practicing and developing the team’s knowledge and skills. Punishments can mean taking people off tasks they are not performing technically satisfactorily, if they are making a nuisance of themselves, or in other ways causing problems (Dyche, 2000).


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Post-disaster reconstruction and rehabilitation is a complex issue with several dimensions. Government, nongovernmental, and international organizations have their own stakes in disaster recovery programs, and links must be established among them, as well as with the community. Concerning the post-disaster reconstruction scenario, the most significant factor is prompt decision making based on best possible information available (Ahmed, 2005). Effective postdisaster response is crucial and lies at the heart of the disaster management agency in almost every cautious country around the globe. Development is a dynamic process, and disasters provide the opportunity to vitalize and/or revitalize this process, especially to generate local economies, and to upgrade livelihood and living condition. The success of the reconstruction phases, i.e., rescue, relief, and rehabilitation, is mainly dependent on the availability of an efficient project team and timely information for informed decision (Arain and Low, 2008). It is suggested that a knowledge management system may assist in improving reconstruction project processes, coordination, and team building process because the most likely areas on which to focus to reduce unwise decision can be identified during the early stage of the post-disaster scenario (Arain and Low, 2006a). Tapping on the past experiences of post-disaster scenarios, the knowledge management system provides a wealth of pertinent and useful information for decision makers and may eventually enhance collaborative ventures. By having the knowledge-base and a systematic way to make wellinformed decisions, combined with the efficiency of a project team and strong coordination, project success should increase (Arain, 2007). Reasons for Poor Value in Construction Projects Good quality information lies at the heart of the correct definition of any project, the awareness of which will usually fall within the responsibility of a client organization. The project awareness stage may lead to a development stage within the client organization, which is the key stage to implement VM (Kelly, et al., 2004). Parker (1985) and Ashwoth (1999) identified the most significant causes of poor value in projects. These causes included lack of information, decisions based on wrong beliefs, habitual thinking, negative attitudes, reluctance to seek advice, shortage of time, changing technology, lack of a yardstick for measuring value, old specifications, and poor human relations. Furthermore, Arain et al. (2004) argued that the most important factor for achieving good value in projects was timely and useful information. Although each construction project is unique, based on its special conditions, professionals can still obtain certain useful information from past experience. Having timely and useful information, the professionals would be able to better ensure that their project goes smoothly without making gratuitous mistakes, and it should be helpful in improving the performance of the project (Arain and Low, 2006a). Every construction project requires sufficient information regarding the predetermined project objectives (Iglesias, 2007). Computerized Decision Support System (DSS) can be used by project participants to help make more informed decisions regarding the management of detrimental changes in reconstruction projects by providing access to useful, organized, and timely information (Arain and Low, 2006b). Research methods A theoretical framework for developing a knowledge management approach for enhancing prompt and effective post-disaster reconstruction is proposed, based on a literature review.

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Research Objectives: • To develop a theoretical framework of knowledge management systems for effective post-

disaster reconstruction. Research results

An Information Technology (It) Based Approach for Enhancing Prompt and Effective PostDisaster Reconstruction An important key to the success of IT is the ability to provide users with the right information at the right time (Turban and Meredith, 1994). The alternatives amongst which a decision must be made can range from a few to a few thousand. The decision maker needs to narrow the possibilities down to a reasonable number (Dyche, 2000). Decision support, such as selective information retrieval systems, can help with this task. Computers can evaluate alternatives, especially when the alternatives can be presented in numerical terms. Even when this is not the case, the computer can assist the decision maker in presenting the alternatives in a form that facilitates the decision (Arain and Low, 2006a). Many management decisions need to be made within a time constraint especially in the postdisaster reconstruction case. The current technological progress does not allow the complete computerization of all the managerial functions or the creation of a tool capable of automatically carrying out all the required management decisions. To ensure the success of this important management function, human involvement in this process remains essential. Thus the DSS approach for this kind of application seems to be the most natural idea (Miresco and Pomerol, 1995). A knowledge-base is a system that can undertake intelligent tasks in a specific domain that is normally performed by highly skilled people (Miresco and Pomerol, 1995; Cameron, et al., 2004). Typically, the success of such a system relies on its ability to represent the knowledge for a particular subject. Rapid access to remote information, such as consulting experts or providing a group decision meeting, is often necessary for making informed decisions (Dyche, 2000; Arain, 2007a). The sophisticated analyses that a knowledge-base can provide becomes an important factor in making good and valuable decisions. If professionals have a knowledge-base established based on past similar projects, it would assist the professional team to plan effectively before starting a reconstruction project. Basis for the Development of the Knowledge-Base The fundamental idea of any effective management system is to anticipate, recognize, evaluate, resolve, control, document, and learn from past projects in ways that support the overall viability of the project (Arain and Low, 2006b). The professionals can improve and apply their experience in future projects; hence learning from the past projects is imperative. This would help the professionals in taking proactive measures for reducing potential mistakes.


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Fig. 4. Basis for developing IT based system for enhancing management of reconstruction projects As shown in Figure 4, the basis for developing a model for the knowledge-base for enhancing prompt response and coordination in post-disaster reconstruction projects was to utilize a knowledge-base platform for sharing knowledge of effective management (Arain and Low, 2006b). The project team would be able to carry out the structured process based on the six effective management principles. The most integral part of this model is the knowledge-base that assists in carrying out the process for management. Here it is therefore important to understand that the knowledge-base is not designed to make decisions for users, but rather it provides pertinent information in an efficient and easy-to-access format that allows users to make more informed decisions. Although this system does not try to take over the role of the human experts or force them to accept the output of the system, it provides more relevant evidence and facts to facilitate the human experts in making well-informed final decisions. In providing a systematic way to share knowledge and manage it through the knowledge-base, the efficiency of project teams and the likelihood of project success would be enhanced (Turban and Aronson, 2000). Like any building project, every reconstruction project involves a multi-player environment and represents a collaborative effort among specialists from various independent disciplines. The knowledge-base can assist managers in making strategic decisions by presenting useful information and interpretations for various alternatives. The knowledge-base would be capable of providing interpretation of knowledge, based on the rule-based reasoning (RBR) approach. The system can be used by project participants to help make more informed decisions regarding the management of project’s resources by providing access to pertinent and timely information. This would eventually assist professionals in improving chances of successful completion of projects because the potential lack of coordination issues can be identified at the early stage of team development when the impact of change is not severe. During the project phases, in order to take remedial actions for any lack of coordination issues in the project, project managers often need timely information and analysis reports to assist in making more informed and precise decisions (Arain and Low, 2006a). It was found that, in the course of most of the reporting and analysis activities, time was spent on collecting data from various systems before the analysis could be made. Project managers usually want and need more information for making decisions, but analysts can provide only minimal information at high costs within the desired time frame (Dyche, 2000). In order to provide information for predicting patterns and trends more convincingly and for analyzing and developing an effective project team more efficiently, a knowledge-base designed for this particular purpose was needed.

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Considering the issues mentioned above, a knowledge-base is proposed for developing effective project teams and managing reconstruction projects in an efficient way. An important role of a knowledge-base is to provide useful information for users to analyze scenarios and to make informed decisions. The main components of the knowledge management system are shown in Figure 5. As presented in Figure 5, the data was collected from various sources, i.e., organizations, project documents, site data, academia source documents, and peers evaluation documents. This data was stored in a database. From the database, the data was sieved through an inference engine for developing the knowledge-base. Eventually, the knowledge-base provided decision support to the project teams for making more informed decisions for effective selection of project teams and successful management of reconstruction projects. The knowledge-base would contain pertinent information for post-disaster reconstruction projects. The system would be able to present detailed information about the resources utilized: management decisions made, changes made during project implementation, and project teams who worked on similar reconstruction projects in the past. Furthermore, the system would present the available pool of experts in the academia and industry. The filtered knowledge and analyses provided by the knowledge-base would assist in selecting appropriate expert teams, resources, approval processes, and prioritizing activities based on past experiences in similar projects. The knowledge-base would also be capable of storing the feed back on the ongoing projects, carry out analyses on the available information, and present results for decision making process by the concerned professionals.

Fig. 5. The main components of a knowledge management system The knowledge-base can be developed in the MS Excel environment using numerous macros for developing the user-interface that carry out stipulated functions. These are incorporated within a controls selection shell. The graphical user interface (GUI) assists users in interacting with the system at every level of the knowledge management system. In addition, the GUI and inference engine will maintain the compatibility between layers and the decision shell. The knowledge management system provides an extremely fast response to the queries based on rule-based reasoning (RBR). As mentioned earlier, the system would be capable of displaying information pertinent to resources, reconstruction strategies, designs, expertise available, and their relevant in-depth details: a variety of filtered knowledge, and various analyses of the knowledge available. The knowledge-base is able to assist project managers by providing accurate and timely information for decision making, and a user-friendly system for analyzing the present pool of building abroad, Montreal, October 2008

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human resource or experts in a particular area and selecting the best possible team, resources, materials, and designs for carrying out post-disaster reconstruction projects. Moreover, the system is also intelligently capable of organizing, computing, and updating valuable information in all the layers automatically with every new project added. The user-interface assists in updating the system with new information on every level of the knowledge-base. The information and various filters that can be applied to the knowledge-base developed may assist the professionals in learning from past projects for enhancing the chances of successful implementation of reconstruction projects. Discussion and conclusions Although every project has its own specific conditions, professionals can still obtain certain useful information from past experiences. This information will enable professionals to better ensure that their project goes smoothly without making unwarranted mistakes and it should be helpful to improving the performance of post-disaster reconstruction projects. A knowledge-base is a system that can undertake intelligent tasks in a specific domain that is normally performed by highly skilled people. Typically, the success of such a system relies on the ability to represent the knowledge for a particular subject. Post-disaster reconstruction and rehabilitation is a complex issue with several dimensions. Government, nongovernmental and international organizations have their own stakes in disaster recovery programs, and links must be established among them, as well as with the community. Concerning the post-disaster reconstruction scenario, the most significant factor is the prompt and pertinent team building, resource allocation, materials selection, and shelter designs based on best possible information available. Useful and timely information lies at the heart of successful project management of any construction project. Effective post-disaster response is crucial and lies at the heart of disaster management agencies in almost every cautious country around the globe. This paper presents a theoretical framework of leveraging on information technology for developing a knowledge-base for enhancing prompt and effective post-disaster reconstruction. The conceptual model consists of two main IT based components, i.e., a knowledge-base and a decision support shell, for making more informed decisions for effective management of postdisaster reconstruction projects. The system is expected to assist in improving project coordination and team building processes because the most likely areas on which to focus to reduce unwise decision can be identified during the early stages of the reconstruction project. Tapping on the past experiences of post-disaster scenarios, the knowledge management system provides a wealth of pertinent and useful information for decision makers and will eventually enhance collaborative ventures. By having the knowledge-base and a systematic way to make well-informed decisions, the efficiency of project team and the likelihood of strong coordination and eventually project success should increase. The study would assist professionals from academia and industry involved in research and reconstruction projects. The system would be helpful for them to take proactive measures for reducing uninformed decisions related to team building and project coordination processes undertaken by disaster management agencies. Professionals need to work in close cooperation with each other to give rise to a better and more efficient system. Hence, the study is valuable for all the professionals involved with research and development.

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Key Lessons Learned: • Learning from past projects is very important because professionals can improve and

apply their experience in the future. • Useful and timely information lies at the heart of successful project management of any

reconstruction project. • The knowledge management system provides a wealth of pertinent and useful

information for decision makers and will eventually enhance collaborative ventures. • The knowledge management system helps to identify most likely areas on which to focus

to reduce unwise decision during the early stages of the reconstruction project. References Ahmed, K.I. (2005) Final Progress Report: Family Shelter. Disaster Relief and Recovery Facility, UNDP, Dhaka. Ahmed, K.I. (2008) “Challenges and opportunities of post-disaster shelter reconstruction: The Asian context” Proceedings of the 4th International i-Rec Conference, New Zealand. Arain, F.M. (2005) “Potential barriers in management of refurbishment projects” Journal of Independent Studies and Research, Vol. 3, No 1, pp. 22-31. Arain, F.M. (2007a) “School building design improvement through an IT based system” Proceedings of the International Research Symposium (SCRI) on 26th and 27th March 2007, University of Salford, England, pp. 39-61. Arain, F.M. (2007b) “Critical success factors of project management practices in Pakistan construction industry” Construction Information Quarterly, Journal of the Chartered Institute of Building, CIQ Paper No. 224, Vol. 9, No 4, pp. 179-185. Arain, F.M. (2008) “Prime opportunity to learn about change” Construction Information Quarterly (CIQ), Journal of the Chartered Institute of Building, 10(1), pp. 25-26. Arain, F.M. and Low, S.P. (2006a) “A framework for developing a knowledge-based decision support system for management of variations in institutional buildings” Journal of Information Technology in Construction (ITCon), Special Issue Decision Support Systems for Infrastructure Management, Vol. 11, No 1, pp. 285-310. Arain, F.M. and Low, S.P. (2006b) “Knowledge-based decision support system for management of variation orders for institutional building projects” Automation in Construction, Vol. 15, No 1, pp.272-291. Arain, F.M. and Low, S.P. (2007a) “Strategic management of changes in educational building projects: A timeline-based checklist approach” Proceedings of the 5th International Conference on Construction Project Management (ICCPM/ICCEM) on 1-2 March 2007, Singapore, pp. 1-15. Arain, F.M. and Low, S.P. (2007b) “Modeling for management of variations in building projects” Engineering, Construction and Architectural Management, 14(5), pp. 420-433.


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Arain, F.M. and Low, S.P. (2008) “Change Management System (CMS): Project change management experience from Singapore construction industry” Proceedings of the CRC for Construction Innovation’s Third International Conference – Clients Driving Innovation: Benefiting from Innovation , Gold Coast, Australia, pp. 1-26. Arain, F.M., Assaf, S. and Low, S.P. (2004) “Causes of discrepancies between design and construction” Architectural Science Review, Vol. 47, No 3, pp. 237-249. Ashworth, A. (1999) Cost Studies of Buildings, 3rd Ed., Addison Wesley Longman Ltd., England. Cameron, I., Duff, R. and Hare, B. (2004) Integrated Gateways: Planning out Health and Safety Risk. Research Report 263, Glasgow Caledonian University, UK. Dyche, J. (2000) E-Data Turning Data into Information with Data Warehousing. Addison-Wesley, Reading, UK. Hidellage, P.V. and Pullenayegem, V. (2008) “Adapting strategies to meet needs in post-disaster reconstruction” Proceedings of the 4th International i-Rec Conference, New Zealand, pp. 113. Iglesias, G. (2007) “Promoting safer house construction through CBDRM: Community designed safe housing in post-Xangsane Da Nang City” Safer Cities, Vol. 19, No 2, pp. 1-8. Kelly, J., Male, S., and Graham, D. (2004) Value management of construction projects, Blackwell Science Inc., Malden, MA, USA. Low, S. P. (1996) “The management of large-scale upgrading programmes for public housing in Singapore” Property Management, Vol. 14, No 4, pp. 27-32. Low, S.P. (1993) Marketing Research for the Global Construction Industry, Singapore University Press, National University of Singapore, Singapore. Low, S.P., Benny, R., Arain, F.M. and Susan, S. (2007) “Analyzing construction-related market trends in APEC countries using GIS” Business Review, Vol. 2, No 2, pp. 29-47. Miresco, E.T. and Pomerol, J.C. (1995) “A knowledge-based decision support system for construction project management” Proceedings of the Sixth International Conference on Computing in Civil and Building Engineering, No 2, pp. 1501-1507. Parker, D. (1985) Value Engineering Theory. The Lawrence D. Miles Value Foundation, Washington. Pelling, M. (2003) The Vulnerability of Cities: Natural Disasters and Social Resilience. Earthscan Publications, London. Pellow, D.N. and Brulle, R.J. (2005) Power Justice and the Environment: A Critical Appraisal of the Environmental Justice Movement. The MIT Press, Cambridge MA. Poe, V., Klauer, P. and Brobst, S. (1998) Building A Data Warehouse for Decision Support, Prentice Hall, Upper Saddle River, New Jersey. Shaw R. and Sinha R. (2003) “Towards sustainable recovery: future challenges after the Gujarat earthquake, India” Risk Management Journal, Vol. 5, No 1, pp. 35-51.

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Shaw R., Gupta M. and Sharma A. (2003) “Community recovery and its sustainability: lessons from Gujarat earthquake of India” Australian Journal of Emergency Management, Vol. 18, No 1, pp. 28-34. Skibniewski, M., Arciszewski, T. and Lueprasert, K. (1997) “Constructability analysis: machine learning approach” Journal of Computing in Civil Engineering, Vol. 11, No 1, pp. 8-16. Turban, E. and Aronson J. (2000) Decision Support Systems and Intelligent Systems. (8th edition) Prentice Hall, Upper Saddle River, NJ. Turban, E. and Meredith, J.R. (1994) Fundamentals of Management Science. (6th edition) Irwin, Burr Ridge, Illinois. Vale, L.J. and Campanella, T.J. (2005) The Resilient City: How Modern Cities Recover From Disaster. Oxford University Press, New York. Author’s Biography Dr. Faisal Manzoor Arain is an Architect with an MS and Ph.D. in Construction Project Management. He has had extensive experience working at management and leadership positions in industry and academia in Canada, Singapore, Pakistan, and Saudi Arabia. Dr. Arain has consulted, researched and published widely in the discipline of Project Management, and Design and Construction Management. His research interests include designing educational spaces, design and construction interface issues, project management, and the development and application of knowledge-based systems for the management of building projects. Dr. Arain serves on editorial boards of several international research journals, he is the editor-in-chief of the International Journal of Construction Project Management, published by Nova Science Publishers Inc., USA. He was awarded the Donald S. Barrie Award 2005 conferred by Project Management Institute (PMI) USA. Based on his achievements in the field of research and academia, Dr. Arain is listed in Who’s Who in Science and Engineering (9th Edition), Who’s Who in Asia, Who's Who in the World (25th Anniversary Edition) and Outstanding Scientists of the 21st Century. Dr. Arain is currently working as Chair, Construction Project Management with the School of Construction, Southern Alberta Institute of Technology (SAIT), Calgary, Canada.


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THE BUSINESS CASE DEVELOPMENT PROCESS IN THE DELIVERY OF NHS INFRASTRUCTURE

Sepideh Arkani, University of Reading email: [email protected]

Abstract There is a lack of knowledge base in relation to experiences gained and lessons learnt from previously executed National Health Service (NHS) infrastructure projects in the UK. This is in part a feature of one-off construction projects, which typify healthcare infrastructure, and in part due to the absence of a suitable method for conveying such information. The complexity of infrastructure delivery process in the NHS makes the construction of healthcare buildings a formidable task. This is particularly the case for the NHS trusts who have little or no experience of construction projects. To facilitate understanding a most important aspect of the delivery process, which is the preparation of a capital investment proposal; steps taken in developing the business case for an NHS healthcare facility are examined. The context for such examination is provided by the planning process of a healthcare project, studied retrospectively. The process is analysed using a social science based method called ‘building stories’, developed at the University of California-Berkeley. By applying this method, stories or narratives are constructed around the data captured on the case study. The findings indicate that the business case process may be used to justify, rather than identify, trusts’ requirements. The study is useful for UK public sector clients as well as consultants and professionals who aim to participate in the delivery of healthcare infrastructure projects in the UK. Keywords: Business Case; Planning Process; Healthcare; Infrastructure. Introduction There is a lack of knowledge base in relation to the experiences gained and lessons learnt from previously executed National Health Service (NHS) infrastructure projects in the UK. This is in part a feature of one-off construction projects, which typify healthcare infrastructure provision, and in part due to the absence of a suitable method for conveying such information. The complexity of infrastructure delivery process in the NHS makes the construction of healthcare buildings a formidable task. This is particularly the case for the NHS trusts who have little or no experience of construction projects. To facilitate understanding a most important aspect of the delivery process, which is the preparation of a capital investment proposal; steps taken in developing the business case for an NHS healthcare facility are examined. The business case development process is the planning procedure that every trust has to undertake in order to obtain approval from the NHS and, for projects of over £75 million, the Department of Health (Department of Health, 2008: 234) for investing in a capital project. The significance of the business case process is attributable to two factors. On the one hand it provides a framework of guidance for the trusts to prepare their investment projects in. On the other hand, it acts as a control mechanism for the Department of Health to ensure that the trusts building abroad, Montreal, October 2008

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have thought through the services they want to provide, the infrastructure for service delivery, and the production and management of this infrastructure. The history of the business case development is closely associated with the history of capital investment in the NHS. When the health service was nationalised in 1948, the Treasury became responsible for funding capital investments in healthcare. They imposed tight control and severe limits on capital expenditure, requiring the Ministry of Health to justify the revenue costs and benefits of Regional Hospital Boards’ (RHB’s) investment proposals. The Ministry of Health lacked the technical expertise to plan, design, and construct hospitals and the RHBs’ ability to assess needs and manage capital programmes varied considerably (Mohan, 2002: Chapter 5). Consequently, during the first decade of the NHS some RHBs inadequately defined the hospitals they constructed and underestimated their construction cost (Smith, 1984a: 1298). In 1961, the Ministry of Health initiated a guidance and control framework to help the RHBs prepare their ten year hospital building programme as part of the hospital plan that was introduced in 1962. The framework comprised three building notes. Two provided information about preparing a building programme, and calculating the cost of each hospital department and eventually the hospital. The third building note focused on the interrelations of different departments within a hospital, their communication with each other, and their future requirements for expansion (Smith, 1984b: 1437-8). A year later the Ministry of Health introduced Capricode - health building procedures - in their Hospital Building Procedure Notes 1 to 6 to reduce the planning problems and cost and time over-runs of hospital projects. Capricode described the development of a hospital scheme in six stages (Froud, 1979). The design had to be approved by the then Department of Health and Social Security (DHSS) at each stage of the procedure and by the Treasury on major schemes (Smith, 1984c: 1600). Upon the approval of the design a contract was placed. However, by this time, a number of years had elapsed and the original scheme needed revisions. The NHS reforms of 1991 led to the establishment of independent NHS trusts responsible for the provision, ownership, and management of hospitals (Office of Public Sector Information, 1990: C19). The government imposed charges on trusts’ capital (buildings and equipment) influencing the affordability of new investments in infrastructure. They also expected trusts to finance new capital developments through internally generated resources (Mohan, 2002: 204). In 1992 the government launched the Private Finance Initiative (PFI) to introduce private sector capital into the NHS and reduce the Public Sector Borrowing Requirement (Clark and Root, 1999). These changes, together with the persistent problems of construction delays and cost overruns (NAO, 1998), required trusts to adopt more business oriented approaches to planning their hospitals (Froud and Shaoul, 2001: 249). Therefore in 1994 the NHS Executive produced detailed guidance on every stage of a capital scheme in the form of the Capital Investment Manual (CIM). The guidance covers both the technical aspects of the full capital appraisal process and the setting up of management procedures. It makes the approval of capital schemes conditional on the existence of these procedures. The CIM also outlines the appraisal process of privately financed proposals that chief executives of trusts are required to evaluate in comparison with the use of public money (NHS Executive, 1994: Overview). One of the components of the CIM is the business case guide, which covers the procedure for the production of the business case. The business case is the document that supports the proposals for a new capital project (NHS Executive, 1994: Business case guide). Burgeoning literature has scrutinised specific components of the business case, such as the investment appraisal process (Gaffney et al., 1999b; Froud and Shaoul, 2001; Shaoul, 2005) and the affordability of schemes (Gaffney et al., 1999a), particularly in the context of investment decisions between public and private finance. What appears to have been least researched is the effectiveness and efficiency of the planning process in terms of how useful it is in identifying trusts’ needs and how long it 80

takes. It is argued that decisions about whether to undertake a hospital project and how to finance it are subject to lengthy discussions and negotiations, and are not totally objective processes (Sussex, 2001). There is indication of hospitals being planned based on assumptions which vary widely amongst planners and which are not stated explicitly or supported by evidence (Edwards and Harrison, 1999: 1361). It has also been suggested that the planning process is reversed by designing services that fit predetermined outcomes and that justifying these outcomes appears to be the main planning task (Pollock et al., 1999). The National Audit Office (NAO), subsequent to their examination of major hospital building schemes in 1989, concluded that the assessment of the performance of these schemes must include the time spent in initial appraisal and approval (NAO, 1989: 2). This paper focuses on the nature of the business case process in terms. The development phases of the business case Based on the CIM business case guide, the business case is developed through three or four phases depending on whether the investment project is funded publicly or by private-sector finance. The business case for publicly funded projects is prepared through the phases of: strategic context, outline business case, and full business case. The phases collectively comprise nine steps in preparing the business case. The strategic context sets out the procedure for an extensive strategic review of the trust and constitutes Step 1 in developing the business case. At the core of the review are three questions: Where is the trust now? Where does it want to be? Is capital investment affordable? The first question deals with the issues related to the trust, the purchasers, and the competitors. These include the nature of the healthcare services that the trust currently provides, its existing assets, its financial situation and cost structure, the role of purchasers and the nature of demand for healthcare services, and information about all the providers in the area and their services. The second question is concerned with understanding the future needs and demands for healthcare services, the scope for improvement, and establishing the case for change. The third question relates to the affordability of the proposed scheme. According to the CIM this phase may take three to six months. The outline business case addresses the question of how the trust gets to where it wants to be. It sets out the procedure for identifying a preferred option from a number of possible alternatives in six steps, which comprise steps 2 to 7 in the business case development process. Step 2 defines the Trust’s objectives in response to the service requirements established in the previous phase and identifies the benefit criteria based on which options are selected and assessed. Step 3 generates a long list of options to meet the objectives that emerged from the previous step and whittles this down to a short list. At this stage the business case guide recommends that the short list is discussed with the NHS Executive to confirm the decisions made so far. Step 4 describes how to measure the benefits that accrue from the options in order to rank them. Step 5 identifies the costs associated with the options. Step 6 examines the robustness of the ranking of options by testing their sensitivity to changes in the assumptions made when assigning costs and benefits to them. Step 7 analyses the information produced in steps 3 to 6 about the benefits, costs, and levels of risk of each option from which the senior management of the trust select a preferred option. The outline business case phase culminates in a written report by the same title which summarises the results of the strategic review (Step 1) and the investment appraisal (Steps 2 to 7). The report is submitted for approval to the Regional Office of NHS Executive. The business case guide recommends that the trust discusses the scope of the full business case with the NHS Executive once they have obtained approval. It indicates approximately three months for the completion of this phase. The full business case constitutes Step 9 in the business case development process. It reviews and refines the work done for the outline business case and develops and presents plans for building abroad, Montreal, October 2008

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managing and controlling the project. The full business case report contains an updated strategic context (Step 1), changes made to the outline business case (Steps 2 to 7), and project management plans. The latter include project management arrangements, contract strategy, project monitoring and post-project evaluation plans, cash-flow projections, and risk management strategy. The report is submitted for approval to the Central NHS Executive and the Treasury. This phase is estimated to take six months to complete. The business case process for publicly funded projects is demonstrated in Figure 1.

Phase 1 Step 1 -

Phase 2 Step 2 Step 3 -

Strategic context Set the investment within the strategic context Review (agree scope of work)

Outline business case Define objectives and identify benefit criteria Generate options Review (agree scope of work)

Step 4 Step 5 Step 6 Step 7 Step 8 -

Phase 3 Step 9 -

Measure the benefits Identify and quantify the costs Assess sensitivity to risk Identify the preferred option Present the outline business case Approval point Review/recheck

Full business case Produce the full business case Approval point

Fig. 1. The Business case process of publicly funded projects; source: Capital Investment Manual, NHS Executive, 1994. There is an additional phase between the outline business case and the full business case phases in the development of business case process for projects financed by the private-sector. It is referred to as the private finance proposals and is covered by a separate guide (NHS Executive, 1998: The PFI procurement process). The guide sets out the steps from a trust first approaching the market place prior to formally advertising a scheme, through to selecting bidders, and to financial close. The business case process for private sector financed projects is demonstrated in Figure 2.

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Phase 1 Step 1 -

Strategic context Set the investment within the strategic context Review (agree scope of work)

Phase 2

Outline business case

Step 2 Step 3 -

Define objectives and identify benefit criteria Generate options Review (agree scope of work)

Step 4 Step 5 Step 6 Step 7 Step 8 -

Measure the benefits Identify and quantify the costs Assess sensitivity to risk Identify the preferred option Present the outline business case Approval point

Phase 3

Private finance proposals Review/recheck

Phase 4

Full business case Approval point

Fig. 2. The Business case process of private sector financed projects; source: Capital Investment Manual, NHS Executive, 1994. Research methods The aim of this investigation is to explore the process through which NHS trusts establish their need for a new healthcare facility. The research poses the question; ‘what is the process for identifying and formulating the requirement for a new healthcare infrastructure in practice? The business case guide in the CIM (NHS Executive, 1994) is designed to direct the trusts to plan and submit a proposal for a new healthcare investment. It provides guidelines for planning the investment within time and to budget. One objective of this study is to discover the extent to which the trusts follow the guide and implement its procedure in practice. The other objective is to find out the extent to which the business case process itself is subject to budgetary and timescale constraints. The focus of the study is a set of complex processes involving numerous human agents therefore, it needs to be in-depth. The research question posed is a ‘what’ question, hence exploratory case studies appear to be pertinent (Yin, 1994). The study is moreover concerned with exploring and capturing tacit knowledge embedded in business case processes and transferring it to NHS trust representatives, consultants, and professionals who aim to participate in similar processes. Consequently aspects of a second research method called ‘Building Stories’ is combined with the exploratory case studies (see Heylighen, Martin and Cavallin, 2004). Building stories is a method initiated and developed in the architecture programme at the University of California-Berkeley. It involves constructing narratives about building projects that are being designed or built as a means of capturing and transferring the design knowledge embedded in them. It is believed that parallels exist between building design and business case development processes. The viability of applying the method retrospectively has been checked with its initiators as it is intended to add these cases to their repository.


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Research design The planning process of NHS healthcare infrastructure comprises the unit of analysis and therefore the case being studied. The number of cases was limited to two due to the constraints imposed by the research program and resources. The selection of case studies was based on the completion date of infrastructure projects, the method of infrastructure funding, and the availability and accessibility of trusts willing to participate in the research. The cases were chosen from healthcare infrastructure projects designed and constructed in the last five years. This ensured that their planning was subject to the CIM guidance and control procedures. As the business case guide differs for projects that are funded publicly and those that are financed by the privatesector, two projects - one from each category - were selected for study. To secure access to the projects the contacts of the principal investigator in two NHS Trusts were cultivated. The case studies relate to two diverse hospitals. One provides acute care services and was procured using public sector funding and general contracting, which entails direct engagement of private sector consultants and contractors by the client. The other hospital provides mental health and learning difficulties services, and was procured using private sector finance and the Private Finance Initiative (PFI) method of contracting. The latter involves a concession contract between the client and a Special Purpose Vehicle (SPV). The SPV acts as the main contractor and comprises the financing organisations, the constructor, and often the facility manager. The SPV in turn engages a design and build subcontractor during the design and construction phases and a facility manager during the operation phase. The data are collected through interviews, documentation, and archived records. The interviews are semi-structured and conducted face-to-face with key people involved in the development of the business case. The interviewees include the business case planners and project managers. Five interviews have been conducted with business case planners and project managers on both projects. Two more interviews are scheduled to be conducted. The interviews are about one hour and thirty minutes long and are recorded and transcribed. The documents consulted comprise full business cases, clinical output specifications, and in the case of the PFI project the final invitation to negotiate. The archived records consist of project organisation charts, slide presentations, building layouts, and published articles. The use of the three different data sources is intended to triangulate the evidence and increase the reliability of the data collected. Data analysis The data are analysed using the framework provided by the building stories method. This framework comprises a core and a web of stories or narratives constructed around it. The core includes six topics: actors, context, organisation, practices, programme and resources. It provides a profile of the project. Actors are individuals or groups of individuals who make decisions about the project. Context is the physical location of the project and related issues. Organisation refers to the predetermined organisational structure that affects the outcome of project. Practices include use of operating procedures, methodologies, and/or tools within the Trust. Programme refers to the users/Trust needs and requirements to be accommodated by the project within the given scope, time, and budget. Resources are the time and budget within which the project is to be realised including the documents, tools, and conditions that provide the Trust with special capacities to do so. The stories or narratives are composed around the core as a ‘network of events’. Each event consists of two elements: activities and outputs. Activities are actions and interactions performed by the actors. Outputs are created or used by the actors in the event (Heylighen, Martin and Cavallin, 2004: 7-8). The retrospective nature of the study makes identification of actions performed by specific actors difficult. The interviews shed some light onto this process however they do not allow the full sequence of activities to emerge. For this reason the evidence for events having taken place is 84

established by linking the procedure the actors are expected to have followed to the outputs they produced. The actors’ anticipated course of action is laid out in the CIM and was outlined in the introduction. The actors’ outputs are recorded in the full business case document. This evidence is complemented with that emerging from interview analyses. The interviews are coded based on the CIM steps using Nvivo.

Research Question:

•

What is the process for identifying and formulating the requirement for a new healthcare infrastructure in practice? How do NHS trusts decide that they need a new healthcare facility?

•

How do NHS trusts determine what type of facility they require?

•

Research Objectives •

To what extent do NHS trusts follow the business case guide in the CIM?

•

To what extent does the business case process facilitate timely planning of healthcare projects within specified budgets?

Research results Owing to the on-going research that this paper reports on, only some of the results emanating from the analysis of one of the cases is presented here. The case is the planning process of the hospital providing mental health and learning difficulties services procured by private sector finance. The profile of the case is as follows: Actors There was a Trust board comprising the chief executive, non-executive directors, and executive directors. It monitored the progress of the project, synthesised the evaluation of bids, and made cost-related decisions. The chief executive signed off the contract documents. There was a project board headed by the project director and included two project managers. One manager was involved during the early stages of the planning process (1988-1990) and then during the PFI process (1999-2000). He was responsible for producing the approval in principle, the outline business case, and the full business case documents. In addition, he coordinated the PFI procurement process at the stage when the number of bidders was down to six and prepared the present site for the commencement of building works. The other manager was also involved during the PFI process (1999-2000). He was responsible for drafting the original project plan, tender evaluation scoring mechanism, the output specification, coordinating the work relating to the design, and setting up focus groups that assessed the designs proposed by the bidders. There were operational groups that carried out the planning work. They comprised design, facility management, legal/risk and financial advisors. Context The Trust selected the location of the new facility for two reasons. First, the site is geographically closer to the population it serves and has better public transport links. It is therefore more likely to


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attract staff than the previous facility. Second, the buildings that formerly stood on the site were owned by the Trust and were partially occupied by administration functions. Organisation The predetermined organisational structure that affected the outcome of the business case process was the Trust hierarchy comprising the chief executive, the project director, and the project managers. The operational groups reported to the project managers who in turn reported to the project director. The project director reported to the chief executive. The reporting structure of the business case process is presented in Figure 3. The boxes represent individual or group entities. The lines represent reporting activities.

Trust Board

Non-Executive Directors

Chief Executive

Executive Directors

Project Board Project Director Project Managers

Project advisors

Design

Facility Management

Legal / Risk

Financial

Fig. 3. The organisational structure of the planning process Practices The evidence from the full business case document and the interviews suggests that the Trust was informed by the CIM guidance during the business case process. This section focuses on the private finance proposals. The Trust designed the PFI procurement process based on the procedure laid out in the CIM, in consultation with their advisors and representatives from the Private Finance Unit and the Treasury Task Force. The process included: • Publishing contract notices relating to the scheme in the then Official Journal of the European (OJEC) Communities in December 1998. • Issuing the memorandum of information for the scheme and pre-qualification questionnaires to

52 organisations responding to the OJEC notice in January 1999. • Evaluating the questionnaires received from 16 responding organisations in February 1999

based on the public procurement rules such as experience and capability. • Short-listing six consortia in March 1999 and issuing them with preliminary invitation to

negotiate documents in May 1999. • Evaluating and scoring bids submitted in July 1999 and presented in August 1999 based on

agreed criteria such as building and design, facilities management, finance, contracting, and construction – various service users and interests undertook the design evaluation which was based on the clinical output specification. The project board decided the weighting for each criterion and the Trust procurement group chose the bids to go forward to the final invitation to negotiate stage. 86

• Short-listing three consortia in September 1999 and issuing them with final invitation to

negotiate documents including the project agreement. • Evaluating and scoring bids submitted in November 1999 and amended in December 1999

based on agreed criteria reflecting both clinical and facility management output specification. These comprised building and design, construction approach, facilities management, finance, legal issues, bid coherence/robustness, and value for money – service users carried out the design evaluation and technical groups and advisors the evaluation of the non-design elements under the direction of the procurement group. • Short-listing two consortia in January 2000, and issuing them with best and final offer letter. • Evaluating best and final offers, submitted in March 2000 and amended in April 2000.

Concluding that neither bid provided adequate information and assurances for the Trust to select a preferred bidder and informing the consortia accordingly in May 2000. • Issuing the two consortia with a letter regarding the resubmission of best and final offer in June

2000. • Selecting the preferred bidder in August 2000 based on their financial advantage over the

other consortium conveyed by their best and final offer submitted in July 2000. • Engaging in detailed negotiations with the preferred bidder in August and September 2000.

Programme The Trust’s requirements were twofold. On the one hand they wanted to resettle the long-stay patients of the previous hospital in new more appropriate facilities in the community. On the other hand, they wanted to replace the old hospital with modern accommodation that met both the needs of the patients and the policy guidelines. These requirements had two sources. First, the mental health service provision was moving from an institutional to a community-based model. Second, the previous facility was totally unsuitable for its users. Its fabric was in poor condition and a state of disrepair. It was far away from the population it served and difficult to access by public transport. It therefore faced problems in recruiting staff and consequently had to close some wards. Resources The data sources do not reveal any evidence of time or budgetary constraints having been placed on the planning process of this hospital at the outset. The only significant date identified in 1995 as part of the risk assessment of the previous facility is its anticipated closure in autumn 2002. The timescale for the business case process was attributed to that indicated in the CIM. No evidence was found in relation to the budget for the process. The Trust relied on a number of documents during the development of the business case. It based its new service provision on the policy statements in the discussion document published by the regional health authority in June 1997. The Trust ensured that the standards of the proposed inpatient facilities met those set out in the ‘Safety, privacy and dignity in mental health units’ guidance (NHS Executive, 2000). It worked out the bed requirements by reviewing the work of Wing (1992), the regional mental health need assessment, and the National Bed Survey.


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Outline of the story of the business case development process The start of the thought process leading to the requirement for a new healthcare facility predates the business case process discussed so far. The mental health establishment preceding the current Trust contemplated resettling long-stay patients into community settings as early as 1988 by carrying out their first major option appraisal. This led to the production of the approval in principle document in 1990, which identified the current location of the hospital as the potential site. Around the same time the need for a more business oriented approach to planning healthcare facilities was being talked about. In April 1993 the NHS Trust preceding the current Trust was formed. It commissioned an independent external risk assessment of the previous mental health hospital in 1995, which concluded that the hospital had to close in autumn 2002. In December 1996 the Trust conducted another option appraisal exercise involving representatives from health authorities, social services, clinical staff, and general practitioners to determine the location of the new hospital. In September 1997 the Trust submitted the outline business case to the regional office of the NHS Executive. Between December 1998 and September 2000 the Trust engaged in the PFI procurement process outlined in the Practices section above. The outcome of this process was incorporated in the full business case document that the Trust submitted to the central office of the NHS Executive and the Treasury in November 2000. The Trust obtained approval for the new hospital in December 2000. Discussion and conclusions The introduction of the business case process in the planning of healthcare infrastructure projects appears to have been a response to the deficiencies in knowledge and management skills of those responsible for this task. Consequently the business case guide in the CIM presents a stepby-step procedure for identifying what the trusts need and how to achieve it. It moreover provides broad estimates of budget and timescale within which outline and full business cases may be carried out. Currently no known repositories containing information about the implementation and success or failure of business case processes exist. An in-depth study of the planning process of a trust providing mental health and learning difficulties services has produced some illuminating preliminary results. The Trust identified the need for a new facility in 1988 due to the severe shortcomings of their previous facility. They submitted their requirement for a new hospital in an approval in principle document in 1990. This was a few years prior to the introduction of the CIM and the business case process. For reasons that have not yet been clearly established but may be attributable to the restructuring of the NHS and the introduction of business procedures in 1991, the Trust had to undertake the business case process. The evidence suggests that they followed the procedure laid out in the CIM. The Trust resubmitted their requirement for a new facility in an outline business case in September 1997 followed by a full business case in November 2000. Based on these dates the first and second phases of the process took longer than the six to nine months indicated by the CIM. The third and fourth phases, on the other hand, are likely to have been completed within the period indicated in the CIM. No evidence of the budget allocated to the business case process was available. Despite indications that the Trust followed the CIM procedure it is not believed that they used it to identify and formulate their requirements. The findings emanating from the data indicate that the Trust provided detailed evidence on which their decisions appeared to be based. This is contrary to claims made by Edwards and Harrison (1999) about hospitals being planned on assumptions that are not stated explicitly or supported by evidence. However, it is likely that the Trust selected the evidence and used the procedure to justify their needs while basing the formulation of these needs on operational experience and policy guidelines. This result supports Pollock et al.’s (1999) claim about the planning process being used to design services to fit predetermined outcomes and the main planning task being to justify these outcomes. The Trust also took longer to 88

complete the first and second phases of the business case process than the CIM suggests despite having identified their requirements in a previous option appraisal. This finding agrees with Sussex’s (2001) argument that decision making processes about a hospital project involve lengthy discussions and negotiations, and are not totally objective. These preliminary results demonstrate that undertaking the business case process is a long, complex and costly exercise. If it is used merely to validate a pre-determined outcome, engaging in the process would be a wasteful application of precious resources.

Key Lessons Learned: • NHS trusts may identify and formulate their requirement for a new facility based on their

operational experience and in line with policy. • NHS trusts may use the CIM procedure to justify their predetermined needs and appear

to be following it because this is what they are expected to do. • The implementation of the business case process is long and costly, it may not result in

timely planning and may be a waste of precious resources.

References Clark, G.L. and Root, A. (1999) “Infrastructure shortfall in the United Kingdom: the private finance initiative and government policy” Political Geography Vol. 18, pp. 341-365. Department of Health (2008) Departmental Report. Norwich: TSO. Edwards, N. and Harrison, A. (1999) “The hospital of the future: Planning hospitals with limited evidence: a research and policy problem” British Medical Journal, Vol. 319, pp. 1361-1363. Froud, B. (1979) “Capricode - hospital building procedures explained” Nursing focus, Vol. 1, No 3, pp.111-5. Fround, J. and Shaoul, J. (2001) “Appraising and evaluating PFI for NHS hospitals” Financial Accountability and Management, Vol. 17, pp. 0267-4424. Gaffney, D., Pollock, A.M., Price, D. and Shaoul, J. (1999a) “The Private Finance Initiative: NHS capital expenditure and the private finance initiative – expansion or contraction?” British Medical Journal, Vol. 319, 3 July, pp. 48-51. Gaffney, D., Pollock, A.M., Price, D. and Shaoul, J. (1999b) “The Private Finance Initiative: PFI in the NHS – is there an economic case?” British Medical Journal, Vol. 319, 10 July, pp. 116119. Heylighen, A, Martin, W.M. and Cavallin, H. (2004) “From repository to resource. Exchanging stories of and for architectural practice” Journal of Design Research, Vol. 4, No 1, inderscience.com. Mohan, J. (2002) Planning, markets and hospitals. London and New York: Routledge. National Audit Office (1998) Cost over-runs, funding problems and delays on Guy’s hospital phase III development, HC-761. London: HMSO.


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NHS Executive (1994) Capital investment manual: Business case guide. London: HMSO. NHS Executive (1998) The PFI procurement process, PFI in the NHS. NHS Executive (2000) Safety, privacy and dignity in mental health units: guidance on mixed sex accommodation for mental health services. Office of Public Sector Information (1990) National Health Service and Community Care Act 1990: C 19. The National Archives. Norwich: TSO. Pollock, A.M., Dunnigan, M.G., Gaffney, D., Price, D. and Shaoul, J. (1999) “The Private Finance Initiative: Planning the “new” NHS: downsizing for the 21st century” British Medical Journal, Vol. 319, 17 July, pp. 179-184. Shaoul, J. (2005) “A critical financial analysis of the Private Finance Initiative: selecting a financing method or allocating economic wealth?” Critical Perspectives on Accounting, Vol. 16, pp. 441-471. Smith, J. (1984a) “Hospital building in the NHS - Policy I” British Medical Journal, Vol. 289, 10 November, pp.1298-1300. Smith, J. (1984b) “Hospital building in the NHS - Ideas and designs I: from Greenwich to best buy” British Medical Journal, Vol. 289, 24 November, pp.1437-1440. Smith, J. (1984c) “Hospital building in the NHS - things that go wrong” British Medical Journal, Vol. 289, 8 December, pp.1599-1602. Sussex, J. (2001) The economics of the Private Finance Initiative in the NHS. Office of Health Economics, BSC Print Ltd: London. Wing, J. K. (1992) Epidemiologically-based mental health needs assessment. Review of research on psychiatric disorders (ICD-10, F2-F6). London: Royal College of Psychiatrists, College Research Unit. Yin, R. (1994) Case study research: Design and methods (2nd ed.). Thousand Oaks, CA: Sage Publishing.

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Author’s Biography Dr Sepideh Arkani is leader of Theme 2: Procurement for Innovation in HaCIRIC (Health and Care Infrastructure Research and Innovation Centre), a £7.5 million programme of research funded by the Engineering and Physical Sciences Research Council and involves four universities. She is responsible for the development and management of research on the practice of built environment infrastructure procurement that enables service providers to deliver effective healthcare. Sepideh is a trained architect with five years practice experience in the industry. She has an MSc in Construction Economics and Management from the Bartlett School of Architecture and Planning, University College London. Sepideh completed her PhD at the School of Business and Management, University of Greenwich. She has a particular research interest in building infrastructure procurement methods and their impact on project participants’ behaviour and performance. Her other research interests include power and politics in building project coalition, and procurement of repair and maintenance services in local authority housing in the UK.


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GOOD PRACTICES IN SANITATION INFRASTRUCTURES FOR PERIURBAN POOR COMMUNITIES: A CASE IN HANOI

Julie Beauséjour, Université de Montréal email: [email protected]

Abstract In the context of high urbanization in South-East Asia, peri-urban areas suffer increasingly from environmental pressure and from lack of access to environmental infrastructures. At a time when urban financial resources are not available and deteriorated environmental conditions require expensive urban drainage structures, adapted practices are greatly needed. A pilot wastewater management community project by an international NGO serves as a case study for capacity-analysis at the local level. Through interviews with experts and user-oriented focus groups, the capacity of the village and households to participate in the project is analyzed. Even with the absence of credit, contribution from the poorest population is much more significant than one would expect. The Lai Xà project demonstrated that the resulting participation could be highly profitable for the authorities compared to the traditional approach of government supply and maintenance. Local communities can, with proper training, manage and maintain a simple sanitation system. The sustainability of these community services however depends on specialized technical and managerial support from water and sanitation authorities. This orientation with regional agencies will be a strategic option for international cooperation to support sustainable sanitation development. Keywords: Sanitation; Capacity Building; Periurban; Low-cost; Vietnam. Introduction Simple, low-cost technologies are available for sanitation; they represent alternatives to communities without access to proper sanitation services. In spite of high investments in most urban areas of the world, the number of inhabitants without access to sanitation is unfortunately still increasing year after year (Lenton et al, 2005). Urban governments, with the support of international aid, are mostly investing in downtown commercial districts and in “hardware” networks (i.e. main sewer collectors and treatment stations). These structures do not usually reach the poor neighbourhoods, the latter ending up with both inadequate drainage and solidwaste collection. Even where some services exist, they are often in poor condition because of bad planning, questionable design, improper operation and insufficient maintenance. Finally, sanitation problems are often resolved locally in an informal way, resulting in downstream discharges of waste that contaminate the next district of the city.


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New approach needed During the 90’s, an evolution towards collaborative and strategic approaches was hardly encouraged by the international agencies. (Bartone et al., 1994; Tayler et Parkinson, 2003; Wright, 1997). Change was unfortunately limited because governments and local authorities were lacking knowledge-capacities and financial resources. At the time, community initiatives and NGO-collaborations were the most successful in terms of reaching populations (Satterthwaite et al., 2005). These initiatives were, however, hard to reproduce: they were based on a particular context and on exceptional local capacities. Many community initiatives were lacking institutional support to sustain efficient management, operation, and maintenance. Since their projects were on a local scale, the pollution could only be discharged downstream to the next neighbourhood. Since these cases never adopted a community-management method, they promoted a new dominant paradigm based on demand and participation approaches (IWA, 2006; Kalbermatten et al., 1999; Lenton et al., 2005; McGranahan et al., 2001). Since engineers now support simplified and decentralized technologies for wastewater management (Lens et al., 2001), it is now possible for households and communities to take a larger responsibility in wastewater management while enjoying a quality service. The theoretical framework of this research is based on these new organisational and demand-based approaches (IWA, 2006; SANDEC/WSSCC, 2004), and supports a more efficient distribution of sanitation responsibilities in light of local objectives and capacities. Sanitation and drainage services are practically non-existent outside large cities in Vietnam. 68% of the urban populations have access to a hygienic latrine, compared to 11% of rural populations (World Bank, 2004). Urban drainage has improved in the last few decades but most existing drains date back to French colonisation (pre-1954) and are very damaged. All recent investments come from international aid and are focused on reducing flooding in urban areas. Compared to water supply, sanitation is clearly not a priority yet for the Vietnamese government: no national institutional framework has been adopted yet. Urban sanitation has been decentralized to provincial authorities without according proper budgets. Projects are still submitted to the central government where financing is accorded on a per-case basis. Rural sanitation has been tackled by many international donors as part of the poverty reduction strategy (Joint-Committee, 2005). However, all projects focus only on the supply of individual private latrines; drainage and communal wastewater treatment are not considered yet in rural areas.

Research methods This project is part of a wider research undertaken in Vietnam for a PhD degree in the field of urban environmental management. The case study is a pilot wastewater management community project by an international NGO. We interviewed all groups of stakeholders to identify their sanitation needs and capacities. Through our analysis we identified the factors that influence their decision to participate in this project. The stakeholders were divided in scales of analysis illustrated in figure 1: participants at the national level (government, ministries, water and sanitation agencies, etc.), participants at the village level (local authorities, traditional leaders, social organisations, project committee, etc.), and participants in households. The fieldwork in Hanoi lasted 13 months, and was conducted in partnership with the NGO YWAM, a project supporter, and a professor from the Hanoi University of Civil Engineering, who acted as the technical consultant in the community project. The research methods employed interviews with experts and focus groups conducted with users. The case study, while not necessarily exemplary or representative, was chosen because it presented a strong demand for sanitation from a highly informed public. Furthermore, the village 94

typifies periurban environmental conditions; located on the outskirts of Hanoi with no access to urban services, in the context of increasing urban pollution creating pressure on local agriculture.

Fig. 1. Scales of analysis

Specific research question: • What are the community and household capacities in wastewater management in periurban

Vietnam? Overall thesis research questions: • Which government mechanisms can be better adapted to suit local capacities? • What external support is needed in light of new local sanitation management mechanisms?

Indicators All groups of stakeholders were analysed in terms of their capacities in the following sectors: institutional, human resource, technical, financial, social, and cultural. Institutional capacity refers to legal, procedural, and governmental frameworks that influence group action. Human resource capacity refers to the work of all professionals required to plan, build, maintain, and manage the sanitation system, as well as the work that goes into training other participants. Technical capacity is the material needed to support the technological system in materials, tools, vehicles, and machinery. Financial capacity refers to the means of funding the operations of a sanitation service. Social capacity refers to the community’s capacity to get organized and cooperate for a mutual benefit, as per the social capital definition (Putman, 2002). Finally, cultural capacity refers to the individual and cultural preferences in terms of hygiene and sanitation, or in other words, one’s willingness to adopt a new sanitation system.


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Research objectives: • Pilot-test low-cost sanitation technologies in periurban Vietnam. • Identify household and village capacities in order to plan, operate, manage, and maintain

the system. • Identify characteristics of the technology that can be best harmonized with local

management efforts. • Identify needs of support in order to achieve sustainable local management.

Case study: Lai Xà project Lai Xà is a village on the border of the Hanoi Metropolitan province and is facing a typical periurban environmental problem. The community is part of a rural commune and is thus not provided with urban environmental infrastructures. The water pollution from its industrialized and urbanized neighbour is increasing and affecting its agriculture. The Lai Xà project is supported by Youth-With-A-Mission, an NGO from New Zealand. Working in Lai Xa and its commune administration since 1999, YWAM accepted to support an ambitious environmental management project that comprised three phases: solid waste management, liquid waste treatment, and clean water supply. The NGO contributed 50% of the financing while the commune and village contributed the remaining half. The solid waste management phase of the project was completed in 2003. All domestic solid waste is now being collected and sorted for organic composting, and non-organic waste disposal is sent to the local landfill. The second phase of the project started in 2004 using the same participatory approach. The first step was an educational and communication campaign on sanitation, hygiene, and the environment. The educational campaign was conducted by training a team of local ambassadors, who would later teach their own group about the project and the sanitation service. The ambassadors were representatives from all social organizations and groups of residents in the village. The group of 40 ambassadors, who received an exhaustive training on the sanitation system over 6 weekends by the technical consultant, could reach more than 94% of the population through direct contact. The objective of this method was to create a core of trusted leaders in the village that would support the project after the NGO leaves. The technology was going to be low-cost and made simple for easy local operation and maintenance. The households were taught how to build their own drain and connect it to the secondary lane drainage. All new water toilets were to be completed with septic tanks that were designed properly. Another committee, formed by the Lai Xà residents, was to closely monitor the construction in the village. Their mandate was to report to the village assembly about the quality of the work while supervising all household connections and secondary drainage construction. Research results There were many stakeholders involved in the Lai Xà project. The social and political groups as well as formal and traditional authorities were categorized as representing interests from the “village level”. Any other individuals who were involved in tasks that would benefit the entire village were also categorized as part of the “village stakeholders”. The analysis was separated in two categories of participants: village stakeholders and household users. Both groups of people have specific capacities that allow them to take on certain responsibilities to create a more sustainable alternative management mechanism. 96

Village capacities and interests The stakeholders from this level included social and political organisations such as the Women’s Union, Youth Union, Farmers Association and Veteran’s Association. The community workers (healthcare and teaching professionals) and the private sector (craftsmen, farmers, mechanics) also had capacities and a great interest in being involved in the project. Also present were the committees formed especially for the project: a local management committee, ambassadors, a construction supervision committee, and employees of an environmental group. The analysis shows that the typical agricultural village was far from having the capacities to implement and manage an independent and sustainable sanitation service. Specialized management and human resources were missing and would remain necessary even after service implementation. Even with the NGO having been present in the village for six years, the local management committee, with a certified accountant as part of its team, was still overwhelmed with work. Despite having been sufficiently trained to oversee the routine cash-flow generated by the service, managing the finances remained challenging when both new constructions and repairs to existing infrastructures were being planned. The committee felt the need to be mentored on this kind of financial and technical planning and management. Technical workforce and tools were also limited in the village. The planning, engineering, and technical training had to be executed by an external consultant who was hired by the NGO. Sanitation technologies are not widespread in Vietnam; adapting these to the needs of a poor village required advanced expertise. The village, however, was home to a large and inexpensive manual work-force and the sanitation system itself was fairly simple to operate, maintain, and repair; it was made of material that could be found locally (bricks, concrete) and needed no chemical for operation and maintenance. A group of agricultural workers had been adequately trained and could regularly maintain the system manually. For a village where the average income is less than half the national average, the participation and financial contribution from users was very important. This involvement could be mostly related to the mobilisation of social groups inside the village network. Local participation and financial contribution is increased when a project is orchestrated with the local authorities. The traditional social organisations are still very powerful in Vietnamese rural communities; they are used to organise and pass on Government endeavours. This efficiency in communications and social mobilisation results in a very high social capacity. Ultimately, it appears that the choices of technology and design are the most important factors in mobilizing local village capacities. The Lai Xà system has a simple design that allows gradual financing and construction. The treatment is decentralized to avoid total interruptions of service thus requiring further user-contribution. The capital and construction costs are low, with operation and maintenance being conducted locally by non-specialized workers.

Households capacities and interests In rural areas without any available public service, households are solely responsible for meeting their sanitation needs and constructing any individual latrines. In Lai Xà, increasing flooding and contamination result in new needs for urban infrastructures. The household’s capacities and interest to contribute to that kind of commune infrastructure were analyzed. The technological system chosen in Lai Xà needed a high contribution from users, mainly due to financial reasons. They had to build secondary drains and connect them to the sewer as well as build a septic tank for pre-treatment and, understandably, utilize and maintain all these structures properly. All households definitely had the capacity to look after such a simple system. This high social capacity combined with an important educational campaign, created openness to such a new building abroad, Montreal, October 2008

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technology and, in turn, strengthened cultural capacity. Despite requiring technical expertise from external sources, the households still committed to constructing their individual connection as well as to a monthly maintenance fee. It goes without saying that the household’s financial capacities also proved to be much higher than expected for such a poor community. The recognition of these existing capacities is, however, not a proof that the households will participate at the full extent of their capacities. Many sanitation projects in developing countries result in low sustainability due to a low willingness-to-pay from beneficiaries. Factors that encourage household participation are still missing from international literature. Degrading environmental conditions and basic sanitation needs alone were far from sufficient to convince households to pay for this system in Lai Xà. Most households did not know much about the benefits of extensive sanitation. The educational campaign and technical trainings were popular and well received in the village. The most convincing claims, however, were those regarding the economic benefits for agriculture, increased modernity, and cleanliness in the village. Furthermore, most households said they would not invest without a unified mobilisation from both local authorities and social organisations to demonstrate the project’s importance in the village. Competent technical consultants persuaded households of the quality and the appropriateness of the proposed technology. The presence of technical support in the village convinced households to invest in construction since they could benefit from cheap consulting and improved overall quality. The analysis later demonstrated that willingness-to-pay for connection is not sufficient to maintain a sustainable service. Once the project activities ended in Lai Xà, many poor considered that their contribution was done and sufficient, and questioned the need to pay for maintenance. Government recognition, strict regulation, and financial support are mentioned as good incentives to pursue maintenance contribution. Discussion and conclusions The factors that emerged from this analysis are directions to develop good incentives in service planning. The Lai Xà project demonstrated that the resulting participation could be highly profitable for the authorities compared to the traditional approach of government supply and maintenance. The studied community, similar to many small Vietnamese towns, presents local capacities to undertake small-scale environmental services. Simple accounting and management can be done locally, as well as low-tech operation and maintenance. Local farmers and users can participate either financially or manually. The best choices of technology for poor communities are those that are simple to operate and low-cost. They must be built from materials that can be founded locally and require few specialized machinery. Decentralized wastewater treatment can use simpler treatment, can be built gradually, and are simpler to maintain (Lens et al., 2001). A sustainable service, however, needs specific consultant-support in engineering and management to support the work undertaken locally. The Lai Xà case showed that local training in basic management and sanitation technologies, combined with an educational campaign, can create capacities to manage and maintain a low-tech community service without important input from the authorities. To be sustainable, the drainage and wastewater treatment system will need specific expertise on specific phases of projects: design, construction, and repairs. Theses are the phases where water and sanitation agencies can focus their active role while downloading routine management tasks to the communities. The Lai Xà case also showed that no district or provincial agency could provide this sanitation expertise to support the community in this periurban area. The expertise is relatively non-existent outside of the urban drainage companies located in the bigger cities. Reorienting and reinforcing the capacities of such government 98

agencies will be a strategic project that can be accomplished by international cooperation. While the role of international firms is not limited to construction anymore, capacity-building for supporting community initiatives will be an efficient option to avoid the repetitive wasting of international capital investment.

References Bartone, C., Bernstein, J., Leitmann, J. et Eigen, J. (1994) Toward environmental strategies for cities : policy considerations for urban environmental management in Developing countries, Ed., Published for the Urban Management Programme by the World Bank, Washington, D.C. IWA (2006) Sanitation 21: Simple Approaches to Complex Sanitation. A Draft Framework for Analysis. Sanitation 21 Taskforce group. International Water Association. Joint Committee (2005) National Rural Strategy for Water Supply and Sanitation (NRSWSS) 2005-2015. Donor Countries - Gov. of Vietnam. Kalbermatten, J. M., Middleton, R. et Schertenleib, R. (1999) "Household-Centred Environmental Sanitation." EAWAG-SANDEC, Duebendorf, Switzerland. Lens, P., Zeeman, G. et Lettinga, G. (2001) Decentralised Sanitation and Reuse: Concepts systems and implementation, Ed., IWA Publishing, London, UK. Lenton, R., Wright, A. M. et Lewis, K. (2005) Health, dignity and development: what will it take?, Ed., Earthscan, London. McGranahan, G., Jacobi, P., Songsore, J., Surjadi, C. et Kjellen, M. (2001) The Citizen at Risk : from Urban Sanitation to Sustainable Cities, Ed., Earthscan, London. Putnam, R. (2002) Democracies in flux: The evolution of social capital in contemporary society, Ed., Oxford University Press. SANDEC/WSSCC (2004) "Implementing the Bellagio Principles in Urban Environmental Sanitation Services: Provisional Guidelines for Decision-Makers." Water and Sanitation Collaborative Council. Satterthwaite, D., McGranahan, G. et Mitlin, D. (2005) Community-driven development for water and sanitation in urban areas: its contribution to meeting the Millenium Development Goal targets, Joint IIED-WSSCC publication Ed., Water Supply and Sanitation Collaborative Council, Geneve. Tayler, K. et Parkinson, J. (2003) "Effective Strategic Planning for Urban Sanitation Services: Fundamentals of good practice." GHK Consultants, London. http://www.ghkint.com/products/downloads/Publications/Strategic%20planning%20for%20 urban%20sanitation.pdf. World Bank (2004) "Vietnam Development Report." Wright, A. M. (1997) "Towards a Strategic Sanitation Approach: Improving the sustainability of Urban Sanitation in Developing Countries." Water and Sanitation Program, Washington. http://www.wsp.org/english/urban_ssa.htm. building abroad, Montreal, October 2008

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Author’s Biography Julie Beauséjour has an Agricultural and Biosystems engineering degree from McGill University. Her main interest is urban environmental management in developing countries. Her master thesis in Civil Engineering from École Polytechnique de Montréal was about solar technology for treatment of industrial liquid waste in Mexico. During her doctoral studies, she specialized in sanitation management, capacity-building in environment, and low-cost sanitation alternatives. She will be defending her PhD thesis in urban planning during the fall 2008.

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MEASURES THAT ENHANCE THE ACHIEVEMENT OF VALUE-FOR-MONEY IN PUBLIC PRIVATE PARTNERSHIP (PPP) PROJECTS

Albert P.C. Chan, The Hong Kong Polytechnic University email: [email protected] Patrick T.I. Lam, The Hong Kong Polytechnic University email: [email protected] Daniel W.M. Chan, The Hong Kong Polytechnic University email: [email protected] Esther Cheung, The Hong Kong Polytechnic University email: [email protected] Yongjian Ke, Tsinghua University email: kyj05@,ails.tsinghua.edu.cn

Abstract A research project looking at implementing a best practice framework for Public Private Partnerships (PPPs) in Hong Kong is currently being conducted. This research project draws from the successful experiences of using PPPs in the U.K. and aims to derive suitable skills and mechanisms for Hong Kong. As part of this research project an empirical questionnaire survey was conducted. The survey questionnaire was adapted from profound researchers in the U.K., with their permission, to compare PPP practices in different jurisdictions. Value-for-money (VFM) is one of the main initial drivers motivating Governments around the world to adopt PPPs. Respondents of the questionnaire survey were asked to rate the importance of eighteen possible measures that would enhance the achievement of value-for-money in PPP projects. In the U.K. survey conducted by previous researchers they found that the top five most important VFM measures included: (1) Efficient risk allocation (allocating the risk to the party best able to manage it), (2) Output based specification, (3) Long-term nature of contracts, (4) Early project service delivery and (5) Risk transfer (transferring a substantial amount of risk from the public to the private). For this research project, the results conducted in Hong Kong were similar. The top two most important value-for-money measures were the same as those rated in the U.K. The other measures rated highly included: (3) Competitive tender, (4) Private management skill and (5) Private sector technical innovation.

Keywords: Value-For-Money; PPP; Hong Kong; U.K.

Introduction Public Private Partnership (PPP) was first introduced in the United Kingdom in 1992 in the form of Private Finance Initiative (PFI) as a way of procuring public infrastructure by getting the private building abroad, Montreal, October 2008

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sector to finance, build and operate it under contracts typically lasting 25 to 30 years (Tieman 2003). Since its introduction, PFI has been the government’s preferred method of public infrastructure procurement (Handley-Schachler and Gao 2003). As a result, PFI now accounts for between 10 to 14 percent of Britain’s total annual investment in public services. In 2003, total investment under PFI was forecast to reach £4.6 billion (Tieman 2003). After almost 50 studies, the National Audit Office (NAO) had concluded that when PFI functioned properly, it delivered both better value and better infrastructure. Furthermore, according to an NAO review in 2003, 78% of PPP/PFI projects were delivered within budget and 76% on time (Tieman 2003). However, Maltby (2003) asserted that PFI should be abolished for smaller projects and for information technology schemes. It is clear that PPP is not a panacea to solve all problems and may not be suitable for all project settings. It is therefore important to explore the successful ingredients for delivering PPP projects. Hong Kong is not completely new to the idea of PPP. In actual fact, the city was probably one of the first to utilize resources from the private sector back in the sixties (Chan et al., 2007). Build Operate and Transfer (BOT) model has become a well-known procurement option locally, particularly for large economic infrastructure projects. PPP, on the other hand, is a less familiar term in Hong Kong. In recent years, the Efficiency Unit of the Hong Kong Special Administrative Region Government has been heavily involved in PPP research. The Government’s interest in utilizing PPP is obvious. The approaches they have taken mainly involve gaining international experience, from Europe and Australia in particular. As a result, a number of publications have been produced to educate civil servants on the process of conducting PPP projects (Efficiency Unit 2001; 2003; 2007; 2008). To continue the recent interest of PPPs in Hong Kong, this research study investigates the measures that enhance the achievement of Value-for-Money (VFM) in PPP projects locally, by way of an empirical questionnaire survey. Development of the empirical survey questionnaire The questionnaire template designed by Li (2003) was adopted for this study. Although the authors could have developed their own research questionnaire, there were several foreseeable advantages to adopting Li’s (2003) survey questionnaire rather than designing a new template. Firstly, the value of Li’s (2003) questionnaire has already been recognized by the industry at large. His publications, as a result of the research findings derived from the questionnaire, are evidence of its worthiness. Secondly, there would be no added advantage to reinvent the work that was previously done by other researchers. Thirdly, by administering Li’s (2003) questionnaire in different administrative systems, it would be of interest for comparison purposes. Therefore Li’s (2003) questionnaire was adopted for the survey, as presented in this paper, with prior permission obtained from the author, Dr. Bing Li, and his doctoral research supervisor, Prof. Akintola Akintoye. Prof. Akintoye is currently Head of the School of Built and Natural Environment at the University of Central Lancashire, United Kingdom. Research methods The methods for data collection and data analysis for the research work presented in this paper are described in detail in this section.

Research hypothesis: • Measures enhancing the achievement of Value-for-Money in PPP projects are repeatable

irrespective of geographical differences.

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Collection of research data An empirical questionnaire survey was undertaken in Hong Kong from October 2007 to December 2007 to study the VFM measures of PPP under this administrative system. In this study, the target survey respondents of the questionnaire included all industry practitioners from public, private and other sectors. These respondents were requested to rate their degree of agreement with each of the identified VFM measures according to a five-point Likert scale (1 = Least Important and 5 = Most Important). Target respondents were selected based on their direct hands-on involvement with PPP projects. Survey questionnaires were sent to 95 of these target respondents in Hong Kong. It was anticipated that some of the target respondents would have colleagues and personal connections knowledgeable in the area of PPP and could participate in this research study as well; hence some of the respondents were dispatched five blank copies of the survey form. A total of 34 completed questionnaires from Hong Kong were returned, representing a response rate of 36%. Tools for data analysis Mean score ranking technique Chan and Kumaraswamy (1996) adopted the ‘mean score’ method to establish the relative importance of causes of delay in building construction projects in Hong Kong as evaluated by clients, consultants and contractors. The data collected from the current questionnaire survey was analyzed using the same technique within various groups categorized according to the origin of the respondents (i.e. mainland China and Hong Kong). The five-point Likert scale (1 = Least Important and 5 = Most Important), as previously described, was used to calculate the mean score for each VFM measure, which was then used to determine its relative ranking in descending order of importance. These rankings made it possible to isolate the relative importance of VFM measures to the respondents from Hong Kong. The mean score (MS) for each VFM measure was computed using the following formula:

MS =

(f s) , (1 MS 5) N

(1)

Where s = Score given to each VFM measure by the respondents, ranging from 1 to 5 (1 = Least Important and 5 = Most Important); f = Frequency of each rating (1-5) for each VFM measure; and N = Total number of responses concerning that VFM measure. Kendall’s concordance analysis Kendall’s concordance analysis was conducted to measure the agreement of different respondents on their rankings of VFM measures based on mean values within a particular group. If the Kendall’s coefficient of concordance (W) is significant at a pre-defined allowable significance level of, say 0.05, a reasonable degree of consensus amongst the respondents within the group on the rankings of VFM measures was indicated. The W for the VFM measures was calculated by the following formula (Siegel and Castellan 1988): n

W =

(R

i

R

) 2

i =1

n(n 2 1) / 12 building abroad, Montreal, October 2008

(2) 103

Where n = Number of VFM measures being ranked;

R i = Average of the ranks assigned to the ith VFM measure; and R = The average of the ranks assigned across all VFM measures. According to Siegel and Castellan (1988), W is only suitable when the number of attributes is less than or equal to 7. If the number of attributes is greater than 7, chi-square is used as a near approximation instead. The critical value of chi-square is obtained by referring to the table of critical values of chi-square distribution, which can be found in Siegel and Castellan (1988).

Research Objectives: • Analyze and rank the eighteen VFM measures of PPP projects in Hong Kong. • Compare the rankings in Hong Kong with those from the U.K. • Highlight the most important measures to enhance the achievement of VFM in PPP projects

for Hong Kong.

Research results Ranking of VFM measures of PPP projects The eighteen VFM measures ranked by Hong Kong respondents were compared to those ranked by respondents from Li’s (2003) U.K. study. As shown in Table 1 the results showed that the top five VFM measures ranked by Hong Kong respondents included: (1) Efficient risk allocation (allocating the risk to the party best able to manage it), (2) Output based specification, (3) Competitive tender, (4) Private management skill and (5) Private sector technical innovation. Amongst these top five VFM measures ranked by Hong Kong respondents, two were ranked the same by respondents from the U.K. These identically ranked VFM measures were the top two, ranked as such by both Hong Kong and U.K. respondents. The other three top-five VFM measures ranked by Hong Kong respondents did not appear in the top-five rank in the U.K. Ranked third, fourth and fifth in the U.K. were: (3) Long-term nature of contracts, (4) Early project service delivery, and (5) Risk transfer (transferring a substantial amount of risk from the public to the private). Since the respondents were asked to rate the eighteen VFM measures according to a Likert scale from 1 - 5 (1 = Least Important and 5 = Most Important), a value above ‘3’ would represent that the VFM measure is of importance. The findings showed that more VFM measures were ranked below ‘3’ by respondents from the U.K. (five) compared to those from Hong Kong (two). The results showed that, in general, Hong Kong respondents rated the VFM measures higher than U.K. respondents. The VFM measures rated by Hong Kong respondents ranged from 2.82 to 4.18, whereas those ranked by U.K. respondents ranged from 2.49 to 4.02. Amongst the eighteen VFM measures, a majority (fourteen) were rated higher by respondents from Hong Kong, these included: a. Competitive tender b. Efficient risk allocation (allocating the risk to the party best able to manage it) c. Risk transfer (transferring a substantial amount of risk from the public to the private) f. Improved and additional facilities to the public sector g. Private management skill 104

h. Private sector technical innovation i. Optimal use of asset/facility and project efficiency k. Low project life cycle cost l. Low shadow tariffs/tolls m. Level of tangible and intangible benefits to the Users n. Environmental consideration o. Profitability to the private sector q. Reduction in disputes, claims and litigation r. Nature of financial innovation Three of the VFM measures were rated higher by the U.K. respondents, these were as follows: e. Long-term nature of contracts j. Early project service delivery p. "Off the public sector balance sheet" treatment Only one VFM measure was rated equally by the two sets of respondents: d. Output based specification Finally, it was also observed that the VFM measures “l. Low shadow tariffs/tolls” and “n. Environmental consideration” were ranked lowest by both groups of respondents. It could therefore be interpreted that these measures were considered equally unimportant irrespective of the geographical locations. Table 1. Mean scores and rankings for the VFM measures of PPP projects Hong Kong VFM measures b. Efficient risk allocation (allocating the risk to the party best able to manage it) d. Output based specification a. Competitive tender g. Private management skill h. Private sector technical innovation i. Optimal use of asset/facility and project efficiency e. Long-term nature of contracts c. Risk transfer (transferring a substantial amount of risk from the public to the private) r. Nature of financial innovation k. Low project life cycle cost j. Early project service delivery f. Improved and additional facilities to the public sector o. Profitability to the private sector p. "Off the public sector balance sheet" treatment q. Reduction in disputes, claims and litigation m. Level of tangible and intangible benefits to the Users n. Environmental consideration l. Low shadow tariffs/tolls

U.K. (Li, 2003) Mean Rank

N

Mean

Rank

33* 34 34 34 33 34 34

4.18 3.91 3.91 3.82 3.82 3.68 3.65

1 2 3 4 5 6 7

4.02 3.91 3.5 3.41 3.28 3.31 3.78

1 2 6 7 9 8 3

34 34 34

3.59 3.56 3.47

8 9 10

3.57 3.25 3.24

5 10 11

34 34 34 34 34 34 34 34

3.35 3.35 3.18 3.15 3.09 3.00 2.97 2.82

11 12 13 14 15 16 17 18

3.72 3.16 2.84 3.23 2.81 2.83 2.38 2.49

4 13 14 12 16 15 18 17

* Only 33 responses out of the 34 collected were suitable for the analysis. Agreement of respondents within Hong Kong As shown in Table 2, the Kendall’s coefficient of concordance (W) for the ranking of VFM measures was 0.199 in Hong Kong. The computed W was all significant at 0.000.


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If the number of attributes considered were above seven, as mentioned previously, the Chisquare value would be referred to rather than the W value. According to the degree of freedom, the critical value of Chi-square was 27.590. The computed Chi-square value (108.189) was well above the critical value of Chi-square. Therefore the assessment by the respondents within the group on their rankings of VFM measures is proven to be consistent. This finding ensures that the completed questionnaires were valid and therefore further analysis could be performed. Table 2. Results of Kendall’s concordance analysis for the VFM measures of PPP projects N Kendall's W(a) Chi-Square Critical Value of Chi-Square df Asymp. Sig.

32* 0.199 108.189 27.590 17 0.000

* Only 32 responses out of the 34 collected were suitable for the analysis. Discussion and conclusions The results showed that the VFM measures ‘Efficient risk allocation (allocating the risk to the party best able to manage it)’ and ‘Output based specification’ were regarded as the top two measures ranked by respondents from both Hong Kong and the U.K. These VFM measures were therefore applicable to PPP projects irrespective of geographical differences. These findings coincide with the responses achieved from interview surveys conducted for this study (Chan et al., 2008) and guidelines produced by the Efficiency Unit of Hong Kong (Efficiency Unit 2001; 2003; 2007; 2008). Other VFM measures ranked highly by Hong Kong respondents included: ‘Competitive tender’, ‘Private management skill’ and ‘Private sector technical innovation’. These three measures were ranked third, fourth and fifth respectively. The U.K. respondents, on the other hand, ranked these VFM measures of medium importance at sixth, seventh and ninth place amongst the total number of eighteen measures studied. The results found were thought to be logical given the U.K.’s experience in conducting PPP projects. The U.K. has conducted many more PPP projects compared to Hong Kong; as a result many procedures, resources and skills are already readily available. Therefore, those VFM measures that are important to Hong Kong may not be viewed as important by U.K. respondents. Instead, the respondents from the U.K. rated measures that were related to time and risk as more important. These measures could also be considered to be important for projects that are not procured PPPs. Other possible reasons for the difference in responses between the two respondent groups may include: •

Differences in the legal system between Hong Kong and the U.K.;

•

Different interpretations of the VFM measures by the respondents;

•

Differences in economic environments between Hong Kong and the U.K. and

•

The experience and background of the respondents.

In general the results showed that Hong Kong is less experienced in undertaking PPP projects and therefore the focus is strongly on those measures that are different to traditionally procured projects. The U.K., on the other hand, is extremely familiar with the implementation of PPP projects already; hence, the measures ranked by them could be applicable to all projects.

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Key Lessons Learned: • Measures enhancing the achievement of Value-for-Money in PPP projects are

repeatable irrespective of geographical differences. • The top-two VFM measures ranked by UK and Hong Kong respondents are ‘Efficient risk

allocation (allocating the risk to the party best able to manage it)’ and ‘Output based specification’ Acknowledgements The work described in this paper was fully supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (RGC Project No. PolyU 5114/05E). Sincere thanks go to Dr. Bing Li and Professor Akintola Akintoye for permitting the research team to adapt their survey questionnaire template. Special gratitude is also extended to those industry practitioners, from both Mainland China and Hong Kong, who have kindly participated in the questionnaire survey reported in this paper from October 2007 to December 2007. References Chan A. P. C., Lam P. T. I., Chan D. W. M. and Cheung E. (2008) Application of Public Private Partnership (PPP) in Hong Kong Special Administrative Region – the Critics’ Perspectives, International Conference on Construction in Developing Countries - Advancing and Integrating Construction, Education, Research & Practices (ICCIDC-I), Pakistan, August 45, Abstract under review. Chan, A. P. C., Lam, P.T.I., Chan D.W.M., Sidwell, T., Kajewski S. and Cheung E. (2007) “From BOT to PPP - A Hong Kong example.” Proceedings of the 2007 International Conference on Concession Public / Infrastructural Projects (ICCPIP), Dalian University of Technology, Dalian, China, August 24-26, pp. 9:010-018. Chan, D. W. M., and Kumaraswamy, M. M. (1996) “An evaluation of construction time performance in the building industry.” Building and Environment, 31(6), pp. 569-578. Efficiency Unit (2001) Serving the Community by Using the Private Sector. June, Hong Kong Special Administrative Region Government. Efficiency Unit (2003) Serving the Community By Using the Private Sector - An Introductory Guide to Public Private Partnerships (PPPs). August, Hong Kong Special Administrative Region Government. Efficiency Unit (2007) Serving the Community By Using the Private Sector Policy and Practice (Second Edition), January . Efficiency Unit (2008) Serving the Community by Using the Private Sector – An Introductory Guide to Public Private Partnerships (PPPs) (Second Edition), March, The Hong Kong Special Administrative Region Government.


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Handley-Schachler, M. and Gao, S. S. (2003) “Can the private finance initiative be used in emerging economies? Lessons from the UK’s successes and failures.” Managerial Finance, Partrington, pp.19-36. Li, B. (2003) Risk management of construction public private partnership projects, Ph.D Thesis, Glasgow Caledonian University, United Kingdom. Maltby, P. (2003) “Has the PFI grown up?” Public Finance, London. August . Siegel, S. and Castellan, N. J. (1988) Nonparametric Statistics for the Behavioral Sciences. McGraw-Hill, Inc. Tieman, R. (2003) “A revolution in public procurement: UK’s private finance initiative.” Finance Times, London, November 24, pp. 4. Author’s Biography Professor Albert P. C. Chan, MSc (Aston), PhD (S. Aust.), FCIOB, FAIB, FHKICM, FHKIE, MAIPM, MIEAust, AAIQS, MRICS, RPE(Bldg), had 5 years hands-on experience in the field of construction project management before changing to an academic career in 1987. He is a Chartered Builder, Engineer, Project Manager and Surveyor by profession. He has been commissioned by numerous organisations to provide consultant services in project management and construction economics. Prof. Chan holds an MSc in Construction Management and Economics from the University of Aston in Birmingham and a PhD in Project Management from the University of South Australia. He is currently Associate Head of the Department of Building and Real Estate at the Hong Kong Polytechnic University and an Adjunct Professor at: the Queensland University of Technology, the Bond University in Australia and the University of South Australia. Prof. Chan is a Founding Director of the Construction Industry Institute, Hong Kong. His current research interests are construction industry development, construction safety and project procurement including PPPs. Dr. Patrick T. I. LAM, PhD, MSc, Associateship (HKPoly), Dip.Finance, MHKIS, MHKIE, MHKICM, MSISV, MSIArb, MRICS, MCIOB, RPE, RPS, CCE, has gained rich professional and academic experiences since graduating from Hong Kong Polytechnic in 1981. As a professional, he has practised for 10 years in multi-disciplinary design offices, consultant quantity surveyors and as a contractor/developer both in Hong Kong and Singapore. As an academic, he has obtained substantial experience lecturing in undergraduate and postgraduate programmes at universities and polytechnics, both locally and overseas. While teaching, Patrick is active in research and consultancy projects. Dr. Daniel W. M. Chan, BEng(Hons), PhD, MAPM, MHKICM, MASCE, ICIOB, AMAIB, is currently an Assistant Professor in Construction Management and Engineering at the Department of Building and Real Estate, The Hong Kong Polytechnic University. He is a project manager and construction manager by profession. He obtained his BEng(Hons) degree in Civil and Structural Engineering and PhD degree in Construction Project Management from the Department of Civil Engineering at The University of Hong Kong. His current research interests include construction procurement systems, project partnering and strategic alliancing, construction safety management, public private partnership and target cost contracting. Furthermore, Dr. Chan has been appointed as the Editor of the CII-HK Newsletter “The Innovator” and has been a Member of the CII-HK Editorial Board since July 2003. He has also served on the Committee of the 108

Association for Project Management (Hong Kong Branch) responsible for student membership recruitment and university education since November 2005. Miss Esther Cheung, BEng(Hons), MPhil, obtained her BEng (Hons) degree in Environmental Engineering at The University of Nottingham in England. After several years of working in waste management research, she further her studies with an MPhil degree looking at the photocatalytic behaviour of recycled products. She successfully obtained her MPhil degree from the Department of Civil Engineering at The Hong Kong Polytechnic University. She is currently a Research Associate and has been working on a construction safety project and a public private partnership project for the Department of Building and Real Estate at The Hong Kong Polytechnic University. At the same time, she is studying public private partnerships while registered as a PhD student at the School of Built Environment, Queensland University of Technology, Australia. Mr. Yongjian Ke, BSc, obtained his BSc degree in Construction Management at Tsinghua University, Beijing, China. He is currently pursuing a PhD degree in the same university. His research topic is the development of an equitable risk allocation framework for Public-Private Partnership (PPP) projects in China. He is currently a Research Assistant responsible for the comparative study of PPP features between Mainland China and Hong Kong SAR at the Department of Building and Real Estate, Hong Kong Polytechnic University.


109

110

building

abroad


PUBLIC INFRASTRUCTURE PROJECT CAPABILITIES TO RESPECT COSTS, SCHEDULE AND SCOPE IN PUBLIC INFRASTRUCTURE PROJECTS

Fethi Chebil, École polytechnique de Montréal email: [email protected]

Abstract Scholarly research and practitioner contributions have highlighted technical ability in the management public infrastructure projects as a potentially potent source of project success. However this paper raises a potentially puzzling question; if these abilities are so central to project success, why are successful public infrastructure projects still weak and questionable? To explore this issue, this paper draws on detailed analyses of 115 interviews conducted with many of the predominant stakeholders concerned with public infrastructure projects conducted in the last decade in Quebec. The study suggests that any particular ability to manage a public infrastructure project rests on a complex set of interlinked abilities that usually evolve slowly over time and with failures. Those owners fortunate enough to have focused early on project management with an open and flexible attitude have been much more successful in managing public infrastructure projects: on time, within budget, and without judicial conflict. Keywords: Ability; Construction Industry; Public Infrastructure Project; Project Manager. Introduction Due to the recent failures of major and important public infrastructure projects for example, Gaspezia, Metro extension to Laval, Centre Hospitalier Honoré Mercier, Résidence Riviera, many Inquiry Commission, Auditor General reports, or experts’ empirical works led to renewed interest in project manager ability as a source of infrastructure project success. Theoretical work in the area has established that ‘competency’ or ‘ability’ is difficult to acquire through routine market transactions and very hard to replicate (Henderson, 1994 ; Préfontaine, 1994 ; Wernerfelt, 1984 ; Bourgault, 1996 ; Teece and al, 1997). Practitioners and governmental decision makers have focused attention on technical or ‘hard’ assets such as architecture or engineering background knowledge as a required source of training and competence of project managers. Others relevant works focus more on contextual factors. They make out organizational structures (Nelson, 1991 ; Leonard-Barton, 1992), organizational coordination mechanisms (Lawerence and Lorsch, 1967), organizational communication channels (Arrow, 1974), development routines (Teece and al., 1993),and organizational behaviour in relation to its context (Galbraith, 1977) as critical keys to develop and capture competency in project management. A series of significant practitioner’s works has focused further attention on the empirical role of technical project capabilities in shaping the success of public infrastructure project management. Moreover, between 2005 and 2008, 80% of candidates for public infrastructure project manager occupations, had to be members of architecture or engineering orders (Analysis conducted between 2005 and 2008 based on newspaper and web site offers. Major public organizations


111

considered: CHQ, SIQ, MTQ, CS, Cegep, university, etc). 70% of project managers interviewed in this research are architects, engineers or architectural technicians, 18% are technicians in judicial fields (i.e. grievances), or accountants. The rest come from others fields (e.g., IT, biotechnology, defence) and have basic construction knowledge. While these research contributions and snapshots are a stimulating basis toward making the concept of ability of public infrastructure project manager empirically concrete, it leaves a number of questions unanswered. First, we know much less about the role of project manager abilities and their potential as a source of public infrastructure project success. Second, if these kinds of abilities are acquired easily, why do public infrastructures projects continue to fail? These questions are complicated further by the fact that construction project management is somewhat contradictory. Even if a project manager doesn’t have to design a project or to validate regulation requirements, he must be an architect or an engineer. Moreover, 86% of professionals who participated in this research found that a competency of public infrastructure project managers is not the management of uncertainty across boundaries within firms and socio-political issues, which characterize the complexity of public infrastructure project today. Research methods Given the lack of prior research on the ability of public infrastructure project managers and the methodological difficulty to conceptualise ‘ability’, a qualitative approach was considered appropriate. In order to understand and to analyse a variety of states of ability concepts, their impact on costs, schedule, and scope respect, and their evolution over a project life cycle, two overlapping studies were conducted. Step 1 aimed to define concepts and define issues on industry words. Senior government executives have been interviewed, commitment to the case study was sought and 5 Quebec large infrastructure projects were identified (This step was conducted under CIRANO and Secrétariat du Conseil de Trésor research subvention; see Chebil et. al, 2006). Following these interviews, the project managers, civil servants, architects and/or engineers and one or more other participants and stakeholders in each project were interviewed. Table 1 summarizes these projects and persons interviewed. Table 1. 1st step: projects analysed Project

Costs and schedule

Persons Interviewed PM Engineering firms

Acadie Interchange

2001-2004: Delay 1 year. over cost: 100%

Bibliothèque et Archives nationales du Québec (BANQ)

Métro Laval

112

2001-2004: no delay

Ville de Montreal

Owner and contractors define ability in a different way According to public owner, ability is management of technical issues According to contractor, ability is to:

MTQ

manage change

Builder

communicate in integrative way

(6 interviews)

define need and scope

PM

Owner and contractors define ability in a different way

BANQ

According to public owner, ability is management of technical issues

Engineering and architecture firms

over cost: 7%

1998-2008: 4 year

Ability definition and perception

According to contractor, ability is to:

Government

manage change

(5 interviews)

understand administrative processes and institutional roles

PM

Owner and contractors define ability in a different way

delay

MTQ

Over cost : 350%

AMT Ville de Montreal Engineering and architecture firms (8 interviews)

According to public owner, ability is management of technical issues According to contractor, ability is to: manage change understand sociopolitical issues understand administrative processes and institutional roles communicate in an integrative way define scope and owner needs Owner and contractors define ability in a different way

SIQ Palais des Congrès

1999-2002: 1 year delay


Over cost: 17%

Builder

According to public owner, ability is management of technical issues According to contractor, ability is to:

(6 interviews)

manage change communicate in an integrative way Owner and contractors define ability in a different way

PM CH Honoré Mercier

According to contractor, ability is to: manage change

2003-2008: 2 years delay


Over cost: 27%

Builders

understand administrative processes and institutional roles

(8 interviews)

communicate in an integrative way

understand sociopolitical issues

define scope and owner needs

Projects were studied in some detail. The interviews were semi-structured based on an interview protocol. Interviewees were encouraged to develop their own views rather than forcing their experience into priori categories. Furthermore, reports, administrative documents, and press reviews were analysed. Step 1 permits us to go forward to step 2 with two important preconceptions: 1. Owners and contractors have different expectations regarding ability. They define ability in different ways. Public owners consider technical ability most important ‘to challenge contractors and to force them to respect costs by choosing efficient technical solutions without over-design’. 2. Contractors define precisely what the relevant and required ability is: to manage change, to define owner needs, and to help them to deal with administrative and institutional issues. One of them said: I’m the architect of this project and I’m paid for. They have to go beyond their obsession of respecting costs by micromanagement of technical details. I need more soft-skills leadership and flexible administrative and institutional processes. Step 2 specifically aimed to analyze the ability to manage change. The study focuses on three ability categories: technical, administrative, and project management. Table 2 summarizes these ability categories.


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Table 2. Ability categories Technical ability

Definition

Be an architect, engineering or technician

Administrative and institutional ability

Project Management Ability

Understand roles and public process

Open attitude and desire to communicate, to resolve difference in flexible manner

Reduce administrative impact and slowness of public processes Develop personal relationship with government officials and/or organization.

I have to be sure that the plans are well made Quotes

My credibility is based on my technical skills. In our industry, if you aren’t an architect or engineer, you can’t manage a construction meeting. It will be easier for them to get your money.

Connect project with users needs Use project management tools: stakeholders, risks, control tools and process

Contractual terms are our bible.

I have to be tough and fair

I manage public funds. This requires roles, documents and rigorous public process

I’m a connection between inside administrative culture and contractors’ requests

In case of juridical process, all administrative processes and documents come first. All other kinds of relationships become irrelevant.

I need present contractors, involved users and flexible institutional roles. In most of my projects, this is unattainable.

An attempt was made to identify connections between the owner’s and contractor’s perspectives. To avoid contextual biases, researchers conducted 115 interviews without project-specific perspectives and with all stakeholders involved in the construction industry in Quebec. Table 3 gives information about persons involved in this research. Table 3. Entity involved %

Number

Details

Owners

49%

57

22% health services 34% education 9% Municipality or local 6% Transport 16% High Civil servants Others 13%

Builders

14%

16

Personnel Under 5: 11% From 5 to 50: 44% More than 50: 44%

Professionals (architect and engineering)

12%

14

25% architect 75% engineering

28

Federal: 4 Association, corporation, orders: 8 Insurance: 3 Politicians: 4 Claims firms: 3 Media and Lawyers: 6

Others (lawyers, political, associations, etc.)

25%

Background: 16% architects 38% engineers 16% technician s 18% accountants, judicial, etc. 12% others Contract mode: Only traditional: 25% Traditional and/or design build: 75% Experience Less than 20 years of: 69% 20 to 30 years: 9% More than 30 years: 22%

Data analysis The objective of the data analysis was to understand the kind of project manager abilities needed to respect costs, schedule, and scope in public project infrastructure management, their impact and their evolution during the project life cycle and factors influencing them. Interviews for the first two steps produced over 1600 pages of transcripts and over 200 pages of field notes. There was thus a vast amount of qualitative data that was not easily amenable to analyze. The data analysis was done in a systematic and comprehensive fashion. Nvivo 2 was used. Concerns expressed about source, impact, and categories of ability to manage change management were identified. 114

Copies of each concept transcripts were then made and analyzed separately. At this step, comments related to the factors affecting uses of each ability category and their impact were identified.

Research question What kind of project manager ability is required and what is the impact in public infrastructure project management? After reading the transcripts for each ability category and identifying the common concerns in the sources and the impacts of each, a summary was constructed for each change type. Table 4 present one of these summary efforts: considering the link between kinds of change in the construction industry and the owner’s basic ability to deal with this change. Table 4. Ability category versus change kind Example

Ability most indicated

Owner’s new demand

Institutional and administrative flexibility

New law affected a project scope Work change

Differing site conditions

Focus on public business core

Adjustment of project scope according others project simultaneously in progress

Final users continuously involved

Contamination

Postmortem analysis

Rock

Risk analysis

Stakeholders and risk analysis

Final users continuously involved Defective contract document

Lack of plan coordination Lack of respect regarding construction codes or roles

Institutional and administrative flexibility Owner’s have to consider time and effort to produce a fulfilled plan

Comments No technical ability considered Administrative ability is considered in all responses to deal with administrative slowness Project management tools are needed to manage change in proactive and integrative ways Project management tools are considered by all interviewees. Technical ability is considered here in all responses. This ability is needed not to make plans or to comment on them, but more to consider effort needed to accomplish architectural and/or engineering works Administrative ability is considered to define a new administrative possibility Project management tools are needed to communicate, to define need and to keep final users involved

Weather Others Act of god

Institutional and administrative flexibility

Administrative ability is considered to define a new administrative possibility

These summaries also included links to memos or administrative documents. A one page summary was conducted for each interview and for each category of ability. Each page used a standard form and was prepared by examining the memos, administrative documents, and transcripts. Together, the above analytical and conceptual tools enabled the author to decontextualize the interviewee point of view and to define it more according to this research aim: understanding and exploring ability to respect costs, schedule, and scope. This was helpful to raise patterns otherwise missed, and to suppress patterns which may be considered spurious according their original interviewee. By providing a structure for analysis of qualitative data, systematic procedures were devised and used to minimise the possible effects of subjectivity. The major goal in reporting research is


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transparency, use of descriptive data, gathering, and analysis as well as to return, if necessary, to the interviewee to clarify quotes or to better define the sense of a word.

Research Objectives: • Understand and explore project manager abilities to respect costs, schedule, and scope in public infrastructure projects. • Understand abilities to manage change. • Understand sources and evolution of project manager abilities. Research results Four dummy variables were correlated with higher ability: • Project design: a public infrastructure project is managed by an independent and cross disciplinary project team rather than by an inside structure not dedicated specially tothe project. • Project manager leadership and power: the majority of key resources allocations, budget definition, and management and project processes and procedures were made by a project team rather than by ministerial and/or multileveled administrative committees. • Project management tools and methods: project management tools and methods are used, institutionalized, and committed through the owner’s organisation. • Owner / contractor relationship: Owner and contractor share fundamental project parameters, particularly contingency, and define a change procedures and impacts together. The results suggest that the more successful owner organisations maintain a rich flow of information within their own boundaries and with contractors by keeping final users involved and interested in the project. They accomplish this by using cross-disciplinary teams, by allocating key resources to committees after project manager recommendation, by defining contingency following a rich and pertinent risk analysis, and by using project management tools and methods known by all owner organisations and rigorously used in day-to-day project processes. These results are consistent with those obtained by other researchers who looked at the construction industry (Miller and Lessard, 2000) but left unanswered the critical question raised at the beginning of this paper. If such an apparently straightforward owner organisation has such substantial implications for project success, why do public government structures not directly adopt them throughout their infrastructure project structure? Moreover, public owners interviewed readily agreed that independent and cross functional teams, project manager leadership, contractor sharing, final user involvement, and project management tools and methods were critical to project success and, with a few exceptions, they were all trying to acquire these capabilities, in different manners. Why then, should some owners find these methods so difficult with the majority of owners failing to adopt them in practice? A part of the answer to this question lies in the public project administrative processes and technical life cycles. Public infrastructure projects take place in three stages: a long administrative process to approve the budget, infrastructure design, and infrastructure construction. According a government belief and hope, the budget, defined in an earlier step, will be fixed as the owner has to plan his project carefully and precisely. Then, the owner has to design the project, according to the structure of this budget. According to the owner’s belief and hope, construction costs will be fixed as professionals have to design the plan carefully and precisely. Under this regime, successful public infrastructure projects drew on three core hypothesis: needs defined in very fine detail, project managers with abilities to determine contingency according to risks management, and rigorous process and institutional flexible background needed to venture a new administrative 116

solution, in crisis situation. However, on one hand, many owners were organized functionally, with non-construction fields (education, health, etc.) at the heart of the process, and projects managers worked downstream in a fundamentally reactive mode. On the other hand, the administrative and institutional budget process takes place with many committees and administrative levels. For example, a health infrastructure project has to deal with hospital, agency, health ministries, and Conseil de Trésors levels. With each of them, different administrative documents are requested and delays are observed. Within each institutional level, many authorisations are needed to achieve consensus. All of them take time and consume effort. At the same time, initial needs could be changed, final users have lost interest, and technological generations could have advanced. Then, in addition to these institutional and administrative constraints, design and construction phases suffer from owner and institutional structures which confuse the planning and managing of a project. Successful owners employed outsourcing project teams to manage professional works, and construction and insourcing teams to define needs and maintain connection between the outsourced team and final users. Many successful projects were managed in this way: McGill virtual emergency school, Bibliotheque nationale et archives nationales du Quebec, extension and renovation of CEGEPs in Montreal and in Sherbrooke, university extensions in Sherbrooke. However, this method of project infrastructure management required a relatively rich communication of knowledge, either across the boundaries of the firms involved or across administrative disciplines and core activities areas within the owner structure. Within public owner structures from project committee to administrative and operational unity communication of knowledge took the form of requests to deal with needs uncertainty or with overlapping projects. Across the boundaries of the firms involved, from outsourcing project teams to professionals firms, knowledge interchange and communication of knowledge took the form of adaptation of users’ needs and requests for adapting the plan. Integrative Ability In Public Infrastructure Projects Given this transition, in general, the owners were not surprised by these observations. They readily agreed that reducing institutional and administrative processes, outsourcing project management, and defining the need well were critical to project success. Despite the apparent simplicity, acquiring abilities to manage public infrastructure projects is quite difficult. To try to explain the reasons according this research, first the study looks at owner perception of the three abilities categories, then the study looks at perception of the three abilities categories from the contractor’s point of view. Finally, divergent reasons are discussed and issues are proposed.

Resorces and abilities

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For all public owners, administrative capabilities are significant in dealing with administrative processes, documents, and structure. There are many administrative roles and institutional forms to respect costs, to tender, to receive bids, to inform, etc. It is required as well to develop a helpful hierarchical relationship to find out new administrative possibilities for budget overruns (e.g., a new intern small project) without losing credibility. Even though the owners don’t discuss utilities, they explain that this takes a lot of time and requires effort. The issue here is that these abilities become more important than others to manage complexity and to preserve credibility. Like administrative abilities, technical abilities are identified by all public owners. They aim to challenge architects and engineers to move them forward to innovative technical solutions, to validate plans, or drafts and to participate better in technical meetings. However, the major reasons for these abilities are construction supervision. Given that supervision is commonly underestimated, project managers have had to supervise construction, even though they did not have enough time to do so. 25% of public owners found these abilities required but not crucial and ask more for project management abilities. These act on two overlapping levels: to prevent users’ new requests,(i.e. to do an analysis post-mortem, to keep up with new technology and construction techniques), and to manage change by opening systems of communication by sharing important project information, especially contingency information. These owners found project management abilities crucial since administrative and/or technical capabilities cannot create and fill out the roles of preventive project management teams who are able to respect costs, schedule, and scope. However, most public owners bluntly explain that they don’t need project management capabilities because they themselves manage small projects. Furthermore, nearly all of them are closed minded when it come to the idea. Only 14% of public owners involved in this research recognize the necessity to have all three of these capabilities. Public infrastructure complexities involve many institutional levels, many technical challenges, and many contractors. To deal with all the issues and challenges, all three competencies are helpful, not only technical ones.

Fig. 2. Public owner’s point of view of abilities

Contractor Point of View Most contractors observe a lack of owner capabilities in the management of public infrastructure complexities. They point out the slowness of administrative processes, different levels with different powers, and a micromanagement attitude rather than a connection with end users’ need. Rather than evoke administrative, technical, or project management capabilities, contractors observe two attitudes: open and closed ones. Public owner with an open attitude share problems 118

and analyze solutions which come from all contractors, not only from the architects. They demonstrate administrative agility to be tough and fair. They are respected not only for their technical abilities but also for their attitudes and fairness. Public owners with closed attitudes apply bureaucratic processes and roles without considering complexity or project specificity. They negotiate change management under one-sided roles with easily enforceable changes. Discussion and Conclusions A recent series of significant and detailed empirical studies has focused attention on the pivotal role of project management tools and methods in shaping the capability of project management. The most relevant of these studies focuses on governance regimes (Miller and Hobbs, 2005), shaping project risk mechanisms (Miller and Lessard, 2000), institutional transparency (Flybjerg et al, 2003), political and institutional contextual impacts (Altshuler and Luberoff, 2003), and tools (Besner and Hobbs, 2005) as core issues of a project manager’s capability. All of them shift attention from planning efficiency to change management efficiency. Day to day project management is dealing with how to shape planning in real project contexts. Even this shaping effort needs costs and resources; it’s rarely related to the project management scholar’s contribution.

Key Lessons Learned: • 14% of public owners use relevant capabilities to manage public infrastructure project. • Technical abilities are not sufficient to respect costs, schedule, and scope in public infrastructure projects • Project management abilities are crucial to prevent change, keep final users involved, and to manage risk carefully.

The study has tried to highlight the complexity of integrative capabilities in public infrastructure project management practice. The main reason for this complexity is that their development depends on a number of factors that evolve slowly and in a concise way. Successful owners are aware of contractor dynamics, and understand public administrative issues and institutional constraints. They share information, communicate a lot, and develop relationships according to project complexity. At the same time, above all they uses administrative, technical, and project management abilities in integrative ways to manage change. The integrative capability is the competency to integrate knowledge across both owner and contractor boundaries. Integrative capabilities play crucial roles in shaping success for public infrastructure projects, even if, as this research shows, they seem to be used only by 14% of public owners. The results raise intriguing questions about the relationship between the development of project management ability and the larger institutional context of the construction industry, since both professional orders and the consideration of judicial mechanisms as trivial appear to have shaped the capability in the industry. All quotations translated from French to English by the author.


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References

Althsuler Alan et Luberoff Davis, (2003) Mega Projects – The changing politics of Urban Public Investment. Brookings Institution Press. Washington DC. Arrow, K (1974) The limit of Organization Norton: New York. Bourgault M. (1996) Compétences des entreprises et sous-traitance nord-américaine : le cas de l'industrie aérospatiale. Thèse de doctorat. École Polytechnique Montreal. Chebil F., Joanne Castonguay et Roger Miller (2006) La gouvernance des grands projets d’infrastructure publique. Analyse des grands projets réalisés au Québec. CIRANO – SCT. Flyvberg Bent, Nils Bruzelius et Rothengatter Werner (2003) Megaprojects and Risk.Cambridge University Press. Galbraith J,R, (1977) Organization design Addison Wesley Publishing company. Henderson, Rebecca (1994) “The evolution of integrative capability: Innovation in cardiovascular drug discovery” Industrial and computer change, Vol. 3, No 8, pp.607-629. Lawrence P.R et Lorsch, JW., (1969) Organization and Environment. Managing differentiation and intégration. Homewood. Richard D. Irwin Inc. Leoanard-Borton (1992), “Core capabilities and core rigidities: a paradox in managing new product development”. Strategic management journal, 13, 111-126. Miller and Hobbs, (2005) “Governance regimes for large complex projects“. Project Management Journal; 36, 3. Miller Roger and Lessard Donald (2000) “The strategic management of large engineering projects” Massachusetts Institute of technology. Nelson R. (1991) Why do firms differ and how does it matter? The strategic management journal,12 61-74. Préfontaine, Lise (1994) “Les compétences organisationnelles favorisant l’innovation technologiques dans un contexte de PME manufacturier” Thèse de doctorat – UQAM Teece, D,J, S Winter, R Rumlet and G, Dosi (1993) ”Understanding corporate coherence: theory and evidence”. Journal of economics and organisation, 22. Teece, Pisano and Shuen (1997) “Dunamic capabilities and Strategic management”. Strategic management journal. 18:7, 509-533. Wernerfelt, B. (1984) ”A resource-based view of the firm”. The strategic management journal, 5, 171-180.

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Author’s Biography Fethi Chebil is an industrial engineer. He has expertise in infrastructure and engineering project management. Over the course of the past 12 years, Fethi has managed several major construction, innovation, and high-technology projects in Quebec and abroad. He has delivered airport infrastructure and information technology. His professionalism, communication style, and natural leadership abilities have directly impacted the success of every project he has been involved with. Fethi is particularly interested in client/supplier relationships, inter-firm coordination, and in managing change orders in early-stage front-end projects as well as during the construction phase.


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AN ANALYSIS OF PRIVATE PARTICIPATION IN INFRASTRUCTURE (PPI) PROJECTS IN THE CHINESE POWER SECTOR Chuan Chen, The University of Melbourne email: [email protected]

Abstract The past two decades have seen a dynamic power market in China, where foreign developers harvested not just gains but also pains. The characteristics and trends of the market need be identified and the driving and impeding factors behind the ups and downs need be examined to better understand the Chinese power market. The identification of managerial and policy implications for both PPI power project developer (foreign or local) and local decision makers must also be addressed. A database consisting 187 PPI power projects with financial closings between 1984 and 2007 were analyzed and the market trends for PPI and location patterns of these projects are identified. The driving and impeding factors for the PPI market and the consequent foreign power developers’ entryremain-exit behaviours are tentatively discussed. The findings can give private sponsors a clear, comprehensive picture of the Chinese power market for foreign and private participation and help them to: predict the market in the near future, identify niche markets and optimize their entry decisions into the Chinese power market. Keywords: Private participation in Infrastructure (PPI); China; Power Sector; Private Sector; Infrastructure Development. Introduction With the fast growth of economy, the Chinese power sector has also achieved significant development. In 2004 the total installed capacity reached 439 GW and the annual growth rate has remained more than 10% (Shu 2005). Since 1996, China has ranked the 2nd in terms of both installed capacity and total electricity consumption in the world after the United States. The power sector was one of the earliest to open to foreign investment. The first Build Operate Transfer project, Guangdong Shajia B Power Plant, was signed in 1988 (Tam 1995). Many reforms in investment were tested in this sector and, when successful, expanded to other sectors. For example, the first central government supported BOT project was Guangxi Laibin B Power Plant signed in 1996 (Wang et al. 2000). However the attractiveness of the power market in China for foreign investors and developers has not sustained. Since 2002, many foreign Independent Power Producers (IPPs) have withdrawn from China (Lin 2005). Meanwhile, with the growth of local private companies, some of them have entered the power market and compete against state owned enterprises and foreign entrants. It is therefore necessary to review the history and current status of foreign and private participation in the power infrastructure sector, to better understand the changing market.


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Research Methods

Research question: • What is the history and current status of foreign and private participation in the power

infrastructure sector in China?

Research Objectives: • This data-driven and exploratory study aims to quantitatively identify the characteristics,

chronological trends and spatial location patterns of the Chinese power market for PPI by analysing a PPI project dataset developed by the World Bank Group and tentatively associate it with the economic and institutional environment in China.

PPI Typology and World Bank PPI dataset

Private Participation in Infrastructure (PPI) has a very specific definition that fits into the mission of the World Bank Group. For a project to be counted as a PPI project in the database established and maintained by the Bank, it must possess several necessary elements: 1) it is an infrastructure project; 2) there is private participation in the provision of services or private ownership of the infrastructure assets; 3) the project serves the public (not one or a group of companies); 4) the project has achieved financial closure; 5) the private participation is above a minimum size. Importantly, regarding the above element 2), projects are considered to have private participation if a private company or investor bears a share of the project's operating risk. That is, a private sponsor is at least partially responsible for the operating cost and associated risks. This could be by; having the rights to operate alone or in association with a public entity or owning an equity share in the project. The Database classifies private infrastructure projects in four categories: 1) Management and lease contracts; 2) Concessions (or management and operation contracts with major private capital commitments); 3) Greenfield projects; and 4) Divestitures with their respective definitions given in Table 1. Table 1. PPI types (World Bank 2007) PPI Type Management and Lease Contract Concession Greenfield Project Divestiture

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Definition A private entity takes over the management of a state-owned enterprise for a fixed period while ownership and investment decisions remain with the state. A private entity takes over the management of a state-owned enterprise for a given period during which it also assumes significant investment risk. A private entity or a public-private joint venture builds and operates a new facility for the period specified in the project contract. The facility may return to the public sector at the end of the concession period. A private entity buys an equity stake in a state-owned enterprise through an asset sale, public offering, or mass privatization program.

A private sponsor is a company controlled and owned, in majority, by private parties. State-owned enterprises or their subsidiaries are considered private investors only in projects located in foreign countries. Partially divested state-owned enterprises or their subsidiaries that remain majority owned by government entities are not considered private sponsors in their own countries. The World Bank has a research team for the PPI database (World Bank 2007). The database records PPI projects by attributes such as project name, location, financial closing date, status, contract period, PPI type and subtype, sector and sub-sector, sponsor, private ownership, contract award method, bid criteria, investment value, and more. In the database, there are altogether 187 power projects with financing closures achieved from 1984 through 2007. Table 2 shows a small portion of these projects. Table 2. Sampled PPI power projects in China (source: the World Bank)

Data Analysis The attributes of the PPI projects were analysed to identify their descriptive characteristics, chronological treads and geographic location patterns. Descriptive analysis In the dataset, only 95 of the projects have their contract terms recorded. It should also be noted that divestiture projects do not have fixed concession terms but operate on a continuous basis. The frequency distribution of the contract term is shown in Fig. 1.

Fig. 1. Frequency distribution of contract terms of PPI power projects


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The sample has a mean of 27.35 years and the standard deviation is 12.01 years. Most of the projects fall in the range of 20 years to 30 years. It is interesting to see that none of the projects have contract terms ranging from 35 to 45 years. The maximum contract term is 70 years, but such projects are few. Both total investment value and private investment value have an unequal or normal distribution as shown in Fig. 2. The majority of the projects have a total investment value lower than 125 million US$ and private investment value lower than 67 million US$. The significant standard deviations indicate there is a big variety among the PPI projects in terms of investment size.

Fig. 2. Frequency distribution of total investment value and private investment value In the dataset, there are much more greenfield projects than other types (see Fig. 3). This however does not mean that private developers are more interested in developing new facilities. Chinese governments tend to involve foreign private developers in power project development via greenfield methods to import new technologies and management skills, meanwhile transferring development risks. With concession and divestiture, these requirements are hard to meet.

Fig. 3. PPI types by number, total investment value, and private investment value respectively There are many more conventional fossil fuel power projects than those in other segments, in terms of number, total investment value and private investment value (see Fig. 4). Assuming the omission of one nuclear project in the database (its total investment is 4 billion US$), renewable energy projects have relatively bigger slice in term of number than in terms of investment value, indicating the smaller size of these projects.

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Fig. 4. Power segments by number, total investment value, and private investment value respectively The data set can also shed light on the relative unit cost of different segments of projects as shown in Fig. 5. Wind farm projects have the highest average cost/capacity ratio while conventional fossil fuel projects have the lowest. This indicates the higher cost in developing renewable energy projects in China. This, to some extent, explains the dominance of conventional power projects in the entire PPI power portfolio (see Fig. 4). 1.4

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Fig. 5. Cost/capacity ratio of different power segment Chronological analysis Chronologies of PPI by number and total investment value show that the prosperousness of PPI in the power sector started in 1992 and peaked in 1997 (See Fig. 6). However, the increasing trend also ended in 1997, followed by a modest amount of PPI investment till today. The influence of the Asian financial crisis upon the growth of the PPI power market is obvious. Due to the dominance of greenfield projects, their trend is consistant with that of the entire PPI power portfolio. It is interesting to see that the peak of private investment happened in 1999, two years later than the financial crisis. A review of projects in 1999 showed that this was because there were some big divestiture projects with essential private participation in 1999. This, therefore, does not mean that private investment has a slower response to the financial crisis. It is actually the consequence of the risk mitigation of the private developers because divestiture involves much lower operational risk than greenfield projects.


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Fig. 6. Chronology of different types of PPI projects by number, total investment value and private investment value The chronology of different segments of PPI power projects does not release much more new information about the trends of conventional projects in addition to the apparent impact of the Asian financial crisis. Regarding renewable power projects, the chronology in terms of number shows a fast growing trend starting from 2001. This increasing trend is, however, not apparent in the charts in terms of investment value because of the rather small size of such projects.

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Fig. 7. Chronology of different segments of PPI projects by number, total investment value, and private investment value Spatial analysis Provinces that have attracted a large number of PPI projects include Guangdong, Zhejiang, Hubei, Jiangsu, Hebei, and Shandong. However, in terms of total investment value, the ranking list is different. Fujian and Shanxi enter the top 6, replacing Zhejiang and Jiangsu. Strikingly, Fujian is the province that has attracted the largest amount of private investment, even higher than Guangdong. Yunan is also in the top 6 list in terms of private investment value. These two provinces replace Jiangsu and Zhejiang in the list by number of projects. The inconsistency between the three rankings lists comes from the significant variety of project sizes.


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Fig. 9. Spatial distribution of different segment of PPI projects by number, total investment value, and private investment value

Above spatial analysis was at the provincial level. China is administratively divided into three regions as shown in Fig. 10. The number under the name of each province/municipality is the number of PPI power projects located there.

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: Eastern Region;

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Fig. 10. Regional division of China (Eastern, Central, and Western China) Fig. 11 shows that Western and Central regions attracted similar amount of private investment however they lag far behind the Eastern regions. 62% of total PPI power projects fall in the Eastern region and their total and private investment values accounts for 2/3 of the total amount in China.

Fig. 11. Regional distribution of PPI power projects by number, total investment value, and private investment value respectively Both the spatial studies at provincial and regional levels indicated that most PPI power projects tend to be located in more developed places. To further confirm this, a deeper analysis is needed. The determinants of spatial distribution of PPI power projects at the provincial level are further explored by regressing project number, total investment value and private investment value on selected provincial attributes. The analysis is divided into two parts regarding conventional energy projects (see Table 3) and all projects (see Table 4). As can be seen in Table 3, conventional power PPI projects (most are coal fired projects) are dominan in provinces/municipalities of large economic scale and large electricity consumption, rather than where there is a significant coal reserve. Due to a lack of a country wide power grid each province/municipality had to develop power projects in its own territory to provide power 132

supply to meet local demands. This, however, means extra costs incurred in those provinces that have a large economic scale but suffer from low coal reserve, e.g., transportation cost. Table 3. Determinants of the location of conventional energy PPI projects Determinants of location of conventional energy project Intercept Coal reserves Electricity consumption Gross Regional Product Total investment in fixed assets 2

Adjusted R F-value Number of observations, N

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-0.617

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0.001 *** 60.7% 24.149 *** 31

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14.5% 6.105 ** 31

6.3% 3.013 * 31

Note: * P50%, (Makino and Beamish 1998). This is because international construction is much riskier than domestic construction. The complex international environment is affected by diverse variables that are not part of the domestic markets and that create risks never encountered in domestic conditions. The complex variables that affect the performance of construction companies in overseas markets need to be considered in this decision. Furthermore, the threats and opportunities associated with target countries should be well understood (Hastak and Shaked 2001). IJVs are frequently plagued with high degrees of instability and poor performance (Parkhe 1993). The core concepts of IJV operation and of the relationships between its partners are still not well understood (Parkhe 1993). This largely stems from the inherent complexity of IJVs involving a mixture of different cultures (Tatoglu and Glaister 1998). The majority of the current literature on IJVs concentrates on manufacturing industries, while IJV theories have not been investigated empirically in the construction industry, except for a small group of studies associated with the risks of IJVs in construction (Bing and Tiong 1999; Bing et al. 1999) and factors affecting the performance of IJVs (Mohamed 2003; Gale and Luo 2004). One of the findings of these researches is that, as one of the major issues affecting the management of international construction projects, culture deserves wide research (Chan and Tse 2003). Cultural difference has received a great deal of attention in the international business literature (Kogut and Singh 1988; Barkema et al. 1997; Park and Ungson 1997; Morosini et al. 1998; O’Grady and Lane 1996; Evans and Mavondo 2002). There is no one single definition which encapsulates the term “culture” wholly. It has been referred to as a set of shared experiences, understandings, and meanings among members of a group, an organization, a community, or a nation (Hofstede and Hofstede 2005; Mead 1998). Culture is also that complex whole which includes knowledge, beliefs, arts, morals, customs, and any other capabilities and habits acquired by men and women as members of a society (Low and Leong 2000). Culture is an ingrained behavioral influence which affects the way collective groups approach, evaluate, and negotiate opportunities for international business. Different cultures have different models of management and different ideas of the nature of organizations (Hofstede and Hofstede 2005). Culture has been identified as a key factor in explaining foreign market attractiveness, expansion patterns, the degree of adaptation of marketing and retailing strategies, modes of entry, and organizational performance (Evans 2000). Several attempts have been made to assess the cultural risks associated in IJVs [e.g., Ding (1996) and Swierczek (1994)]. However, most of these studies have not concentrated on safety related cultural risks. Although they have been very useful to the construction industry in general, they have not offered a satisfactory treatment of the safety cultural distance problem as a whole. 220

The core objective of the study presented in this paper was to provide a tool to assess the differences in safety culture between IJV partners. A questionnaire survey was administered to US construction companies that have established IJVs with foreign partners in order to develop the tool. Background and Rationale

Cultural Context to Safety The Advisory Committee on the Safety of Nuclear Installations (ACSNI, 1993) provides the definition that “the safety culture of an organization is the product of individual and group values, attitudes perceptions, competencies and patterns of behaviour that determine the commitment to and the style and proficiency of an organization’s health and safety management.” Safety culture is crucial (Fang et al., 2006) to construction; particularly given the construction industry is notorious for its poor safety records (Mohamed, 2002). Safety culture can set the tone for implementation of safety in construction site environments. Although, the concept of safety culture is relatively new in the construction industry; it is, however,gaining popularity due to its ability to embrace all perceptional, psychological, behavioural, and managerial factors. Improving site safety is a top priority for construction companies throughout the world. Having a positive and mature safety culture is becoming crucially important to facilitate such improvement as anecdotal evidence suggests that in many major accidents, safety management system’s defences broke down because of the prevailing safety culture in which safety management activities were carried out (ACSNI, 1993). Researchers tend to use safety culture, safety climate, and perhaps safety management interchangeably, as the terms are not so clear cut. Kennedy and Kirwan (1998) reveal that safety management is regarded as the documented and formalized system (policy, procedures, training, instructions, and resources, etc) of controlling against risk or harm. Nevertheless, the standard of an organization’s safety management system as it exists on paper does not necessarily reflect the way it is carried out in practice. This is where the concept of safety culture comes into the picture. It is the safety culture of the organization that will influence the deployment and effectiveness of the safety management resources, policies, practices, and procedures as they represent the work environment and underlying perceptions, attitudes, and habitual practices of employees at all levels (Kennedy and Kirwan, 1998). Lee and Harrison (2000) reveal that basically, any safety management system is a social system, wholly reliant upon the employees who operate it. Its success depends on three things: its scope, whether employees have knowledge about it, and whether they are committed to making it work. The concept of safety culture has evolved as a way of formulating and addressing this new focus. In international construction projects, any party involved must be cross-culturally competent in all respects and particularly in regard to safety. Construction professionals involved with international projects should at least be able to recognize the safety expectations and behaviour of others. Health and Safety Executive (2002) reveals that 80% to 90% of all workplace accidents and incidents can be attributed to unsafe work behaviours. Moreover, cultural issues are expected to contribute to conflicts among parties in an international project and increase difficulties in the management of the project (Fellow and Hancock 1994).


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Impeding Safety Culture in Developing Countries Since most IJV projects are undertaken in developing countries, it is extremely useful for international contractors originating from developed countries to understand the prevailing safety culture in most of the developing countries, which, in most cases, will be impeding towards a desirable safety performance. Salient features of the culture affecting safety behaviours widespread in most developing countries are given in the following paragraphs. Most of these findings come from a research conducted by the first author in Pakistan (Farooqui et al., 2007). It is important to note here that the fact that the culture in most developing countries is highly inhibitive towards a satisfactory safety performance and is enough to justify the need for a structured mechanism, useful for an international contractor, to formally assess the organizational safety culture of the local entity of the IJV. Construction in developing countries, such as Pakistan and India, is more labour intensive than that in the developed areas of the globe, involving 2.5-10 times as many workers per activity (Koehn and Regmi 1991). Typically, workers tend to be unskilled and migrate in a group, with or without their families, throughout the country in search of employment. In fact, they are usually divided into various factions. Communication problems related to differences in language, religion, and culture tend to inhibit safety on the work site. In numerous developing countries, such as Pakistan, there is a significant difference between large and small contractors. Most large firms do have a safety policy, on paper, but employees in general are not aware of its existence. Nevertheless, a number of major constructors exhibit a concern for safety and have established various safety procedures. They also provide training for workers and maintain safety personnel on the jobsite. For the majority of contractors, however, maximizing profit is the prime concern. Unsafe conditions exist on many sites, both large and small, and labourers are subjected to numerous hazards. On many sites, no training programs for the staff and workers exist; therefore, no orientation for new staff or workers is conducted, hazards are not pointed out, and no safety meetings are held. Employees are required to learn from their own mistakes or experience. In addition, lack of medical facilities, shanty housing, and substandard sanitation tend to exist on remote projects. Workers undertake a risk while at work and the following problem areas are common: • • • • •

While excavating in deep trenches (with no proper shoring or bracing), accidents due to caveins often occur. Concreting is done mainly by labourers, and cements burns due to the unavailability of protective gloves and boots are common. Workers fall from heights due to weak scaffolding and the unavailability of safety belts. Workers sustain injuries on the head, fingers, eyes, feet, and face due to absence of personal protection equipment. There is improper housekeeping.

Lack of understanding of the job and poor equipment maintenance are also major causes of accidents. Injuries, generally, are unreported; however, if necessary, a labourer might receive first aid or preliminary medical care. In most cases, specialized medical treatment or compensation is unavailable. Workers themselves consider accidents as due to their own negligence, and accept that construction is a dangerous occupation. Nevertheless, major accidents involving the death of a worker may be reported due to the financial expenses and litigation that could be involved. Maintenance and inspection schedules often are not followed, and only after a breakdown is equipment repaired. This approach leads to loss of time, idle workers, and project delays. It may also cause damage to property. Breakdown of concrete mixers, vibrators, water pumps, and tractors are common. Electrocution is also a major hazard, due to use of substandard electrical 222

equipment and underground cables. Workers, especially young ones, take chances, and often do not follow safety norms or use personal protective equipment. Also labourers and staff are sometimes under the influence of alcohol and drugs. Unfortunately, crew members are not checked for drugs and alcohol before the start of and during work. One of the impeding factors that prevents a developing country such as Pakistan from developing a construction safety program is pervasive corruption, a by-product of the system of bureaucratic controls. As an example, for any accident that takes place on-site due to lack of safety practices, the particular low-level activity supervisor (engineer/ technician), not the construction manager, is theoretically held responsible and may, in exceptional cases, be subject to physical abuse and harm from the victim’s group of friends. In extreme circumstances, the supervisor may also be charged with a criminal offence. However, cash payments are usually accepted in lieu of pressing charges. In addition, because workers are usually non-residents of the local area and are often unaware of their rights, accidents are often not reported to the proper authorities or, if reported, are lost in the local bureaucracy. Owners and consultants do stress safety before work commences, but as the work progresses their concerns for deadlines becomes a priority and they tend to pay less attention to safety. On large projects, the owners may provide medical facilities at the site, but ultimately safety is the contractors’ responsibility. Measuring Safety Culture Traditionally, organizational culture is measured through the application of qualitative methods, such as observations and interviews. Nevertheless, the three main dimensions (psychological, situational, and behavioural) can be measured through a combination of qualitative and quantitative methods (Cooper, 2000). The situational aspects of safety culture can be seen in the structure of the organization: policies, working procedures, management systems, etc. The behavioural aspects of safety culture can be measured through peer observations, self-reporting, and outcome measures. The identified safe behaviours are placed on observational checklists, and trained observers regularly take observations which are then translated into ‘percentage of safe scores’ to provide feedback to those being observed. The psychological dimension is most commonly examined by safety climate questionnaires devised to measure people’s perceptions of safety. Many modern approaches advocate a shift to using proactive measures, upstream, or leading indicators’, such as measurement of safety climate (Flin et al., 2000; Mohamed, 2002); safety culture (Cooper, 2000; Choudhry and Fang, 2005), hazard identification, and/or observed percent safe behaviour (Strickoff, 2000; Cooper and Philips, 2004). These approaches rely and focus on current safety activities to establish the success of the safety management system rather than system failure. Benefits of Assessing Native Safety Culture to the IJV The benefits of assessing the native safety culture to the international joint venture would very much depend on the realization of the cultural differences and an attitude of collaborative working. The benefits achieved could be the following: • • • •

Reducing the number of injuries to personnel and operatives in the workplace through better understanding of the cultural issues and improved cultural interaction; Minimizing the risk of major accidents by reduced cultural distance; Controlling workplace risks improve employee morale and enhances productivity; Minimizing production interruptions and reducing material and equipment damages; building abroad, Montreal, October 2008

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Reducing the cost of insurance as well as the cost of employee absences; Minimizing legal costs of accident litigation, fines, reducing expenditures on emergency supplies; Reducing accident investigation time, supervisors’ time diverted, clerical efforts, and the loss of expertise and experiences.

• • •

Research methods The research instrument was developed through interviews of internationally experienced project managers of 20 major U.S. contracting firms (general and specialty) housed in Florida, USA pursuing international business opportunities in the commercial, infrastructure and industrial sectors in various countries around the globe, particularly in East Asia: Singapore, Malaysia, Indonesia, Philippines, Vietnam, and China. International contractors were selected from the Engineering News Record, 2007, list of 225 Top International Contractors that have businesses in at least two Asian countries. Research Question: • How can a simple yet effective structured tool be developed that enables a contractor from a developed country confronted with a decision to develop a JV with a foreign contractor in a developing/ under-developed country, that allows it to assess the organizational and workforce safety culture of the foreign counterpart and take a more appropriate bidding decision under uncertainty?

Research Objectives: • To provide a structured tool to assess the native workforce safety culture, which is useful for a contractor working in an IJV to manage project safety performance; • To provide a mechanism for a contractor working in an IJV to evaluate its company’s safety expectations and create policies to ensure desirable safety performance in IJV; • To provide a means to assess the cultural distances between contractors working in IJVs, which will be useful towards developing an effective culturally non-conflicting projectspecific safety plan; • To provide critical information for bid decision to a contractor for a future opportunity to work on an IJV in a country. Consistent with the research question and objectives, interviews were created to assess a number of key issues. Firstly, using literature review, an extensive list of attributes defining safety culture on work sites was developed. Secondly, the list was presented to interview participants who were asked to respond to the following key issues. • • • •

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What key attributes define safety culture on international work sites? How can these attributes be prioritized? (for short listing) How can these attributes be categorized into various management, individual, and behavioral constructs? What recommendations can be proposed for contractors looking for IJV opportunities for developing an effective safety culture on their IJV projects?

Face to face interviews were conducted with selected professionals. The response was highly encouraging and all respondents provided detailed experience-based input. Based on the responses, the results were compiled as given in the following section. Research results Based on information gathered via interviews, the survey tool given in Table 1 was developed. The survey tool can be used to assess the safety culture of the native workforce on an IJV project. The tool has been devised such as to collect inputs from front line workers, clerical staff, supervisors, and site/ project managers of the native entity involved in the IJV. The tool provides a series of statements (categorized in 10 groups) about safety culture on work sites. All statements are measured on a five-point scale. Respondents will indicate their level of agreement or disagreement with the statements about safety in their organizations in relation to their work behaviours and patterns by ticking an appropriate box (1=strongly disagree; 3=neither disagree nor agree; 5=strongly agree). Table 1. Tool to assess native workforce safety culture Score

Safety Culture Attribute

1

2

3

4

5

I. Management Commitment Management clearly considers safety to be equally important as production Management expresses concern if safety procedures are not adhered to Management acts decisively when a safety concern is raised Management acts quickly to correct safety problems Management acts only after accidents have occurred Management praises site employees for working safely Management disciplines site employees for working unsafely II. Communication Management clearly communicates safety issues to all levels within the organization Management operates an open-door policy on safety issues Management encourages feedback from site employees on safety issues Management listens to and acts upon feedback from site employees Management communicates lessons from accidents to improve safety performance Management undertakes campaigns to promote safe working practices Current safety rules and procedures are made available to protect us from accidents Current safety rules and procedures are adequate sources of information on safety


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Score


1

III. Safety Rules and Procedures Current safety rules and procedures are so complicated that some workers do not pay much attention to them Current safety rules & procedures should be consulted only by new recruits Current safety rules and procedures require us to report any malpractice by a fellow worker Current safety rules and procedures enforce the use of personal protective equipment whenever necessary Current safety rules and procedures require detailed work plans from subcontractors or self-employed individuals IV. Supportive Environment As a group, we adopt a no-blame approach to highlight unsafe work behavior As a group, we often remind each other on how to work safely As a group, we believe it is our business to maintain a safe workplace environment As a group, we always offer help when needed to perform the job safely As a group, we endeavor to ensure that individuals are not working by themselves under risky or hazardous conditions As a group, we maintain good working relationships As a group, we ensure that the workload is reasonably balanced among ourselves. V. Supervisory Environment My supervisor/safety manager has positive safety behavior My supervisor/safety manager believes safety is very important My supervisor/safety manager usually engages in regular safety talks My supervisor/safety manager welcomes reporting safety hazards/incidents My supervisor/safety manager is a good resource for solving safety problems My supervisor/safety manager advocates procedures to meet important deadlines

working

around

safety

My supervisor/safety manager values my ideas about improving safety when significant changes to working practices are suggested VI. Workers’ Involvement Everyone aims to achieve high levels of safety performance Everyone plays an active role in identifying site hazards Everyone reports accidents, incidents, and potentially hazardous situations

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2

3

4

5

Score


1

2

3

4

5

Everyone participates in safety planning, according to our safety policy if being asked Everyone has the responsibility to reflect on safety practice Everyone avoids being involved in accident investigations Everyone contributes to job safety analysis if being asked. VII. Personal Appreciation of Risk I am sure that it is only a matter of time before I am involved in an accident I am sure I can influence the level of safety performance I am clear about what my responsibilities are for safety I am aware that safety is the number one priority in my mind while working I believe some rules are really necessary to get the job done safely I believe some rules and policies are not really practical I cannot do the job safely without following every safety procedure VIII. Appraisal of Physical Work Environment and Work Hazards Safety is a primary consideration when determining site layout Poor site layout planning is an accepted feature of the industry The chances of being involved in a site accident are quite large Operating site conditions may hinder one’s ability to work safely Detecting potential hazards is not a major aim of the site planning exercise Working with defective equipment is not allowed under any circumstances Potential risks and consequences are identified prior to execution IX. Work Pressure Under pressure I work under a great deal of tension Under pressure I am not given enough time to get the job done safely Under pressure It is necessary for me to depart from safety requirements for production’s sake Under pressure I perceive operational targets in conflict with some safety measures Under pressure It is normal for me to take shortcuts at the expense of safety Under pressure I tolerate minor unsafe behaviors performed by co-workers Under pressure It is not acceptable to delay periodic inspection of plant and equipment


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Score 1

2

3

4

5

X. Competence I received adequate training to perform my job safely I am aware, through training, of relevant safety procedures I do fully understand current, relevant legislation I am skilled at avoiding the dangers of workplace hazards I am capable of identifying potentially hazardous situations I am proactive in removing workplace safety hazards I am capable of using relevant protective equipment

Furthermore, the following recommendations were compiled for contractors looking for IJV opportunities for developing an effective safety culture on their IJV projects. 1. Developing and maintaining a positive safety culture of your workforce can be an effective tool for improving the safety behaviours of the native workforce. The challenge is how to develop a culture that is favourable to good safety performance in an environment mostly unfavourable to good safety performance. 2. A number of elements that can help develop a good safety culture in an IJV includes: importance to safety, involvement of workers at all levels, role of safety staff, the caring trust (that all parties to have a watchful eye and helping hand to cope with inevitable slips and blunders), openness in communication, belief in safety improvements, and integration of safety into the project organization. 3. Safe behaviours can be enhanced by capitalizing on activities such as verbal instructions, training, and warning signs. Nevertheless, if things are communicated in the way that the work is easier, and the task can be finished earlier and thus rewarded with monetary incentive, then certainly employees will be cutting corners, may not be observing safety rules, not wearing personal protective equipment, and ultimately not working safely. Longterm values include employees being able to work without injury so they can continue to provide earning for both the company and for her/his family. 4. Collaborative management plays a key role in promoting a positive safety culture. This can be best demonstrated by allocating resources, time, walk the talk, inspections, by participating in risk assessments and consultative committee meetings, and by completing actions. 5. For a positive safety culture, employees’ involvement, ownership and commitment is necessary; in particular empowerment promotes feelings of self-worth, belonging, and value. Employees should be involved in training, consultation about noise, machinery isolation, sound barriers, job rotation, PPE, and wearing different earmuffs. 6. In order to enhance safety awareness amongst employees, promotional strategies to be used should include the following: a. Mission statements, slogans, and logos; b. Published materials (libraries, statistics, newsletters); 228

c. Media (posters, displays, audiovisual, e-mail, Internet). 7. Training activities should include short talks, group meetings, training for personal fitness, hygiene, workplace stress, and responsibilities towards safety (including compliance with rules and regulations, hazard identification and risk assessment, incident investigation and job safety analysis); 8. Special campaigns should include Health and Safety Week, health promotion, safety inductions, emergency response, incident reporting and investigation, risk assessment, introduction to existing health, safety and environment management systems. Discussion and conclusions This study has attempted to develop a research instrument that can be utilized by construction contractors working in international markets (in IJVs) to assess the safety culture of the native workforce in order to better manage the risks of safety and to better respond to the challenges faced by their management in implementing safe international construction projects. Strategically, this provides them with a structured approach to decision making under uncertainty for procurement of construction projects in international context. Promoting collaborative management commitment and collaborative employee participation in safety can enhance the IJV’s safety culture. When employees become more aware of their responsibilities for incident and injury prevention, they will exhibit more interest in maintaining a safe and healthy work site. The authors take the view that a positive safety culture in an IJV comprises five components which include: international contractor’s commitment to safety; international contractor’s concerns for the native workforce, mutual trust and credibility between management of the two firms as well as management and employee,; workforce empowerment, and continuous improvement to reflect the safety at the work site. The authors postulate that within any IJV project organization, a positive safety culture will ascertain and reflect the effectiveness of a safety management system in the construction site environment. Developing and maintaining a positive safety culture of international contractor’s workforce can be an effective tool for improving the safety behaviours of the native workforce. A number of elements that can help develop a good safety culture in an IJV includes: importance to safety, involvement of workers at all levels, role of safety staff, the caring trust (that all parties to have a watchful eye and helping hand to cope with inevitable slips and blunders), openness in communication, belief in safety improvements, and integration of safety into the project organization. Collaborative management plays a key role in promoting a positive safety culture. This can be best demonstrated by allocating resources, time, walk the talk, inspections, by participating in risk assessments and consultative committee meetings, and by completing actions. References Advisory Committee on the Safety of Nuclear Installations (ACSNI) (1993) Third report: Organizing for safety, Study Group on Human Factors, Health and Safety Executives, UK. Balachandran, P. (1995) ‘‘Some considerations for foreign contractors entering the Far East construction market.’’ Int. Constr. Law Rev., 12(1), 137–155. building abroad, Montreal, October 2008

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Barkema, H. G., Shenkar, O., Vermeulen, F., and Bell, J. H. J. (1997) “Working abroad, working with others: How firms learn to operate international joint ventures.” Acad. Manage J., 40(2), 426–442. Bing, L., and Tiong, R. L. K. (1999) “Risk management model for international construction joint ventures.” J. Constr. Eng. Manage., 125(5), 377–384. Bing, L., Tiong, R. L. K., Fan, W. W., and Chew, D. A. S. (1999) “Risk management in international construction joint ventures.” J. Constr. Eng. Manage., 125(4), 277–284. Choudhry, M. R., and Fang, D. P. (2005) “The nature of safety culture: a survey of the state-of the- art and improving a positive safety culture.” Proc., 1st Int. Conf. on Construction Eng. and Management for Korea Institute of Construction Engineering and Management (KICEM), 16-19 October 2005, Seoul, Korea, 480-485. Cooper, M. D. (2000) “Towards a model of safety culture”. Safety Science, 36, 111-136. Cooper, M.D., and Phillips, R.A. (2004) “Exploratory analysis of the safety climate and safety behavior relationship”, Journal of Safety Research. 35, 497-512. Ding, D. Z. (1996) ‘‘Exploring Chinese conflict management styles in joint ventures in the People’s Republic of China.’’ Mgmt. Res. News, 19(9), 43–53. Evans, J. (2000) “The relationship between psychic distance and organizational performance: An analysis of international retailing operations.” Doctoral dissertation, Monash Univ., Melbourne, Australia. Evans, J., and Mavondo, F. T. (2002) “Psychic distance and organizational performance: An empirical examination of international retailing operations.” J. Int. Business Stud., 33(3), 515–532. Fang, D.P., Chen Y., and Louisa W. (2006) “Safety Climate in Construction Industry: A Case Study in Hong Kong”. Journal of Construction Engineering and Management, 132(6), 573584. Farooqui, R.U., Ahmed, S.M., and Panthi, K. (2007) “Developing Safety Culture in Pakistan Construction Industry – An Assessment of Perceptions and Practices among Construction Contractors”. Proceedings of the Fourth International Conference on Construction in the 21st Century: Accelerating Innovation in Engineering, Management and Technology (CITC IV 2007), Gold Coast, Australia, pp. 420-437. Fellow, R. F., and Hancock, R. (1994) ‘‘Conflict resulting from cultural differentiation: An investigation of the new engineering contract.’’ Council of International Construction Research and Documentation Proc. on Construction Conflict: Management and Resolution, Rotterdam,The Netherlands, 259–267. Flin, R., Mearns, K., O’Connor, P., and Bryden, R. (2000) “Measuring safety climate: Identifying the common features”. Safety Science, 34, 177-192. Gale, A., and Luo, J. (2004) “Factors affecting construction joint ventures in China.” Int. J. Proj. Manage., 22(1), 33–42. Geringer, J. M., and Hebert, L. (1991) ‘‘Measuring performance of international joint ventures.’’ J. Int. Business Studies, Second Quarter, 22(2), 249–264. 230

Hastak, M., and Shaked, A. (2000). “ICRAM-1: Model for international construction risk assessment.” J. Manage. Eng., 16(1), 59–69. Hofstede, G., and Hofstede, G. J. (2005) Cultures and organizations: Software of the mind, 2nd Ed., McGraw-Hill, New York. Kennedy, R., and Kirwan, B. (1998) “Development of a hazard and operability-based method for identifying safety management vulnerabilities in high risk systems”. Safety Science, 30, 249274. Kogut, B., and Singh, H. (1988) “The effect of national culture on the choice of entry mode.” J. Int. Business Stud., 19(3), 411–432. Lee, T., and Harrison, K. (2000) Assessing safety culture in nuclear power stations. Safety Science, 34, 61-97. Low, P. S., and Leong, C. H. Y. (2000) “Cross-cultural project management for international construction in China.” Int. J. Proj. Manage., 18(5), 307–316. Makino, S., and Beamish, P. W. (1998) “Performance and survival of international joint ventures with non-conventional ownership structures.” J. Int. Business Stud., 29(4), 797–818. Mead, R. (1998) International management: cross-cultural dimensions, Blackwell, Malden, Mass. Mohamed, S. (2002) “Safety climate in construction site environments”. Journal of Construction Engineering and Management, 128(5), 375-384. Mohamed, S. (2003) “Performance in international construction joint ventures: Modeling perspective.” J. Constr. Eng. Manage., 129(6), 619–626. Morosini, P., Shane, S., and Singh, H. (1998) “Cultural distance and cross-border acquisition performance.” J. Int. Business Stud., 29(1), 137–158. O’Grady, S., and Lane, H. W. (1996) “The psychic distance paradox.” J. Int. Business Stud., 27(2), 309–333. Park, S. H., and Ungson, G. R. (1997) “The effect of national culture, organizational complementarity, and economic motivation on joint venture dissolution.” Acad. Manage J., 40(2), 279–307. Parkhe, A. (1993) “Messy research, methodological predispositions, and theory development in international joint ventures.” Acad. Manage. Rev., 18(2), 227–268. Strickoff, R.S. (2000) “Safety performance measurement: Identifying prospective indicators with high validity”. Professional Safety, 45. Swierczek, F. W. (1994) ‘‘Culture and conflict in joint ventures in Asia.’’ Int. J. Proj. Mgmt., 12(1), 39–47.


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Author’s Biography Mr. Rizwan U. Farooqui is currently working in the capacity of Assistant Professor at the Department of Civil Engineering, NED University of Engineering and Technology in Karachi, Pakistan. He is currently pursuing his Ph.D. degree in Construction Engineering and Management from Florida International University in Miami, Florida, USA. He has an MS degree in Structural and Construction Engineering from National University of Singapore and a BS degree in Civil Engineering from NED University. Mr. Farooqui has over ten years of research, teaching and construction industry experience by working in USA, Pakistan, Singapore and Ethiopia. Few of his major accomplishments include: development of the MS Program in Engineering Management (with specializations in construction management and industrial engineering management) for NED University; development and implementation of a construction process re-engineering model for construction industry in Ethiopia, procurement of a Pak-US collaborative research grant for Development of a strategic model for improvement of construction project management education, research and practice in Pakistan (grant amount: $403,000 jointly funded by USAID and MoST Pakistan; Time Period: January 1, 2006– December 31, 2008). Mr. Farooqui has over thirty five (35) publications to his name in peer reviewed journals and refereed international conferences. He is a member of ASCE, PMI, and AACE. He is also an honorary member of Sigma-Lambda-Chi Construction Management honour society, Chi-Epsilon Civil Engineering Honour Society, Tau Beta Pi Engineering Honour Society and Phi Khappa Pi Honour Society. Dr. Syed Mahmood Ahmed, is an Associate Professor and Graduate Program Director in the Department of Construction Management at the Florida International University in Miami, Florida USA. Prior to this he was a lecturer in the Department of Civil & Structural Engineering of the Hong Kong Polytechnic University for over four years. He has a B.Sc. (Hons.) degree in Civil Engineering from the University of Engineering and Technology, Lahore Pakistan and M.S. and Ph.D. degrees in Civil Engineering from the Georgia Institute of Technology, Atlanta, Georgia. Dr. Ahmed is involved in teaching, research and consultancy in construction project management. He has approximately eighty publications in refereed international journals and conferences. He has over twenty years of construction industry experience in which he has worked for the owners, consultants, and contractors. He is a member of the American Society of Civil Engineers (ASCE) and UNESCO International Center for Engineering Education.

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SELECTION OF CONSTRUCTION WORK PROCESSES: CURRENT PRACTICES AND A NEW PROPOSAL Ximena Ferrada, Pontificia Universidad Católica de Chile email: [email protected] Alfredo Serpell, Pontificia Universidad Católica de Chile email: [email protected]

Abstract It is recognized that the Chilean construction industry has a lower productivity comparatively to other industrial sectors. One of the causes of this poor performance is the lack of efficiency and effectiveness of the work processes utilized to carry out construction work. According to a recent study, this situation is caused by the lack of adequate selection of construction processes that can deliver what is specified at the beginning of construction work. The objective of this work is to present the main findings of the study and to propose an approach, based on information and knowledge from past construction projects, for the design and selection of construction processes in new projects. The paper also describes an ongoing research effort that is being carried out with the goal of developing a knowledge-based management system for construction processes’ selection. Thus, knowledge about current process selection practices is first presented and discussed. Second, a preliminary knowledge-based model for construction processes’ selection and the general application methodology are described. The main conclusion is that Chilean construction companies do not make an appropriate design of their construction processes and a knowledge management tool is proposed to correct this inadequacy. The application of this tool could help Chilean construction companies improve their construction performance by better selecting and managing their construction processes as well as by procuring suppliers that can achieve the required performance. This approach can also be useful for construction companies in other countries. Keywords: Construction; Information Technology; Knowledge Management; Process Improvement; Method Selection.

Introduction The construction industry has a lower level of productivity and development as compared to other industrial sectors. Also, it has difficulties in the reaching of the quality standards required by clients (Tapia, 2007). The reason for this situation has been searched at the product level, the production level, and in the industry as a whole (Vrijhoef, Koskela, 2005). One of the causes of these problems is, according to some researchers, the use of inadequate construction processes (Poon et al., 2003). This is very relevant if we think that a construction company is only as effective as its processes are (Hunt, 1996). A process can be defined as a collection of interrelated work tasks, initiated in response to an event, and achieving a specific result for the customer and other stakeholders of the process building abroad, Montreal, October 2008

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(Sharp and McDermott, 2001). An important aspect of a process is its capacity, which defines the potential of the production system (Serpell, 2002). Then, it is important to understand the capacity of a process, since this will help to know if the process is or is not able to accomplish the specified requirements, or if it is necessary to change it. In construction companies there are problems in reaching acceptable levels of quality. Also, there is an inefficient use of project resources caused by the lack of process quality management (Rodney y Clinton, 2006). Many quality and productivity problems on construction sites could be associated with an incorrect process design. This could partially explain why high levels of rework, underutilization of equipment, and budget overruns occur, among others. The design of construction processes is part of the project’s production system design and considers decisions that range from who is to be involved and in what roles, to how the physical work will be accomplished (Ballard et al., 2001). This situation creates a complex reality for improving the performance of construction companies, since the only way to do this is by producing a production system design that is "right at the first try" (Cooper et al., 2005). This is relevant not only in the product design but also in the design associated to the production system that will produce it. Despite its importance, usually very little attention is given to production system design in the construction industry (Schramm et al., 2006) and, in general, the project team will repeat what they have done on previous projects, but normally obtaining different results (Ballard, 2005). According to Cooper et al. (2005), difficulties exist in producing and using construction production information and much information obtained from previous projects is not reused because it is not kept, due to the problem that appropriate mechanisms for doing so are not available in most of the companies. This is paradoxical; seeing that the construction industry is strongly knowledgebased and that experience plays a fundamental role in decision making, then wouldn’t it be expected that the production and management of this information would be vital for business operation within the industry (Egbu et al., 2004). Currently, most construction processes heavily rely on traditional means of communication, like face to face meetings and the exchange of documents in the form of technical drawings, specifications, and site instructions (Stewart, 2007). In addition, the information and knowledge created during the execution of a project are often owned by the project team and a lack of information and knowledge sharing becomes an important factor that affects the business performance (Wu et al., 2004). If experience and knowledge is shared and used appropriately, then the same or similar problems in construction projects would not need to be repeatedly solved (Tserng and Lin, 2004). These resources would improve the company’s performance, and reduce the cost and the probability of repeated problems (Lin et al., 2006). This paper presents the main findings of a study on construction processes oriented to understand how Chilean construction companies face the design of construction processes. Further on, the article proposes an approach based on the use of construction processes information and knowledge from past construction projects for the design and selection of construction processes in new projects. Research methods This section presents the methodology applied in stages one and two of this research. Stage one was carried out to understand construction process design practices in Chile, identifying features and limitations. Stage two is being carried out with the purpose of developing a support tool for construction processes selection. The main characteristics of this work and the proposed tool are elaborated in this section. 234

Construction processes selection practices in Chile The main reason to do an exploratory research regarding the selection of construction processes was to understand why there are so many problems of inadequate processes selection in construction projects and to propose ways to improve this situation. Research hypothesis: • No formal methods are applied for the selection of construction processes that guarantee the required performance once they have been implemented by housing construction companies in Santiago, Chile.

Research Objectives: • To develop a critical analysis of the construction processes selection practices in construction companies. • To recommend a methodology for construction processes selection, based on the principles of process management. The methodology used to do this research was based on the development of a survey to study construction processes selection practices in construction companies in Chile. The main stages of this methodology are shown in Table 1. Table 1. Work methodology Stage

Results

Study of the main concepts associated with construction processes selection

Theoretical framework for the development of the survey and the selection of the variables of the study

Pilot survey elaboration

Pilot survey

Pilot survey application

Verification of the correct design and construction of the survey

Pilot survey results analysis

Reformulation of the survey. Definition of the final version of the survey

Application of the survey to construction companies

Real information about construction processes selection practices

Analysis of the results

Diagnosis of construction processes selection practices in construction companies

The survey was obtained by interviewing the respondents (project managers and project supervisors). The final survey included 27 questions. The population under study was housing (houses and buildings) under construction in Santiago, Chile. By that time (January 2007), the total number of projects was 544, including every project with a total construction area of at least 500 m2. With this information, a statistical study of the sample size was carried out to determine the quantity of necessary surveys required for a valid study, as show in Table 2.


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Table 2. Survey requirements Kind of Housing Project

Population

Number of surveys

Houses

193

22

Buildings

351

38

Total

544

60

The survey was structured in three parts. The first part was concerned with the demographic information of the respondent, including aspects such as educational profile and position in the company. The second part of the survey was concerned with construction processes selection issues. This part had a forced-response format where respondents were required to select a response between five alternatives, according to a Likert scale. The third part of the survey was oriented to find out the value that people give to the documentation of their on site work. The questions that were included in this survey were structured to measure 11 variables: existence of design methods, knowledge about design requirements, resource allocation, analysis of different construction methods, process capacity, process design, design validation, process control, planning, corrective/improvement actions, and documentation. Development of a support tool for the construction process design After the main characteristics of the construction processes selection practices were identified, different solutions to improve the performance of this activity were analyzed. The selected approach was knowledge management, due to the features of the construction industry, which are intensive in knowledge and experience, but lack standard procedures to use this knowledge. Also, an ongoing exploratory research on knowledge management in Chilean construction companies identified that these firms are very interested in this approach. In this way, the research question was defined as follows: Research Question: • How to obtain, process, store, and use a construction company’s knowledge to select construction process that can attain specified requirements?

Research Objectives: • To identify and understand the required knowledge to design or select construction processes. • To develop a knowledge map for the design/selection of construction processes, defining all relevant variables for their analysis. • To study and define the appropriate mechanisms for the acquisition of this knowledge. • To develop a prototype system to acquire, process, recover, and apply knowledge regarding the design or selection of construction processes.

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Research results

Results regarding construction processes selection practices in Chile After application of the survey, the data collected was analyzed from the perspective of the different kinds of housing projects (houses and buildings) to establish current practices and identify relevant problems. Also, some complementary information was obtained from the interviews made by the respondents when they answered the survey. A summary of the findings of the survey is as follows: a) Awareness of the existence of different selection methods: in house construction projects, processes are elaborated based on previous experience. However, they are not always defined before the execution phase of the project but instead are analyzed “on the run”. In building construction projects, a common answer was that they do not design processes because the design was made a long time ago and projects of the same company are similar, so the same design could be used. In projects where a design process exists, the answers were similar to the ones obtained in the house construction projects. Also, it was mentioned that the selected design depends on the knowledge of the site professionals. b) Knowledge about processes requirements: in house construction projects, knowledge of process requirements comes from technical drawings, specifications, and available construction time, even though the first two are constantly changing. However, the most important requirement of all is the project budget. In larger projects, it was indicated that sometimes it is assumed that people are familiar with technical drawings and specifications, without any verification of this supposition. In building construction projects, respondents indicated that projects are controlled by their budget. With regard to the architectural drawings, respondents mention that these drawings are constantly modified, so the information obtained from them is not very reliable. c) Resource allocation: in house construction projects, when it is time to select equipment, the price is the most important factor to analyze. With regard to human resources, the supervisor selects the crew according to their capacities. In building construction projects, the main problem is the lack of an adequate procurement method. Today, there is a tendency to require materials from the supplier without an adequate analysis of the supplier’s experience or product’s quality. d) Different methods analysis: in both kinds of housing construction projects there is a clear conscience about the fact that there is more than one method to do the work and people try to find de best way to do it, usually by selecting the one that helps them to make an optimal use of project resources. However, people tend to use the same solution for different problems always. e) Process capacity: this is the least considered variable in construction projects and in almost all the projects an analysis of process capacity is not performed. f) Design: in both kinds of housing construction projects, in process design, or in the selection stage, there is no involvement from the people that play a part in the process. Generally, there are only one or two people in charge of this task and in few instances they will ask for the opinion of others. Also, there is a tendency to design very simple processes to avoid confusion. g) Design validation: generally, there is no pilot test or simulation of the process design, because this consumes time and resources. h) Control: In house construction projects, people only control the most important work packages. In the case of buildings projects, control is a constant task. building abroad, Montreal, October 2008

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i) Corrective/improvement actions: in both kinds of projects, corrective actions are not very innovative. There is an interest in process improvements but because of daily work pressures there are not enough occasions for it, since there are more urgent things to do. j) Planning: The most valuable planning tool is the bar chart or Gantt chart, although this chart in not always updated. k) Documentation: In both kinds of projects there are three types of documents that are used in a regular way. These documents are technical specifications, architectural drawings, and project planning documents, the first two being the most important because they include project requirements. In second place are control plans, internal norms, and process control cards. In third place process execution procedures appear next to manufacturer’s recommendations, and quality plans. Finally, there was not a single project where all the variables were present. The ones that appeared more often were knowledge about process requirements, different methods analysis, and control and process planning. The variables that appeared the least were process capacity and process validation. Development of a support tool for construction process design Associated with the problems or deficiencies identified in the first part of this research, a preliminary proposal has been developed to face and resolve the problems associated with construction processes design or selection. This proposal is based on a knowledge-based model for processes’ selection. The next paragraphs describe in this proposal and its main characteristics. First of all, it is important to remember that construction processes, like any other type of processes, can be seen as a transformation function, as shown in Figure 1. Here it is possible to observe that for any process, it is necessary to identify the outputs that satisfy the requirements of the process product and to decide about the type of process that is needed to obtain the expected result, according to restrictions and inputs features. Storage

Material

Equipment

People

Inputs

Policies

Transportation Operator skill level Measurement methods

Process

Measurements Performance in service

Outputs

Work design

Traditions

Parts

Settings

Customer satisfaction

Training

Environment Procedures

Yields

Fig. 1. The process as a transfer function (Pyzdek, 2003) However, the physical production process of an organization generates an information flow or virtual factory of knowledge that runs parallel to the execution of the process that collects and builds information about processes and products to ensure both customer and shareholder satisfaction (Pearson, 2001). So, it is possible to observe that if we improve the knowledge flow within an organization, this adds value, increases the ability to compete, and helps to improve the quality and performance of future projects of the company (Al-Ghassani et al., 2006). From a 238

construction industry perspective, we could think that if construction companies count with an organizational knowledge base, and incorporate the knowledge and information obtained in the production stage of each one of their projects, they could use this previous experience to design new production systems based on processes previously used in the company allowing better operational decisions in this way. In this study it is considered that knowledge management provides the appropriate methods and tools to do this, as long as knowledge is managed in a systematic way. Thus, whenever the company requires the design of construction processes (by simplification it has been assumed that the design includes the selection of processes as well as their adaptation) for a new production system, it will be able to support this procedure using a knowledge management system. Here there are three possible situations, (1) that in the knowledge base there is a process that totally satisfies the output requirements of the new production system and that is applicable to the new situation, (2) that in the knowledge base there is a process that partially satisfies the requirements but can be adapted to the new situation, or (3) that a process that reasonably satisfies the requirements does not exist, a reason why alternatives of previous processes in this case will not be available. According to the results of the search and selection of processes, the operational decisions to take could be: (1) to reuse a complete or proven solution, (2) to modify a previous solution or (3) to design the solution starting from zero. Later on, this solution will be applied in practice and checked in relation to requirements. The application of the process solution will generate new knowledge that will be incorporated into the organizational knowledge base so that it will be available in the future, allowing improvement and continuous correction of mistakes. The action to search for processes in the knowledge base that would satisfy the process requirements is called process selection in this research. Thus, if someone wants to structure an effective production system, the appropriate process selection becomes an important factor for achieving that objective. It is important to underline that there is no interest in eliminating process design but to use the company’s previous knowledge to facilitate this task. So, every time that a company needs to design its construction processes, it would not start their design from zero, because by applying the process selection approach, they would work on processes previously used by the organization, establishing a continuous improvement and learning system. On the other hand, a system like this would allow the development of a corporative memory, so that knowledge is not only possessed at the individual level but it is also shared and utilized at an organizational level creating the possibility of a sustainable competitive advantage (Chinowsky and Carrillo, 2007). The proposed knowledge-based model for processes’ selection at company level is shown in Figure 2.


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Knowledge adquisition C onstruction process

Organizational D ata Base

Process R equirements

Process Selection

Process that totally satisfies the requirements

Process that partially satisfies the requirements

R euse or modification of a previous solution

A process that reasonably satisfies the requirements does not exist

D esign the solution from zero

Process execution

C onstruction process performance

Creation of new knowledge

Fig. 2. Knowledge-based model for processes’ selection

Discussion and conclusions Chilean companies do not make an appropriate design of their construction processes, understanding by process design the selection of the input variables, the work flows, and the methods to carry out the production (Tapia, 2007). This is because not one of the projects analyzed worked with a structured process design procedure, a situation that affected their final results. The main deficiencies found indicate that Chilean construction companies select and analyze their construction processes on the run as the project is being carried out, always choosing the same construction solutions in spite of knowing that there are other forms to carry out the work, and by supporting process selection on the knowledge of the professionals working on site. In this way they are selecting the simplest processes, not necessarily the best ones and without controlling the processes capacity. The problem with the process capacity analysis could be because of the inexistence of information about previous projects. The lack of this information could be associated with ignorance about their importance regarding good process design. Another source of this problem could be associated with the fact that project managers place their trust on the process control activities to verify the results of process design, therefore they do not see the importance of a design that is right since the beginning, if they could fix the problems that appears in the future with corrective actions. Also some cultural problems appear, because people tend to do things in the same way they did it before, since if it worked in the past, it will work again. Obviously, they do not include in their analyses the cost of rework, or the delay in the 240

project program caused by the use of a design that is not adequate. Another problem is the lack of time that project managers have to report the problems and solutions that arise when a process is executed, since they use this time in what they consider to be more important tasks. This situation causes companies not to transmit the knowledge that they acquire in each one of their projects, since this knowledge stays with the workers. A reason for which when a team member leaves the company, they take a part of the organizational knowledge with them. In addition, the same designs are use again and again without considering the problems that happened in the past, producing the same mistakes that are repeated, this agrees with other authors’ findings (Wu et al.2004; Tserng and Lin 2004). It is hoped that through a better use of an organization’s knowledge, the deficiencies already mentioned can be overcome .. Therefore, from a construction industry perspective, it is proposed that if construction companies count with an organizational knowledge base, with the knowledge and information obtained from the production stage of each one of their projects, they could use their previous experience to design each new production system based on processes previously used in the company and allow for better operational decisions in this way. In this study it is considered that knowledge management provides the appropriate methods and tools to do this, as long as knowledge is managed in a systematic way. This study hypothesizes that by using construction processes, information and knowledge from past construction projects, the design and selection of construction processes can be greatly improved. An initiative like this could reduce the time and cost of solving problems, increase process quality, and diminish redesign activities, among others. Key Lessons Learned: • Chilean construction companies do not make appropriate design of their construction processes. • Project managers prefer to fix a poorly designed process instead of using a better design for the first time. • Within the same construction company, knowledge about processes design is not shared because there are no available systems to do so.

References Al-Ghassani, A., Kamara, J., Anumba, C., Carrillo, P. (2006) “Prototype System for Knowledge Problem Definition”, Journal of Construction Engineering and Management, Mayo 2006. Ballard, G., Koskela, L., Howell, G., Zabelle, T. (2001) “Production System Design in Construction”, Proceedings of the 9th annual conference of the IGLC, National University of Singapore, August. Ballard, G. (2005) “Construction: one type of project production system”, Proceedings IGLC-13, July, Sydney, Australia. Chinowsky, P., Carrillo, P. (2007) “Knowledge Management to Learning Organization Connection”, Journal of Management in Engineering, July, pp. 122-130.


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Cooper, R.; Aouad, G.; Lee, A.; Wu, S.; Fleming, A.; Kagioglou, M. (2005) “Process Management in Design and Construction”, Blackwell Publishing, United Kingdom. Egbu, C.; Hayles, C; Anumba, A.; Ruikar, K; Quintas, P. (2004) “Getting Started in Knowledge management: Concise Guidance for Construction Consultants and Contractors”. Hunt, V.D. (1996) “Process Mapping: how to reengineer your business processes”, John Wiley & Sons, Inc., Canada. Lin, Y., Wang, L. & Ping Tserng, H. (2006) “Enhancing knowledge exchange through web mapbased knowledge management system in construction: Lessons learned in Taiwan”, Automation in Construction, 15, pp. 693-705. Pearson, T. (2001) Measure for Six Sigma Success, Quality Progress, February, United States. Poon, J.; Potts, K.; Musgrove, P. (2003) “CONBPS: An expert system to improve the efficiency of the construction process”, RICS Research Papers, Volume 4, N° 21. Pyzdek, T. (2003) “The Six Sigma Handbook, Revised and Expanded: A Complete Guide for Greenbelts, Blackbelts and Managers at All Levels”, McGraw Hill, United States of America. Rodney, S. y Clinton, S. (2006) “Six-sigma as a strategy for process improvement on construction projects: a case of study”, Construction and Economics, Vol. 24, N°4, pp. 339-348. Sharp, A.; McDermott, P. (2001) Workflow modeling: Tools for process improvement and application development, Artech House, Inc., United States of America. Schramm, F.; Rodriguez, A.; Formoso, T (2006) “The Role of Production System Design in the Management of Complex Projects”, Proceedings IGLC-14, July, Santiago, Chile. Sommerville, J.; Craig, N. (2006) “Implementing IT in Construction”, Taylor and Francis, United Kingdom. Stewart, R. (2007) “IT enhanced project information management in construction: Pathways to improved performance and strategic competitiveness”, Automation in Construction, Vol. 16, pp. 511-517. Tapia, C. (2007) Tesis para optar al grado de Magíster en Ciencias de la Ingeniería “Análisis Crítico del Diseño de Procesos en Chile”, Pontificia Universidad Católica de Chile. Tserng, H.; Lin, Y. (2004) “Developing an activity-based knowledge management system for contractors”, Automation in Construction, Vol. 13, pp. 781-802. Vrijhoef, R.; Koskela, L. (2005) “Revisiting the three peculiarities of production in construction”, Proceedings IGLC-13, July 2005, Sydney, Australia. Wu, S.; Kagioglou, M.; Aouad, G.; Lee, A.; Cooper, R.; Fleming, A. (2004), “A project knowledge management tool for the construction industry”, International Journal of IT in Architecture, Engineering and Construction, Vol. 2, N° 2, pp. 79-90.

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Author’s Biography Ximena Ferrada is a PhD student in the Department of Construction Engineering and Management at Pontificia Universidad Católica de Chile. She obtained her Civil Engineer degree from Pontificia Universidad Católica de Chile.

Alfredo Serpell is a Professor and Department Head of the Department of Construction Engineering and Management at Pontificia Universidad Católica de Chile. He obtained his Civil Engineer degree from Pontificia Universidad Católica de Chile, and his MSc in Architectural Engineering and PhD in Civil Engineering from The University of Texas at Austin, USA.


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THE INFLUENCE OF PROCUREMENT ON PERFORMANCE OF INTEGRATED DESIGN IN CONSTRUCTION Daniel Forgues, École de technologie supérieure (ÉTS) email: [email protected] Lauri Koskela, University of Salford email: [email protected] Abstract There is an emerging trend in the construction industry to adopt integrated design. It is expected that buildings defined using this approach will deliver better performance or better value for money. There are though, two opposing views regarding the changes to be done to adapt traditional design practices to this new organization of work. Advocates of sustainable construction posit that it is a matter of evolving from a sequential to an iterative design process, whereas the British government supports the view that a change in how projects are procured is required to transform the context that dictates relationships among the members of the team. The objective of the research is to study the influence of procurement on the performance of integrated design teams. It analyses integrated design through case studies reflecting these views. The research is conclusive regarding the influence of procurement on team efficiency. It demonstrates that traditional procurement processes reinforce sociocognitive barriers that hinder team efficiency. It also illustrates how new procurement modes can transform the dynamic of relationships between the client and the members of the supply chain, and have a positive impact on team performance. Keywords: Integrated Design; Procurement; Team Dynamics. Introduction Numerous reports and studies acknowledge problems with the sequential approach to design and delivery of construction projects. Dupagne (1991) identifies, among those, the lack of iterations in the design process, the lack of consideration of constraints within subsequent phases or the unnecessary constraints set in design for these phases, and the lack of leadership and accountability; leading to sub-optimal solutions, poor constructability and operability, rework in design and construction, and lack of innovation. Two solutions derived from best practices in manufacturing are suggested to tackle these problems. Advocates of sustainable construction (Larsson 2002, Löhnert, Dalkowski and Sutter 2002) suggest redefining the design process from sequential to iterative, while maintaining traditional project lifecycle and procurement modes. In contrast, British leaders of the movement for rethinking construction (Latham 1994, Egan 1998) argue that a change to the context in which the design is realized is essential, and advocate abandoning fragmented and transactional procurement routes in favor of integrated and relational procurement.


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However, while the problems with the sequential design and delivery approach to construction have been discussed, the topic of the impact of integrated team’s new organization of work on design practices has been little researched in the construction industry. Researchers in lean construction (Huovila, Koskela and Lautanala 1997) argue that traditional design practices are built around the input and output processes and perform poorly in managing flow, or meeting client requirements. They posit that concurrent engineering is a better fit to integrated design, suggesting that existing practices are ill-adapted to this new organization of work. Koskela et al. (2006) also contend that the incapacity of the industry to move from sequential to integrated design resides in the adversarial business context created by transactional contracting methods. In a transaction, the seller is bound to delivering to the buyer a specified outcome for an agreed price. Risk and responsibility of results are on the shoulder of the seller, who has no incentive for collaboration with other contract parties in defining the solution that will best meet expected results. Relational contracting is based on recognition and striving for mutual benefits between the parties. This type of contract is usually long-term, develops and changes over time, and involves substantial relationships between the parties. Koskela’s (2000) theory of production was used as a starting point to get a better understanding of the influence of procurement on the performance of integrated design. The design process and outcome of two projects - the first using a traditional transactional approach, the second a new relational procurement approach - were investigated. Research results describe how procurement can affect the dynamic of the team by creating a context that encourages or hinders collaboration and innovation. Integrated design or integrated teams? Integrated design was devised during the Second World War to speed up the development and construction of new complex weapons. It proved to drastically reduce the time to market and product development costs, while delivering superior products. It is why it was widely adopted by the manufacturing industry in the 1980’s. Integrated design was only introduced in construction in the beginning of the 1990’s for the design of sustainable buildings to solve problems in the sequential design process, which was generating sub-optimal buildings at higher costs (Larsson 2002, Löhnert, Dalkowski and Sutter 2002, Zimmerman 2006). The integrated design process is described by Larsson et al. (2002) as: “A method for realizing high performance buildings that contributes to sustainable communities. It is a collaborative process that focuses on the design, construction, operation, and occupancy of a building over its complete life-cycle. The integrated design process is designed to allow the client and other stakeholders to develop and realize clearly defined and challenging functional, environmental, and economic goals and objectives. It requires a multi-disciplinary design team that includes or acquires the skills required to address all design issues flowing from the objectives.” This proposed new design process shares with sequential design and delivery the breakdown of the project lifecycle into a series of phases marked by milestones, during which interim deliverables (brief, concept, preliminary design, working drawings) are reviewed and approved. They differ in the organization of the work to produce these deliverables. In a sequential process, problems are distributed among people that work and develop systems in isolation. They meet only for coordination purpose. Members of the project teams will change from phase to phase. There is little opportunity for optimization. (Larsson 2002). Integrated design process demands inclusive participation of key team members during the whole project lifecycle. Whole system thinking and whole lifecycle costing are priorities The core of the team effort is invested in the early stage of the project. The design process is not linear but utilizes iteration loops for problem-oriented analysis and optimization of design alternatives 246

(Löhnert, Dalkowski and Sutter 2002). The building is first outlined as a holistic system which is partitioned at each step into finer and finer elements, whilst the sustainability requirements start at a highly abstract level to become more specific for the lower-level elements. A sustainability benchmarking based on sustainability targets is done at the end of each iteration, providing feedback loops to refine the proposed solutions. The adoption of the integrated design process by the industry remains scarce. Discussions with practitioners reveal four issues that hinder its rapid adoption: (1) the clients lack of understanding of his role in this new design process, (2) the lack of incentives for design professionals to change their practice, (3) the nature and fragmentation of procurement within the “design-bid-build” process, and (4) the absence of recognized code of practice or body of knowledge to support this new form of collaborative work. The British government has adopted a different route to integration that addresses some of these issues. Two seminal reports (Latham 1994, Egan 1998) relate the construction industry’s poor performance with adversarial procurement practices. They condemn these practices as been responsible for the industry’s high fragmentation, lack of quality outputs, and low productivity. They also contend that integrating the value chain overall processes encourages continuous improvements and reduces waste. Integrated collaborative design is considered as an approach that establishes design as the common thread linking organizations together (Austin 2001). Following the recommendations of these reports, the British government changed public procurement practices to favor integrated teams and integrated supply chains. These two views of integrated design converge in their aim to deliver superior value by assembling, integrating, and harnessing all the collective skills and capabilities of clients and their supply chains. Both views, however, fail to consider or address the socio-technical problems affecting the performance of multidisciplinary teams. Integrated teams in construction are usually coalitions of representatives from various organizations that have different cultures and organization of work. They are often brought in together for the first time and are assigned to the project on a temporary basis. In contrast, integrated teams in the manufacturing industry are usually teams that have worked together for a long time on multiple projects. They share the same culture and organization of work and design processes. This is why there is a high risk that design coalitions may not perform as well, or even be dysfunctional. Recent research on intrateams boundaries within design-build projects (Moore and Dainty 2001) supports this assertion. There is a need to provide a better empirical and theoretical ground to understand the dynamic of integrated teams in construction and the influence that procurement can have on their performance. The cases provide a fertile ground for an empirical investigation of this topic. Research question: • How procurement influences the performance of integrated design in construction? Research Methods Investigating integrated design team performance represents a challenge, since it requires crossing boundaries between organization and design sciences – the core principle in this type of organiztion of work being the co-production of the design solution by client and supply chain. Choosing the paradigms driving the research is also a crucial and difficult question. Patton (2002) describes the research paradigm as a way of making sense of the complexity of the real world. It is considered as being deeply embedded in the researcher or practitioner’s social models. Its strength is also its principal weakness; the very reason for action is hidden in the unquestioned assumptions of the paradigm. building abroad, Montreal, October 2008

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Positivism or technical rationality is the research paradigm in the design sciences (Schön 1995). However, an interpretivist perspective was adopted as it is better suited to investigate this complex social phenomenon. Interpretivists see the social world, as opposed to the physical world, as socially constructed. They are more interested in understanding specific cases within a particular context than hypothesizing about generalizations and causes (Patton 2002). Triangulation of theories, methods, and sources were used to capture and analyze data from multiple perspectives. Van de Ven (2007) calls for process instead of variance logic to investigate complex organizational phenomena. The phenomenon here, to be studied, is teams’ integrated design process. Process data have characteristics that make them difficult to analyse and manipulate: they deal with sequences of “events”; they have multiple levels with ambiguous boundaries; their temporal embeddedness varies in terms of precision, duration, and relevance; they tend to be eclectic, drawing on phenomena such as changing relationships, thoughts, feelings, and interpretations ((Langley 1999). A social science process approach has also its limitations. Blackler, Crump and Mcdonald (1999) argue that social research on teamwork practices does not take into account the rapid pace of changes in the organization of work. It is based on biased assumptions, avoiding featuring elements of context as variables that can impact team effectiveness, such as the hierarchical aspect of group regulation, the politics of relationships between different experts or functional groups, the nature of the broader institutional contexts, and ways in which participants have become socialized to participate within these structures. They advocate instead a context approach to research, using activity theory to explore the dynamic of teams. Activity theory focuses on activities instead of processes, and provides a much richer framework than traditional variance or process approaches used in social science to investigate complex phenomena. A triangulation of qualitative research methods, based on activity theory and grounded research, were used to investigate the two case studies. Research Objectives: • Identify the socio-cognitive factors that affect the performance of integrated design teams. • Establish the effects of transactional and relational contracting on these socio-cognitive factors. Maximum variation and intensity were sought in the choice of the cases. The first is a longitudinal case conducted in Canada. Documents pertaining to the development of the design, design deliverables, and electronic correspondence were made available for the research. Eight brainstorming and design workshops were conducted in e-collaborative design laboratory of École de technologie Superieure. They were videotaped. Observation strategies derived from Ancona’s Team Process Observation Guide (2005) were used to analyze disturbances or contradictions affecting the team dynamic. Two rounds of interviews were conducted, one with partners/tenants’ directors and employees at the end of the first phase to capture the strategic intents, and one with the integrated team after the concept phase. A total of 19 persons were interviewed. A second case was undertaken to study a new procurement framework put in place in a leading British initiative. Data were collected in three steps. Firstly, a series of interviews with six representatives from Office of Government Commerce, the Department of Trade and Industry, Constructing Excellence and Construction Industry Council were conducted to understand the context surrounding Rethinking Construction related initiatives. Research was narrowed down to Procure 21 and Achieving Excellence initiatives. Secondly, interviews were conducted with 2 248

Office of Government Commerce representatives, the Department of Health director of Construction, and the Procure 21 program manager. Thirdly, interviews were conducted with personnel from the Hospital planning department, the new unit staff, and the principal supply chain representatives. 20 persons were interviewed. National Health Procure 21 and knowledge portals were also explored in details; Procure 21 tools and process map were downloaded, and analyzed. A semi-structured interview protocol and long interview technique were used in both cases. The interviews lasted between 40 and 120 minutes. All interviews were recorded and fully transcribed. A debrief memo was written after each interview. Interviews were also conducted with subject matter experts in project and value management. Client representatives, project managers, design professionals, and construction managers were invited in focus groups to discuss and comment on the research findings at each step of the process. All data were captured and coded using NVivo 7 software. Research Results The aim in both cases was to demonstrate the superior performance of integrated teams. The first to deliver more sustainable buildings, the second to drastically improve the quality and efficiency of care within a mental health rehabilitation unit. In the first case, a sustainability roadmap was devised to reengineer traditional design processes. In the second case, a revolutionary relational procurement framework, Procure-21, was implemented to transform the context in which projects are planned, designed, and built, whereas in the first case, traditional transactional procurement route was utilized The focus of the research in the Canadian case was to explore further problems of efficiency in adopting a process approach to the integrated team. In the British case, which is considered a model of best practices in integrated teams, the research concentrates on the influence of new procurement routes on the efficiency of these teams by transforming the context of the relationship between the client and the supply chain. The Canadian case This case describes the context and dynamic of a project coalition whose mandate was to innovate not only by delivering an outstanding demonstration project for sustainable construction, but also in the process of designing it. The project was an opportunity for the project client, a nonprofit activist organization in sustainable development, to position the organization as the “Voice of Sustainable Development”. A sustainability adviser was appointed by the client to show the way, on how to organize the integrated design process. The integrated team was composed of three representatives from the architect firm, four representatives from the engineering firms, the sustainability adviser, three client’s representatives, and various experts. Ancona (2005) proposes seven categories to structure the observation of the team dynamic: task and maintenance functions, decision-making, communication, influence, conflict, atmosphere, and emotional issues. “Task and Maintenance functions” is the glue that holds the team together. Task functions help the team to organize themselves to get the things done. Maintenance functions hold the team together so that the members can continue to get along with one another. It is expected, in a performing team, that its members build together a shared view of the project purpose, agree in the best way to achieve it, and on how they will stay on target. It is also expected that all team members have their “voice” heard and that all ideas are opened to discussion. This is consistent with the integrated design core principle of open collaboration to stimulate team ability in generating innovative solutions.


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Results from observations suggest the team to be dysfunctional. The design team formed an ingroup and views of the client, the consultant, and other experts remained fragmented regarding the project objectives and the design process. Surprisingly, interviews and focus groups with design professionals and facilitators confirmed that the dynamic of this team was not uncommon in construction. Explanation for this anomaly could be found in research in team performance and in organizational learning. Druskat (2002) relates performance of integrated teams to their ability to come up with shared mental models. Authors (Weick and Roberts 1993, Druskat 2002) also contend that, since shared mental models affect behavior, their content is of central importance in team effectiveness. Shared mental models are socially constructed cognitive structures that represent shared knowledge or beliefs about an environment and its expected behavior. They influence team member behavior and improve coordination by enabling members to anticipate one another’s actions and needs. Druskat (2002) identifies three core components in the performance of team: (1) psychological ownership over team processes and outcomes, (2) continuous learning, and (3) heedful interrelating. It is acknowledged, from recent ethnographic research on team dynamic, that there could be multiple barriers – cognitive inertia, lack of self-regulation, knowledge boundaries – hindering integrated teams ability to develop shared mental models. The first problem, cognitive inertia, plays against psychological ownership and heedful interrelating. It is associated with two typical behaviors amongst experts of different disciplines: “groupthink” and “compartmentalization”. “Groupthink” is, a mode of thinking that people engage in when they are deeply involved in a cohesive in-group. “Groupthink” typically leads to an overestimation of the in-group, closed-mindedness, and stereotypes of out-groups; and “compartmentalization,” a fragmentation of viewpoints and a lack of shared mental models. Groups tend towards the opposite of sharing the unique information or knowledge held by individuals, preferring to jointly discuss held information or knowledge (Stasser and Titus 1987). Fragmentation may make it impossible for experts from different contexts to “speak the same language” and exchange ideas about a problem (Engeström, Engeström and Karkkainen 1995). In this case, contractual agreements formalized one-to-one relationship between the client and each of his suppliers. There were two parallel contractual work agreements that were made by the client, splitting the coalition in three groups: the design team, the sustainability adviser, and the client representatives and experts. A first contract was formalized between the client and the sustainability adviser’s firm, a second one between the client and the architect firm, and the engineering firms were subcontractors by the later. The engineers’ interventions were tightly controlled by the architect and limited to technical insights and specifications regarding the building systems and structure. Terms and conditions of these contracts were kept confidential. Therefore, these working arrangements remain unknown to the other members of the coalition. Contracts increased fragmentation between experts, encouraging groupthink and the creation of parallel communication and decision-making outside of the team boundaries. “I don’t want a middleman between me and the decision-maker, if not it makes a terrible mess…”. [Project architect] The second type of problem is related to the nature of project coalitions. There is a lack of selfregulation of typical collaborations in coalitions, where team members coordinate their activities through talking to one another in addition to interacting with their tools. Participants duplicate each other’s efforts and many problems often fail to resolve quickly or to anyone’s satisfaction (Zager 2006). The model relationship between client and design professionals carried in transactional procurement defines a problem-solving process that depends on agreement on ends: only experts (professionals) practice the rigorously technical problem-solving based on specialized scientific knowledge (Schön 1995). Clients and users are expected to provide inputs – 250

clear problems and requirements – for which the experts will provide outputs, e.g. design solutions. Therefore, without clear rules, contractual agreements become the rules that determine the relationships among actors in the case observed. Design professionals therefore repeated the traditional design process described in their code of practice, hampering the development of shared ownership. “The architects went into a corner and came back with a concept. I can understand that it is the way they work, but I have a problem with this because we did not have the chance to build the ownership of the concept…” [Client representative] The third type of problem relates to the “knowledge boundaries” that specialized knowledge creates and which hinders mutual learning. The characteristics of knowledge that drive innovative problem-solving within a function actually hinder problem-solving and knowledge creation across functions (Carlilse 2002). There is also the aspect of “knowledge at stake”. There is stickiness with the common knowledge used by practitioners. Power and influence of dominating actors are often revealed, that create barriers to developing shared meanings by refusing to change the knowledge and interests from their own domain (Carlilse 2002). As argued by the project architect: “At one moment there are design professionals that are trained to do work. We cannot design teams. If we design a horse in a team around a table, we will end up with a camel”. [Project architect] The architect used the power provided by his ownership of the design knowledge and the cohesiveness created by his binding contractual relationship with the rest of the design team to take control of the process that was outlined by the sustainability adviser, breaking the team cohesion and imposing his rules. Moreover, the architect forced the creation of a parallel process for decision-making; demanding separate meetings with the client’s executive for dealing with this task, creating a parallel communication network. This generated conflicts and emotional issues between suppliers, due to the gain of privileged access to the decision-maker. In summary, it was acknowledged that the fragmented transactional agreements had a negative impact on the team dynamic, fragmenting and polarizing the work between the signatories of the agreement, and channeling team effort to meet contractual deliverables instead of defining optimal solutions. The British case Much of the research work and initiatives in the UK regarding integration of teams and supply chain revolve around reengineering construction practices based on process models derived from the automotive industry. Procure-21 is one of the new procurement routes adopted by the British Department of Health. The aim was to improve performance in delivering better buildings and to develop a design process that is centered on the patient and healthcare staff. Procure-21 distinguishes itself from other initiatives by taking a context instead of a process approach to transform existing design practices. The change in context is imposed by the relational contracting framework, which dictates new rules and division of labor within the team, while redefining the roles of key stakeholders. It is structured on the following principles: • •

To form an integrated team at the outset of project planning and maintain it throughout delivery. To promote the implementation of collaborative work by the adoption of a coherent cost management approach built around “Target Costing.” building abroad, Montreal, October 2008

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• •

To pre-qualify a small group of principal supply chain partners that has demonstrated a specified set of capabilities. To change culture and process through senior level determination to change, the redesign of activities to support the change, training in the skill for collaborative working, and the creation of an environment in which people can expect support rather than blame.

An innovative element of the framework is its reframing of the design and delivery lifecycle into a definition and a delivery phase. In the first phase, the supply chain works on an agreed cost-plus basis to accompany the client in the different stages of planning and design. The goal is to maximize value through the definition of the best fit for purpose at a lesser price. When the project definition achieves an acceptable level of certainty, the supply chain can make a firm commitment to a guaranteed maximum price and a schedule. This price includes provision for risks agreed by both parties. The goal of the second phase is to achieve cost reduction through innovation, standardization, value engineering, and process improvement. Cost savings are equally shared between the client and the supply chain. Cost overruns are absorbed by the principal supply chain. One of the key characteristics of Procure-21 is that it is no more the design professional but the client who is leading project definition. The framework imposes changes to traditional design practices by redefining the relationship between the client and its suppliers. It achieves this by encouraging fruitful exchanges through partnering, and building trust amongst the integrated team members and between the team and their related organizations, addressing the design problems identified by Huovila, Koskela and Lautanala (1997) that are related with the flow and value generation views The theory behind the concept of partnering is that removing the adversarial relationship generated by transactional contracting and establishing long-term relationships eliminates industry barriers to collaboration and stimulates value generation. Building trust is also an essential component in building the team dynamic. As asserted by the Director of construction of the department of health, who devised the framework, changing the procurement process is not sufficient to change people’s mental models, which are deeply embedded in decades of adversarial relationships. There is also the issue of breaking down barriers built around specialized expertise. “You then, of course, need trust between all these parties. That is not an automatic thing. It has to be earned, in many ways the hard way. Trust, then brings respect. Once trust creates respect, you are able to remove large chunks of wastage, because if one says to the other, “I cannot do it differently,” the other will trust and respect their expertise and will not challenge them. It is therefore done quicker and more directly. Ever time that it is successful, more trust and respect is generated to the point where it becomes cognitive. The time one lets the other down is the time where the whole thing falls apart. One knows the other does not want that, so they work hard to maintain that situation. I think a very powerful bond is created, because the onus is on both sides to not let the other down, both professionally and personally. Neither wants to be thought of as incompetent.” [ Director of construction of the department of health] Waste reduction (flow) is central to the framework. It is achieved at two levels: at the project definition level, by eliminating the multi-level hierarchical decision process and by avoiding duplication of roles; and at the supply chain level, through process improvements and value engineering. To achieve this, the power structure of the traditional work configuration in construction is reshuffled. New players are introduced – the project director, the design champion and facilitators. The role of the quantity surveyor is evolved to include quality assurance and quality control. The hierarchy of relationships (structure of power and influences) is redefined between the client, the design professionals and the builder. Finally, a clear divide between the 252

roles, responsibilities, and hierarchy of interactions is established between the client and the supply chain. The responsibility for defining the “why” and the “what” is placed under the leadership of the client: in this case the project director and the design champion. The project director is the one having the final say on all decisions regarding the scope of work of the project. “The role of Project Director was something that we created. There was no such thing at the time and we drew the distinction between Project Management and Project Directorship. The latter is more strategic and involved with the operational side of the hospital in order to better understand what the solution is supposed to deliver. Therefore, what we tried to promote was a better understanding of some of the techniques that are associated with health care planning, rather than health care construction.” [Director of construction] Therefore a shared leadership is established, the project director ensuring the project governance and orchestrating the interplay between the client organization and the supply chain, the design champion leading the group of users and patients in establishing client requirements, and the project manager leads the supply chain in articulating the optimal way to meet these requirements. The role of the design champion is central to break knowledge boundaries, group thinking, and compartmentalization. “We have moved around to put the patient and the patient needs in the centre. It’s not as powerful as it can be, because the stakeholders are not as informed as the professionals, so they can’t really chance… So it’s a bit of tokenism. Tokenism can be destroying if the person who is contributing doesn’t feel strong enough to challenge the professionals and when that person or that group doesn’t have its roots in a community or in a group of staff or whatever, so selecting people to be involved in stakeholders is also important, in the sense of who you get buy-in to a project…It is not about knowing construction or anything like that, it’s about knowing how to manage, or what I call ‘project champions.’ You work with a doctor or nurse in order that they may understand the process. [You are] cascading information and gaining ownership in the sense that, hearing the process from someone whom they can identify more easily with, is a supplementary process, rather than hearing it entirely from me.” [Project Director] Weick and Robert (1993) argue that in a highly differentiated and complex context, a group could function as a highly integrated and effective team through the vigilant collaboration of key stakeholders. In this case, the project director’s main role is to ensure vertical and horizontal integration. He has executive power and answers directly to the project owner within the Board of the Trust. He also deals directly with the project manager, who has a similar role within the integrated supply chain regarding the management of the scope boundaries. These two ensure an efficient management of the flow. The project manager and the design champion work together in the definition and management of stakeholders’ wants and expectations. The result of these new rules and division of work is the efficient development of shared mental models by building up shared ownership, mutual learning, and heedful interrelating between users and supply chain (Table 1).


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Table 1. Building shared mental models Involvement of patients and staff in design

Mediating design features Solving business issues through design Users’ innovation

“There was a design group that was meeting all the time, that was looking into the design and so on until it was agreed and then everybody signed, and said we agreed on the design. So many, many meetings to discuss the design, to challenge and have explained how the design would ensure patient comfort and how it related to patient involvement.” [Project director] “You have to work in clinical areas truly to know how things would work, but I think they had to sit face to face with them and have alterations done on the plan and have suggestions put forward by them as how this might work was an invaluable part of the process. I think allowing clinicians and kind of the staff involved to have input into it was invaluable as well.” [Staff] “What was done was Gary decided that, as the design evolved and as we had discussions, he would take away the design and put it up on the wall in the ward, and then patients, they meet as a group once a week, he would explain how the design… and then bring back to us any concerns that they might have.” [Project director] “I mean, even, and it was interesting watching her work, Karen was involved… Hudson… Yeah, his ideas at the unit were based on the needs of his relative inevitably. And some of the ideas he had were… not clinically appropriate. And the architect was able to, I guess, see through it… I mean she was really very easy to work with and come up with lots of suggestions, kind of the problems that we threw out. She was good, very good.” [Psychiatrist] “I think the working relationship between the providers and now Peter and the staff to deal with the problems, and come up with imaginative solutions for the design for which, you know, inherently probably come from our end, I think, rather than their end.” [Psychologist]

Results clearly demonstrate the positive impact of the procurement framework on the dynamic of the integrated team. Users were allowed full participation in the design process, generating most of the innovations. As asserted by staff and psychologist, their participation in the design process not only permitted to integrate innovative solutions for improving the rehabilitation of the patients but also allowed for building buy-in and co-ownership of the design process. It was observed, as a result, drastic changes in patient behaviors, including an important reduction of aggressions, much faster reintegration of patients into the community, and much better retention of staff. The project was delivered within time and budget. Discussion and conclusions This paper reported results from case studies examining the influence of procurement routes on the performance of integrated teams. Results first describe the socio-cognitive problems related to integrated teams in transactional contractual arrangements of design-bid-build, and then illustrate how innovative procurement approach can help resolve some of these problems and improve team performance. It was demonstrated that integrated team is a new paradigm of work that requires a change of context in order to break barriers to team performance. The Canadian case illustrated the limitations of a process approach to change practices in design. It also illustrated how transactional and fragmented procurement generates an adversarial context that increases the intensity of socio-cognitive barriers. In contrast, the new context of relationships created by Procure-21 framework helped mitigating the socio-cognitive barriers identified in the Canadian case. The research remains exploratory. More empirical research is needed to better understand the dynamic of integrated team and how procurement could be tailored to leverage team ability to perform. Moreover, while new forms of procurement can create better context to integrated team work, there are still fundamental problems that remain unanswered regarding design professional’s ability to perform in this new context. Existing bodies of knowledge and training curricula of design professionals are ill-adapted to integrated teams. Future investigations should explore how to best realize the necessary transformations to existing design practices.

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Key Lessons Learned: • Problems with integrated design team efficiency are related to context and not process: they are not technical but socio-cognitive. • Fragmented transactional contracting increases socio-cognitive barriers that hinder integrated design team performance. • New forms of relational contracting may help to mitigate socio-cognitive barriers and improve integrated design team performance. • Changing the context through procurement does not address the problem of obsolete design practices. There is a need to develop a professional body of knowledge and training that is adapted to integrated design.

References Ancona, D G (2005) Managing for the future: Organizational behavior & processes. SouthWestern College Pub. Austin, S A (2001) Design chains: A handbook for integrated collaborative design. Thomas Telford. Blackler, F, Crump, N and McDonald, S (1999) Managing experts and competing through innovation: An activity theoretical analysis. Organization, 6(1), 5-31. Carlilse, P R (2002) A pragmatic view of knowledge and boundaries: Boundary objects in new product development. Organization Science, 13(4), 442-55. Druskat, U (2002) The content of effective teamwork mental models in self-managing teams: Ownership, learning and heedful interrelating. Human Relations, 55(3), 283. Dupagne, A (1991) Computer integrated building. Strategic final report, ESPRIT II. Egan, J (1998) Rethinking construction: The report of the construction task force, London: DETR. Engeström, Y, Engeström, R and Karkkainen, T (1995) Polycontextuality and boundary crossing in expert cognition: Learning and problem solving in complex work activities. Learning and instruction, 5, 319-136. Huovila, P, Koskela, L and Lautanala, M (1997) Fast or concurrent: The art of getting construction improved. In: Alarcón, L (Ed.), Lean construction, pp. 143–60: Taylor & Francis Group. Koskela, L (2000) An exploration towards a production theory and its application to construction, Technical Research Centere of Finland. Koskela, L, Howell, G and Lichtig, W (2006) Contracts and production. In, CIBW92, Salford Langley, A (1999) Strategies for theorizing from process data. In: JSTOR, 691-710. Larsson, N (2002) The integrated design process. Report on a national workshop, Ottawa: Natural Resources Canada.


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Latham, S M (1994) Constructing the team. In, HMSO, London, UK. Löhnert, G, Dalkowski, A and Sutter, W (2002) Integrated design process, a guideline for sustainable and solar-optimised building design, Berlin / Zug: IEA. Moore, D R and Dainty, A R J (2001) Intra-team boundaries as inhibitors of performance improvement in uk design and build projects: A call for change. Construction Management and Economics, 19(6), 559-62. Patton, M Q (2002) Qualitative research and evaluation methods. 3 ed. Thousand Oaks: Sage Publications. Schön, D A (1995) The reflective practitioner: How professionals think in action. Ashgate Pub Co. Stasser, G and Titus, W (1987) Effects of information load and percentage of shared information on the dissemination of unshared information during group discussion. Journal of personality and social psychology, 53(1), 81-93. Van de Ven, A H (2007) Engaged scholarship: Creating knowledge for science and practice. Oxford University Press. Weick, K E and Roberts, K H (1993) Collective mind in organizations: Heedful interrelating on flight decks. Administrative Science Quarterly, 38(3). Zager, D (2006) Collaboration as an activity coordinating with pseudo-collective objects. In: Avesta Technologies, Inc, 46. Zimmerman, A (2006) Guide sur le processus de conception intégrée. In: SCHL.

Author’s Biography Daniel Forgues is a professor in project management in the Department of Construction Engineering at “École de technologie Supérieure” in Montreal. He graduated in architecture at Laval University, has a Master Degree in project management from UQAM and a Master Degree in Information Management from UQAM. He is completing a PhD in Built Environment at the University of Salford in the United Kingdom. His fields of research are sustainable construction, integrated design, and integrated supply chain, waste management, requirement and process reengineering, and organisational project management. Prior to his academic career, Daniel spent 23 years working in construction for public and private organisations.

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Lauri Koskela is Professor of Theory Based Lean Project and Production Management in Salford Centre for research and Innovation in the built and human environment (SCRI), leading a research group in Lean and Agile methods of project and production management in construction, and is currently involved in projects in Immortal Information and Through-Life Knowledge Management, and Accounting for Knowledge Embedded in Physical Objects Within Knowledge Management Systems as well as being a Theme Leader within SCRI. Formerly, Lauri worked with VTT technical Research Centre in Finland for 25 years, researching high-technology applications for construction including construction robotics, computer-integrated construction and expert systems. His PhD is from Helsinki University of Technology, where he studied Industrial Management and Information Processing Science. Lauri is a founder member of the International Group for Lean Construction.


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BIDDING FOR PUBLIC-PRIVATE PARTNERSHIPS AND THE IMPLICATIONS FOR DESIGN AND CONSTRUCT CONTRACTORS

Marcus Jefferies, University of Newcastle email: [email protected] Denny McGeorge, University of Newcastle email: [email protected] Steve Rowlinson, University of Hong Kong email: [email protected]

Abstract The term Design and Construct (D&C) is a well-established description of a procurement method in which the roles and responsibilities of the various stakeholders are clearly defined. The advent of Public Private Partnerships (PPPs) bring a new opportunity for D&C contractors with the concomitant challenge associated with bidding as a member of a private sector consortium with numerous stakeholders. The work described in this paper is based on an ongoing research project that is investigating the costs and the allocation of risks during the bidding process for PPPs. The implications for D&C contractors bidding for social infrastructure PPP projects are explored. The conventional wisdom has been to assume that there is little difference between bidding for a conventional D&C contract as compared with submitting a D&C bid as part of a wider PPP bid. However, the results of our research indicate that there are both subtle and significant differences.

Keywords: Australia; Bidding and Tender Costs; Design and Construct; Public Private Partnerships; Social Infrastructure. Introduction The working definition of Public Private Partnerships (PPPs) for this research is based on Akintoye et al. (2003) who define them as “a long-term contractual arrangement between a public sector agency and a private sector concern, whereby resources and risk are shared for the purpose of developing a public facility”. The genesis for this research project came from the private sector where there appears to be a widely held view that Public Private Partnerships (PPPs), particularly with respect to hard social infrastructure projects, are partnerships in name only. This line of argument is advanced by Curnow et al (2005) who argue that there is a strong body of opinion to support the contention that current social infrastructure projects in Australia are not true partnerships and there is a clear need to reduce the ‘tokenism’ of Australian PPPs. They argue that the Public Sector needs to make PPPs more attractive to the Private Sector and


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clarify the identification of risk in order to transfer more responsibility to the Private Sector. This issue is supported by recent industry criticism of PPPs concerning the ‘narrowness’ of the scope of work that is offered to the private sector. Argy et al (1999, cited in Grimsey and Lewis, 2004: pp. 20-21) make the following useful distinctions between types of PPPs: • • • •

hard economic infrastructure e.g. roads soft economic infrastructure e.g. financial institutions hard social infrastructure e.g. hospitals soft social infrastructure e.g. social security

According to Curnow et al (2005), PPP project costs relating to finance, building design, construction, maintenance, and waste management amount to less than 15% of the total life cycle cost of the enterprise. As a result, the private sector may be deterred by the high transaction costs of social PPPs, which offer only a marginal increase in scope of business opportunity. This is in direct contrast to opportunities that are available in the much lower cost-tobid ratio of more standard procurement models or in hard economic PPP projects where the revenue stream from, say, a freeway tollway has a substantial and clearly defined internal rate of return. There is evidence from our own research to support the view that a number of private sector players are either withdrawing from social PPP projects completely or are being highly selective due to the unattractiveness of the projects on offer. In summary, there is a body of opinion amongst private sector consortium bidders for hard social infrastructure PPP projects that they are being hit by what might be described as a ‘double whammy effect’, where the financial rewards are less and the operational demands are more complex than for hard economic PPP projects. Not withstanding this situation, the number of proposed hard social PPP projects in Australia is on the increase and there are a number of private sector players who are willing to bid in this environment. The Origins of Australian PPPs Jefferies et al (2002); Walker (2003); Jordan & Stilwell (2004); Duffield (2005); Jefferies (2006); and McGeorge et al (2006) trace Australian PPPs back to the 1980s and 1990s with projects such as the Gateway Motorway and Bridge, Brisbane (completed 1986), the Sydney Harbour Tunnel (completed 1992) and the Sydney Olympic Infrastructure (completed 1999). Australian PPPs have been classified into ‘first’ and ‘second’ generation by Duffield (2005), with the first generation primarily motivated by the public sector gaining access to private capital and the transfer of near full project risks, and the second generation where state governments sought to retain direct control of ‘core services’ and to involve the private sector in amongst other things, value for money outcomes. Jones (2003) makes a fine distinction between PFPs (publicly financed partnerships) and PFIs (partnerships involving private financing). Jones groups operating franchises such as BuildOwn-Operate-Transfer (BOOT) projects under PFIs, and Project Alliances with long-term service agreements and DCM (design, construct and maintain) projects under PFPs. Jones lists, in chronological order, a schedule of some 48 major Australian PPP projects from 1986 onwards. In this schedule all projects from 1986 to 1999 are PFIs with PFPs emerging, for the first time, in 2000. Overall, using Jones’s terminology, PFIs still dominate the PPP sector.

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Practical Issues with Social Infrastructure PPPs The trigger for this research was the view expressed in Curnow et al (2005) by PPP private sector stakeholders that the current high cost of transaction fees incurred in bidding for hard social PPPs was acting as a deterrent. They also argue that in many cases the concept of the partnership was one of a token rather than genuine partnership and that there should be a broadening of the scope of work available to the private sector to make PPPs more attractive. Subsequently, Blood (2005) argues one step further in that there should be a greater transfer of responsibility to the private sector rather than the scope of work. Blood’s (2005) proposition is that “The Government perception of PPPs is that this is private funding for public infrastructure. But this misses the point: PPPs are a shift of responsibility, not of funding. They motivate all parties to take responsibility for their actions and delivery, making projects more accountable and measurable.” In support of his argument, Blood makes the case that PPPs should not be used as a scapegoat for Government-led finance or staff cuts and changes, but rather should be seen as an opportunity not to reduce staffing but to make staffing more efficient through a better infrastructure for delivery. There are certainly a number of critics, including the trade unions, who would not subscribe to this point of view. These issues whilst not necessarily unique to social PPPs, are perhaps more acute than for economic PPPs. If a comparison is made between a large hospital as an example of a social PPP and a tollway as an example of an economic PPP, then the contrast in terms of complexity of operation and interaction between the private sector operator and the users is quite marked. In the hospital situation staff costs will represent at least 90% of the total annual operating costs whereas in a toll way staff costs are minimal with the largest item of expenditure being maintenance. Whilst both types of PPP do carry a number of risks to both the public and private sector the risk potential over the operating period would appear to be greater in social PPPs than for economic PPPs. Research methods

Research question or research hypothesis: • The specific aim of this research is to improve on current approaches to risk identification and allocation during the bidding process for Public-Private Partnerships (PPPs) for infrastructure projects. The basic premise underpinning this component of our research was the underlying differences for D&C contractors bidding in a PPP environment as opposed to a standard D&C contractual relationship. The most appropriate method of determining these differences was through interaction with senior industry experts whose views were taken as representing a distillation of the opinions of major stakeholders in the field. This expert opinion approach is, in our view, justified both in terms research methodological grounds and also pragmatic grounds given the sensitive and confidential nature of the data.


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Research Objectives: • Minimize the transaction costs incurred during the bidding process. The full research methodology is illustrated in Figure 1. Review of recent literature Comprehensive review of related literature and critical industry reports used to generate list of major challenges facing Australian construction PPP industry. Analyses identified key issues and themes. Industry Reference Group Industry Partners made up of three construction contractors, representing a substantial sector of PPP contractors in Australia. Each industry partner nominated 2 experts experienced in bidding for PPP projects. Research Method Semi-structured interviews and workshops conducted with nominated experts & support staff. Interviews conducted over a series of stages to establish dialogue between researcher and participants, to gain data. Qualitative data via semi-structured interviews focus on key themes identified from literature review. Industry partners views and key concerns documented & used to corroborate bid costs. Analysis of Interviews Qualitative data analysed using content analysis to group the findings. Research Results The results of the research are validated on an on-going basis via Industry Workshops. Findings are compiled and disseminated at various stages. Further research, within the scope of the broader research project, involves compiling case studies and analysing quantitative bid cost data. Fig. 1. Research Method Research results As previously stated, the initiative for the research project came from the private sector. Our industry collaborators are D&C companies who, in turn, are part of larger holding companies. It has at times been difficult to differentiate between responses that relate specifically to D&C issues and evidence that relates to issues affecting the consortium as a whole. The network of relationships between the various consortium members during the bidding process is highly complex.

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Although the bid is submitted by the Special Purpose Vehicle (SPV) on behalf of the consortium, the relationship of the SPV to the other consortium members and funding of the SPV can vary quite markedly. Care has to be taken in discussions with industry players in establishing the role of a particular organisation in a PPP consortium since not only does this role vary from project to project, but also individuals within one organisation can have more than one role in preparing the project bid. In this instance, our research is primarily concerned with PPPs as seen from a D&C contractor’s perspective. However, key personnel can have responsibilities in both D&C and facilities management (FM) and in some cases also be a member of the SPV team. A typical consortium structure is illustrated in Figure 2. Additionally, care has to be taken in distinguishing between the cost of bidding and the bid price, as problems can and do arise when the cost of preparing the bid is confused with the bid price. During the interviewing process it was found that respondents often discussed both the consequences of winning a bid and undertaking the D&C contract under consortium conditions together with the consequences of loosing a bid and having to absorb the bid costs into the next round of bidding. The paper attempts to make a clear distinction between these two quite different sets of circumstances. Discussion and conclusions As previously mentioned, it has been difficult and in some cases not even possible to separate issues that relate specifically to D&C as an entity of a PPP consortium and issues which relate to the consortium as a whole. For the purpose of this research, the paper has focused specifically on D&C issues. Our respondents have identified a number of themes, many of which are interrelated. Four dominant themes have been identified and these are discussed in detailed below. They do not encompass all of the issues that we have identified however they do provide a framework to describe a major part of our research findings. The themes are as follows: •

Tendering/bidding costs

•

Legal costs and standardisation of documentation

•

Public Sector Comparator (PSC)

D&C bidding costs One of our basic research questions was “are tendering costs likely to be higher for a D&C bid in a PPP as opposed to a standard D&C?” Hughes et al., (2006) describing a study on the cost of procurement in the construction industry makes the statement that there is a desperate need for robust data in respect to tendering costs. Whilst it may appear to be a relatively straightforward matter to identify the costs of bidding for a specific project, in reality this is not the case.


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Fig. 2. Typical PPP Consortium Structure Hughes et al (2006) explain further: “complexity of the data collection places significant hurdles in the way of those who wish to undertake research in this area. This is probably why so few attempts have been made at assessing these costs. The quantification of the costs of tendering that have already been reported in the literature tend to focus on the cost of estimating and bidding, and take no account of the relationship between the distinct stages of a project. Moreover, they are based on impressionistic estimates, rather than analysis of data. However, the 264

fact that they range from 1% to 15% indicates a strong feeling that there is a lot of expenditure in this area, and it is difficult to quantify. Also there is the further conclusion that the value added by this expenditure is not clear.” The comment on ‘impressionistic estimates’ is particularly interesting in the context of PPP bidding. Similar problems have been encountered in terms of the data collection for this project and although primary data has been collected, much of the corroboration of the findings are based on a qualitative rather than a quantitative approach. In addition to the difficulties associated in accurately allocating costs to a specific tender bid, there is the added dimension of the commercially sensitive nature of the data surrounding PPP bidding and also the complex set of the commercial relationship that exists within a PPP consortium. As can be seen from Figure 3, which illustrates likely, not actual bid costs for an A$250 million social PPP project, the cost of preparing a D&C bid as part of an overall consortium bid cost is likely to exceed one third of the total cost of bidding. Thus the D&C component is highly significant. It was also found that direct comparisons between a ‘standard’ D&C and a D&C as part of a PPP are not as straight forward as might be assumed. There are a number of explanations as to why this might be the case. Firstly D&C companies may take the view that the utilisation of resources in collecting data on the cost of bidding outweighs the benefits. Secondly, whereas external costs (e.g. consultants), are invoiced leaving an accurate paper trail of cost details, internal costs often become absorbed in overheads of the company. D&C companies do not normally operate with very clearly defined cost centres as for example, major accountancy or legal practices, thus the bidding costs of a D&C/PPP (contraction for D&C as part of a PPP) project may be partly absorbed into company overheads and distributed over other non-PPP projects. Further complexities arise in terms of internal relationships within the PPP. For example, D&C contractors may be owned by a larger holding company that may, in turn, be financing the SPV. In this set of circumstances it is likely that that D&C company will automatically be part of the PPP consortium, and will not have to compete to be chosen to be a consortium member. Whilst this would not necessarily affect actual bidding costs it may create cost allocation ‘adjustments’ that would not exist in a standard D&C. On other occasions the SPV may ‘cherry pick’ the D&C contractor from a number of competitors based on criteria determined by the SPV. An emerging trend in Australia is for construction companies to move away from the provision of equity to the consortium and operation solely as a D&C contractor within the SPV, usually in an attempt to minimise their costs and risks. However some financial institutions may insist that contractors provide some upfront equity as a sign of good will and a commitment for the duration of the project. Not withstanding this shift away from providing equity in the consortium, bidding costs for a D&C/PPP are seen as being high and a deterrent to bidding for projects. As a counterpoint, there is also the view that bidding in the highly competitive PPP environment could potentially lead to a refinement and sharpening of the bidding process, and thus lead to a reduction in the costs of bidding. However, this is likely to be a costly way to gain experience particularly when bids are not successful. In Australia the PPP process has already reduced the pool of bidders leading to a reduction in competition.


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Fig. 3. Typical Bid Costs for $250M PPP Social Infrastructure Project

In summary, the general view is that the bidding costs for D&C/PPP are higher than for a standard D&C. The basic rationale being that most contractors know what to expect with the standard D&C procurement process and legal costs are kept to a minimum through the use of standardised contract documents. Generally the standard D&C contract process is more predictable having greater clarity regarding roles and time frame (e.g. the bid period is usually shorter than for a PPP) thus minimising bid preparation costs. In essence, standard D&C has widespread acceptance with the fact that it is an established system allowing for bid preparation costs to be kept to a minimum. By implication, the perceived higher costs of PPP bids are, in part, due to this being a less well established system with non-standard contracts. Legal Costs and Standardised Documents The research is primarily concerned with the implications for D&C/PPP contractors when bidding as part of a PPP consortium. Industry expert opinion on legal costs is therefore focused on legal costs as they relate to D&C. However, it is worth noting that legal costs across all of the consortium entities emerged as a dominant theme during our interviews and workshops with industry experts. The general view was that legal costs are excessively high mainly due to the lack of standardised contract documentation. It was acknowledged that legal costs involved in the procurement of infrastructure, whether it is a D&C/PPP or a standard D&C contract, were an inevitable corollary of the highly litigious environment in which construction operates. However, the general impression was that legal costs for PPPs were substantially higher than traditional government procurement which is a significant deterrent both to potential and to some existing bidders. As legal costs are often regarded as non-value added there is perhaps the argument that the issue is exaggerated by the construction industry. Indeed, this is also exacerbated as social PPP projects tend to be for smaller contract sums that attract proportionally higher legal costs. Figure 3 illustrates that legal costs are incurred in all four major entities (SPV; Finance; FM provider and D&C) of a PPP bid. Data still being analysed will give us a more precise picture of the legal cost distribution and its ratio to overall bid preparation costs. The Bid costs in figure 3 are based on the assumption that the bid is successful i.e. to financial closure. If bid is unsuccessful then the financial component, depending on specific circumstances, may be zero. The obvious concern of the respondents with legal costs also reflects concerns expressed by Evans & Bowman (2005) who point out that the legal framework in which the PPP project 266

operates will be a crucial factor to the success of a PPP model... "the legal framework within which a PPP project operates will also be a determinant of the optimal PPP model. PPPs will be subjected to legal issues that may encompass many facets of law including (amongst others) commercial, taxation, insurance, environmental, property, industrial relations and constitutional law.“ (2005: 63) The consensus view was that there was a lack of consistent principles and practices in terms of guidelines, and standardised legal and bid documents. Generally it was felt that this lack of consistency increases costs. Fitzgerald (2004) recommended that the PPP processes should be streamlined in order to reduce the costs of tenders and encourage wider bidder participation to increase competition. It is worth noting that in the Public Accounts & Estimates Committee Report on Private Investment in Public Infrastructure comments that the “PPP concept is evolving in different ways in each country.” (2006: 81). There were divergent views on how best to standardise the processes and which model to follow. There was a general concern that international precedents may not reflect the smaller scale of the Australian PPP market. However, the UK PPP model, in which legal/contractual documents have been standardised, is viewed as a reference point for those who recommend standardising documentation for Australian PPP models. There was general consensus that a reduction in transaction costs could result from standardised templates such as those in the UK. However, despite the introduction of templates in the UK, the transaction costs are “high and appear likely to remain relatively so despite the development of templates” (Public Accounts & Estimates Committee Report on Private Investment in Public Infrastructure 2006: 84). There was a certain amount of dubiety as to whether or not standardisation would result in a reduction of legal costs. There was also concern that the process of implementing standardisation carried its own costs, requiring a large enough PPP market to justify the initial expenditure.

Public Sector Comparator (PSC) The Public Sector Comparator (PSC) affects all the consortium entities within the PPP. The PSC purports to provide a benchmark for the complete project life cycle and, although the cost to D&C is only one part of the project life cycle, it is plays an important part in determining whether the bid is won or lost. It is worth remembering that whilst the PSC refers to the bid price it may have some influence on the cost of bidding. For example, there may be commercial pressure to develop designs fully in order to improve the chances of winning a bid and also improve accuracy of costing. A wide ranging set of views were received in relation to the value and effectiveness of the PSC. On the one hand the PSC was seen as a beneficial tool to guide decisions and ensure government accountability. Whilst on the other hand, the PSC is often seen as arbitrary and subjective, and consequently of limited value. A commonly held view was that PSC criteria could be manipulated to produce a result that cast the public sector client in a favourable light. These comments are indicative of the current debate both nationally and internationally by commentators and industry representatives regarding the usefulness and accuracy of the PSC (Broadbent et al., 2003; Corner, 2005; Fitzgerald, 2004, Grimsey and Lewis, 2005; and Report on Private Investment in Public Infrastructure, 2006). Critical literature regarding the PSC has incorporated discussion over a variety of issues that have included the appropriate use of the discount rate (English and Guthrie, 2003), the failure to take into account risk of failure in the PSC (English, 2005: 297), and issues surrounding the public release of the PSC. (Grimsey and Lewis, 2005: 359). There was agreement that there should be more consistency in how the PSC is formulated, used, and disclosed. PSC polices across Australian jurisdictions differ in its use and release, ranging building abroad, Montreal, October 2008

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from total secrecy to an open general policy of release. Some jurisdictions, such as the Commonwealth and South Australia, do not have a general rule on releasing the PSC. In contrast Victoria, Tasmania, and the Australian Capital Territory do have a general rule against full disclosure of the PSC and in Western Australia until the contract is executed, the PSC remains confidential. (Report on Private Investment in Public Infrastructure, 2006: 84). The failure of some jurisdictions to fully disclose the PSC was particularly criticised by respondents, stating that it was unnecessary for it to remain confidential. Many believed that the process of withholding the PSC was counterproductive, that it increased bidding costs, and it would be more beneficial for a project outcome if the PSC was open for general comment. Many were cynical that without disclosing the PSC, government would not have to justify how the final PSC costing was derived. However a shift towards partial disclosure of the PSC in State jurisdictions that currently withhold the information is evident with recent recommendations made in February 2006 by the Victorian Department of Treasury and Finance to present the PSC early in the bid phase, in an effort to reduce bidding costs. Nevertheless, the Department of Treasury and Finance has since further qualified the status of this recommendation stating… “the aim of the presentation is not to disclose the detailed costing of the PSC, rather to further clarify the governments expectations.” (Report on Private Investment in Public Infrastructure, 2006: 76). There was some frustration regarding the practice of government authorities withholding of the PSC during the negotiation stage. Bidders are measured against this comparator, but have no insight into the PSC and hence are effectively bidding "blind". There were also some concerns expressed that the PSC unduly influenced the size and scope of projects, and whether or not a project proceeded. Criticism in current literature, such as Bult-Spiering and Dewulf (2006), supports this notion that the PSC can be used incorrectly as a pass/fail test despite the many uncertainties involved in the calculation and the fact that the numbers could have been manipulated to obtain the desired results.

Discussion and Conclusions The main thrust of the research described in this paper is a reasoned distillation of opinions by major industry D&C/PPP contractors on some of the implications of bidding for D&C/PPP contracts in the current Australian market. There would seem to be little doubt that a D&C/PPP, as opposed to a standard D&C, creates additional pressures and these pressures are magnified on social as opposed to economic PPPs where the projects on offer are potentially less lucrative with a higher bid cost ratio. The Australian social infrastructure PPP market in Australia is gathering momentum but is less mature than the likes of the UK. The rate of maturation appears to be inhibited by the scale of the available market and the compartmentalisation of the market on a State-by-State basis. However, there are moves towards the standardisation of documentation, particularly by the Victorian Government, and the existence of a National PPP Forum, which is encouraging (2005). Fundamentally, the challenges to D&C/PPP contractors result from having to interact with a large number of players in a dynamic environment where the SPV and not the D&C contractor are in the dominant position. The term ‘complex’ has been frequently used to describe the interrelationship of players in a PPP consortium. Certainly the consortium environment seems to mimic some of the characteristics described in complex systems theory such as ‘non-linearity’ where systems do unpredictable things and ‘emergent properties’ where a logical result is achieved, although not necessarily a predictable one. There are reservations about the effectiveness of the current PPP approach and some stakeholders appear to operate in the much more controlled relationship which exists under a standard D&C procurement method. However, not withstanding any existing reservations on PPPs, there is general acceptance that social PPPs are part of the procurement landscape in Australia and likely to remain so for the foreseeable future. 268

Key Lessons Learned: • Accessing relevant PPP bid costs from commercially sensitive data. • High legal costs for PPPs. • Lack of standardised documentation for the PPP bidding process. • Outdated Public Sector Comparator (PSC) model. References Akintoye, A, Beck, M & Hardcastle, C (2003) Public-Private Partnerships: Managing Risks and Opportunities.Oxford: Blackwell Science Ltd. Argy, F, Lindfield, M, Stimson, B & Hollingsworth, P (1999) Infrastructure and Economic Development. CEDA Information Paper No. 60. Melbourne, Committee for Economic Development of Australia. Blood, G (2005) Australian PPPs, The Third Way. Infranews Wire. Broadbent, J, Gill, J & Laughlin, R (2003) The Private Finance Initiative in the UK: Contracting in the Context of Infrastructure Investment and Control. International Public Management Journal, 6, 173-197. Bult-Spiering, M & Dewulf, G (2006) Strategic issues in public-private partnerships: an international perspective. Oxford: Blackwell Publishing Ltd. Corner, D (2005) The United Kingdom Private Finance Initiative: the challenge of allocating risk. In: Hodge, G & Greve, C (Eds.) The Challenge of Public-Private Partnerships, Learning from International Experience. Cheltenham: Edward Elgar Publishing Limited. Curnow, W., Jefferies, M.C. and Chen, S.E. (2005) Unsustainable Biddings Costs: A Critical Issue for Public Private Partnerships. In (Ed) Ng, Thomas S. Public Private Partnerships: Opportunities and Challenges, pp 35-43, Centre for Infrastructure and Construction Industry Development, University of Hong Kong, ISBN 962-8014-110. Duffield, C F (2005) PPPs in Australia. In (Ed) Ng, Thomas S. Public Private Partnerships: Opportunities and Challenges, Centre for Infrastructure and Construction Industry Development, University of Hong Kong, ISBN 962-8014-110. English, L (2005) Using public-private partnerships to deliver social infrastructure: the Australian experience. In: Hodge, G & Greve, C (Eds.) The Challenge of Public-Private Partnerships: Learning from International Experience. Cheltenham, UK: Edward Elgar Publishing Limited. English, L M & Guthrie, J (2003) Driving privately financed projects in Australia: What makes them tick? Accounting, Auditing & Accountability Journal, 16, 493-502.


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Evans, J & Bowman, D (2005) Getting the contract right. In: Hodge, G & Greve, C (Eds.) The Challenge of Public-Private Partnerships, Learning from International Experience. Cheltenham: Edward Elgar Publishing Limited. Fitzgerald, P (2004) Review of Partnerships Victoria, Final Report to the Treasurer, Department of Treasury and Finance, State Government of Victoria. Melbourne: Growth Solutions Group. Grimsey, D & Lewis, M K (2004) Public Private Partnerships, The Worldwide Revolution in Infrastructure Provision and Project Finance. Cheltenham: Edward Elgar Publishing Limited. Grimsey, D & Lewis, M K (2005) Are Public Private Partnerships value for money? Evaluating alternative approaches and comparing academic and practitioner views. Accounting Forum, 29, 345-378. Hughes, W P, Hillebrandt, P, Greenwood, D G & Kwawu, W E K (2006) Procurement in the construction industry: the impact and cost of alternative market and supply processes. London. Jefferies, M.C. (2006) Critical Success Factors of Public Private Sector Partnerships: A Case Study of the Sydney SuperDome. Engineering, Construction and Architectural Management. 13, (5), pp 451-462. Jefferies, M.C., Gameson, R, and Rowlinson, S. (2002) Critical Success Factors of the BOOT Procurement System: Reflections from the Stadium Australia Case Study. Engineering, Construction and Architectural Management. 9, (4), pp 352-361. Jones, D (2003) Evaluating what is new in the PPP pipeline. Building and Construction Law, 19, 250-270. Jordan, K. & Stilwell, F., (2004) In the public interest? A critical look at public-private partnerships in Australia shows that we are travelling down a hazardous road and should be seeking alternatives. Arena magazine, p. 9. McGeorge, D., Cadman, K., Jefferies, M., and Chen S.E. (2006) Public Private Partnerships: Private Sector Developers Partnering with Government for the Provision of Social Infrastructure. Governments and Communities in Partnership, Centre for Public Policy, University of Melbourne, 25-27 September. National PPP Forum (2006) viewed 15/2/08 http://www.pppforum.gov.au/home. Public Accounts Committee, (2006) Report on Private Investment in Public Infrastructure, Parliament of Victoria, State Government of Victoria. No. 240, Session 2003-06. Walker, R. G., (2003) Public-private partnerships: Form over substance? The Australian p. 126.

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Author’s Biography Marcus Jefferies is a Lecturer in Construction Management in the School of Architecture and Built Environment at the University of Newcastle, Australia. He has completed a Research Masters Degree at Newcastle that focused on risk and success factors in the Build-Own-Operate-Transfer (BOOT) procurement approach and is currently a Chief Investigator on an ARC Linkage Project that is investigating the high bidding costs of social infrastructure Public Private Partnerships (PPPs). He is also a regular contributor to CIB Working Commission W92 'Procurement Systems' and is a journal manuscript reviewer for several journals. Prior to entering Academia at the City University of Hong Kong he worked in the construction industry as a Project Engineer in both Hong Kong and the UK.

Denny McGeorge was Foundation Professor of Building from 1991 until 1999 at the University of Newcastle (Australia). From 1999 onwards he was Professor of the Built Environment at the University of New South Wales where he served as Head of School and also Foundation Director of the Centre for Health Assets Australasia (CHAA). He is currently a Professor at the UNSW, Visiting Professor at the University of Salford in the UK and Emeritus Professor at the University of Newcastle. He has had a long-term interest in professional ethics. He was an industry consultant to the Royal Commission into Productivity in the Building Industry (Gyles Royal Commission) in New South Wales for the duration of the Commission.

Steve Rowlinson is a civil engineer and has worked for the past 23 years at the University of Hong Kong, where he is now Professor in the Department of Real Estate and Construction. He has been engaged as a consultant and expert witness for a number of companies, including the Hong Kong Housing Authority and Hong Kong Government Works Bureau. Steve has researched into the Hong Kong construction industry and has written and co-authored 11 books on various aspects of the construction industry. His areas of specialisation are construction site safety, culture, relationship and stakeholder management, and procurement systems. In the latter area he has been the co-coordinator of the international working commission W092 of the CIB for 14 years. He is currently an Adjunct Professor at QUT in Brisbane, Australia. He has been an assessor for the professional assessments of both HKIE and the ICE, UK for a number of years and is a keen golfer.


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MYTHS OF SUPPLY CHAIN INTEGRATION WITHIN THE UK CONSTRUCTION INDUSTRY

Malik M. A. Khalfan, Salford Centre for Research and Innovation in the Built and Human Environment email: [email protected] Adekunle S. Oyegoke, Salford Centre for Research and Innovation in the Built and Human Environment email: [email protected] Xianguang Li1,2 1 Institute of Construction Management and Real Estate at Southeast University 2 Salford Centre for Research and Innovation in the Built and Human Environment email: [email protected] Peter McDermott, Salford Centre for Research and Innovation in the Built and Human Environment email: [email protected] Michael Dickinson, Salford Centre for Research and Innovation in the Built and Human Environment email: [email protected]

Abstract Traditional procurement methods within the construction industry are recognised to have resulted in delays, over-spend, inferior quality and overall dissatisfaction amongst clients. The emerging concept of partnering within innovative procurement routes has resulted in project participants working together within an integrated supply chain. However, it is suggested in the research that the benefits of partnering, to all supply chain participants, might have been taken for granted. The key question posed is whether whole supply chains are being integrated. The research goes on to focus on the myths and realities of supply chain integration and fragmentation within the UK construction industry. As researchers we have considered both traditional procurement methods within construction as well as emerging innovative procurement methods. An extensive literature review was conducted in conjunction with analyses of construction data in the UK and case study research methodology. The conclusion of this study is that the current structure of a supply chain on a particular project within an innovative procurement method is integrated upstream and fragmented downstream. This means that supply chains are not fully integrated and consist of both integrated and fragmented elements. The subsequent argument made is that there is nothing wrong in having such fragmentation within the industry; in fact it is healthy. This argument is based upon a literature review of the research area and information from case study practitioners. Keywords: UK Construction Industry; Integration; Fragmentation; Supply Chain.


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Introduction The problems in the UK construction industry, including delays, over-spent, inferior quality, and over all dissatisfied clients, have prompted a series of studies in last 15 years aimed at improving efficiency and adding value for money. Most of the reports from these studies prefer integration of supply chain participants to other forms of organisation setups. The overall aim of this study is to present the degree of variability in the form of integration suggested in policy reports, as well as the level and form of integration in a project supply chain. This study utilises social as well as economic notions of integration as a measure of the supply chain integration. It also utilises the statistical data from the UK construction statistics, theoretical analysis of points of responsibilities via procurement routes, and four case studies from the industry for the analysis. The result shows that: (1) the UK construction industry is not (economically) integrated because, (a) the specialist trade firms are actively involved in construction processes, (b) the Small Scale Firms (SSFs), the Medium Scale Firms (MSFs) and the Large Scale Firms (LSFs) have maintained their positions in the industry with increment in their number by 7.56%, 75.81%, and 45.72% respectively, between 1999-2005. Their value of work done between 1999 and 2005 has surged by 2.98%, 102%, and 109.03% respectively. (2) The strong performance of the MSFs category supports the fact that the industry utilises social integrative devices i.e. a form of management-oriented approaches e.g. collaborative arrangement, framework arrangement, partnering, etc. through innovative procurement methods instead of actual integration (economic) process. The study can serve as learning opportunity for the construction stakeholders by laying stronger emphasises on management system rather than point of performance responsibility. The aim of the paper is to examine the level of supply chain integration in the UK construction industry based on the concepts and measures of social and economic notions of integration in relation to the policy documents. The paper argues that the UK construction practice/industry is both socially integrated as well as fragmented. The paper will present a brief literature review on construction procurement and how it is used to integrate the supply chain within construction industry, through two case studies. This will be then followed by the discussion of the structure of the supply chains involved in those case studies to support the argument that having both fragmentation and integration within a supply chain is normal and healthy, and that is how our industry is performing and delivering at this moment in time. Research methods Based on the extensive literature review, the UK construction statistical data on the structure of the industry was used as a general frame of reference. Another feature of economic integration according to Gort (1962) is the presence of major and auxiliary activities within a firm and their ratio of employment. In the following sections, the number, the value of work done, and number of operatives along some selected specialist trades is used. In contrast, specialist trade firms that carry out only major activities related to their specialist trade, show lack of integration within the industry. Theoretical analysis of procurement routes, along point of responsibilities, was also presented to support the earlier mentioned argument. ‘Procurement route’ was chosen to study because it serves as an organisation setup and defines inter-firm relationships. Three major types of procurement routes, design bid build or lump sum (Dorsey 1997), traditional design and build (Akintoye 1994), and management for fee (construction management, Haltenhoff 1999) were used in analysing the points of responsibilities. The analysis utilises the work of Lawrence and Lorsch (1967) on organisation type based on integration and fragmentation within the UK construction industry. In order to support the above discussion, a case study from a recently completed research project is now presented. The research project looked at the changes occurring within the industry, the introduction of innovative ways of procuring the construction works, the potential benefits and 274

bottlenecks experienced during the whole process, and changes within organisational cultures and personal attitudes. Here the focus will be to demonstrate that the upstream supply chain participants within a project are socially integrated and the rest of the downstream supply chain is fragmented. The case studies attempted to uncover the perceptions of firms within the construction industry with regard to the existing partnering arrangements they currently undertake. The research used multiple methods to collect qualitative and quantitative data. Basic quantitative data and company documentation were used to provide research context while qualitative data, collected in the form of a number of unstructured interviews, sought to understand how innovative procurement was viewed by different supply chain partners. The case study approach followed the protocol developed by Yin (1994) in order to improve the validity of the research. As a result, the research included a number of key elements such as clear and concise research objectives, research propositions, case study selection criteria, unit of analysis, a structured questionnaire, unstructured questionnaire for interview, a predetermined case study procedure, and an interview guide (Yin, 1994). The study involved multiple visits to each organization involved, including an average of three interviews with the Managing Directors of these companies and other staff, and a few other interviews with their supply chain members in North West of England. All interviews lasted for at least 1 hour. An assumed name for each company has been adopted for the purpose of confidentiality, when reporting the case studies.

Research question: The main aim of this research proposal is to determine if there are ways of integrating the supply chain that will ensure service and product quality whilst still supporting the government and client initiatives aimed at increasing the competitiveness of the construction sector.

Research Objectives: Specifically this project has the following objectives against which the outcome of the work should be assessed: •

Identify current international and national best practices in supply chain integration within the construction industry and identify current and completed research within the same area;

•

Reveal the critical success factors for the establishment of effective and efficient supply chain integration – the behaviours/ responses to the new means of procurement made by successful firms in innovative supply chains, how successful firms are coping – through individual and corporate responses – (change programmes/change agents, training, alliancing, merging, new ventures etc. will be revealed);

•

Test the proposition that the effective configuration of long-term supply chains will be different for different kinds of construction.


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Research results

Integration vs. Fragmentation In construction projects, integration denotes a single point of responsibility in risks, responsibilities and under single ownership, e.g. traditional design and build. Conversely, multiple points of responsibilities denote fragmentation of risks, responsibilities and under different ownership, e.g. traditional and management contracts. Nowadays, the dichotomy is faint, as all the procurement routes have multiple points of responsibilities either directly or indirectly through outsourcing. Fragmentation often denotes multiple points of responsibilities with multiple form of ownership by different players. Risks and responsibilities are carried by each of the players for his tasks or trade. Lawrence and Lorsch (1967) conceptualise an organization structure in terms of integration and differentiation. They believed that the functional departments of a firm differ from one another, yet there is a need for them to cooperate in order to achieve the organisation’s goal i.e. the integration of the differentiated units. Further, they profess that differentiation between departments occurs because they differ in their tasks, goals and time orientations, formality of structures, and interpersonal orientations. Therefore, integration is needed through integrative devices/mechanism because the greater the differentiation between departments, the more effort is required to bring them closer to achieve set goals for the organization. On the other hand, integration means that there is a single point of responsibility for projects in all stages. In traditional design and build (Akintoye 1994), the contractor accepts the total responsibility for both the design and construction. The design and construction is the responsibility of a single firm, usually a construction firm a single point of responsibility and risks. Though there is a variety of design and build forms (Akintoye 1994). For instance, Atkins (1994) proposed an integrated system based on the UK Design-Build route and the French “La consultation performancielle”. The system allows that schematic design, client requirements and performance specification precede contractor involvement. Technically, the newer forms of design and build do not fall under single point of responsibility because portions of the responsibilities are subcontracted to other firms/companies, especially design/documentation and specialists’ work. Economic and Social Notions of Integration The term integration was coined from economic studies which was later applied to information technology (system integration) and construction processes (process integration and clustering). Gort (1962) defines the integration concept from an economic perspective as the act of combining two or more separable stages of production under common ownership. This view was shared in the construction process where traditional design and build combines separable tasks and activities in different stages under common ownership. The economic notion of integration has become a means of measuring the level of integration in a practice. For instance, Oyegoke (2006) refers to the UK practice as moving towards integration based on the number and value of design and build contracts from the Langdon and Everest survey ,1994-1998. As the design and build becomes fragmented through outsourcing of key activities and tasks, integration is shifted from common ownership to point of (performance) responsibilities. Nowadays, the term integration is loosely applied to inter-firm collaboration (industry level), framework agreement, partnering and alliances (project level), system clustering (system level), trade and task outsourcing (trade and task level) etc. These forms of arrangements can be referred to as management-oriented approach or social integrative devices. Lawrence and Lorsch’s (1967) concept of integration and differentiation take into account the separable functions by different departments in the same company under single or common ownership. The 276

major activity for a main trade contractor is construction and for a consortium group is design documents. Although, a main contractor’s firm has many specialist tasks within his organisation while a consortium firm has many consultants within the group. The combinations of production of design documents with actual construction work delineate the feature of economic integration in construction.

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n atio tegr ic in m) nom a fir eco thin n of l wi Spa eve en l twe n be ctio era (Int

Incre men t in s ocia l inte soci grat al in ion tegr ation

The social notion of integration in construction is aimed at encouraging alliances between different stakeholders beyond a single project. Figure 1 presents different business levels in the construction industry in relation to the type of integration. Economic integration focuses on integration within a firm while social integration focuses on integration among firms within the industry. Economic integration ensures that task, trade and project levels are integrated within a firm under a single ownership. The span of integration extends from task level to industry level in social integration while it extends to firm level in economic integration. However, the ratio of number of firms with economic indicator is used as a measure of integration in a practice. It is pertinent to state that a company which is economically integrated can also use social integrative devices to socially integrate in higher social integration levels, e.g. partnering between design and build firms and project owners.

Task level

Task level

Trade level

Trade level

Project level

Project level

Firm level

Firm level

Industry level

Industry level

Fig. 1. Different business levels in the construction industry Figure 2 shows different levels of social integration. The higher the scale of integrative device the greater social integration is achieved. There is enough evidence that the two forms of integration (economic and social) are mutually reinforcing forms of growth. For instance, among many other advantages, social integration leads to team building while economic integration, in addition to team building, leads to administrative economies of scale. Social integration flourishes in a practice which is fragmented. The social notion drives on a number of management-oriented studies which have contributed immensely to the management of construction processes. These management tools are devices for promoting collaboration in industry across different construction business levels, i.e. project, trade and task levels. This has not in anyway lead to integration of different levels as separable functions and tasks are performed by different companies under different ownership. A good example is prime contracting. The Defence Estates defines prime contracting based on a prime contractor accepting responsibility for the management and delivery of a project using a system of incentivisation and collaborative working to integrate the activities of the supply chain members to achieve project objectives (Nicolini et al. 2001). Partnering is another arrangement that encourages social integration. Extensive work on partnering and collaborative partnerships’ has been carried out by CII 1989; Bennett and Jayes 1995; Bennett and Jayes 1998 (Bresnen and Marshall 2000). Although Bresnen and Marshall building abroad, Montreal, October 2008

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(2000) postulate that in the 1990’s partnering and related forms of collaborative frameworks were seen as a way of dealing with the fragmentation and the lack of integration. Collaborative partnership or partnering or framework agreement, in a form of design and build, was advocated as a means of integrating the process through single point of responsibility.

The UK Construction Industry Outlook The UK economy has witness a steady positive growth since 1992. The economic performance is a mixture of different trends: a current annual growth of about 1.6%, an inflation rate of about 2.4%, current account deficit of 3.2% of GDP, and low unemployment, which is about 1.4 million people when compared to over 3 million people in 1993 ( National Statistic Office 2006). s ce ian l l /a on cti a r te Partnering l in try cia us o d s n Joint venture of ni ls tio ve uc r e t l s t Framework on ren n nc ffe i i arrangement tio D ra g e t l in Collaboration cia o s ter ea Gr rs Coordination lde ho e on i k t s sta che ra a he eg g t ppro int n l o a Cooperation ia m d c a te o tion rien rs ke gra nt -o e t ea l in eme W g cia So ana m or

Fig. 2. Different levels in social integrative devices The demand chain of the UK construction sector comprises private and public clients with huge investment in housing, infrastructure, non-housing, etc. For instance, in 2005, about 9.7 billion pounds was the combined new orders by both private (8.5 billion) and public (1.2 billion) in the housing sector (Construction Statistics 2006). According to Construction Statistic (2006) the new order for infrastructure amounted to about 4.8 billion pounds while in the non-housing sector (excluding infrastructure) public order amounted to about £4.9 billion, private commercial 9.8 billion, and private industrial 2.8 billion. The public sector is further fragmented along different tiers of government, departments, etc. The supply side of the UK construction industry is fragmented both from a consulting and contracting point of view. In consulting practice, different firms across different disciplines are represented by different professional bodies engaged in different tasks and activities. For instance, the survey of UK construction professionals undertaken in 2001/2002 shows that there are 8882 architectural firms, 6,309 civil and structural engineering firms, 1,875 Building Services Engineering firms, 1,871 Quantity Surveyors firms, 1,558 other Surveyors, 722 Managers, and 2,293 others firms (including Planners). Each of these disciplines has a range of specialisation resulting in a further fragmentation of the professional supply chain. In 2001/2002, the industry employed about 225,000 people with estimated income of about 12.3 billion, in fee income. From the contracting spectrum, the industry remains fragmented as the number of Small Scale Firms (SSFs) increased during the years 1999-2005. The Statistical data on the number of private contractors from 1995 to 2005, in Construction Statistics Annual 2006, shows a mixed trend as 278

there were increments in the number of contractors operating in each category. The number of private contracting firms rose from 165,561 in 1999 to 182,644 in 2005. In 2005 the share of the small scale firms (SSFs) from 1 to 13 employees amounted to 93%, medium scale firms (MSFs) from 14-79 employees 6%, and large scale firms (LSFs) from 80-1200 over 1%. The small scale business or specialist have grown in sizes, for instance, the number of firm from 8-13 employees has almost triple from 4,148 firms in 1999 to 11,599 in 2005. The structure of the industry indicates a high level of collaboration in the industry among main and subcontractors, as the number of firms under main contractor (general builders, building and civil engineering contractors, non-residential building, housing and civil engineering) decline, while subcontractors with specialist trades increased in number. The number of main trades declined by 33.15% from 60,858 in 1999 to 45,706 in 2005 while the number of specialist trades surged by 23.54% from 104,703 in 1999 to 136,938 in 2005. The value of work done by each of the specialist has grown considerably from 1999 to 2005, supporting their active involvement and fragmentation of the industry. For instance, Construction Statistics Annual 2006 shows that demolition firms increased from £126.2 to £207.7 million, plant hire decreased by 4% due to lack of personnel and operatives, insulating firms increased by 67%, and installation of electrical wiring and fittings increased by 63%. Other firms that recorded increments in their values of work done between 1999 and 2005: plumbing 361%, plastering 75%, joinery 174%, glazing 136%, painting 1%, and roofing 61%. The statistical data supports the notion of growth, independence and interdependence in the industry with subsequent implication on fragmentation of the industry rather than integration. The number of operatives in main trades fluctuated from 45.88% in 1999, to a nose dive 27.52% in 204, to 36.77% in 2005. Conversely, the number operatives in specialist firms’ increased from 54.11% in 1999, hit its highest peak in 2004 with 72.48%, to 63.23% in 2005. Case Study: Local Authority Framework Agreement A framework was developed by the local authority, i.e. the client, to construct educational buildings in the value range £500,000 to £5M. Three constructor partners were appointed in December 2003, which would result in knowledge retention passed on from one project to another over a three year period. The developers are referred as Contractor A, B and C in this paper. The authority’s vision is that the framework partnership will deliver good quality school buildings that will lead to: better educational results,, greater inclusion within the community,, better safety and environmental performance,, and reduced demand on future school budgets by addressing whole life cycle costing at the inception of the projects. This confirms the argument presented earlier that the upstream supply chain participants are socially integrated. The following sections present a brief account of fragmentation and integration observed during the case studies within the context of those three main contractors. The contractors were working with the local authority as part of the framework agreement resulting in the move from traditional contracting, one-off project team, to an innovative procurement (Khalfan and McDermott, 2006a,b), and knowledge-based long-term integrated supply chain partners. It confirms the second half of the argument that the downstream supply chain is still fragmented and traditional in nature, which only becomes part of the supply chain through competitive one-off tendering. Contractor A Contractor A believes in the best value procurement with their suppliers and subcontractors and has around 12 – 13 key strategic goals for supply chain management. For the following trades, Contractor A has developed a long term partnering relationship with one company per trade in the North West (NW) of England in order to provide services to the local authority as part of the framework agreement: brick layers, carpentry, plastering, painting and decoration, and scaffolding. In other words, social integration on a long term basis was observed for all the above building abroad, Montreal, October 2008

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trades, where contractor A makes sure that these trades are involved at the initial stage of project development so that the best price can be achieved, and also the issues related to the buildability are resolved by contributing towards value engineering exercises. For other trades and products, contractor A maintains a list of 3 selected suppliers/subcontractors for each trade/product, i.e. practicing the same old notion of most competitive price. Contractor B Contractor B usually goes for a few sub-contractors for each trade, based on their resources and based on the contract size, confirming the full fragmentation at the downstream level. For the framework agreement with the local authority, the architectural team, the M & E team, and precast concrete team, are all part of the integrated supply chain of contractor B in providing services confirming the socially integrated team on the upstream level. Contractor B would argue that the list of preferred suppliers and subcontractors for each trade is an evolving list and new subcontractors get on the list as well. For the school projects as part of framework, drawings and BOQ were sent to the subcontractors on the list for pricing. Selection was done based on resource capacity, value of work, locality (location of subcontractor), flexible start and finish time, price, quality, etc. with greatest weighing on the price. Contractor C The current experience of the contractor in this framework agreement is regarded as a very good learning opportunity by senior management. This contractor had previously worked with the local authority before this framework agreement using JCT 98. In past experience, the scenario was that everybody on the project was struggling for to get information from each other; there were problems relating to extension of time; and there was increased cost incurred for the client; etc. Currently contractor C has moved beyond the above mentioned problems to a long term partnering relationship with the authority. However, he has exactly the same story as contractor B for the downstream supply chain participants. Discussion and conclusions It was observed that all three contractors came with their integrated supply chain for the 1st tier, including the Design team and M & E Contractors. They were all involved with the client to develop the plans for the school buildings, proving the socially integrated notion as presented earlier. For rest of the supply chain partners in other tiers, all contractors were using a preferred subcontractors and suppliers list, as done in traditional fragmented environments. Selection was then done based on quality-price mechanism. Despite all efforts, lowest cost plays a primary role in the selection. On the other hand, the outlook of the construction industry, from the statistical data shows that the industry is vital to the UK economy and the gross value added has been on the increase. Theoretically, it has been established that the measure of integration in a practice is based on the level of integration within a firm rather than between firms or within an industry. However, for a firm to be integrated there must be separable activities (major and auxiliary) under a single ownership. The appropriate procurement method that falls into this category is the design and build (traditional) route which combines both design and construction capabilities under single ownership. There is no evidence that the UK is moving towards traditional design and build practices (i.e. no evidence that the UK practice is moving towards economic notion of integration). On the contrary, the statistical data signifies that the consulting practice is fragmented and it shows a further trend toward fragmentation via specialisation within existing disciplines. The statistical data also shows that in contracting spectrum there has been tremendous growth in specialist trade firms both in number of firms, value of work done, and in number of operatives. At the same time, the number of main trade firms has declined considerably, and their value of work done has increased due to economic boom but not at the same proportion as the specialist firms. The number of operatives working for the main trade firms has also declined. The implication is that there is a high level of specialisation for a major activity that firms have no auxiliary activity 280

and are under different ownership. This indicates that any device to bring a company together is social rather than economic integration. Another major implication is that there is high level of collaboration between main contracting firms and specialist firms, which can serve as evidence supporting the work of Egan (1998) recommendation for team building.


The upstream supply chain participants, on a specific project under an innovative procurement route, are socially integrated but downstream participants are still fragmented.

•

The authors emphasise that the above mentioned is the industry structure with a project specific context, it seems to be working and looks healthy, as it is bringing in revenue to service providers.

•

Hence, the UK construction industry is fragmented and socially integrated.

•

The UK construction industry cannot be categorised as fully integrated in nature.

The authors have demonstrated that the upstream supply chain participants on a specific project under an innovative procurement route are socially integrated but downstream participants are still fragmented. The authors point of view is not that the above is wrong but they emphasise that this industry structure with project specific context, and it seems to be working and looks healthy, as it is bringing in revenue to service providers (both socially integrated partners and fragmented supply chain specialist organisations) and satisfying clients and end users. Hence, the UK construction industry is fragmented and socially integrated, therefore, the UK construction industry cannot be categorised as fully integrated in nature.

References Akintoye, A. (1994) Design and build: a survey of construction contractors’ views, Construction Management and Economics, No. 12, pp.155-163. Atkins, W.S. and Pothecary (1994) Strategies for the European Construction Sector, EU publications. Bennett, J. and Jayes, S. (1995) Trusting the Team: The Best Practice Guide to Partnering in Construction, Reading Construction Forum, Reading. Bennett and Jayes (1998) The seven Pillars of Partnering: A Guide to Second Generation Partnering, Thomas Telford Publishing, London. Bresnen, M. and Marshall, N. (2000) Partnering in construction: a critical review of issue problems and dilemmas, Construction Management and Economics, 18 2 (2000), pp. 819-832. Department of Trade and Industry (2006) The construction statistics annual 2006 edition, TSO publishing. Dorsey, R.W. (1997) Project delivery systems for building construction, 1st ed., Associated General Contractors of America.


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Egan, J. (1998) Rethinking Construction, Department of Trade and Industry, London. Egan, J. (2002) Accelerating change, A Report by Strategic Forum for Construction, London. Gort, M. (1962) Diversification and integration in American Industry, Princeton University Press. Haltenhoff, C.E. (1999) The CM contracting system; Fundamentals and Practices, 1st edition, Prentice-Hall, Inc. Khalfan, M. M. A. and McDermott, P. (2006a) Once unthought, now the best practice within the construction sector, Journal of Construction Procurement, Vol. 12, No. 1, pp. 23-37. Khalfan, M. M. A. and McDermott, P. (2006b) Innovating for supply chain integration within construction, Journal of Construction Innovation, Vol. 6, pp.143-157. Langdon, D. and Everest (2000) A survey of building contracts in use during 1994-1998 in the UK. Available from http://www.rics.org Latham, M. (1994) Constructing the Team, HMSO, London. Lawrence, P.C. and Lorsch, J.W. (1967) Organisation and environment: Managing differentiation and integration. Boston: Graduate School of Business Administration, Harvard University. Nicolini, D., Holt, R., Smalley, M. (2001) Integrating project activities: the theory and practice of managing the supply chain through clusters, Construction Management and Economics, Vol.19, pp. 37-47 Oyegoke, A.S. (2006) Construction industry overview in the UK, US, Japan and Finland: A comparative analysis, Journal of Construction Research, Vol. 7, No 1&2. Yin, R. K. (1994) Case study research: Design and methods, 2nd ed. London: Sage Publications.

Author’s Biography Dr Malik M A Khalfan graduated with a first class degree in Civil Engineering from NED University, Karachi, Pakistan in 1998. He worked briefly as a site engineer before undertaking his postgraduate degree in Construction Project Management, followed by research on Concurrent Engineering in Construction, both at Loughborough University, UK. On completion of his PhD in 2001, he joined Loughborough University and was involved in an EPSRC funded project as a Research Associate. Currently, he is working with the Salford Centre for Research and Innovation at the University of Salford as a Research Fellow. Dr Khalfan’s research interests include Concurrent Engineering (CE), Readiness Assessment of CE in Construction, Sustainable Construction, Knowledge Management in Construction, Supply Chain Management, and Partnering and Strategic Alliances within Construction Industry. He was the winner of the CIOB Innovation Award in 2000 for the Best Research Paper Competition.

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A.S. Oyegoke is a Research Fellow at the Salford Centre for Research and Innovation (SCRI) in the Built and Human Environment at the University of Salford, UK. He obtained Doctor of Science in Technology in Construction Economics and Management with emphasis on procurement management from the Helsinki University of Technology, Finland, in 2007. Before commencing his academic career, he worked as a Quantity Surveyor in consulting and contracting firms. He holds corporate memberships with the Chartered Institute of Building (MCIOB) and the Association of Cost Engineers in the UK (MACostE). His research interest includes construction economics, construction and project management and quantity surveying among others. Mr Xianguang Li is a PhD candidate at Southeast University (SEU), China, majoring in construction management. Currently he is an academic visitor at the Salford Centre for Research and Innovation (SCRI),University of Salford, UK. His research interests mainly focus on construction supply chain management and competitiveness. He obtained his bachelor degree in Civil Engineering from Hennan Polytechnic University in 2003 and a Master of Science from Guizhou University in 2006. He has published eleven papers in national/international journals and conferences. He has received funding to do his cooperative research for his PhD thesis in the UK for his outstanding research work. Peter McDermott is a specialist in construction procurement. From the academic base at the University of Salford he manages research contracts and doctoral studies concerning, inter alia, strategic procurement, impact of newer forms of procurement on the construction supply chains, and construction industry development. From his position as Associate Director at CCI (Centre for Construction Innovation, Constructing Excellence in the North-West) he has advised and consulted with a wide range of local authorities and government departments on their response to the “Egan” agenda. Recently he has been working with OGC (Office of Government Commerce) on a number of projects including their response to the “Kelly” Report, concerning the capacity of the construction sector to deliver against the public spending plans of the government. Michael Dickinson is currently on full-time secondment from the University of Salford at Elevate East Lancashire, one of the government's Housing Market Renewal Pathfinders. Michael's current research is related to sustainable procurement and the implementation of innovative procurement policies. In his role at Elevate, Michael is working to maximise the impact of multi-million pound regeneration programmes on local communities. Michael has MRes degree in Innovation and Improvement in Construction from the School of Built Environment, University of Salford.


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MANAGING PRE-CONTRACTUAL AND POST-CONTRACTUAL OPPORTUNISM IN BEE DELIVERY IN PPPs.

Nthatisi Khatleli, University of Cape Town email: [email protected] David Root, University of Cape Town email: [email protected]

Abstract Since the promulgation of the generic Black Economic Empowerment (BEE) legislation in South Africa, opportunism is known to abound. It is here demonstrated firstly, that preand post-contractual opportunism, which comes in the form of “adverse selection” and “moral hazard”, seems to be highly mitigated in Public Private Partnerships (PPPs). Secondly, there appears to be a strong fit between PPP legislation and the Principal Agent theory requirements for mitigating opportunism occasioned by information asymmetry. The strength of the PPP legislation in this regard translates into better procurement processes and correct structuring of the contract, entered into by the government (the principal) and the consortium (the agent). The benefits accruing from this manifest themselves in better screening mechanisms that induce better signalling from the agents, pre-contractually. Post-contractually, the monitoring systems embedded in PPP contracts ameliorate BEE shirking and align principal/agent interests. The objective is therefore to use the Principal Agent theory to assess the efficacy of the Public Private Partnership (PPP) legislation in mitigating opportunism in BEE delivery.

Keywords: Principal-Agent Theory; Information Asymmetry; Pre-contractual Opportunism; Postcontractual Opportunism. Introduction During the period of Apartheid in South Africa, black citizens were prevented from entering the corporate world, attaining a quality education, or having any meaningful self-benefiting role in the economy of the country. Since 1994 the new ANC democratic government has adopted an overarching policy of Black Economic Empowerment (BEE) in order to redress the racial economic imbalances of the past (National Treasury, 2004). Like all affirmative action policies implemented around the world, BEE seeks to regulate the allocation of scarce opportunities in many areas including education, employment, or business in order to increase the representation of persons belonging to certain groups which were previously unfairly excluded (Fryer and Loury, 2005). In South Africa, BEE encompasses women and blacks who, in the South African context, are black Africans, Indians, and Coloureds (mixed-race). BEE encompasses a variety of interventions and measures such as employment equity, skills development, targets for ownership and management, and preferential procurement (DTI, 2004). However, the South African government ironically relies on the well-established white-owned companies to deliver BEE, as they are largely still the entities endowed with relevant expertise and capital, especially building abroad, Montreal, October 2008

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when large infrastructure projects are instigated. In these contracts the government compels the large, historically white-owned companies to sub-contract to the emerging black contractors in order to impart skills as part of BEE policy. Despite a substantial number of BEE deals since 1994, ownership patterns in the economy have hardly changed (Radebe, 2006) and this reflects continuing low levels of participation by black South Africans in the formal economy (Brown, 2004). The government has come to the realization that in order to effect economic redress it has to be systematic, rather than relying on the goodwill of the previously privileged (IRN, 2005). The construction industry in particular has been slow to increase black participation, especially in management, concentrating mostly on enterprise development. The government has tried to increase black participation by encouraging linkages between large and small construction companies through joint ventures and subcontracting, where large contractors are required as part of the targeted procurement to unpack or unbundle their contracts into smaller contracts to secure the participation of the Affirmable Business Enterprises (ABEs) (Department of Public Works, 2002). Work done by Gouden (2000) has demonstrated that joint ventures and subcontracting benefit SMMEs in transferring expertise, provided the contract is properly structured. Under South Africa’s targeted procurement programme, the responsibility for the successful empowerment of the SMMEs is by and large ceded to the private sector. The main contractor in most contracts functions as the implementation agent on behalf of the national government in achieving the long-term objectives of upgrading SMMEs. This scenario, where the government is the principal and the contractor is the agent, is a typical economic Principal-Agent Theory relationship which is invariably bedevilled by the concomitant problem of opportunism. Opportunism may manifest itself pre-contractually in various forms of strategic misrepresentation of the true beneficiaries of the BEE contractual “set asides”, or post-contractually through tokenism, which is characterized by superficial inclusion of historically disadvantaged individuals with peripheral roles in the execution of the contract. All these can be encompassed under an umbrella term of “fronting” which, according to the ICT Empowerment Charter (2005), means “any entity, mechanism, or structure established in order to circumvent the BEE requirements as required under various government policy instruments”. It is in this context that the South African government has identified the potential of Public Private Partnerships (PPPs) as a suitable vehicle for developing BEE in the country (National Treasury, 2004). In South Africa PPPs are governed by the Code of Good Practice for BEE in PPPs, and this paper interrogates the efficacy of this code of good practice in lessening the Principal-Agent problem compared to the traditional forms of procurement in the construction industry. Research methods

Research hypothesis: • The Code of Good Practice for BEE in PPPs provides a better procurement mechanism to ameliorate pre-contractual and post-contractual opportunism.

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Research Objectives: • To identify common BEE opportunism in the construction industry. • To identify the weakness of the traditional procurement methods in mitigating opportunism. • To assess if the there is fit between the Code of Good Practice in PPPs and the model Principal-Agent mechanisms for mitigating opportunism.

Introduction to the Principal Agent Theory and Opportunism in Construction The Principal–Agent problem occurs whenever one person (the principal) delegates authority to another (agent) (Surowiecki, 2004). The “problem” in this economic theory relates to the difficulty employers (principals) have in ensuring that employees (agents) making day-to-day decisions act in the best interest of the employers (Gratto et al, 2002). The problem is more acute when the employee or contractor has informational advantage over the principal and has incongruent interests from the principal. Principal-Agent theory describes this relationship using the metaphor of ‘contract’, thus the focus of the theory is on determining the most efficient contract given assumptions about people (e.g. self-interest), organizations, and information (Eisenhardt, 1989). The most efficient contract will be the one that minimizes the possibility of one party reneging on the original agreements (i.e. that most effectively induce cooperation), such that the gains from the exchange can be maintained. The normal procurement methods in South Africa when it comes to BEE have been shown to have many loopholes during contract implementation, after the initial “apparent” compliance to win the bid. The Principal-Agent theory is based on three fundamental assumptions, firstly that both parties are rational individuals who are also self-interested and secondly that the agent is both effort and risk averse (Baiman, 1990). Lastly, that there is a persistent problem of information asymmetry. The presence of any one of these in a contract creates the potential for the existence of an agency problem (Baiman, 1990; Eisenhardt, 1989). Asymmetric information Asymmetric information occurs when one of the parties has more private information about his abilities or the object of exchange (e.g. the product or service) than the other. Whenever asymmetric information exists it potentially leads to opportunism by the agent and it has been the concern of researchers in this field to find the best way to describe the governance mechanisms that solve this problem. The two kinds of opportunism which are important aspects of agency theory are “adverse selection” and “moral hazard” (Eisenhardt, 1989). Adverse Selection – Pre-contractual opportunism This is the condition whereby the principal cannot ascertain if the agent accurately represents his true ability ex ante. This problem, which is sometimes referred to as “hidden information”, often leads to an opportunistic behaviour where the agent uses the hidden knowledge to take advantage of the principal (Surowiecki, 2004). In the construction industry it takes the form of strategic misrepresentation of the true beneficiaries of BEE benefits in the contract. The contractor enters the contract with private information that leads them to gain at the government’s expense. The different forms of this opportunism are listed in table 1 below.


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Table 1. Construction Industry BEE Opportunism Pre-contractual opportunism Fronts on paper: where the documents are legitimate but the “owners” are unaware of being shareholders (e.g. black maids, gardeners), have no control in the company, and do not manage any aspect of the company, Fictitious companies: where the fictitious black company is established just to win a contract, only for a white company to be subcontracted all the works. The “skeleton” company is used for invoice purposes but all funds accrue to the subcontractor. The black people identified by an enterprise as its shareholders, executives, or managers in reality have roles of responsibility that differ significantly from those of their non-black peers; The black people who serve in executive or management positions in an enterprise would in reality be paid significantly lower than the market norm.

Post-contractual opportunism Company fronts: contractors claim to be black owned or black empowered but when they are awarded the contract they subcontract a major portion of the works to a white contractor. On paper the majority shares are owned by blacks with whites owning a minority shares, however, the minority shareholders are the majority shareholders in the subcontracted company, Fronts in Joint Ventures (JV): a non-BEE contractor forms a JV with a BEE emerging contractor, only to find that the BEE partner has no meaningful role, or responsibilities in the JV, if given any responsibility it is usually in the provision of labour. A BEE subcontractor only conducts peripheral functions and does not perform the core functions reasonably expected of other, similar, enterprises,

A BEE enterprise relies on a third-party to conduct most core functions normally conducted by enterprises similar to it, A BEE subcontractor cannot operate independently without a third-party, because of contractual obligations, or the lack of technical or operational competence, Black contractor compelled to accept the subcontract at lower rates while the main contractor charges the government much higher rates, Black sub-contractor used primarily as a conduit of money to a white contractor whom he is compelled to, in turn, sub-contract.

Moral hazard – post contractual opportunism This occurs whenever the principal is not aware of the extent of work he has delegated and the agent takes an advantage after the contract has been entered into (Venkatesh, 2003). The biggest incentive for the agent to behave opportunistically is that his actions cannot be easily observed by the principal and he does not bear the full cost of his actions. Since this takes place post-contractually the agent can even hold-up the principal since he now has monopoly, being the only agent dealing with the principal on the contract. Even if the principal is not happy about the agent’s performance he now has to balance getting a new agent against the switching costs he has to incur. In the South African construction industry when it comes to BEE, moral hazard manifests itself in chiefly the ways listed in table 1 above. Mitigating opportunism The principal is never in a good position ex ante to know the true quality of the agent before the start of the formal relationship, because the skills the agent has are “hidden characteristics” (Keil, 2005). Much opportunism can be eliminated by introducing competition among the candidate agents, to assess who is best suited to meet the principal’s needs. During competition the agent is compelled to “signal” his type to the principal which will go a long way in mitigating “adverse selection” (Spencer, 1973). Another way of avoiding “adverse selection” is to “screen” the agents (Stiglitz, 1975). However, the prevalence of BEE opportunism under traditional procurement 288

mechanisms would seem to strongly indicate that they do not induce enough “signalling” and the “screening” is not sufficiently thorough to weed out the BEE opportunists ex ante. Signalling Signalling is based on the idea that the agent during competition will choose an action that will credibly signal their private information (Keil, 2005). In other words, in their tender documentation these privately informed individuals will adopt a behaviour (signal) that will indicate whether they are the kind of person the principal would want to contract with or not. If proper mechanisms are in place, the individuals will self-select themselves, as those with the desired qualities will stand out from the rest. In the construction industry BEE, there appears to be a prevalence of malicious compliance with tender requirements just to get the contract with no real commitment to deliver on BEE principles ex post. The agent gives out the right “signals” which they later renege on, once the contract starts and this is also a sign that the mechanisms are not sufficiently stringent to compel agents to abide by their original commitments. Screening Screening helps in ascertaining the agent’s appropriateness and suitability for the job, by inducing him to publicize the private information he possesses about his abilities or the object of exchange (product or service) (Rothschild and Stiglitz, 1976). Prequalification is normally used to screen out those who cannot meet the pre-specified criteria. In traditional construction procurement methods prequalification is not widely used, unless the job is large, and when it is used it is primarily for technical assessment rather than BEE grounds. Consequently companies who are not committed to BEE end up being awarded contracts even though BEE is one of the primary socio-economic goals of infrastructure provision in South Africa. Post-contractual monitoring In order to mitigate the moral hazard problem, the actions of the agent need to be monitored after the signing of the contract (Holstrom, 1979). Monitoring is crucial as a feedback mechanism since contracting is an ongoing process. The principal can either engage in “oversight” himself (police patrol oversight) or engage the services of a third party (fire alarm oversight) (Kiewiet and McCubbins, 1991). The great number of complaints and reports on the contravention of BEE principles could directly result from poor monitoring of the initiative ex post. Monitoring is very crucial in controlling the agent behavior and curbing post-contractual opportunism. Post-contractual incentivisation If incentives ex post are structured correctly it should be possible to induce the agent to behave exactly the way the principal would act in the same circumstances, had he been equipped with the necessary skills and knowledge (Laffont and Martimort, 2002). This can be achieved by structuring the payment system to be dependent on the observed outcome of the task, thus making the agent the residual claimant of his own effort. If the reward structure is thus aligned with performance, the conflicts of self-interest are reduced. In the traditional procurement system in South Africa, BEE compliance is not rewarded as part of the payment structure ex post, nor is non-compliance which reneges on the bidding stage commitments penalized, commitments which were the very basis of the contract award. Designing opportunism mitigating contracts Closely attached to the above point is the issue of designing the most efficient contract. Of the two types of contracts: behavior based (salaries) and outcome based contracts (commissions, building abroad, Montreal, October 2008

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stocks), the behavior based contract creates a moral hazard as it does not induce the agent to work hard because of the assured remuneration (Suzuki, 2003). Behavior based contract aligns principal/agent interests, especially when the principal has verified that the agent behaves in the best interest of the principal (Eisenhardt, 1989). In order to achieve this, sometimes the duration of the contracts has to be such that the agent has enough time to deliver on the contractual obligations. Long-term contracts allow both parties to set milestones and measure success over a long period and it also allows corrective measures to be implemented. This is more pertinent where soft outcomes which involve team effort are envisaged. BEE is such a soft outcome yet most of the infrastructure contracts by nature are of a relatively short duration to enable even the cooperating contractors to have adequately imparted skills to the BEE beneficiary players. Research results Public-Private Partnerships (PPPs) efficacy in BEE opportunism mitigation This section describes the results of a desk study to asses the fit between the prerequisites of Principal-Agent Theory model procurement stages and the mechanisms of Code of Good Practice for BEE in PPPs. The fit is depicted in Fig 1 below. This code applies to all government departments, constitutional institutions, public entities listed, or those required to be listed who engage in PPPs. According to the Code any prospective project has to go through three phases and four National Treasury approval stages before the preferred bidder can start construction. After the approval of the preferred bidder the project goes through three more phases in its life cycle making six in all. The Code provides a balanced scorecard which details the weightings of different BEE elements, but chiefly concentrates on: 1) direct empowerment of the black people through ownership and control of construction enterprises, 2) human resource development and employment equity, and 3) indirect empowerment through preferential procurement and enterprise development. BEE is made to be integral in all phases of the project cycle and to be also contractually binding in all those stages. Phase I After the identification of a project the relevant provincial or national department has to appoint a transaction advisor. This is an encompassing term as it involves a whole team of professionals from different disciplines such as law, finance, etc. At this point the main aim of the process even at this early stage could be interpreted as an attempt to mitigate information asymmetry. The government departments who initiate the PPP projects do not normally possess expertise in designing and modeling project processes that could be attractive to different consortia especially where BEE is seen as a risk by some investors. The transaction advisors themselves go through a rigorous screening process akin to the stages discussed below. The objective at this stage is to select a team that has bought in to the idea of BEE and which can show commitment in designing the process. The government at this stage applies the 90/10 rule, 90% is allocated to the technical and financial proposal of the transaction advisory team and 10% to their BEE composition, if the transaction advisor fails to make 60% of the BEE component of the scorecard then their whole bid is rejected. This reduces “adverse selection” on the BEE issue because it is at the centre of government economic policy and only people who abide by it are considered suitable to contract with by the government. Phase II This phase is essentially the Feasibility Study stage, which creates a BEE balanced scorecard for the project with clear and appropriate set of BEE elements, targets, minimum thresholds, and pertinent weightings. It is at this stage that the institution identifies what BEE objectives it wants to deliver with the project. It assesses different BEE options at its disposal and identifies pros and 290

cons of each option and the risks associated with such an option. This is carried out concurrently with the technical and budgetary Feasibility that is required for the project. The government again at this level is lessening information asymmetry in as far as what is practical and feasible with regards to the BEE component of the project. Consortium opportunism will be reduced as the government will be in a better light on what to realistically expect from the bidders. Phase III This phase has three stages; the first stage is the Request for Qualification stage (RFQ). The RFQ stage is entered into after the National Treasury’s approval of the Feasibility Study documentation, which the Treasury assessed for its commitment toward BEE, and the fairness and transparency of its proposed contract. This stage is meant to be an interaction between the government and bidders on BEE where bidders can “signal” their concerns about certain aspects of the BEE requirements. The PPP BEE Balanced Scorecard for the project, developed during the Feasibility Study is availed to bidders for comment. In order for the bidders concerns and misgivings to be accommodated, the bidders must show and that they have requisite BEE characteristics and are committed to the project. Chiefly among their commitments bidders should provide written commitments for BEE participation in the Private Party and the subcontracts, and this should be backed by verifiable company information to substantiate the provenance of BEE credentials. Companies are also required to provide CVs of Black Management Control targets in the Private Party and the subcontracts. This stage is the first of the stages intended to induce BEE “signaling” from the bidders, by so doing “screening” out non-committed bidders, and mitigating strategic misrepresentation of BEE beneficiaries by establishing a firm insistence on the verification of BEE candidates’ credentials. This interaction gives the government a realistic expectation of what BEE goals are feasible and this reduces the information asymmetry on the challenges encountered by BEE implementers on the ground. The next stage is the Request for Proposals Stage (RFP). At this stage the BEE elements are clearly presented based on the outcome of the Feasibility Study and adapted from feedback obtained in the RFQ. In most cases pre-qualified bidders are issued with a draft RFP which contains further refined PPP BEE Balanced scorecard. The BEE elements are further shown on the draft PPP agreement with contractual non-compliance clearly linked to the penalty regime. When further comments by bidders are accommodated by the government institution and its Transaction advisors, care is taken not to compromise BEE. The final RFP with the draft PPP Agreement is then issued at this stage, which appropriately phases certain BEE goals over the project term to accommodate start-up capabilities. Throughout there is a continual insistence on


291

-Design a fair, equitable, transparent, and competitive -Prepare bid documents, including draft PPP agreement TREASURY APPROVAL: IIA

-pre-qualify parties -issue request for proposals with draft PPP agreement -compare bids with Feasibility study and each other -select preferred bidder -prepare value-for-money report

SCREENING AND SIGNALLING

PROCUREMENT

Adverse selection

FEASIBILITY STUDY Prepare a Feasibility study comprising: Needs analysis Options analysis Project due diligence

PRE-CONTRACTUAL OPPORTUNIM

PHASE I PHASE II

Register project with the relevant treasury Appoint project officer Appoint transaction advisor

TREASURY APPROVAL: I

PHASE III

PROJECT PREPARATION PERIOD

INCEPTION

M I T I G A T E

TREASURY APPROVAL: IIB

-negotiate with preferred bidder -finalise PPP agreement management

-Scrutiny by the Auditor-General

MONITORING AND INCENTIVES

EXIT

Moral hazard

DELIVERY

-measure outputs monitor and regulate performance, liaise effectively, settle disputes -Report progress in the Annual Report

POST-CONTRACTUAL OPPORTUNISM

DEVELOPMENT

PHASE V

PHASE IV

PPP agreement signed

PHASE VI

PROJECT TERM

TREASURY APPROVAL: III

Fig 1. The fit between the Principal - Agent theory and Code of Good Practice in PPPs

the verifiable proof of the BEE participants. The main intention of this stage is first to accommodate concerns of the capable bidders, after those deemed not suitable to act in the government (principal) best interest are “screened” out. The second is to adapt the BEE requirements to the realistic market conditions without compromising its goals. This prevents hold-ups where the contractor can claim there is no black expertise in a particular field. Rather the government adopts a stance where little expertise that could be found is grown and nurtured over the project duration. Again this pre-empts any “moral hazard” because milestones are put in place to check progress in this regard. The insistence on verifiable credentials mitigates fronting and the using of purported BEE candidates as financial conduits to undeserving recipients. This stage appears to align the goals of the government with the bidders’ by providing achievable targets 292

and implementing in phases those that appears to be presently high. Since PPPs are a form of integrated procurement they provide an incentive for the bidders to innovate in order to achieve the contract requirements, and this achieves principal/agent goal alignment. After this stage if the government questions the general common understanding on certain aspects of BEE implementation then the Best and Final Offer stage is entered into. The government enters this stage if it is felt that for the sake of fairness and transparency the bidders should respond to a further clarification on the BEE elements requirements or if it is felt that there is some information asymmetry favoring the bidders. The bidders will be given a further chance to fine-tune their bids and the government will have a further chance to drive innovation in order to receive the best possible costing in achieving its intended BEE targets. After this stage (if it is utilized at all), the government then enters into negotiations with a preferred bidder. The government negotiation team is warned against claw back on the BEE issue. Since there is no competitive pressure, the private consortium would want to insidiously renege on some BEE elements before the final contract is signed. This is a final stage in a series of stages that were crucial in inducing “signals” from the bidders and it is at this stage that the government ensures that no pre-contractual opportunisms are carried over to the post-contractual stage where they will result in “moral hazards”. The PPP Agreement Once the contract has been signed the bidder is expected to start with providing the facility as per the terms of the contract and after the completion of construction, manage it for the duration of the concession. Without proper monitoring even the most willing and cooperative agent will find an incentive to shirk. The Code of Good Practice insists on the detailed monitoring mechanisms to curb post-contractual opportunism. This opportunism comes in the form of: fronting companies, black partners only given peripheral roles, over-reliance of black enterprises and subcontractors on white-owned third parties, and unfair remuneration of black entities. To curb all these, the Code specifies that monitoring be modeled in the following fashion: • • • • • • •

The establishment of BEE performance monitoring with clear schedules to commit the Consortium to the BEE targets. The clear specification of the reporting requirements. The establishment of the empowerment penalty regime that provides for dispute resolution system. The setting up of the termination arrangements for non-compliance. To oblige the consortium to produce an annual BEE report, detailing its achievement in meeting the agreed BEE targets. To provide for regular and ‘spot check’ reviews by the government institution. The provision in the PPP Agreement for the use of independent monitors.

The monitoring regime in PPP seeks to structure the BEE component of the bid in such a way that it can be measured like other components of the bid (construction progress, service provision etc), mainly because any item that cannot be measured cannot be monitored. This differs from traditional procurement approaches that provide for no structured BEE measurement, thus creating the opportunity for much shirking on this issue. Structuring the BEE component such that it can be measured allows for an objective assessment of progress and the justification of penalties when there is non-performance. In the traditional approach there is no termination allowance related to the BEE non-performance, and this usually leads to audacious shirking at best, manifested in all sorts of fronting and hold-up at worst, with the government just protecting itself by blacklisting such defaulting companies for future contracts. The obligation of the consortium to produce an annual BEE progress report compels the consortium to work hard on the BEE issue because any discrepancy between a report and the departmental review on building abroad, Montreal, October 2008

293

progress will lead to a dispute, which in the context of South Africa can lead to a damage of reputation as there is a general buy-in on the BEE policy in the business world. ‘Spot Checks’ conducted by the government compel the consortium to give BEE beneficiaries meaningful roles in the contract, and remunerate them fairly. Without ‘spot checks’ the most common practice is to pay black “directors/partners” huge salaries while they have no meaningful role in the company, or to use them as ‘token’ partners who are always absent from work, only required for attending relevant meetings as part of BEE “window dressing”. Independent monitors and periodic reviews could be useful in assessing the skills that have been imparted to BEE beneficiaries. They could also be used in catching those BEE companies which are selling jobs to white-owned firms and circumventing the goals of BEE as an avenue to impart skills to black people. During the reviews, the remuneration of black people could be matched with their duties to see if there are any discrepancies when compared to their white counterparts at the same level of responsibility. The same processes articulated above are followed even during the delivery phase of the project. The delivery phase is the longest of all the phases, the concession being granted for 30 years in some cases, and this acts as a pressure for the consortia not to shirk on BEE because over time they would be exposed as they are locked-in for a very long time. Discussion and conclusions Any contract is challenged by the Principal-Agent problem of opportunism where there is information asymmetry favouring the agent. The South African construction industry is especially beleaguered by opportunism which lessens the effectiveness of BEE, a policy which is at the centre of the government economic redress. The current legislation using traditional procurement methods has not properly adapted to the new BEE climate, as all the mechanisms are still slanting towards pure infrastructure provision and do not cater for BEE socio-economic concerns. This weakness is exploited with opportunistic behaviour by agents. The government in this context has identified PPPs as good vehicles for BEE delivery coupled with their utility in providing the much needed infrastructure. To achieve the desired result and to avoid the fronting opportunism endemic in the construction industry the government exploited the unique characteristics of PPPs to design the Code of Good Practice for BEE in PPPs. Assessing this Code through the Principal-Agent theory, to interrogate its effectiveness in ameliorating agent opportunistic behaviour both pre-contractually and post-contractually, the following observations were made.


• • •

The code provides adequate screening of agents pre-contractually and the several stages taken before selecting a preferred bidder induce repeated signalling from the agents (consortia), which leads to the reduction of information asymmetry and this could reduce adverse selection. Using the same selection process for Transaction Advisors as for bidders provides the project with committed and visionary leaders on BEE. The monitoring mechanisms are very thorough and they target the known moral hazard behaviours of the agents in the construction industry with regard to BEE. The codes are silent on the incentives applicable to align the agent interests with the principal’s on the BEE issue.

This study has demonstrated that when a socio-economic requirement like BEE is packaged with infrastructure provision, the implementers of projects will regard it as incidental to the ‘main’ issue unless there is a rigorous regulatory regime to enforce compliance. PPPs are fairly new in South Africa, and the new code has not been properly assessed in many projects to see how far reaching it is in mitigating BEE opportunism 294

References Baiman, S. (1990) "Agency research in managerial accounting: a second look." Accounting, Organizations and Society, Vol. 15 No 4, pp.341-71. Brown, L. ( 2004) “Speech By Provincial Minister of Finance and Tourism.” Bon Procurement conference, 24, June, 2004[online]. Available from: http://capegateway.gov.za/eng/pubs/speeches/2004/Jun/78329 [Accessed 07/03/2006] Department of Public Works (2002) Towards best practice in the development of emerging contractors [online]. Available from: www.pwdprocure.co.za [Accessed 08/08/2006] Department of Trade and Industry (2004) The BEE codes of good practice [online]. Available from: http://www.dti.gov.za/bee/CODESOFGOODPRACTICE.htm. [Accessed 20/10/06] Eisenhardt, K. (1989) “Agency theory: An assessment and review.” Academy of Management Review, 14(1): 57-74. Fryer, R.G. and Loury, G.C. (2005) “Affirmative Action and Its Mythology” [online]. National Bureau of Economic Research, Inc, NBER Working Papers: 11464, June 2005, JEL No. J7. Available from: http://www.nber.org/papers/w11464.pdf. [Accessed 20/03/2006] Gounden, S. (2000) The impact of the National Department of Public Works’ Affirmative Procurement Policy on the participation and growth of affirmable business enterprises in the construction sector. Unpublished PhD thesis, University of Natal, Durban. Gratto, A. (2002) “Mitigating Corruption in New Public Management.” Presented to Prof. Mildred Warner Privatization and Devolution CPR 612, December 2002. Available from: http://government.cce.cornell.edu/doc/html/MitigatingCorruption. htm [Accessed on 07/06/2006] ICT Draft BEE Charter (2005) Draft Black Economic Empowerment Charter for the ICT Sector [online]. Available from: http://www.ictcharter.org.za/content/ICTbeecharter04may2005Minister.pdf [Accessed 13/07/2008] IRIN (2005) SOUTH AFRICA: Special report on a decade of democracy - black economic empowerment [online]. Available from: http://www.irinnews.org/print.asp?ReportID=40489. [Accessed 22/11/2005]. Keil, P. (2005) “Principal Agent Theory and its Application to Analyze Outsourcing of Software Development.” Economics-Driven Software Engineering Research (EDSER), May 15, 2005, St. Louis, Missouri, USA. Kiewiet, D.R., and McCubbins M. D., (1991) The Logic of Delegation: Congressional Parties and the Appropriations Process. Chicago: University of Chicago Press. Laffont, J.J. and Martimort, D. (2002) The theory of incentives, the principal-agent model. Princeton University Press. National Treasury PPP Manual (2004) Module 2: Code of Good Practice for BEE in PPPs. Available from: www.ppp.gov.za/Documents/Manual/Module%2002.pdf [Accessed 13/07/2008] building abroad, Montreal, October 2008

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Radebe, S. (2006) “Black Economic Empowerment- Try The Other Button.” Financial Mail [online]. Financial Mail, 24 February, 2006. Available from: http://free.financialmail.co.za/06/0224/business/abus.htm [Accessed 24/03/2006 Rothschild, M. and Stiglitz, J. (1976) “Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information.” Quarterly Journal of Economics, 90, 629—649. Spence, M. and Zeckhauser, R. (1971) “Insurance, information and individual action.” American Economic Review 61(2): 380-387. Surowiecki, J. (2004) “Mixed Motives.” The New Yorker. Available from: http://www.newyorker.com/talk/content/?041108ta_talk_surowiecki [Accessed on 07/06/2006] Suzuki, Y. (2003) Commitment problem, Optimal Incentive Schemes, and Relational contracts in agency with Bilateral Moral Hazard. Faculty of Economics Hosei University. Revised 22 April, 2003. Stiglitz, J.E. (1975) “The Theory of ‘Screening’, Education, and the Distribution of Income.” The American Economic Review. Vol. 65 (3), June 1975, p. 283 -300. Venkatesh, B. (2003) “Principal-Agent Problem.” The Hindu Business Line [online]. Sunday, Dec 14, 2003. Available from: http://www.blonnet.com/iw/2003/12/14/stories/2003121400061100.htm. [Accessed on 07/06/2006]

Author’s Biography Mr Nthatisi Khatleli is a Lesotho nation currently studying towards his PhD in Construction Economics and Management at the University of Cape Town. Mr Khatleli is a graduate in Quantity Survying from the University of Salford (UK) and also holds an MSc in Preperty Studies at the University of Cape Town. Prior to his doctoral studies he was the Chief Quantity Surveyor to the Lesotho Government. Dr David Root is a Associate Professor in the Department of Construction Economics and Management at the University of Cape Town which he joined in 2003. He originally trained as a Building Surveyor working in both private practice and a variety of public and private sector client organisations in the UK before entering academia. David holds an Honours degree in Building Surveying from the University of Salford, and MSc and PhD degrees in Construction Management from the University of Bath. He has also undertaken a significant amount of post doctoral research at the University of Loughborough’s Department of Civil and Building Engineering in the area of design management and supply chain management working and currently is active in research in the areas of skills development, preferential procurement and Public Private Partnerships. He is a member of the CIOB, RICS and is a registered Construction Project Manager.

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FACTORS CAUSING CONSTRUCTION COMPANY FAILURE Serkan Kivrak, Anadolu University email: [email protected] Gokhan Arslan, Anadolu University email: [email protected]

Abstract In a competitive business environment, companies have to consider some critical issues to prevent business failures and continue to survive. There have been many factors that can cause business failures in the construction industry. Poor management practices, unqualified subcontractors, and lack of communication are some of the critical reasons that can negatively affect the business in construction and thus result in failure. The aim of this study is to investigate the critical factors causing construction company failure. Within this context, a survey was conducted among 40 small-medium sized Turkish construction companies. Top-level managers of the companies were interviewed and a questionnaire was administered during face-to-face interviews. The interviews took place over a five month period between January and May 2007. The ranking of the critical failure factors has been determined by using the Simple Multi Attribute Rating Technique (SMART). Based on the results, lack of business experience and country’s economic conditions were found to be the most important factors to company failure. Keywords: Business Failure; Construction Industry; Failure Factors. Introduction Organizations have to be successful in their businesses in order to survive in competitive business environments such as construction. The construction industry is changing constantly with the developments of new business methods and technologies (Koota 2003). Therefore, construction companies should follow these applications and develop appropriate strategies to be more competitive in this industry and succeed in their businesses. As construction is a risky business, the possibility of business failure always exists for any construction company. Within this context, construction companies have to consider the critical factors to prevent business failure and continue to survive in the industry. There are many definitions of failure. Bankruptcy is widely used in failure definitions (Balcaen and Ooghe 2006). Frederikslust (1978) defined failure as the inability of a firm to pay its obligations when they are due. In recent years, there has been an increase in success/failure studies, especially in the subject of project management (Hyvari 2006). Hall (1982), and Morris and Hough (1987) explained failure at the project level in construction. One of the studies on failure at the company level in construction is the study of Arditi et al. (2000). They investigated the factors related to company failures in the context of the construction industry and found budgetary and macroeconomic issues as the main reasons for construction company failure. Kale and Arditi (1999) studied age-dependent failures in construction organizations. They found that the risk of


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failure increases initially with increasing age, reaches a peak point and decreases thereafter as companies grow older. Osama (1997) presented a study of the factors that contribute to construction business failure of construction contractors in Saudi Arabia and the most important factors were: difficulty in acquiring work, bad judgment, lack of experience in the firm’s line of work, difficulty with cash flow, lack of managerial experience, and low profit margins. Kangari (1988) investigated the effect of macroeconomic factors on business failures in the construction industry, and developed a model for evaluating and forecasting these failures. Russell and Jaselskis (1992), and Abidali and Harris (1995) also developed prediction models. Schaufelberger (2003) studied business failure at subcontractor level in construction. He found the primary causes of subcontractor business failure as insufficient capital/excessive debt, lack of managerial maturity, lack of early warning measures, increase in project scope, poor billing procedures, failure to evaluate project profitability, unfamiliarity with new geographical areas, and poor use of accounting systems. He also developed risk management strategies for small, midsize, and large firms. This study aims to investigate the critical factors causing construction company failure in Turkey. Within this context, a survey was carried out among 40 small-medium sized Turkish construction companies which are located in the North-West region of Turkey. SMART was used to determine the ranking of the critical factors causing failure. Turkish contracting services The construction industry is one of the major industries in Turkey. It represents approximately 6% of Turkey's Gross National Product (GNP). Turkey started to export contracting services in the first half of the 1970s. Currently, many Turkish contractors have been operating within the international market. They have carried out $65 billion worth of projects internationally so far (Turkish Contractors Association 2007). The majority of them have been operating in the Russian Federation, Middle East Republics, Northern Africa and Far East regions. Turkish contractors gain the competitive advantage by rapid construction and high risk-taking ability. They are using the most advanced technologies in the market and are able to design, erect, build and operate almost all kinds of civil and industrial projects. Turkish contracting services can be divided into two parts: the lower-quality domestic-only set of firms, and the higher quality international firms. There are more than 30,000 active local firms and approximately 130 firms operating internationally. Additionally, there are about 70,000 companies that are not registered but that constitute the informal construction industry and most of them carry out small and irregular projects (Katsarakis et al. 2007).

Research methods The aim of this research is to find out the critical factors causing construction company failure. The survey was carried out among 40 small-medium sized Turkish construction companies which are located in the North-West region of Turkey. The majority of these firms are operating in building and housing sectors. Construction firms registered with the Chamber of Commerce at this region were considered in the study. In this survey, semi-structured interviews were carried out among top-level managers and owners of the companies. Top-level managers and owners were selected for the interviews because they were assumed to have enough knowledge about the organizational structure, culture and strategies. The 40 interviews took place over a 5 month period between January and May 2007 and each lasted approximately 1 hr. 298

The survey questionnaire was administered during face-to-face interviews and it consisted of 23 questions including both closed and open-ended questions. It was divided into two main sections. Section 1 covered general information about the companies. Section 2 dealt with factors leading to company failure. Although survey results reflect the opinions of experts from 40 firms, it is believed that they can give an idea about the critical factors resulting in company failure in the Turkish construction industry. SMART was used to determine the ranking of the critical factors causing failure. This technique was originally introduced by Edwards (1971). It is an extension of direct rating techniques. In SMART, ratings of alternatives are assigned directly. The decision maker is asked to rank each of the attributes, assigning the first ranked attribute to a score of 100. Then the performance values with relative weights for all attributes are determined and a utility value for each alternative is calculated. One of the limitations of this technique is that it ignores the interrelationships between parameters. The factors considered in the study were identified from a literature review. A total of 7 possible factors, that were felt to have an effect on the construction business failure for small-medium sized companies in Turkey, were determined. These main factors are: a lack of business experience, a country’s economic conditions, a lack of managerial experience, personal attributes, low profit margins, difficulties in winning projects, and over-trading. Similarly, the subfactors of these main factors were determined based on the literature review and their weight of importance were calculated according to the responses. Research question or research hypothesis: • What are the main factors causing construction company failure? • What are the sub-factors affecting the main factors identified that cause construction company failure, namely: lack of business experience, a country’s economic conditions, a lack of managerial experience, personal attributes, low profit margins, difficulties in winning projects and over-trading?

Research Objectives: • To investigate the critical factors causing construction company failure. • To determine the ranking of the critical failure factors. Research results The respondents were asked to evaluate the level of importance of the main factors. Table 1 shows the ranking of the factors according to their average scores and the importance as perceived by the respondents. Lack of business experience, country’s economic conditions, lack of managerial experience, and personal attributes were considered as the most important factors to company failure, respectively. Over-trading was reported to be less significant than expected.


299

Table 1. Main factors of company failure Factors

Score

Weight

Lack of business experience

82

0.1524

Country’s economic conditions

82

0.1524

Lack of managerial experience

80

0.1487

Personal attributes

79

0.1468

Low profit margins

76

0.1413

Difficulties in winning projects

74

0.1375

Over-trading

65

0.1209

Total

538

1.0000

According to the evaluation of the sub-factors for lack of business experience, difficulties with cash flow was considered the most important failure factor. Availability of cash flow is highly essential for the companies in order to continue their businesses. Generally, Turkish contractors face difficulties with cash flow due to delays in progress payments when they operate in public construction works. This situation is due to lack of funds to finance public construction works in Turkey (Dikmen and Birgonul 2003). Poor relationship with the client and lack of proper planning were determined to be the next most important factors (Table 2). The majority of the respondents considered client satisfaction as one of the most essential items in business success. They also indicated that it can give the opportunity for winning future projects in this industry. For successful business, one of the most important management practices addressed in the literature is planning (Hutchings and Christofferson 2001). Lack of proper and strategic planning can be a major determinant of company failure. Difficulty in acquiring work was reported in our study to be less significant than expected. Table 2. Sub-factors of lack of business experience Factors

Score

Importance Weight

Difficulties with cash flow

82

0.0273

Poor relationship with the client

78

0.0260

Lack of proper planning

77

0.0256

Lack of communication management

75

0.0250

Lack of financial management

75

0.0250

Difficulty in acquiring work

71

0.0235

Total

458

0.1524

Turkey experienced three different economic crises in 1994, 1999 and 2001. Many construction companies, especially small and mid-size companies, went out of business during that period. The majority of the respondents considered economic crises as the most important sub-factor of the country’s economic conditions, as might be expected. (Table 3).

300

Table 3. Sub-factors of country’s economic conditions Factors

Score

Importance Weight

Economic crises

94

0.0404

Increase in material prices

89

0.0382

Increase in interest rates

87

0.0373

Increase in exchange rate

85

0.0365

Total

355

0.1524

In this study, lack of managerial experience was considered as one of the main important factors of company failure. It is highly essential that owners also have some managerial experience. It is critical to deal well with their employees and to motivate them (Osama 1997). Decision-making is a critical issue in a successful business. Bad judgments can easily cause a company to go out of business. The respondents considered poor decision-making as one of the most important sub-factors, together with defective financial control (Table 4). The use of technology was not considered as a major sub-factor to company failure. It was considered less significant than might be expected. According to the results, personal attributes play also an important role in causing company failure. Honesty and reliability was considered as the most important factor (Table 5). This result correlates well with the study of Hutchings and Christofferson (2001), conducted among smallvolume residential contractors in the United States, in which honesty and integrity was found as one of the most important items leading to company success. Leadership and problem solving ability were listed as the next most important factors. Table 4. Sub-factors of lack of managerial experience Factors

Score

Importance Weight

Poor decision-making

82

0.0256

Defective financial control

82

0.0256

Difficulty in establishing qualified project teams

81

0.0253

Poor supervision of jobs

79

0.0247

Lack of technical expertise

77

0.0241

Under-use of technology

75

0.0234

Total

476

0.1487


301

Table 5. Sub-factors of personal attributes Factors

Score

Importance Weight

Honesty and reliability

90

0.0184

Leadership

89

0.0182

Problem solving ability

88

0.0180

Communication skills

81

0.0166

Job experience

80

0.0164

Reputation

76

0.0155

Entrepreneurial skills

75

0.0153

Self-confidence

75

0.0153

Flexibility

64

0.0131

Total

718

0.1468

Construction companies should make realistic bid proposals to win the bid. It is obvious that success does not mean simply winning the bid but completing the project with the highest possible profit-margin. Therefore, preparing accurate and realistic bid proposals during the bidding process, in which the amount of profit is determined, is highly critical (Arslan et al. 2006). However, due to high competition, companies are generally forced to reduce their profit-margin in order to be the lowest bidder and win the bid. Kangari (1988) found that more than 50% of business failures in the construction industry were due to low profits. As might be expected, competition was considered as the most important sub-factor of low profit margins (Table 6). The respondents were asked to evaluate the sub-factors of difficulties in winning projects. Based on the responses, the most important factor was identified as the financial condition of the company (Table 7). Strong financial resources can be a competitive advantage for companies in winning and performing projects. On the other hand, a shortage of financial resources can have a serious effect on acquiring new projects and expanding a company’s business volume. Table 6. Sub-factors of low profit margins Factors

Score

Importance Weight

Competition

85

0.0364

Decrease in job quality

83

0.0355

Difficulty in cash transfer

82

0.0351

Problems in cash flow

80

0.0343

Total

330

0.1413

As mentioned previously, high competition is considered a major item for adding a higher profit margin during the bid proposal preparation. Similarly, high competition is also a major cause for winning new projects and is considered highly important by the respondents. Wrong market selection is also seen as important for acquiring new works. Companies that do not have adequate experience in selected markets will probably face difficulties in winning new projects.

302

Table 7. Sub-factors of difficulties in winning projects Factors

Score

Importance Weight

Financial condition of the company

81

0.0241

Financial condition of the country

77

0.0228

Competition

77

0.0228

Lack of qualified staff

77

0.0228

Market selection

76

0.0225

Lack of technical expertise

76

0.0225

Total

464

0.1375

Over-trading was reported to be the least significant factor for company failure. Overexpansion can increase the chance of company failure (Arditi et al. 2000). Companies expanding their business more than their financial limits can have severe shortages of cash flow as indicated by the respondents in this study (Table 8). Difficulty in establishing qualified project teams and job control can be the other major consequences of overexpansion. Table 8. Sub-factors of over-trading Factors

Score

Importance Weight

Increase in need for cash

80

0.0312

Difficulty in establishing qualified project teams

79

0.0308

Difficulty in job control

77

0.0300

Shortage of workforce

74

0.0289

Total

310

0.1209

Discussion and conclusions This study presented the results of the survey carried out among small-medium sized Turkish construction companies. The critical factors causing construction company failure were investigated through interviews among top-level managers and owners of the companies. According to the results, lack of business experience, a country’s economic conditions, and a lack of managerial experience were identified as the most important main failure factors. Economic crisis was perceived to be the most important factor resulting in company failure when considering the weight of importance of the factors identified. This result might be expected since the country experienced serious economic crisis in the last years and many contractors failed during that period. Moreover, it was interesting to note that managers/owners did not consider the use technology as a highly essential item for company failure. The findings from the study should be interpreted with caution since the sampling was limited to only 40 small-medium sized firms. Future research involving managers/owners of top construction contractors can provide a comparison of the results of studies conducted in other countries.


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Key Lessons Learned: • Lack of business experience, a country’s economic conditions, and a lack of managerial experience were identified as the most important critical failure factors. • Economic crisis was determined to be the most important sub-factor. References Abidali, A. F., and Harris, F. (1995) ‘‘A methodology for predicting company failure in the construction industry.’’ Construcion Management and Economics, 13, 189-196. Arditi, D., Koksal, A., and Kale, S. (2000) ‘‘Business failures in the construction industry.’’ Engineering, Construction and Architectural Management, 7(2), 120-132. Arslan, G., Tuncan, M., Birgonul, M. T., and Dikmen, I. (2006) ‘‘E-bidding proposal preparation system for construction projects.’’ Building and Environment, 41(10), 1406-1413. Balcaen, S. and Ooghe, H. (2006) ‘’35 years of studies on business failure: an overview of the classic statistical methodologies and their related problems.’’ The British Accounting Review, 38, 63-93. Dikmen, I., and Birgonul, M. T. (2003) ‘‘Strategic perspective of Turkish construction companies.’’ Journal of Management in Engineering, 19(1), 33-40. Edwards, W. (1971) ‘‘Social utilities.’’ Engineering Economist, Summer Symposium Series, 6, 119-129. Frederikslust, R. A. I. (1978) Predictability of Corporate Failure, Martinus Nijhoff Social Sciences Division, Leiden, The Netherlands. Hall, P. G. (1982) Great planning disasters, University of California Press, Berkeley, CA. Hutchings, M., and Christofferson, J. (2001) ‘‘Factors leading to construction company success: perceptions of small-volume residential contractors.’’ ASC Proceedings of the 37th Annual Conference, University of Denver, Colorado, 263-270. Hyvari, I. (2006) ‘‘Success of projects in different organizational conditions.’’ Project Management Journal, 37(4), 31-41. Kale, S., and Arditi, D. (1999) ‘‘Age-dependent business failures in the US construction industry.’’ Construcion Management and Economics, 17, 493-503. Kangari, R. (1988) ‘‘Business failure in construction industry.’’ Journal of Construction Engineering and Management, 114(2), 172-190. Katsarakis, Y., Rezk, A., Sazak, E., Shaydullin, H., and Yadikar, B. (2007) Turkey & The Construction Services Cluster, Microeconomics of Competitiveness - Spring 2007. Koota, J. (2003) Market review and study of success characteristics in construction companies Case: United States, VTT Research Notes 2195, ESPOO 2003.

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Morris, P. W. G., and Hough, G. H. (1987) The anatomy of major projects: a study of the reality of project management, John Wiley & Sons, New York, NY. Osama, J. M. (1997) ‘‘Reasons for construction business failures in Saudi Arabia.’’ Project Management Journal, 28(2), 32-36. Russell, J. S., amd Jaselskis, E. J. (1992) ‘‘Quantitative study of contractor evaluation programs and their impact.’’ Journal of Construction Engineering and Management, 118, 612-624. Schaufelberger, J. E. (2003) ‘‘Causes of subcontractor business failure and strategies to prevent failure.’’ Construction Research Congress 2003, Hawaii, USA. Turkish Contractors Association. (2007) www.tmb.org.tr. Author’s Biography Serkan Kivrak is a research assistant in the Civil Engineering Department at the Anadolu University, Turkey. He obtained his BSc in Civil Engineering from the Middle East Technical University, Turkey and MSc from the Anadolu University. His main research interests are project management, knowledge management, and cross-cultural management in construction.

Gokhan Arslan is an assistant professor in the Civil Engineering Department at the Anadolu University, Turkey. He obtained his BSc in Civil Engineering from the Karadeniz Technical University, Turkey, his MSc from the Stevens Institute of Technology, USA, and his PhD from the Anadolu University. His main research interests are project management, information technology, and ebusiness in construction.


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THE IMPACT OF BUDGET IN THE PURCHASING PROCESS OF CONSTRUCTION COMPANIES Adriana de Paula Lacerda Santos, Federal University of Paraná email: [email protected] Mauro Lacerda Santos Filho, Federal University of Paraná email: [email protected] Abstract Project management brings about the reduction of costs and the increased efficiency in the execution of constructions steps in the contractors business. The implementation and the control of the budget is a singular and important subject in this context. The presentation of the application of a budget based on the scheduled project of one Construction Company, as presented, indicates the impact of this budget in the purchasing schedule and its relationship with the efficiency of the results. The research method used, the case study, looks at the introduction of detailed construction budgets for 472 houses to be made in nineteen months with $ 6, 4 millions US. The budget developed for the company was made using the MS Project software and it is integrated with the project schedule. The basis of this project planning is budget detailing, furthermore, the structure of this procedure is different from the traditional way of developing construction budgets in Brazil. The development of the research contains the following steps: the choice of production system, construction of the project planning system in MS Project and its detailed budget, the development of control mechanisms, and the results analysis. The conclusion indicates the advantages of using this methodology and also it indicates the changes which are necessaries to have a purchasing planning to be able to affect the actual project costs control. Keywords: Purchasing; Civil Construction; Proactive Procurement.

Introduction The material purchasing process has the responsibility of supplying the customer’s buying necessities, it is also responsible for the planning in a quantitative and qualitatively way. Moreover, it intends to guarantee that the customer will receive the material in the right time, with the right quantities, and within the desired specifications (BURT, PINKERTON, 1996). In order to execute this important task, the material purchasing function is considered to have a fundamental role in the supply chain. This technical paper uses the proactive purchasing procedure as the purchasing management strategy, and presentation of the concept is a very important. Proactive purchasing can be defined as purchasing which is focused on strategic activities. It puts emphasis on long range relationship negotiation activities, expanding the supplier’s and material’s total cost, instead of doing it in repeated demands and stock repositions (BURT, PINKERTON, 1996). building abroad, Montreal, October 2008

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The following list contains the goals of the proactive purchasing procedure (BURT, PINKERTON, 1996): •

Making sure of purchasing continuity to keep effective relationships with existent sources, developing other supply alternatives, or attending the emergent or planned necessities, selecting the best suppliers.

•

Keeping solid and cooperative relationships with the other organizational functions, supplying necessary information, and advising to make sure of the effective operation of the entire organization.

•

Developing the training of employees, and the adoption of procedures organization to make sure to reach the previous goals.

•

Keeping a balance between quality and value, obtaining products and services in the necessary quantity and quality for the lower cost.

•

Surveying market tendencies.

•

Developing methods to negotiate purchasing conditions to deal with suppliers that look for mutual benefit by means of superior economic performance.

•

Developing and keeping good relationships with the suppliers, besides developing potential suppliers.

•

Emitting and controlling purchasing solicitation.

Proactive purchasing operation The task to implement the proactive purchasing in civil building companies is a challenge. The implementation success is strictly related to the strategies of the activities operation which involve the process of purchasing that guarantees the quality of the process (CAMPOS, 1992; SOUZA, 2001). One tool that can be used to develop a continuous improvement process in the purchasing process is Deming’s PDCA cycle (1986) wherein “P – Plan” refers to planning activities, “D – Do” means the execution phase activities, “C – Check” indicates the monitoring activities, and “A – Act” for critical analysis of the activities and improvement proposals. Applying this management tool to the material purchasing process, the improvement cycle PDCA would get the following shape. Proactive purchasing starts in project conception, which is usually executed by the engineering or marketing areas. The responsible team for the project considers the enterprise’s goals and develops solutions for the product, subsystems, and components (TAYLOR, 2003). The quality assistance area analyzes the projects and makes the proper contributions (KURAL, ALSAC, 2006). The purchasing department participates in this process indicating new materials, rating prices quotations, and looking for new suppliers (LAWTHER, MARTIN, 2005). The next phase is characterized by the accomplishment of the programming phase of the execution of the project according to the organization strategy. The purchasing team elaborates the purchase planning, which is based on the enterprise’s projects and specifications, on the production planning, and the detailed budget that reflects the organizational reality (DONK, 2004). The purchasing process must contain the procedures to put the activities that constitute its routine into practice, to avoid that each collaborator acts in a particular way (STJERNSTROM, BENGTSSON, 2004). This doesn’t mean that the process must be set in stone but that policies should exist that orientate the elaboration of activities. With the application of the structuring of the proactive purchasing process, the team involved with purchasing uses most of their time in planning activities, negotiations, and control, what makes 308

the purchasing operational (solicitation, estimating, and purchasing) and faster (COX et. al., 2005). When the purchase planning is done, it is necessary to effectuate its control and, if necessary, repeat the planning of the activities in order to guarantee that the production area is attended according to the negotiated conditions (LAWTHER, 2003). The purchasing process must be continuously analyzed, so that the process’ bottlenecks are identified as well as the possibility of aggregating value to the process. As already described by Burt, Pinkerton (1996), the application of proactive purchasing procedures allow the material purchasing process to be focused on strategic actions, which are, the acquisition’s planning realization, and also the relationship with the suppliers. Furthermore, the operational phase will likely be faster than in the traditional model, and it also meshes with the necessities of the final customer, that is, to deliver the material in the right quantities, at the right time, and under the best purchasing conditions. Purchase planning The classic author of management theory, French industrialist Henri Fayol (1841-1925), described management as involving five activities: planning, organizing, commanding, coordinating, and controlling (LAUDON, LAUDON, 1999). Contemporary authors such as Robbins (2003) reduce these activities to 4 management functions: planning, organizing, leading, and controlling. Therefore, according to “traditional management theories”, to manage can be defined as the effort to reach organizational goals by planning, organization, leadership, and control. Nevertheless, planning can be defined as “the decision making process that involves goals establishment and the necessary procedures to reach them, being effective when it is followed by a control step” (HEINECK, 1996). It is possible to establish, in an in depth way, the types of planning, as follows: •

Strategic planning: in this level the decisions taken are long ranged. In this, planning is defined as the target and the goals to be reached by the purchase area in the next five years. For Example, to institute “no fails” in activities that involves material purchases (LAUFER, TUCKER, 1987).

•

Tactical planning: in this level the decisions are systemized between short and long range time periods. In this, planning is defined by which and how many resources must be used to reach the goals defined by strategic planning, as well as its acquisition path and the organization of the work structuring (EDMONDSON, 1999; LIAN, LAING, 2004).

•

Operational planning: it selects, in a short range time period, the path for necessary operations to reach the goals (SCHIELE, 2005; SEIFERT, 2003).

The planning procedure for the specific material purchasing in an industry is included in the tactic and operational part of the planning of the purchasing process (ANCARANI, CAPALDO, 2005). Independent of the planning level considered, the planning procedures goes through four steps (CALDWELL et. al., 2005). Those steps are: the diagnosis of the current situation, goals development, activities structuring the process according to chronological order and execution, monitoring, and control of the activities. The prerequisites needed for purchase planning elaboration are the enterprise’s projects and specifications, the planning and detailed budget, the supplier involvement, and cash flow availability (BALAKRISHNAN, 2005). Acquisitions planning can be formal or informal, highly detailed or generic, and based on the necessities of each company (SMELTZER, MANSHIP, ROSSETTI, 2003). The most important characteristic is that this planning must describe when, who, and how the materials will be acquired in the next year, term, and month.


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Enterprise’s budget A project (job) budget can be defined as an estimative or foresight expressed in financial or material terms, which aims to help the management and decision actions, this is valid for the company as a whole or just for a job. The material quantities are related to, for instance, the quantities of office material, building material, hours of labor, and/or hours of equipments. On the other hand, the financial quantities are related to the budget, expenses, costs, earnings, and/or disbursements (PIETER, VAART, 2004). It is usual for construction companies to carry out a general budget, even if restricted to services and unitary prices, without knowing for sure when certain inputs or services will be effectively done on the building site. The conventional budget does not reflect the way the work is executed, begetting the nonacquaintance with the real construction cost. Considered the form of a conventional budget, those items are measured by quantity and grouped by teams, independently to where the work occurs or the difficulty of construction (LIMMER, 1997). However, the conventional budget shows a general average of the works, this sight tends to raise the risks and consequently to raise the construction costs. A solution to improve the budget’s efficiency is the utilization of an operational budget (KEELING, 2002). The budget in the construction industry is a job cost foresight tool. Meantime, another chain has been better evaluated, the operational sight. The operational sight consists essentially in adjusting the information given by the budget to the data obtained in the job, according to the operation concept, that is, every task executed by the same kind of man power, in a continuous way, without interruption, with a well defined beginning and end. In summary, the operational budget is strictly related to the moment (time) of operation execution in the job (LIMMER, 1997). In the conventional budget, the way the job is conducted is not reflected. Thus, it will not reflect the real building costs. In the conventional budget, job items are measured by quantity and grouped by teams, independently of where the job occurs or the construction difficulty. Therefore, the conventional budget does not reflect a particular service cost, but only the general average of the jobs. This situation tends to raise the risks and later raises the average price, discouraging the architects to look for projects savings (GELDERMAN, WEELE, 2004). Among these chains, the biggest difference is in the time factor. While in the conventional approach, the budget is done based on the finished construction, disregarding the processes involved in the execution step, in the operational approach one sets forth on a previous programming, analyzing all the constructive processes minute by minute, in order to obtain a detailed cost estimate. In this last approach, only the material cost is proportional to the produced quantity, while the labor and equipment costs are proportional to time (GELDERMAN, WEELE, 2004). In the conventional budget, costs are obtained for each service. In the operational budget costs are obtained for each operation. The main difference between service and operation (LIMMER, 1997) can be stated as it follows: operation is an array of tasks executed in a continuous way and without interruption, with beginnings and ends well defined by a specific man power. On the other hand, service is an array of operations that when done, result in a functional job part and can involve many man power categories. The differences between conventional and operational budgets can be seen in Figure 1.

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Fig. 1. Differences between conventional and operational budgets The conventional budget does not reflect the way that work is conducted, begetting the nonacquaintance of the real construction cost. In the conventional budget the items are measured by quantity and grouped by teams, independently of where the job occurs or the difficulty of the tasks involved (LIMMER, 1997). Notwithstanding, the conventional budget shows a general average of the jobs. This view tends to raise the risks and consequently raise the building costs. A solution to improve the budget’s efficiency is the utilization of the operational budget (LIMMER, 1997). With structured planning of the job it is possible to carry out the enterprise’s operational budget. This budget is entailed to the enterprise’s planning, following the same codification structure. The purchase area has the function to tax the materials according to the enterprise’s project. The results of this stage will be the enterprise’s detailed budget developed in a software that has an interface with the planning software and that enables, besides the budget, the control of work costs (GEHBAUER et. al., 2002). Research methods The objective of the present work was to develop a budget based on the work programming of a construction company. Thus, the type of research method used was the case study. The following data collection instruments were used during an eighteen month period: document survey, direct observation, and interviews with the parties involved in the function. During the interviews the intention was to collect evidential documents such as: quality manuals, documents that are part of PBQP-H, forms, and procedures to carry out tasks fitted for the material purchasing process. The interviews were based on a semi-structured questionnaire with questions referring to the material purchasing process, the planning elaboration job routine, and the project budget. According to the interviewee answers, it became possible to identify in which development stage the purchasing process was. The construction company was surveyed for their material purchase process routine, aiming to collect information before (stage 1) and after (stage 2) the based on job programming budget building abroad, Montreal, October 2008

311

implementation. This paper presents the main results of the research in order to discuss the importance of budgets for companies. The logic for the mentioned research went through the following steps: •

Planning: in this step questions were defined that formed the basis of this research. It was searched by means of a literature review, what the previous authors published regarding material purchasing areas.

•

Formulation: the budget structuring logic was developed based on texts about the pro-active purchase and also in the directresses about continuous improvement applied on production management

•

Implementation and evaluation: this step was intended to collect information about the purchasing process for the case study, before and after the implementation of a budget based on work programming. With the collected data it was possible to perform the case study analysis aiming to verify if an improvement in the customer’s target condition (job) and the purchasing proceedings had occurred.

Data collection results Case study 1(CS1) is a company from Paraná State that offers solutions for civil construction projects management areas. The analysis of CS1 was performed at the time that the company was building 472 houses to be finished in nineteen months, with an expected cost of $ 6, 4 millions US. The budget developed for the company was executed using the MS Project software and is integrated with the project schedule. The basis of this project planning is the budget detailing. The structure of this procedure is different from the traditional way of performing construction budgets in Brazil. Before the implementation of the budget based on job programming, CS1 carried out the conventional budget, that is, structured by services and finished in a large way. After several meetings with the team involved in purchasing, they realized that the adoption of the detailed budget would make the purchase process routine easier. The team involved with purchasing themselves offered to develop this budget in a MS Excel spread sheet. The activities that will be described passed through the purchasing area actuation step in the CS1 work budget stage. The budget department for CS1 was responsible in making the quantitative survey of the services and following the structure of the developed operational planning. This task was quite slow, because the dynamic of the quantitative survey had changed. Initially the team observed a planning item (for example: the masonry for the first pavement of house number 1) and after that they consulted the project and calculated the quantitative study of that service. The result of this stage was the fulfillment of the “quantity” column that was side by side with the column that contains the activities described in the operational planning. As the company didn’t have real consumption constants, some were utilized from the services compositions from “Tabela de Custos para Orçamentos” (Budgets Costs List - BCL) – published by Pini. All the inputs that made up part of the BCL services composition, were taxed by CS1 buyers. Many price estimates for the inputs were performed. For each supplier, they were given the buying foresight for each input and also, when necessary, project copies and material specifications were delivered. Having the structured planning and the work project, it was possible to do the complete detailed job budget. This budget was entailed to the enterprise’s planning, following the same codification structure. This stage resulted in the detailed project budget developed in an Excel spread sheet. The work’s budget stage was divided into four activities (quantitative survey, consumption constants utilization, inputs market estimates and work budget detailed by activity), as shown in Table 1. When the company did the activity its scoring was 1(one), when the activity was not 312

effectively developed its scoring was 0(zero). Making an acting analysis of CS1 for the budgets elaboration, it was possible to realize (Table 1) that the company, after the intervention, got a significant improvement, raising its score from two to four (maximum score). This improvement was achieved due to of a large effort of the team involved in the elaboration of the suggested activities. Table 1. CS1 performance in work budget Case Study 1 Activity before Actuation on work’s budget Quantitative survey by activity Consumption constants utilization Inputs quotation in market Work budget detailed by activity

2 0 1 1 0

after 4 1 1 1 1

Reseach results Starting from the observations of CS1’s performance in the work budget stage, it’s possible to realize that during the intervention it was possible to develop the operational budget, because this company had the designs and specifications and also detailed job planning. The possibility to manage the complete job, originating from the operational budget, brought many reflections about the job done in the company. The decision making power was increased since the purchase planning information was previously approved. This task was made possible because the budget has the necessary details to make the negotiation in advance and within the suppliers, whereas the operational budget showed when each material or equipment would be utilized in each job step and its quantity. The use of the operational budget was a challenge, because the conventional budgetary technique, using consumption indicators by inputs for each service, was widely used by the company. The introduction of a new technique had to overcome this obstacle. The purchasing team in CS1 was receptive when the methods to elaborate the operational budget were presented. The biggest question was with respect to the time needed to elaborate the budget. This fact is an aggravating circumstance in the utilization of operational budgets, because the involved, with planning and traditional budgets, are used to carrying out these activities quickly. The proactive purchasing implementation in CS1 pointed to some relevant considerations such as, the importance of enterprise planning and operational budgets. The lack of planning and/or the operational budget has direct implications in the acquisition of plans and without these activities it is not possible to develop a purchase plan that shows the actual enterprise’s execution. In such case, the proactive implementation success is directly related to the planning quality and work budget. With the proactive purchasing implementation, the focus of the activities developed by the construction industry purchase team starts to have a new role in the whole construction process (ex: negotiation of big lots, planning, operational budgets, and acquisition planning realizations) Proactive purchasing, for effective use, needs a qualification change from the crew involved in purchasing. It is necessary to carry out an alteration in these professionals profiles, mainly the buyers, including negotiation knowledge, planning, budget elaboration, project and specification interpretations and the creation of suppliers’ partnership. By means of these changes, the construction buyer’s profile must change. The buyer stops being a professional concerned with receiving the requisitions and effectuating the materials purchase, and starts being a negotiator focused on the company’s strategic factors and not just on the unitary material cost. building abroad, Montreal, October 2008

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This paper describes the results of a cooperative university-company work, with immediate practical implications that points to improvement directions for construction companies purchasing processes. This paper presents a way of budget process realization in a construction company based on job programming and identifies the improvements generated by this process, as well as the professional profile changes which are needed. Many of the improvements obtained were implemented without too much cost to the company. It was enough, only postures changed in the team involved with budgets and purchases. For that it was necessary to devote a bigger effort to enterprise’s planning in order to proportion a bigger coherence of the developed budget. References Ancarani, A.; Capaldo, G. (2005) “Supporting decision-making process in facilities management services procurement: A methodological approach.” Journal of Purchasing and Supply Management, Volume 11, Issues 5-6, (September-November 2005), pp. 232-241. Balakrishnan, J.; Cheng, C. H. (2005) “The theory of constraints and the make-or-buy decision: an update and review. Journal of Supply Chain Management. Vol. 41, Iss. 1, winter 2005, pp. 40-48. Burt, D.N.; Pinkerton, R.L. (1996) A purchasing manager’s guide to strategic proactive procurement. Amacom: American Management Association. Caldwell, N.; Walker, H.; Harland, L. K.; Zheng, J.; Wakeley, T. (2005) “Promoting competitive markets: the role of public procurement.” Journal of Purchasing and Supply Management, Volume 11, Issues 5-6, September-November 2005, pp. 242-251. Campos, V.F. Tqc. (1992) Controle da qualidade total(no estilo japonês). Belo Horizonte, Fundação Cristiano Ottoni: Bloch Editores. Cox , A.; Chicksand, D.; Ireland, P. (2005) “Overcoming demand management problems: the scope for improving reactive and proactive supply management in the UK health service.” Journal of Public Procurement. Vol. 5, Iss. 1, pp. 1-23. Day, M.; Atkinson, D. J. (2004) “Large-scale transitional procurement change in the aerospace industry.” Journal of Purchasing and Supply Management, Volume 10, Issue 6, November 2004, pp. 257-268. Donk, D. P. (2004) “Redesigning the supply of gasses in a hospital.” Journal of Purchasing and Supply Management, Volume 10, Issue 3, Pages 105-147 (May 2004), Pages 225-233. Edmondson, R. E. (1999) “Project planning = project success.” Construction Industry Institute. Construction Project Improvement Conference. Proceedings, Santo Antonio, August 1999. Gehbauer, F.; Eggensperger, M.; Alberti, M. E.; Newton, S.A. (2002) Planejamento e Gestão de Obras. Curitiba: CEFET-PR. Gelderman, C. J.; Weele, A. J. V. (2004) “Handling measurement issues and strategic directions in purchasing portfolio model.” Journal of Purchasing and Supply Management, Volume 10, Issue 3, May 2004, pp. 105-147. Heineck, L. F.M. (1996) Estratégias de Produção na Construção de Edifícios. Florianópolis. Keeling, R. (2002) Gestão de Projetos: uma abordagem global. São Paulo: Saraiva. 314

Laudon, K. C. E Laudon, J. P. (2002) Sistemas de informação – com internet. 4° edição, Rio de Janeiro:LTC. Laufer, A.; Tucker. R. L.. (1987) “Is construction planning really doing its job? A critical examination of focus, role and process.” Construction Management and Economies, Londres, E. E F. N. Spon, v. 5, n. 3, may 1987. Lawther, W.C.; Martin, L. (2005) “Innovative practices in public procurement partnerships: The case of the United States.” Journal of Purchasing and Supply Management, Volume 11, Issues 5-6, September-November 2005, pp. 212-220. Lian, P. C. S.; Laing, A. W. (2004) “Public sector purchasing of health services: A comparison with private sector purchasing.” Journal of Purchasing and Supply Management, Volume 10, Issue 6, November 2004, pp. 247-256. Limmer, C. V.; (1997) Planejamento, orçamentação e controle de projetos e obras. Rio de Janeiro: Editora Livros Técnicos e Científicos,. Pieter, D.D.; Vaart, T. (2004) “Business conditions, shared resources and integrative practices in the supply chain.” Journal of Purchasing and Supply Management, Volume 10, Issue 3, May 2004, pp. 107-116. Prado, D. (1998) “Planejamento e controle de projeto.” Minas Gerais: Editora de Desenvolvimento Gerencial. Schiele, J. J. (2005) “A tool for assessing the value contributed by public purchasing departments throughout various stages of competitive acquisition processes for consulting services.” Journal of Public Procurement. Vol. 5, Iss. 1. pp. 73 – 86. Seifert, D. (2003) “Collaborative Planning, Forecasting, and Replenishment: How to Create a Supply Chain Advantage.” Journal of Supply Chain Management. Vol. 39, Iss. 4, Fall 2003, pp. 38. Smeltzer , L. R.; Manship, J.A.; Rossetti, C. L. (2003) “An analysis of the integration of strategic sourcing and negotiation planning”. Journal of Supply Chain Management. Vol. 39, Iss. 4, Fall 2003, pp. 16. Souza, A. G. C. (2001) “Métodos aplicáveis a medição e avaliação da performance logística como base para o gerenciamento contínuo de mudanças”. Dissertação de mestrado Programa de Pós-graduação em Engenharia de Produção, UFSC, 2001. Stjernström, S.; Bengtsson, L. (2004) “Supplier perspective on business relationships: experiences from six small suppliers.” Journal of Purchasing and Supply Management, Volume 10, Issue 3, May 2004, pp. 137-146. Taylor, T. K. (003) “The proper use of offsets in international procurement.” Journal of Public Procurement. Vol. 3, Iss. 3, pp. 338-357.


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Author’s Biography Adriana de Paula Lacerda Santos obtained her degree in Civil Engineering 15 years ago. She concluded her master’s degree in Civil Construction at the University Federal of Paraná in 2002 and her PhD in Civil Engineering at University Federal of Santa Catarina in 2006. Currently she is professor and researcher at the University Federal of Paraná. She has experience in production systems with emphasis on production administration. Her main interests are: planning and control of production, administration of purchasing, and entrepreneurship. Mauro Lacerda Santos Filho has a degree in Civil Engineering from University Federal of Paraná (1979), a master’s degree in Civil Engineering from Catholic University of Rio de Janeiro (1984), a master’s degree in Civil Engineering from the University of Alberta (1988), and a Ph.D. in Civil Engineering from Colorado State University (1990). Currently he is professor at University Federal of Paraná, and is the Dean of The Faculty of the Engineering. He has experience in the areas of Civil Engineering with emphasis on concrete structures. His main interests are: systems of bridge management structural performance, routine inspections, and construction costs.

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PROACTIVE PURCHASING IN CIVIL CONSTRUCTION COMPANIES Adriana de Paula Lacerda Santos, Federal University of Paraná email: [email protected] Antônio Edésio Jungles, Federal University of Santa Catarina email: [email protected] Abstract The adoption of new Strategic Proactive Purchasing for Brazilian Contractor companies was the subject of a Ph.D. thesis. It was presented in order to discuss the use of that application in the field of engineering business. The study summarizes the situation of four contractor companies before and after the introduction of the Procompras model, which is strongly based on proactive purchasing procedures. Moreover, some interesting aspects of the internal culture of the Brazilian companies are briefly discussed and a conclusion is presented. The research method used was the case study. A bibliographic review of proactive procurement is the basis of the design of the Procompras model, plus the study of the purchasing procedures used by six civil contractors companies in addition to ten year’s professional experience in this area. The conclusion of the studies and the application of the designed and developed Procompras Model brought up several suggestions for improvement of the purchasing procedures of the companies. The study results present several suggestions for the improvement of this process. These improvements were based on the literature review regarding the main concepts of strategic proactive procurement and the Procompras Model created during the thesis. The obtained results showed that it is possible to add value to the purchasing process and to introduce the improvements suggested by the application of the Procompras model with few resources investments. Keywords: Purchasing; Civil Construction; Proactive Procurement

Introduction This article discusses the main results obtained with the “Procompras” model implementation, developed by this article’s author, in four civil construction sector companies, two of them in Florianópolis and two in Curitiba, Brazil. The “Procompras” model has the objective of orienting the construction companies to implant proactive purchasing in the material purchase function and can also be utilized to measure the proactive level of this function. One way to substantially reduce the problems of the traditional material purchases is in the implantation of proactive purchasing (CUNNINGHAM, 2000). Proactive purchasing can be building abroad, Montreal, October 2008

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defined as the purchasing focused on strategic activities, where the emphasis is given in negotiation activities, in work, and acquisition planning realization in order to reduce total material cost (BURT, 1996). Utilizing purchase planning, the purchase team could previously negotiate medium and long range supply contracts in terms of price, delivery time, and quality, in very favorable conditions because of the involved volume (ALBERTIN, 2001). With this, the decisions based on personal relations, intense manual research, and limited departmental sight are eliminated. The implementation of proactive purchasing in material purchase functions can bring an unmatched opportunity of efficient and fast delivery to the customers, within the purchase policy adopted in the company (BLUMENSCHEIN, 2000). With the proactive purchase implantation, the user will ask directly for the material delivery and not for the material requisition, making the material purchase function faster and more efficient (SANTOS, 2002). With the pro-active purchase implantation adopted in e-commerce, there can be a sharing of responsibilities, where as in the traditional functions they are the responsibilities of the purchase team (SANTOS, 2002). In such way it is possible to liberate the team for more aggregated value activities and better strategic content, such as purchase analysis, long range purchase planning realization and supplier relationship management (FARACO, 1998). With the automatized proactive purchase implanted in the material purchase function, it’s also possible to reduce the contract costs (CUNNINGHAN, 2000). Automating the whole process (purchase requisition, authorization, rating, integration with the corporative system, requisition to the supplier and product delivery) the construction company can reduce the purchase cycles and the dealing costs, as well as reducing the paper flux (GRILO, 1998). Accurate situation diagnostics of the material purchase function in the civil construction sector, in relation with the proactive purchase implantation in material purchase functions, are as rare in Brazil as abroad. Therefore, the significance of this work is in analyzing the validation of a purchase area with a new implementation of proactive purchasing. Could this differentiated buying technique contribute to general performance improvement of the organization’s purchase function? Strategic view of material purchase function One of the main problems faced by the material purchase functions in many organizations has been the failure in developing its proactive strategic role (PORTER, 1991; HERBIG et al, 1996). Since the 1980’s, organizations have become increasingly conscientious of the gain that the strategic focus activities can generate to the material purchase function (BURT, 1996). In recent years, much more attention has been dedicated to the mutual relationship developing between suppliers and customers, where the benefits of making business result from sharing ideas (PORTER, 1991; DUMOND, 1996). With the implantation of a strategic implementation of the material purchase functions, the involved organizations intend to collaborate in identifying common interests. With rising attention dedicated to the purchase functions the work, according to the proactive vision, tends to become more strategic, aggregating the contextualization of long range impacts to the management activities (BOWEN et al, 1997; MILES et al, 1997). The strategic decision of the purchase function must be defined according to the content and the strategic decisions direction of the enterprise (PORTER, 1991; HERBIG et al, 1996). This strategic approach implies the purchase areas involved must concentrate their efforts, for most part, in long range relationship negotiation activities, supplier development, and purchase packages total cost reduction, instead of effectuating each solicitation separately without a strategic vision (PORTER, 1991, MILES et al, 1997, DUMOND, 1996). The strategic role of purchase function is greatly affected by the management maturity stage that is reached by the organization. The more developed an organization is, the more probable that an 318

inter-functional strategic activity, which aggregates value and gives competitive advantage to the organization (DUMOND, 1996). This change in material purchase function implies an operational focus growth for planning activities and, simultaneously, proportional efforts in reduction of purchase operational activities. According to BOWEN et. al. (1999), customers of big companies such as IBM, Nissan, Ford, and Hewlett Packard spend only part of their time in administrative and bureaucratic activities. Most of their activities are concentrated on the establishment and development of appropriate relationships with suppliers. The emphasis for these companies has evolved to a pro-active material purchase function implementation, in order to improve companies’ operations at every level. For BURT (1996), with the pro-active purchase implantation in the material purchase function, this function starts to have other objectives besides meeting a supplier that is disposed to change goods or services into a determined amount of money. The purchase function objectives, based on the inherent pro-active purchase concepts, can be described as following: •

To assert purchase continuity to keep effective relationships with existing sources, developing other alternatives for supplying sources, or to attend the emergent or planned necessities by selecting the best suppliers.

•

To keep solid and cooperative relationships with the other organizational functions, by supplying information and counseling to maintain efficient operation in the whole organization.

•

To develop abilities of improvement of policy for the involved stakeholders, asserting the foreseen objectives to be reached.

•

To keep quality and value equilibrium, obtaining goods and services in the right quantity and quality for the lowest cost.

•

To monitor the market tendencies.

•

To efficiently deal with the purchase conditions, to work with suppliers that are looking for mutual benefits by means of economically superior performance.

•

To develop and keep good relationships with suppliers in addition to developing relationships with potential suppliers.

•

To emit and manage purchase solicitation.

It is important to emphasize that there is not one unique routine for the material purchase function; this depends on the production system configuration of each industry, and each one of them requires a different supply system and consequently a routine difference for the purchase function. Moreover, to centralize the purchase is not always the best option for the construction companies, but it is the most utilized. As described by BURT (1996) with the pro-active purchase implantation, the material purchase function stays focused on strategic activities, that is, on acquisition planning realization and also on the relationship with the suppliers. With this, the operational stage gets more flexible than in the traditional model, and matches the final customer necessities, which are to deliver the material in the right quantity, right moment, and also in the best purchase conditions. The Procompras model The PROCOMPRAS model was developed with purpose to guide the proactive purchase implantation in the material purchase function. This model will be useful to evaluate, diagnose, and orient the small, medium, and large size construction companies about their material purchase function performance. The PROCOMPRAS model is based on an organization (Construction Company) systemic focus, and is represented on Figure 1.


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The material purchase function dynamic after the PROCOMPRAS model implantation must now happen the following way. The purchase area must triggered with specification activities to help a new project’s material choice. After the material specification definition, the purchase area verifies if registered suppliers can attend to the necessary material demand for the new project. Supposing that they cannot, the purchase area must search suppliers on the market to form partnerships. The purchase area also activates work planning activities in order to direct the changing by the work execution strategy according to the supplier’s availability. After that, the purchase area elaborates the acquisition plan that must contain the total quantity by period of necessary materials for all the work. Having the necessary materials amount by period (year, semester, and month) at hand, the purchase area deals with the purchase conditions, with the suppliers, and solicits approval from the construction company management. If the delivery solicitation is in accordance with the planning, it is sent to the supplier or, supposing it is not part of the planning, it is sent for approval. The supplier informs the requisition conditions for the user and, on the foreseen date, delivers the material to the user. It is important to emphasize that there is not only one configuration for the purchase function that is adequate for every construction company. It is known that each company has different characteristics (centralized or decentralized purchase) and can act in several situations. With the developed PROCOMPRAS model, it is intended to show that there are activities, within the material purchase function, that are important and contribute to this function’s efficiency. It’s not intended to “plaster” this function through proposed stage sequencing but to illustrate the purchase function working dynamic with PROCOMPRAS model implantation.

Construction Production

Purchase Multi-skilled projects and specifications

Engineerin

Multi-skilled Planning Multi-skilled budget

Administratio n of people

Creation of partnerships Planning of purchases

Finances

Request of delivery

Fig. 1. The Structure of Procompras Model

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Customer´s satisfaction

Research methods The main purpose of this work is to understand and to make a profound study of the knowledge relevant to the material purchase function, in order to point improvement opportunities for four civil construction companies. Thus, the utilized research method was the case study. The following data collection instruments were used in a period of approximately twenty-two months: document collection and direct observation with the involved stakeholders in the function. During the interviews, collection of evidential documents was attempted. Documents such as: quality manuals, sections of PBQP-H documents, forms, and procedures for material purchase function pertinent to tasks realization. The interviews were based on a semi-structured questionnaire with questions referring to the material purchase function and also concerning the work routines of each individual interviewed. Looking at the responses, it became possible to identify at which stage, in which development stage, the purchase function occurred. The PROCOMPRAS model implantation in material purchasing requires an elevated intervention time. For this reason, companies settled in Florianópolis and Curitiba were prioritized because of the geographic facilitation for the work realization. In addition, the site area (buildings) was taken into account, and the interest of the companies in terms of the work, since the proactive material purchasing implantation depends on the effective participation of the involved. Four construction companies were analyzed in terms of material purchase routine, with the aim to collect information before (stage1) and after (stage2) the PROCOMPRAS model implantation in the purchase function. Case study 1 (CS1) is a company from Paraná State that offers solutions for the civil construction enterprises’. The analysis (stage 1) done on CS1 was conducted when the company was finishing a seven residential building. At the time of the intervention, (stage 2) for CS1, the company was working on a six house residential block, situated near Curitiba. Case Study 2 (CS2) is a small sized company from Paraná that has been active in the prefabricated house construction field for more than ten years. The company specializes in prefabricated concrete construction materials and production, and small-sized prefabricated house assembly. A house, with an area of approximately 89m, was analyzed during the research. Case Study 3 (CS3) is a construction company based in the city of São José, near Florianópolis, that offers services in the domains of civic construction, residential construction, commercial, and industrial buildings, in addition to management and projects services. During the course of this research, the CS3 was building a five storey building. The building was composed of fifteen apartments, each one with two or three bedrooms. Case Study 4 (CS4) revolves around complete or partial execution of civil construction works, also concentrating on properties sales. At the time of the intervention and analysis of the CS4, the company was building a project composed of four residential blocks. The logic for the aforementioned research went through the following stages: a) Planning: in this stage questions were defined that were the base of this research. A literature review provided background information on the subject. At this stage, it was possible to develop the theoretical structure utilized to develop the implantation model of the companies’ establishment of proactive purchasing in the material acquisition function. b) Formulation: The PROCOMPRAS model was developed based on publications about proactive purchasing and also on the directives regarding continuous improvement applied to production management. During and following the proactive purchase implantation, there were improvements made in the PROCOMPRAS model as well as in the theoretical structure adopted. In this stage, the case study choice strategy, and the analysis and intervention protocol were also developed. building abroad, Montreal, October 2008

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c) Implementation and evaluation: In this stage, the intention was to collect information about the purchasing function before and after the proactive purchase implementation. With the collected data, it was possible to individually analyze each case study and also look at all case studies in conjunction, aiming to verify if there was an improvement in the desired customer condition (work) and also to the involved parties, with whom the purchasing occurred. d) Conclusion: Finally, considerations regarding the developed work were done and conclusions were obtained, with the research in mind. The creation of the seven rules of the PROCOMPRAS model was based mainly on the stages described by BAILY et. al. (2000) and SANTOS (2002). The model contemplates a qualitative performance evaluation method applicable to the construction company’s purchase function. This method functions to help the proactive purchase implantation, as well as to be utilized for measuring the proactivity level of the function. To help the PROCOMPRAS performance evaluation method, a bibliographic research study was done concerning performance evaluation methods that could be used as a reference for the developed method. The development of the PROCOMPRAS model activities occurred during the research period, then later were modified when it was possible to identify which activities of the PROCOMPRAS model were the bottlenecks of the process. It was determined that these functions should have a bigger importance within the purchase function evaluation, since the lack of these activities jeopardized the proactive purchase implementation in the material purchase function. In such way, the bottleneck process activities (work budget, acquisition planning, and material delivery) were attributed a weight of 2 (two), while other activities were attributed a weight of 1 (one), for being activities that don’t directly jeopardize the pro-active purchasing in material purchase function of civil construction companies. This logic was determined during the PROCOMPRAS model implantation on CS1 (pilot case study), because it was possible to pinpoint, during this intervention, the activities that could jeopardize implementation success. Each primary activity in the PROCOMPRAS performance model was created by secondary activities. In the PROCOMPRAS model, the main element is the last activity. This strategy was used because it is known that each company can use different tools with the same final result. As the objective of the developed PROCOMPRAS model was to implement the proactive purchasing in purchase function, it was chosen to point to the final performance of each activity. Notwithstanding, it was considered important to identify which were the secondary activities done by the company, to identify points that could be improved. The performance pointing of each secondary activity was as follows: when the company realized the activity, the score allotted was 1 (one), when not, the score was 0 (zero). If the construction company carried out the main secondary activity (MSA) of each primary activity, independent of the completion of the others secondary activities, the primary activity was given points. Case study performance During the PROCOMPRAS model implementation in the four case studies, it was possible to realize that this function’s performance did not occur linearly, as we can observe on Table 1. Ten (10) points were related to the seven excellence criteria of the PROCOMPRAS model pointing sum. Before the intervention, CS1 had five (5) points, after intervention it reached seven (7) points. CS2 went from zero to eight (8) points, CS3 from four (4) to five (5) and CS4 from two (2) to five (5) points after intervention.

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Table 1. Case study performance N° 1

Activities

Dots

Multi-skilled in projects and specifications Overview of the project Definition of project goals Inicial desings Inicial Budget Analysis of project viability Desings completed Relation of materials with specifications 2 Multi-skilled into the production planning Strategy of execution List of activities Definition of the activities precedences Definition of the resources Coding of materials Planning of the production planning 3 Multi-skilled into the prodution budget Checklist of activities quantitative Using of production constants Quotation of the inputs in the marketplace Production budget detail for activities 4 Creation of partnerships with providers Market research Negotiation of the conditions for buying small lots Experimental purchasing Approval of the purchasing for lots Assessment of the supplier Cadaster of supplier 5 Realization of the acquisitions planning Assemblies of the production planning Analysis of the cash flow Planning of the purchasing from the materials significant 6 Request of delivering and accompanying Request of delivering Comparison with the purchasing planning Notification of the supplier Purchasing order Follow-up of the orders 7 Materials delivering Material delivered well-timed. Material no criates inventory Material received on quantity certain Material received with the quality wanted. Total Activities Total Dots

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 2 1 1 1 1 35 10

CS1 CS2 CS3 CS4 before after before after before after before after 1 1 0 1 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 0 1 0 1 1 1 0 1 0 0 0 1 1 1 0 1 0 0 0 0 1 1 0 1 0 1 1 1 1 1 0 1 1 1 1 1 1 1 0 1 0 1 1 1 1 1 0 1 0 1 1 1 1 1 0 1 0 1 1 1 1 1 0 1 0 1 1 1 1 1 0 1 0 1 1 1 0 2 0 2 0 0 0 0 0 1 0 1 0 1 0 1 1 1 0 1 0 1 0 1 1 1 1 1 1 1 1 1 0 1 0 1 0 0 0 0 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 0 1 0 0 0 1 1 1 0 1 1 1 1 1 0 0 0 1 0 0 0 0 0 0 0 1 1 1 1 1 1 1 0 1 1 1 1 1 2 2 0 2 0 0 0 0 0 0 0 1 0 1 0 1 0 0 0 1 0 1 0 1 1 1 0 1 0 0 0 0 0 0 0 1 1 1 0 1 0 0 0 1 0 0 0 0 0 0 0 1 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 1 1 1 0 1 0 0 0 0 2 2 0 2 0 0 0 1 1 1 0 1 0 0 0 0 1 1 1 1 1 1 0 1 1 1 0 1 1 1 1 1 1 1 1 1 23 26 9 34 17 27 19 29 5 7 0 8 4 5 2 5

Analysis of the four case studies demonstrates the cause of these results. The material purchase function of CS1 had a maturity level in development. The main marking factor noticed during the intervention in this company is lack of the compromises of the high management and the involved parties with regards to planning and company controlling activities. It was not possible to make conclusions with regards to the proactive purchase implantation on CS1 because the economic study showed that the project would not be available for the company. As the control of the activities that involve the purchase function routine was not put into effect, the CS1 didn’t have the opportunity to significantly improve its general performance. In CS2, it was clear that the purchasing area of this company was directed for operational activities which involved the purchasing process. It was possible to implant the PROCOMPRAS


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model almost in totality because the researcher actively participated of the activities elaborated during the intervention. The noticeable situation in CS3 and CS4 was the great interest of the owners in the estimated budget and the lack of interest in doing the enterprise’s own operational budget. In relation to CS3, it was possible to notice that there was a great interest of the company with regards to work quality. New construction methods were used, projects were carefully developed with the owner’s support, and the work was very organized and clean. Nevertheless, cash flow limitations and owner priorities were the success limitation on proactive purchase implantation. The CS4 had different characteristics, the company focus was on materials purchase, on services hiring, and properties sales. For the company’s owner, the secret of a good sale is in the condition in which the products or services were acquired. Cash flow was not a problem; what limited the effective proactive purchase implantation was the allocation of parametric indicators that were utilized as goals. Table 1 showed results of the total realized activities by companies before and after the intervention. With the analysis of Table 1, it is possible to notice that the performance level of the purchase function in the case studies had the following situation: CS1 before the implantation had a performance rate of about 66% ((23x100)/35), after the implantation the performance rate reached 74%. CS2 obtained a 26% rate before intervention and 97% after. CS3 went from 49% to 77%. CS4 obtained 54% before the intervention and 83% after the proactive purchase implantation in material purchase functions. Discussion and conclusions After the observation of case study performance in projects and specifications stages in Table 1, it was possible to determine that the company in CS1 already had an excellent score on the projects and specifications stage, even before the intervention. After intervention, the CS2 started developing its availability analysis, and the detail level of the projects and material specification improved. However, the CS3 faced difficulties with project hiring, work started without the final plans, and the specifications were developed during construction. The CS4 company had definitive projects, but specifications were defined during the construction. With the analysis of the case studies performance in project and specification stages, it was possible to determine that the bottleneck of this stage was in the hiring of planners. The lack of professionals at the beginning of the work has repercussions with the purchase function, because without these professionals it is not possible to relay the right information to the suppliers; consequently the budget starts to suffer alterations during the project. With a better involvement of the purchase team with plans and specifications, the variability during work execution and in material purchase tend to decrease, facilitating the process management, and increases its efficacy and efficiency. Observing the CS1 and CS4 company performances in the planning and work stages, it is possible to determine that the companies had scheduling control and planning of work, meaning that the enterprise planning was done according with the enterprise’s execution plan. On the other hand, with CS2 and CS3, this activity was not completely done before the intervention. When the permission to do the job in these companies was given, it was possible to develop the work with detailed planning. BALLARD et. al. (1998) proposes that the enterprise’s planning process should be done in three stages. In CS1 and CS2, it was possible to reach the second planning level where a more detailed short range (every two or three weeks) planning is done, denominated by the authors as “Lookahead Planning”. The objective of the second planning level is to adjust the schedule and mobilize resources according to the real production course. CS3 and CS4 didn’t reach the second planning level, since the planning did not have the necessary involvement of the team. Since the CS1 and CS2 performance observations of the budgeting stage of projects occurred during the intervention, it was possible to develop an operational budget, because these 324

companies had the projects and specifications as well as a detailed project planning. In the CS1, the economic analysis project showed that the enterprise costs on the adopted strategy were beyond the owner’s capabilities. The decision was to abort the project, since it was not possible to continue with the proactive purchase implantation on CS1. On CS3 and CS4, there was lots of resistance from the companies to the making of an operational budget, because the projects were not well detailed and the specifications were defined during the work execution. There was an attempt to make an operational budget on CS3 and CS4, but the result was not satisfactory. The value of the work became too much, beyond the parametric ratings that were estimated and adopted by the owners, for the enterprise. A great resistance with regards to the use of detailed budgets in CS3 and CS4 was noticed. According to LIMMER (1997) the use of detailed budgets demands a paradigm break (traditional budget x detailed budget) and to do so, there is a necessity for time and persistence. Observing Table 1, it’s possible to realize that CS1 had already developed the acquisition planning strategy before the intervention. This planning was done in a continuous way by the purchase group involved. In CS2, it was not possible to develop purchase planning structured according to the work operational budget and plans. This outline was developed on MS Project. In CS3 and CS4, it was not possible to develop the acquisition planning because the budget wasn’t properly structured. With the acquisition planning stage, the customer could demonstrate to the supplier his potential, invoicing after the conclusion of the deal. The negotiation of big material lots, with punctual suppliers, also has the objective of creating partnerships, where the price is no longer the only key variable, but part of a supplier qualification entity (BAILY et. al., 2000). After the definition of the necessary materials for the work and the quantities needed, the customers can negotiate with the suppliers. Nevertheless, there is an important supplier selection to be done beforehand, with the current and future suppliers (ISATTO, 1999). Observing the Case Studies study in the supplier partnership creation stage, it is noticed that in CS1 it was possible to negotiate some materials in large quantities. That occurred at the moment the enterprise’s operational budget was being done. In CS2, it was possible to develop work with the current and new suppliers. The difficulty faced in CS3 was referred to the negotiation of materials in sections, because the enterprise’s cash flux was limited. In relation to CS4, the approbation or rejection of section purchases by the involved parties was noticed. With the analysis of Table 1, it is possible to verify that in CS2 there was a possibility to develop a logic that stipulates the delivery solicitation and request attendance stages. In CS3 and CS4, it was not possible to apply this activity, since the acquisition planning for these companies was not completed. Table 1 shows the case studies performance in the materials delivery stage. The main difficulty found in CS2 was the large inventory kept by the company. The CS4, after the intervention, started to receive the materials on the date agreed upon by the purchasing department and the suppliers. Generally, it is noticed that CS1 had a great potential to implant the proactive purchasing method, because of the practice of planning the projects in a structured way. The purchase control could be improved; unfortunately the project was aborted after the economic availability analysis. CS2 had the purchase function structured in a chaotic way. The interesting part of this case study was that the researcher could apply the PROCOMPRAS model in this totality. The CS3 and CS4 had differences in the purchase control. There were procedures for material and supplier evaluation. The improvement potential for these companies was in the purchase involvement with plans and specifications, as well as with the operational budget. Not all the elements that are part of the PROCOMPRAS model could be applied in these companies due to the restrictions imposed by the owners. This article describes the results of a cooperative work effort between a university and a company, with immediate practical applications that point to a better direction for the purchasing department of building companies. This article looked at the purchase function situation in four case study companies before and after the proactive purchase implantation (PROCOMPRAS building abroad, Montreal, October 2008

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model) and identified the generated improvements with this process, such as the necessity to improve the efficiency of this change in management and purchase area operations. Many of the obtained improvements were implanted without great costs to the company and with only a change in management position. For that, it was necessary to dedicate more efforts to acquisition planning in order to allow more flexibility on the operational part of the material purchases. References Albertin, L. A. (2001) Comércio eletrônico - modelo, aspectos e contribuições de sua aplicação. 3. ed. São Paulo: Atlas. Ballard, G., Howell, G. (1998) Shielding Production: An Essential Step in Production Control, Journal of construction Engineering and Management. V.121, n.1, Jan/Feb, p 11-17. Baily, P., Farmer, D., Jessop, D., Jones, D. (2000) Compras – Princípios e Administração. São Paulo: Atlas, 8°ed. Blumenschein, A., Freitas, L. C. (2000) Manual Simplificado de Comércio Eletrônico, São Paulo: Aquariana. Bowen, P.A.; Pearl, R.G.; Edwards, P.J. (1999) Client briefing processes and procurement method selection: a South African study. Engineering Construction and Architectural Management, vol.6, n 2, pp 91-104. Bowen, P.A., Pearl, R.G, Hindle, R.D. (1997) The effectiveness of building procurement systems in the attainment of client objectives. Proceedings of CIB W-92 International Conference on "Procurement - The Key to Innovation", CIB Publication 203, Montreal, pp.39-49, May. Burt, D.N., Pinkerton, R.L. (1996) A purchasing manager’s guide to strategic proactive procurement, Amacom: American Management Association. Cunningham, M. J. (2000) Como implementar estratégias de e-commerce entre empresas Rio de janeiro: Campus. Dumond, E. J. (1996) Applying value-based management to procurement. International Journal of Physical Distribuition & Logistics Management, MCB University Press, Vol. 26, Mai/24. Faraco, R.A. (1998) Uma arquitetura de agentes para negociação dentro do domínio do comércio eletrônico. Dissertação de mestrado. Universidade Federal de Santa Catarina, Florianópolis. Grilo, A C. (1998) The development of electronic trading between construction firms. PhD thesis. University of Salford. Herbig, P., O'Hara, B. (1996) International procurement practices: a matter of relationships. Management Decision, MCB University Press, pp. 41-45. Isatto, E.L., Formoso, C. (1999) A nova filosofia de produção e redução de perdas na construção civil. Limmer, Carl V. (1997) Planejamento, Orçamentação e Controle de Projetos de Obras. Editora Livros Técnicos e Científicos, Rio de Janeiro. 326

Miles, R., Ballard, G. (1997) Contracting for lean performance:contracts and the lean construction team. Porter, M. E. (1991) Estratégia Competitiva - Técnicas para Análise de Indústrias e da concorrência. Rio de Janeiro: Campos, 7 ed. Santos, A.P.L. (2002) Estruturação do processo de compras de materiais para viabilizar a implantação do comércio eletrônico na indústria da construção civil. Dissertação de Mestrado, Universidade Federal do Paraná, Curitiba. Author’s Biography Adriana de Paula L. S. has been working in Civil Engineering since 1993. She concluded a master degree in construction at the University Federal in 2002, and obtained the degree of doctor in Civil Engineering at the Federal University of Santa Catarina in 2006. Currently, she is professor and researcher at the Federal University of Paraná. She has experience in production systems, with emphasis in production administration, acting mainly on the following themes: production planning and control, administration of purchasing, and entrepreneurship. Antônio Edésio J. graduated in Civil Engineering at the Federal University of Santa Catarina in 1976. Antônio holds a Masters degree in Engineering of Production from the Federal University of Santa Catarina (1980), a doctorate in Engineering of Production from the Federal University of Santa Catarina (1994) and post-doctorate from the University of Alberta (2000). Currently, he is a professor at the Federal University of Santa Catarina. He has experience in the civil engineering area, with an emphasis in civil construction, his principal interests are building costs, operations, and production administration.


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THE POLITICS OF PROCUREMENT Winston Riley, Joint Consultative Council (Construction Industry), Trinidad & Tobago email: [email protected] Timothy Michael Lewis, The University of the West Indies email: [email protected] Abstract It seems generally to be assumed that developing countries are all very similar. When it comes to policy decisions regarding them, a ‘one cap fits all’ is often applied. This concept is challenged by looking at the construction industry in Trinidad and Tobago, in the context of construction in developing economies. A review of procurement methods and construction delivery systems in Trinidad and Tobago draws on the broad principles outlined in the new institutional economics. The defining role of institutions and the critical impact of the choices made by decision makers in economic development are highlighted. It is argued that procurement systems define the institutional matrix in the construction industry. Definitions of development and growth are cast in institutional terms thus setting the agenda for future study. Keywords: Institutions; Procurement; Uncertainty; Developing Countries. Introduction A key issue regarding construction in developing economies is that “infrastructure development and economic development can not be separated for analytical purposes. They are as inseparable as opposite sides of the same coin” (Miller, 2000). Economic development includes the growth of gross domestic product but also includes a whole range of social improvements as well. Infrastructure development includes the provision of facilities to meet human needs, such as for the movement of people, goods, and information; in addition to the provision of water, sanitation, and shelter. The development of infrastructure facilities is symbiotically linked to economic development. The way the economic system develops will determine how infrastructure development takes place, just as the infrastructure itself limits or promotes the economic development it is dependent on – they are as interdependent as the chicken and the egg. The iconic examples of recent economic development - Singapore, South Korea, China, Malaysia, and India - are all countries that focused attention on developing their physical infrastructure. At the same time, they recognised the importance of modern institutions in enabling progress and they built and developed their existing institutions accordingly. The lesson to be taken from this experience is that developing economies must focus not only on infrastructural improvement but also on the provision of appropriate institutions and organisations, especially in the construction sector - see for example, World Economic Forum (2007) or Francois and Manchin (2007).


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The role of institutions in economic development is highlighted by Nobel Prize winner Ronald Coase “Economists have never considered until recently the role that institutions play in the working of the economic system. In fact, the institutions determine the way in which the economic system works” (Coase, 1997). By the same token, it is clear that the institutions will also determine the stage of development attained, and that is attainable, by a given country. Coase (1937) also recognised that price mechanism alone is insufficient to explain the workings of markets, particularly when transaction costs occur (as they always do to a greater or lesser extent), and the allocation of resources results as much from administrative decisions as from relative prices. In other words, firms need to perform their administrative and coordinating,functions effectively and at a lower cost than their competitors in order to be competitive. Coase (1997) added “To have an efficient economic system it is necessary not only to have markets but also … organizations of the appropriate size. What this mix should be we find as a result of competition.” In developing countries, firms and other organisations, are almost inevitably smaller than those in the developed countries, at least in part because of the size of their total, local markets and the normal size of a ‘typical’ project there. Firms in the developed world have grown to a size suitable for operating in the international market place and for dealing with mega-projects, hence, their planning capabilities are optimised and their transaction costs have been reduced to a level necessary for effective international competition. The smaller firms from the developing world thus cannot be competitive when it comes to bidding for larger projects that are let on equal terms (a ‘level playing field’) in an international market place. All developed countries have recognised this as a possible ‘negative externally’ of the workings of the market and introduced trade restrictions to protect their local firms while they were themselves developing;thereby tilting the field in favour of the home ‘team’. This was done either by restrictive legislation, by a subsidy or some form of preferential treatment, or by a tax on foreign firms (leading into the issues of ‘least harm’ that Coase (1960) discussed in his famous paper “The Problem of Social Cost”). The rules of the World Trade Organisation have been specifically written to now close this option off from developing countries –a case of ‘do what I say not what I did’. Capital It is widely recognized that investment is the key to industrial growth and modernization, and that investment itself depends on the availability of accessible capital. De Soto (2000) highlights the role of capital in development - pointing out that one of the mysteries to address is why poor countries do not make better use of the capital assets they already possess. As he points out, the value of the real property, assets and savings, among the poor is considerable but that these assets are generally ‘dead capital’. For example, normally, one of the missing institutions is an effective mortgage system that would allow the capital tied up in property to be used as security to enable reinvestment. When lesser developed countries do have such a system it is generally foreign in origin and does not take effective account of the needs of the poor. This use of longterm real assets as collateral, that could make money available for use now, does not happened by chance in the Western world. “Every parcel of land, every building, every piece of equipment, or store of inventories is re-presented in property documents that are the visible sign of a vast hidden process that connects all these assets to the rest of the economy…They can be used as collateral for credit. Mortgages are the single most important source of funds for new businesses in the United States” (de Soto, 2000). Obviously for such a system to be effective one of the essential institutions is a well established system of land tenure and ownership – for ex-colonial countries, that emerged from slavery or indentureship, this may not be the case. The common and long-standing complaint by entrepreneurs (and contractors in particular) in Developing Countries, that the local banks do not provide the financial backing that they need, can be traced to this underdeveloped property market and the consequent inaccessibility of capital locally.

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Institutions and Organizations It is necessary to set out some important distinctions between: (a) Institutions and Organisations (b) Procurement Processes and Delivery Systems. (c) Development and Growth (a) Institutions and Organisations • Institutions are the humanly devised constraints that structure human interaction. Institutions are the rules of the game within which individuals operate. Institutions are made up of formal constraints such as rules, laws, and constitutions as well as informal constraints such as norms, conventions, and codes of conduct with their respective enforcement characteristics. The central purpose of institutions is to reduce uncertainty that pervades all societal interaction (Dequech (2001)). • Organisations are the players. Organisations are made up of groups of individuals bound by some common purpose to achieve specified objectives. An organisation may be a firm, a regulatory agency, a trade union, a political party, or any of the many and varied community and non-governmental bodies. As North (1993) noted in his Nobel lecture “The relationships between organisations and institutions are such that the organisations that come into existence reflect the opportunities provided by the institutional matrix… Institutions form the incentive structures of a society and the political and economic institutions, in consequence, are the underlying determinants of economic performance. If the institutional framework awards piracy, piratical organisations will come into existence; and if the institutional framework rewards productive activities, then organisations/firms will come into existence to engage in productive activity.” (b) Procurement Processes and Delivery Systems • Procurement processes set the rules for the accomplishment of a specified purpose, such as the acquisition of property, works, and or services by a public or private entity. Procurement processes begin with the identification of a need and end with the fulfillment of a contract. •

Delivery Systems identify the type of contractual relationships used. In the construction industry delivery systems include, Sequential Design-Bid-Build, Design-Build, Turnkey, Build-Own-Operate-Transfer, Design-Build-Operate, Construction Management, and Design-Build-Finance-Operate, for example. The important issue is that different delivery methods require different procurement processes as well as different institutional and organizational arrangements. The relationship between procurement systems and delivery systems is such that procurement systems set the rules of the game in which organisations and delivery systems are chosen and operate, they establish a procurement route, delivery system, and contract strategy, as well as the operational relationship between the organisations in the supply chain. Delivery systems, on the other hand are differentiated mainly in terms of risk allocation, constraints, and the integration of the processes in the supply chain.

(c) Development and Growth • Development implies improvement of the characteristics that define human welfare in that specific culture. It is a process of change that involves uncertainty and complexity. Favorable institutions are thus those that address uncertainty and complexity, and that encourage economic growth and social improvement such as trade, productive entrepreneurship, individual responsibility and individual preferences, risk taking, and competition (Colombatto, 2005) •

Growth is an increase in economic well-being; it requires the existence of an enabling institutional environment. Economic growth implies change in consumers’ surplus rather than, necessarily, in purchasing power. Economic growth depends on the ability to


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produce products and services that people will buy, and in the longer term, in the ability to transform technological advances into such products or services. Institutional Change Institutional change is apparent when the operating rules change and is evident in the choices made by decision makers, whether from inside or outside the country, that impact upon that country. In developed countries with sophisticated institutional arrangements, a wide range of decision-making can be accommodated without conflict. In developing countries, however, changes in the decision-making process may require the institutional arrangements to change. Hence, in construction, new forms of contract, new rules, codes, and norms of behavior may be required to accommodate a change to international procurement, for example. Such changes in the institutional environment can affect procurement processes and organizations, which in turn can determine contract forms and delivery systems. Construction in emerging economies is focused essentially on change; change in the nature of the built environment, in the quantity and quality of the structures, facilities, and services provided. These changes almost always require foreign finance whether as grants, loans or as direct investment, and this almost inevitably causes changes to the institutional arrangements. Since the infrastructure development has a symbiotic relationship with economic growth and development, the way in which the institutional changes affect delivery and procurement processes are of critical importance. The Caribbean The Caribbean construction industry, over the past half century or so, has made concerted efforts to modernize the built environment to meet the needs of economic growth. This has particularly been the case with the improvement of the totally inadequate infrastructure inherited from colonial times. This process was handicapped throughout the islands by a lack of finance. Most of the countries had (and still have) economies structured almost entirely around the export of raw materials and unprocessed agricultural produce, and there was very little ‘active’ capital. In order to find the money needed to develop the infrastructure, governments had to approach the International Funding Institutions (IFIs). By and large, the IFIs provided the money but it came bundled with their ideology, their cultural, economic, developmental, and institutional beliefs. It was not culturally value-free. This inherent ideology was characterised by De Soto (2000) as “American and European leaders… repeat to the rest of the world the same wearisome lectures: Stabilize your currencies, hang tough, ignore the food riots, and wait patiently for the foreign investors to return… Foreign investment is, of course, a very good thing. The more of it, the better. Stable currencies are good, too, as are free trade and transparent banking practices and the privatization of state-owned industries”. This ideology was encapsulated in the ‘structural adjustment’ requirements of the International Monetary Fund, which demanded of borrowers that they adopt a free market approach with an emphasis on the private sector and open international competition, particularly for the delivery and operations of infrastructure (see for example, the Wikipedia (2008b) or for a more extreme view, Shah (2007)). The symbiotic relationship between institutional and economic development gives great power to those who make and change the rules (the decision makers) because they determine the incentives in the procurement processes that motivate the thrust to blind efficiency, social equity, or piracy. The overarching issues affecting construction in emerging economies (particularly in the Small Island Developing States (SIDS) like the countries of the Caribbean) are those dealing with: • • • • 332

The lack of sensitivity to local institutional issues by decision makers. The local decision maker’s attitude to the demands of the polity. The local decision maker’s concept of development. The constraints associated with the financing of infrastructure development.

•

The incentive arrangements in procurement systems over which decision makers wield considerable influence.

It is no accident that the literature on procurement deals, essentially, with methods to improve efficiency, social equity, and the avoidance of corruption; which are the issues of the developed world. The issues of the developing world need more focus on the implications of the prevailing institutions and the ‘mental map’ of the decision maker, and how, in a given social and historical context, these affect the implementation of change. Since construction is the major instrument of change in the developing world, it should be the centre of such a focus. In the SIDS (like those of the Caribbean) change is restricted by the availability of money, as well as by the constraints associated with the money that is available. Thus, the role of finance and the incentive arrangements in the procurement system (that are determined by the decision makers) will be to ‘map’ the boundaries of efficiency, capacity development, social equity, and piracy in that context. Politics of Procurement Politics, when used in the sense ‘politics of’ ,are ‘the assumptions or principles relating to or inherent in a sphere, theory, or thing, esp. when concerned with power and status in a society’ (Oxford Pocket Dictionary 2008). In the context of construction procurement, the assumptions or principles held by agents in the decision making process bring uncertainty to the process because: •

• • •

Choice is made by decision makers, who are not necessarily local or even within the country, based on their individual ‘mental maps’, which are in part historically and culturally determined. The knowledge and analytical power of the decision makers are necessarily limited. Information is asymmetrically held among the different players involved. A society’s development path is powerfully conditioned by its past.

For these reasons decision makers use as a reference the institutions that have evolved, essentially, to reduce the uncertainty in human exchanges. Since uncertainty results in large part from imperfect information, the institutions in a society are those that reflect the quality of the information that is available. The greater the uncertainty, the more rigid and limiting the institutional arrangements tend to be, and in the context of construction, the more difficult it becomes to adopt a new and different procurement process that minimizes transactional and enforcement costs. The smaller the uncertainty facing the decision maker, the more flexible the institutional arrangements, and the greater the scope for initiative. Hence, developing countries tend to limit the scope for initiative in public sector contract letting (almost always to the lowest competitive bid) whereas more developed countries experiment with various of the newer formats that even allow negotiation (PPP, PFI, BOOT, BOLT etc). Improving the level and distribution of knowledge, and thereby reducing the level of uncertainty, is difficult. Consequently, institutional change is not easy for, as North (1990) notes, “…the process of institutional change is largely path dependent. In particular, institutional change starts to occur when the parties to an exchange become aware that to be better off they need to ….restructure the existing rules. However when a path is set on a particular course, the network externalities, the learning process of organizations, and the historically derived subjective models reinforce the course in a path dependent way.” Recognition by the stakeholders that change can make them ‘better off’ is an important part of the battle, understanding the institutions in the country is another, and being able to break away from the restrictions imposed by ‘tradition’ is probably most important of all.


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Decision Making in Trinidad and Tobago (T&T) T&T became independent in 1962 and became a republic within the Commonwealth in 1976. In the early post-colonial years, the emphasis was on the development of native capacity through institutional reform and training. The early focus was on continuing the excellence of the colonial civil service; this resulted in a very capable public sector in which individuals were not only intellectually developed but also benefited from continuous acquisition of ‘know how’ through direct experience of both administration and implementation. The inability of the government to fund its development programme in the 1960’s led to it sourcing finance from international agencies. The policies of these IFI’s were not ideologically free. They came with the baggage of laissez-faire capitalism reaching back two centuries to Adam Smith and the conviction that market operations maximise economic efficiency. Thus, conditionality for loans was that all major public sector construction contracts (including their design) should be let by internationally competitive tendering. A secondary but still significant aspect of the mind set of the IFIs was that the public sector cannot be as efficient as the private sector. As a result, they were determined that a conditionality of any loan made to a developing country would be that the private sector should be involved (for much on this and related anti-World Bank/IMF commentary see Whirled Bank Group 2003) Although this shift to the private sector was justified by the IFIs on the grounds of the economic benefits that would accrue, it was also covertly designed to secure work for firms from the developed countries, the large international consulting and contracting firms based there. The consequent flow of funds back to the developed countries from borrowing countries was seen by many to be a primary objective of the IFIs (Perkins, 2005). Feasibility studies were often distorted in order to justify major, expensive projects in developing countries, often committing those countries to perpetual debt for unnecessary (and often environmentally and ecologically harmful) facilities. The enhancement of local capacity in the developing country was not deemed to be a priority, nor was the technical or economic efficiency of the investment, nor the ability of the country to pay off the debt. The IFI-enforced shift to the design and construction of major infrastructure projects by the private sector led to an exponential reduction in the public sector’s in-house capacity and efficiency, caused by the haemorrhaging of trained human capital to the private sector. Very quickly, the public sector found itself unable to develop or attract equivalent expertise. The declining performance of the public sector then became a self-fulfilling justification for out-sourcing to the private sector. This vicious cycle was exacerbated by: • • • • •

Public sector organisations being starved of meaningful work. The loss of trained personnel at both professional and sub-professional levels in the public sector. The use of highly skilled technical staff as managers within Project Execution Units for public sector projects, thus further reducing the technical expertise available The loss of ‘mentors’ for the new, young, and inexperienced professionals recruited by the public service. The loss of ‘organisational know-how’ through staff being used in roles different from their areas of expertise.

The oil bonanza of the 1970’s allowed the government of Trinidad and Tobago to accelerate infrastructure delivery, paid for by the windfall. However, the acceleration was not structured; there was little or no planning, no scheduling of the start of projects, only their announcement and initiation. This quickly overstretched the local industry and the government took the unprecedented step of outsourcing the responsibility for procurement to foreign governments through what it termed ‘Government-to-Government Arrangements’, mainly in Europe. None of these projects were completed on time and within budget. Inflation spiralled, especially in 334

construction. Although no longer constrained by loan conditionalities, the structure of the organisations involved in construction in the country had changed and the institutions followed suit. There were some minor gains in that some new facilities were provided (albeit at enormously inflated prices), and that some local consulting and contracting firms developed capacity, mainly by linking with foreign firms. From 1985 to 2000, the economy went through a severe depression when financial resources were extremely scarce and construction plans were curtailed. The reduced scale of projects allowed the local private sector to compete with the foreign private sector and it was able largely to meet national demand in terms of infrastructural development. It was also a period when the older institutional arrangements were re-established. The Present Conditions The current boom in oil and gas prices has allowed the government to press ahead with a whole range of new public sector construction projects. These have either been allocated through competitive bidding or let through private negotiations with companies, largely from China. Quite apart from concerns over the propriety of the process used for letting these contracts, there has also been concern over the labour, health, and safety practices of these firms that, it is felt, may be substandard and against the ‘fair trade’ practices enshrined in international conventions and the laws of Trinidad and Tobago. Public expressions of concern led, in 2003, to the Cabinet of the Government of Trinidad and Tobago (GOTT) appointing a committee to make recommendations on the reform of its public procurement system. The committee produced a White Paper that accepted the decentralized nature of the existing system and took the operating principles of Value for Money, Transparency, Accountability, and the Promotion of National Development as its guiding principles. This has not yet been implemented. In 2008, the GOTT has announced that a commission of inquiry will look into issues relating to the construction industry and the public sector’s procurement practices, particularly the use of quasiprivate companies to undertake the country’s development programme, and to let all public sector projects out of sight, under a shield of private confidentiality. The resulting report is awaited with interest. Discussion and Conclusions The human condition is such that knowledge and cognitive capacity is always circumscribed by culture and information partiality. All of these influence the mind-set of a decision maker and the way decisions are made is affected by the institutional rules and regulations that exist. Decision makers have to make choices, choices which, especially in the public sector, will affect the society for generations to come. The finance, for many public sector infrastructure projects, is obtained from IFIs who impose constraints on the borrowers of the money. These restrictions reflect the ideology of the developed countries, which may not be appropriate for the borrower. Once the organisations and institutions of a country are degraded, it is difficult to restore them.


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Key Lessons Learned: • Developing countries have to source funds for infrastructural development from IFIs. • The IFIs have restrictions that impose their ideology on borrowers. • The borrowing countries should try to adapt their institutions to allow the flexibility they

desire and to protect their organisations from being damaged unnecessarily by competition.

Acknowledgment This paper is based on an ongoing study by Winston Riley. Parts been previously published elsewhere: his intellectual contribution is fully acknowledged. References Bol, Lawrence A. (2007) Knowledge and the Role of Institutions in Economic Theory, Pennsylvania State University (accessed at http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.29.15 - August 2008). Coase, Ronald (1960) The Problem of Social Cost, Journal of Law and Economics (pp 1-44). Also in Readings in Microeconomics (William Breit and Harold M. Hochman eds, Holt, Rinehart, and Winston, New York, 1968). Coase, Ronald (1937) "The Nature of the Firm." Economica, N.S., 4(16), pp. 386-405. Coase, Ronald (1997) Interview with Ronald Coase from the Newsletter of the International Society for New Institutional Economics, Volume 2, No 1 (Spring 1999) (www.coase.org/coaseinterview.htm - accessed 9-4-08). Colombatto, Enrico (2005) On Growth and Development International Centre for Economic Research (ICER) Working Paper No. 13-2005. De Soto, Hernando (2000) The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, New York: Random House. Dequech, David (2001) Bounded Rationality, Institutions, and Uncertainty, Journal of Economic Issues, (available at http://findarticles.com/p/articles/mi_qa5437/is_200112/ai_n21482483?tag=artBody;col1 – accessed August 2008). Francois, J. and Manchin, M. (2007) Institutions, Infrastructure and Trade. CEPR Discussion Paper no. 6068. London, Centre for Economic Policy Research. (accessed at http://www.cepr.org/pubs/dps/DP6068.asp August 2008). Miller, J.B. (2000) Principles of Public and Private Infrastructure Delivery, Kluwer Academic Publishers, London.

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North, Douglass C. (1993) Economic Performance Through Time, Nobel Prize Lecture from Nobel Lectures, Economics 1991-1995, Editor Torsten Persson, World Scientific Publishing Co., Singapore, 1997 (available at nobelprize.org/nobel_prizes/economics/laureates/1993/north-lecture.html - accessed 9-0408). North, Douglass C. (1990) Institutions, Institutional Change, and Economic Performance, Cambridge University Press. Perkins, John (2005) Confessions of an Economic Hit Man, Plume NY. Riley, Winston (2002) The Politics of Procurement Part 1, Proceedings of the CIBW 92 Symposium: Procurement Systems (Ed. T.M.Lewis), Port of Spain 2002. Riley, Winston (2002) The Politics of Procurement Part 2, Proceedings of the CIBW 107 Symposium: Construction in Developing Economies (Ed. T.M.Lewis), Port of Spain 2008. Shah, Anup (2007) Structural Adjustment - a Major Cause of Poverty, Global Issues, (available at www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty - accessed August 2008). Whirled Bank Group (2003) Structural Adjustment Program, (accessed at www.whirledbank.org/development/sap.html - August 2008). Wikipedia (2008) under ‘Politics’, http://en.wikipedia.org/wiki/Politics (accessed 9-4-08). Wikipedia (2008b) under ‘Structural Adjustment’ http://en.wikipedia.org/wiki/Structural_adjustment (accessed 20-0-08). World Economic Forum (2007) The Global Competitiveness Report 2006-2007, Palgrave Macmillan, NY. Author’s Biography Michael Lewis is Professor of Construction Engineering & Management, at the University of the West Indies. He worked for Sir Alexander Gibb & Partners, Consulting Engineers in London from 1970-75, University of Stirling 1975-78, UWI 1978-present. He is MICE, FASCE and a Chartered Engineer. Winston Riley is a Professional Engineer with over 40 years of experience of the construction industry throughout the Caribbean. He is Managing Director, Endeco (Trinidad) Ltd, Planning Associates Ltd and Planning & Stantec Ltd. Also President, Joint Consultative Council for the Construction Industry in Trinidad & Tobago.


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EVALUATING A PROJECT’S RELATIVE ENVIRONMENTAL IMPACT ACROSS REGIONS George J. Nasr, Lebanese University email: [email protected] Abstract Sustainability requires planners to consider the comparative environmental impact of projects across regions. The proposed objective tool can be used to evaluate the comparative impact of different projects and schemes across regions with a shared ecosystem, in light of their relative economic development. This would then allow planners to set priorities and allocate resources based on measurable environmental criteria, and thus maximize the overall development while minimizing negative impacts. This tool is based on the World Bank’s indicator for development, the “Development Diamond”, and on earlier work on an “Environmental Diamond”. This modified “Environmental Diamond” could serve as a comparable framework for ecosystem risk for the different areas in the region considered for development. The approach followed in this paper was based on an approach developed to measure environment quality in Asia, which was adapted by the author to evaluate “environmental performance” in the Levant. The result is an integrative index that reveals a general picture without concealing specific aspects of environmental quality. Because of the use of objective indicators, this index could serve as the basis for analysis and systematic decision making. As it expands, the index would serve as a common tool for planners and policymakers, as they collaborate to mitigate the impact of continuing development on shared environments. Keywords: Planning; Policy; Project Evaluation; Environmental Impact Assessment. Introduction Planners who evaluate projects and allocate resources increasingly have to reconcile development needs with sustainability. By doing so, they have to contend with the differences between project need and the necessities of sustainability. On one hand, project requirements are essentially “linear”, defined by time-sensitive objectives and specific outputs achieved at a predetermined cost. On the other hand, development projects have to contend with the “circular” nature of sustainable environmental management that impose often open-ended necessities (Bell and Morse, 2004). Reconciling those two needs has been ever more difficult as civilization progressed and its energy needs increased. Civilization has always been dependent on the optimal use of the sun’s energy. As humans settled into population centres, they were harvesting more of the sun’s energy from wood, food, water, and the ecosystem. With growing challenges came rising complexity; when confronted with decreased rainfall, early Sumerians developed irrigation networks. Faced with the need to expand them, they developed the administrative structures to manage them, and the tax system to fund it (Tainter, 1990). Managing such rising complexity was made possible by “importing” increased amounts of energy into the “system”, and more ways were developed to transmit it, from work animals and water power, to coal and oil powering steam, and diesel engines (Bar Yam, 1997). building abroad, Montreal, October 2008

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This environmental damage that resulted had increasingly diverse and interrelated aspects. In the context of today’s more elaborate societal structures, the environment requires societies to reach a point of “environmental sustainability”, where their current energy needs do not mortgage those of future generations, and where resource use is optimal. For this reason, projects need to factor in such complexity, and to take into account the requirements of sustainability. This is ever more critical today, as societies have evolved into complex knowledge-based, “inspiration” economies, where the quality of life in cities and towns is “one of the prime determinants of investment decisions and, hence, the attraction of knowledge workers” (NRTEE/TRNEE, 2003). As societies move towards ever greater complexity, they require a larger amount of resources for their sustenance, with the ever-present risk of diminishing returns (Tainter, 1990). Today, as they select development projects, planners are faced with the need to optimize energy consumption and development and maximize returns from environmental resources without overexploiting or damaging them. While they can rely on many methods to evaluate development needs and their environmental impact, they need a tool that can describe the complexity of the problem, particularly on large geographic scales. For this reason, a tool is needed to help them visualize the extent of the problem, and how project-related decisions impact sustainability. The proposed tool offers an adaptation of the “Environmental Diamond”, a graphical display that summarizes the environmental “position” of a region with respect to others (Rogers et al., 1997). As such, the impact of any given project can be easily reflected across regions in a shared ecosystem. Indicators and indices In order to reflect those dual needs, this adaptation of the “Development Diamond” is based on two main components. The first component is a standard measure of economic development, and the second is a set of environmental indicators. Measuring economic development allows planners to compare different regions and to ascertain human well-being. Two types of statistics can be considered; either the Gross Domestic Product (GDP) for smaller regions such as municipalities or counties, or the Human Development Index (HDI) for larger societal groups. The measures evaluating environmental state allow the determination of relative environmental performance across a region. For planning purposes, it may be advisable that the regions considered have a shared ecosystem, to better reflect the cross-regional impact of resource allocation. For this reason, data collection would need to reflect the “natural boundaries” of a shared ecosystem, rather than “human defined”, administrative borders. Such a “natural boundary” is best defined by watersheds, which are the optimal framework for “delineating the spatial distribution and linkages between physical processes and biological communities in an appropriate physical context” (Montgomery et al., 1995). In addition, by considering watersheds as a single regional entity, one places complex problems in an apolitical context, in which the interaction between the environment and human development across various regions is objectively defined. In evaluating the environment across a watershed, two types of parameters can be considered; “State” parameters that evaluate existing conditions, and “Pressure” parameters that measure the extent of human activity (Ott, 1978). Those parameters are shown in Table 1.

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Table 1. Issues, Pressures, and Available State Parameters Issue Climate Change Ozone Depletion

Pressure GHG Emissions Hydrocarbon Emissions POC Toxic Contamination Heavy Metal Emission Waste Industrial and Municipal Waste Nitrates Potassium Eutrophication Water Soil Emissions Water Resources Demand/Use Intensity Acidification Specific Pollutants Haze Urban Air Quality NOX SOX Land Use Biodiversity Threatened species Soil Degradation Land Use Changes Emissions Coastal Zones Oil spills, Depositions Forest Resources Use Intensity Fish Resources Fish Catches Source: Hammond et al., 1995; Rogers et al., 1997.

State Commercial Energy Use

DO, BOD Renewable Water Availability CO2, NOX, SO2 Coefficient of Haze, NOX, SO2 Land Use, Threatened species Topsoil Loss N/A

Defining the indices From the parameters described above, a “comparative” index can then be developed that shows the relative environmental performance of different regions. The relative environmental performance is determined from a series of indices that are based on consensus recommendations issued by the United Nations Development Program. The indices considered were the ones that were found not to be correlated, following a key study that determined the variables to be selection and defined the optimal method to compute the four basic indicators of “Land”, “Water”, “Air”, and “Ecosystem” (Rogers et al., 1997). The components defined account for 64% of the total variation among all the original environment indicators previously suggested (Rogers et al., 1997). It is important to note, however, that when considering environmental data, one should bear in mind the time-dependent nature of that information. In some regions, the current state of affairs may actually reflect environmental damage that has accumulated over the years. For this reason, planners need to consider those parameters in function of the duration of the project, or their impact over time. For example, a planner involved in the exploitation of tar sands would need to factor in the long-term impact over forested areas by considering a time horizon that reflects not merely the project’s lifetime, but the time necessary for the forest to recover. Research method In determining environmental performance, three steps need to be carried out. The first step is to define the individual indicators. The second step would then be to define region boundaries, based on a watershed framework. Following such framework, a third step would then be to collect the data within the watershed. The focus in the present study is on the first step; defining each of the five parameters used in the analysis; “Land”, “Water”, “Air”, “Ecosystem”, and “Development”. Using those parameters, each building abroad, Montreal, October 2008

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region’s environmental performance can be compared relative to the others. The result is a plot, an “Environmental Diamond”, similar to the World Bank’s “Development Diamond”. From indices to indicators The “Environmental Diamond” is a five-axis “spider”, or “radar” chart, with an axis for each of the five parameters considered. The method focuses on evaluating five indicators that correspond each to an “issue”; four “environment” indicators, and one “development” indicator (Table 2). The indicators for “Land”, “Water”, “Air”, and “Ecosystem” were selected to provide an extensive description of the state of the environment; their components account for 64% of the total variation among all original environment indicators suggested by other methods (Rogers et al., 1997). Table 2. Main Indicators and Selected State Parameters. Indicator Issue: Air Quality Specific Pollutants Industrial Emissions

Parameter

Needed for:

CO2 Emissions (Tonne / Person) Commercial Energy Use (Kg Oil / Pers.)

Power Production Manufacturing Power Production

Issue: Water Quality Pollutants in Urban Areas Ambient Water Quality

Dissolved Oxygen (mg/l) Biological Oxygen Demand (mg/l)

Issue: Land Quality Forestry Urban Areas

Rural Areas

Forested Area (% of Total) Persons Living in Slums (% of Total) Barren and Eroded Land Area (% of Total) Annual Fertilizer Use (Kg/Ha)

Urban development Mining Urban development Agriculture Water Resources Agriculture Water Resources Coastal Development

Issue: Ecosystem Biodiversity Pesticides

Threatened species (% of Total) Pesticide Use (Kg/Ha)

Land Development Agriculture

Issue: Development Human Development

HDI or GDP

Land Development

Each parameter (i) is then expressed as a percentage of the average of parameters across the regions considered;

i = 100

i i

Re gion

(1)

AVG

Where “iRegion”, represent the index measured in a given region, and “iAVG” represents their average across the regions considered. For example, consider an evaluation across four distinct regions in a shared watershed. The parameter for “threatened species” for “region 1” would be equal to the “number of threatened species” in that region, divided by the “average number of threatened species” across the four regions in that watershed. Then, the indicator (I) for each “issue” are each computed as averages of the values of the parameter (i) that define them;

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I=

i

(2)

ni

Where “ni” represents the number of parameters related to each environmental issue. For example, the indicator for “Ecosystem” would be equal to the average of the values for the parameters for “threatened species” and “pesticide use”. An indicator is computed for each of “Land”, “Water”, “Air”, “Ecosystem”, and “Development”. The “Land” Indicator The “Land” Indicator is computed as the average of four parameters defining; “Forest Area (% of Total)”, “Persons in Slums (%)”, “Barren and Eroded Land Area (% of Total)”, and “Annual Fertilizer Use (Kg/Ha)”. It should be noted that the parameter for “Persons in Slums (%)”, while adapted to developing countries, may have to be redefined for some developed countries. In considering the data, it should be noted that all estimates of “Barren and Eroded Land Area” are not equal. This is because evaluation methods may overstate the actual extent of the problem in some areas, and do not always distinguish between reversible and irreversible damage. In modern days, it appears that only 0.5% of recent human-induced soil degradation is irreversible (Olderman, 1992). However, in some regions, the data appears to reflect historic trends. This is critical in zones of ancient settlement, where the impact of current projects, through “Annual Fertilizer Use”, is adding to the effect of ancient activity. This is the case of the once “Fertile Crescent” in the Middle East, where the first farmers were frequently acting “as a parasite on soil” and exacerbated the region’s desertification by clear-cutting trees and reclaiming swamp areas (Hyams, 1952). The Fertile Crescent’s fragile soils could not resist those early trials and errors, and as large areas were irremediably damaged, the destructive effects of land degradation accumulated. Any projects carried out in such areas may need to take into account how the effect of ill-adapted agricultural practices were magnified by deforestation, as well as once useful innovations such as terracing and ploughing aggravated land degradation. The “Water” Indicator The “water” Indicator is computed as the average of three parameters defining; “Dissolved Oxygen / DO (mg/L)”, “Emissions of ‘Biologic Oxygen Demand’ (mg/l)”, and “Water Availability (m3/Person)”. Earlier work also considered “Fecal Coliform Counts”, such as E. Coli, and referred to the “Proportion of Human Population with Access to Safe Water” rather than “Water Availability” (Rogers et al., 1997). However, cases published data on “Fecal Coliform Counts” may not always be reliable, and it was decided to disregard this parameter rather than risk “skewing” the indicator. In addition, in regions of water scarcity, most of the urban population may only have nominal access to improved water sources; the pipes may be there, but not the freshwater. For this reason, measures of “Per Capita Freshwater Availability” can be far more reliable, even if they do not always reflect a region’s dependence on outside sources. The value will have to be normalised with respect to the “Water Stress Index” benchmark (Falkenmark and Widstrand, 1992). The normalisation was adjusted so that a value of “0” corresponded to the freshwater level of 1,700 m3/Person defined by the index, and “100” meant no freshwater.


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The “Air” Indicator The “Air” Indicator is computed as the average of two parameters defining; “CO2 Emissions (Tonne/Person)”, and “Commercial Energy Use (Kg Oil /Person)”. Much of the aspect of air quality can be inferred from “Commercial Energy Consumption”, since oil and coal power plants still account for most of the electricity produced, and thus for most of the pollutants (IPCC, 2001). This parameter was found to correlate with the emissions of nitrous oxides (NOX) and sulphur dioxide (SO2) (Rogers et al., 1997). Since data on emissions of carbon dioxide (CO2) is not directly related to “Commercial Energy Consumption”. Since the statistic is expressed as a rate, in kg/person, lower rates do not necessarily mean a lower impact, since demographic growth can cause an increase in carbon dioxide emissions. The “Ecosystem” Indicator One way to document human impact on ecosystems is to consider “canaries in the coal mine”, or the proportion of species in each region that are threatened by extinction. An additional parameter that appears to reflect human pressure on ecosystems is the amount of pesticides that are used over a given area. There are indices that also rely on measure of radioactivity effects (Inhaber, 1976), but this may be an issue that is specific to some industrialized regions. For this reason the “Ecosystem” Indicator is computed as the average of two parameters, “Pesticide Use (Kg/Ha)”, and the “Number of Threatened Species (per 1,000 Inhabitants)”. By considering “threatened species” rather than “extinct species”, this index does not always reflect the historic impact of human activity. This may be an issue for projects with a longer term outlook in fragile environment, where planners would need to take into account species extinctions. The cumulative human impact may indeed be far more significant than recent data may suggest. As an example, when data on fish populations factors in the centuries of fishing, it shows that current fisheries are unsustainable (Pauli and Palomares, 2005). Current technology fixes appears to be merely postponing the inevitable by displacing exploitation to less sustainable species rather than solving the over-fishing problem (Morato et al., 2006). However, since reliable forensic data of past ecosystem impact remains hard to obtain, the historic of human impact will remain. The Development Indicator In order to provide a proper evaluation of the economy, there are two types of “"Development” Indicators that reflect wealth, that can be considered. Such indicators reflect the ability to cope with environmental changes, since financial strength is can serve as “a rough indicator of the ability to cope”, even if poverty cannot be “considered synonymous with vulnerability”. The importance of wealth has been demonstrated in many cases where it allowed inhabitants to better manage environmental hazards (Smit et al., 2001). For smaller regions such as municipalities or counties, it may be simpler to consider the Gross Domestic Product (GDP). For larger regions such as cities, provinces or countries, the Human Development Index (HDI) offers a more comprehensive representation of the status of the economy. The HDI is a composite index measuring average achievement in three basic dimensions of human development; a long and healthy life, knowledge, and a decent standard of living (UNDP, 2003). It should be noted that, since the calculation of HDI is an evolving methodology, comparisons between countries can only be made within a given year; only then would the index be based on similar data sources.

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The “Development Diamond” Once the five indicators have been determined, the “Development Diamond” can then be traced on the “spider” or “radar” chart. Except for the HDI index, it is considered that the smaller the value, the better the score. For indicators in which a large value represents a positive environmental variable, the parameter considered was “reversed”; for example, the parameter for “Forested Area” was computed to represent “Deforested Area”. For illustrative purposes, the figure below is developed based on four regions in a shared watershed. The combined plots show the “footprint” of each individual region, relative to the average within the watershed. HDI

Region 1

200

Region 2 Region 3 Region 4

150

Average

100 Ecosystem

Air

50

0

Land

Water

Fig. 1. Example of a Computed “Environmental Diamond” From the “Environmental Diamond”, each region’s relative impact can be ascertained at a glance. Understanding the relative environmental impact of each region with respect to one another simply becomes a matter of comparing “footprints”. In addition, the relative environmental cost of economic development can be intuitively understood, thanks to the inclusion of an economic development parameter in the “Environmental Diamond”. As shown in this example, the plot shows “Region 1” to be the local economic powerhouse, with others clustered behind it. The plot also shows how this region has the highest relative environmental impact, and will likely face clear limitations to its future development, as common resources become increasingly taxed by the expansion of neighbouring economies. The plot shows clearly that further development in that region requires taking into account issues of air pollution, water scarcity and quality, and ecosystem management. However, it also hints at better land management practices. The example also shows that the other regions have a lesser impact, but appear no less limited. The future economic development of “Region 2” may be greatly helped by better land management, and any project considered in that region may need to take this into account. A similar issue faces “Region 4”, in addition to increased air pollution problems. In “Region 3”, economic growth appears to be overtaxing the ecosystem and the land, indicating that any development projects need to take into account the need for better conservation and land management. building abroad, Montreal, October 2008

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Research Objectives: •

Review previously defined parameters,

•

Identify any limitations of existing parameters,

•

Define alternative parameters that can be used, and how they can be measured.

Discussion and conclusions This implementation of the “Environmental Diamond” is a comparison tool that is easy to use and visualize, and that could prove to be a useful tool for planners when they address policy makers. The plot appears as an “environmental radar”, showing objective measures of development and environmental impact in an intuitive format. Because of its reliance on objectively-defined units, the method can serve to create a common and objectively-defined framework for discussion among actors who may often have various or even divergent interests or outlooks. Any divergence then becomes technical, focused on either parameter type or data availability. In addition, since it makes the impact of complex, interrelated effects readily “visible”, the “Environmental Diamond” can become a valuable tool to policy makers and planners. For planners, the addition of economic parameters such as HDI or GDP illustrates cost-benefit considerations. This would allow planners to compare the relative merits of decisions and to set priorities that balance the need for optimal economic return with the necessity of sustainable management of a shared environment. For policy makers, the graph generated shows clearly the relative impact of a project across regions in a shared ecosystem, and can help educate policy makers as to the impact for a given project, or the necessity for its execution in a given region. Key Lessons Learned: •

Regions can best be defined by watersheds, since this would frame the discussion in an objectively defined context.

•

Reliance on objectively defined parameters will then provide a common framework to various decision makers, and thus move discussions away from policy choices, towards parameter relevance or data availability.

•

The choice of parameters considered could be adjusted to reflect what can be reliably measured.

•

Since the benchmark index is the average of the measure indices, the method provides a measure of relative environmental performance across regions.

References Bar Yam, Y. (1997) “Complexity rising: From human beings to human civilization, a complexity profile”, Encyclopaedia of Life Support Systems (EOLSS), UNESCO, EOLSS Publishers, Oxford, UK. Bell, S., Morse, S. (2005) Delivering Sustainability Therapy in Sustainable Development Projects, Journal of Environmental Management, 75. 346

Falkenmark, M., Widstrand, C. (1992) Population and Water Resources: A Delicate Balance, Population Bulletin, Population Reference Bureau. Hammond, A., Adriaanse, A., Rodenburg, E., Bryant, D., Woodward, R. (1995) Environmental Indicators: A Systematic Approach to Measuring and Reporting on Environmental Policy Performance in the Context of Sustainable Development, World Resources Institute, Washington, D.C. Hyams, E. (1952) Soil and Civilization, Harper & Row Publishers, New York, NY. Inhaber H. (1976) Environmental indices, John Wiley and Sons, London, UK. Montgomery, D.R., Grant, G.E., Sullivan, K., (1995) “Watershed Analysis as a Framework for implementing Ecosystem Management”, Journal of the American Water Resources Association, 31(3). Morato, T., Watson, R., Pitcher, T.J., Pauly, D. (2006) “Fishing down the deep”, Fish and Fisheries, 7(1). NRTEE/TRNEE, (2003) Environment and Sustainable Development Indicators for Canada, National Round Table for the Environment and the Economy (NRTEE/TRNEE), Ottawa, ON. Olderman, LR. (1992) “Global Extent of Soil Degradation”, Biannual Report 1991-92, International Soil Reference and Information Centre, Wageningen, The Netherlands. Ott, W. (1978) Environmental Indices: Theory and Practice, Ann Arbour Science Publishers, Inc., Ann Arbour, MI. Pauly, D., Palomares, M.-L., (2005) “Fishing Down Marine Food Web: It is Far More Pervasive Than We Thought”, Bulletin of Marine Science, 76(2). Smit, B. Pilifosova, O. Burton, I., Challenger, B., Huq, S., Klein, R., Yohe, G., Adger, N., Downing, T., Harvey, E., (2001) “Adaptation to Climate Change in the Context of Sustainable Development and Equity”, in McCarthy, J. J.; Canziani, O.; Leary, N. A.; Dokken, D. J.; and White, K. S; (eds.): Climate Change 2001: Impacts, Adaptation and Vulnerability, Cambridge University Press, Cambridge. Tainter, J.A. (1990) The Collapse of Complex Societies, Cambridge University Press, UK. UNDP (2003) Millennium Development Goals: A compact among nations to end human poverty, United Nations Development Program (UNDP), United Nations Press, New York, NY.


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Author’s Biography George J. Nasr researches sustainable development by focusing on a multidisciplinary approach where technical topics of hydrology, climatology, ecology, engineering, and economics intersect with political and social factors. Very often, societal, political, and historical considerations prove to be the determinant parameters in sustainable development issues, in which case a purely engineering approach would be ill-adapted. He applies this approach in his upcoming book, where the crisis in the Middle-East is approached from the perspective of Sustainable Development, beyond the ongoing struggle over water resources and oil.

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L’ORGANISATION DES PROJETS AU SÉNÉGAL : LE SCHÉMA «BICYCLETTE» Latyr Niang, École polytechnique de Montréal email: [email protected]

Résumé La performance des firmes d’ingénierie québécoises dans le cadre d’une collaboration Nord-Sud dépend d’une reconnaissance des particularités des pays d’accueil. L’objectif de cette étude est de schématiser le montage et la gestion d’un projet au Sénégal et d’en tirer des indicateurs en vue d’améliorer cette performance. L’expérience professionnelle de l’auteur, les entrevues des acteurs de ces projets à Tecsult et à Eiffage-Sénégal ont permis d’identifier les grandes étapes d’un projet au Sénégal et de valider certains postulats. Une étude de cas sur un chantier : l’autoroute décentralisant la capitale, Dakar au profit de la commune de Diamniadio, illustre la lenteur caractérisant le montage d’un projet d’envergure. La participation des PME – provenant majoritairement du secteur informel – s’avère socialement importante, mais contribue également aux délais accrus. Un schéma dit «la bicyclette» est proposé. Mots clés: Autoroute Dakar-Diamniadio; Eiffage; Modèle; PME Informelles; Tecsult. Abstract The performance of Quebec engineering firms within the framework of North-South collaboration depends on recognizing the particular characteristics of the host country. The objective of this study is to schematically represent the management of a project in Senegal and to provide indicators which will help improve its performance. The experience of the author and interviews with the principal participants in projects of this sort at Tecsult and Eiffage-Sénégal enabled the main stages of a project in Senegal to be identified and some hypotheses to be validated. A case study of a project: the highway decentralizing the capital Dakar and linking it to the municipality of Diamniadio, illustrates the delays that characterize the initiation of a major project. The participation of SMEs – mainly from the informal sector – is socially important but also contributes to further delays. A model, called “the bicycle”, is proposed. Keywords: Dakar-Diamniadio Highway; Eiffage; Informal SMEs; Models; Tecsult.

Introduction Les grands projets de construction ont toujours symbolisé la matérialisation des intentions de la société tant au niveau militaire, religieux et, de nos jours, politique. Les enjeux subséquents sont de taille et nécessitent une gestion optimale des ressources, ce que les acteurs ont très tôt compris. Esquisser la trajectoire de la gestion d’un projet par une étude de cas revient à cerner son évolution pour enregistrer les points forts et identifier certaines difficultés rencontrées. Il est pourtant difficile d’imaginer qu’un système réputé être aussi rationnel et organisé que la gestion building abroad, Montreal, October 2008

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d’un projet d’infrastructure puisse connaître des difficultés dans la pratique. Aujourd’hui les grandes firmes de génie-conseil se heurtent à de nombreuses difficultés au niveau de leur stratégie d’internationalisation dans les pays tiers-mondistes, devant dorénavant composer avec des éléments souvent incontrôlables: la prise en compte de données socioculturelles ou la politique locale ou bien encore l’interaction entre la planification macroéconomique et le développement local. Le concept de « développement » est dans ce contexte incontournable mais demeure aussi flou qu’un horoscope. Slogan de marketing pour certaines multinationales ou véritable volonté « durable » pour d’autres, entrainé dans le mouvement mondialisation, le « développement » est souvent porteur de bonnes intentions; il a pour ambition l’édification d’un lien équitable entre les pays du Nord et ceux du Sud. Cette dernière notion de liens équitables est envisagée par certains auteurs comme le moteur ou bien le frein au développement (Froger, 2006); elle est véhiculée par la promotion des « technologies appropriées » de ces pays. Mais en s’exportant dans ces contrées lointaines « l’homme occidental donneur » tout comme « l’homme tiers-mondiste récepteur » se heurte à une vision préfabriquée de « ce que nous pensons qu’ils pensent et qu’ils font » (Potvin et al., 2002). Cette vision moralisante a pourtant le mérite de soulever la question du champ d’application des savoirs occidentaux et d’aguerrir les acteurs de développement aux chocs culturels et aux traditions différents (Goedefroit, 2002). Dès lors, on parle de « détournement » des mesures de développement (Bierschenk et al., 2000) : non pas dans le sens péjoratif de la corruption ou du désir de préservation des traditions mais dans la méconnaissance de l’ingéniosité d’un secteur informel formé d’un réseau complexe de PME, souvent appelé sous-traitants, et dans un financement maintes fois avorté des bailleurs de fonds. Le Canada, ancienne colonie, est-il à même de comprendre et d’anticiper ces difficultés, notamment dans le cadre des projets de construction dans les pays en voie d’émergence ? La question de recherche : • Comment prendre en considération – dans un contexte contractuel formel – le potentiel du secteur informel. Méthodologie de recherche Cette recherche, basée sur une étude de cas, vise à mettre en évidence certaines problématiques associées à la gestion de projets d’infrastructure dans un pays en développement, notamment la mobilisation de la ressource que représentent les petites entreprises locales, utilisées (ou non) comme fournisseurs de main-d’œuvre ou de sous-traitants. L’objectif sous-jacent, évidemment, est de sensibiliser les gestionnaires de projets des pays donateurs sur l’importance de prendre en considération cette ressource et de ses retombées socio-économiques pour le pays d’accueil.

L’objectif de la recherche : • Décrire de façon schématique et de modéliser la gestion de projet au Sénégal. • Sensibiliser tout groupe québécois souhaitant s’implanter dans un pays de l’ouest africain sur les facteurs bloquants à la réussite des projets. Le choix de l’étude porte donc sur un pays en voie d’émergence : le Sénégal. Étant natif de ce 350

pays, et avec l’expérience professionnelle gagnée à titre de stagiaire, la raison portant sur le choix de l’objectif de recherche est justifiée. Néanmoins, sur le plan méthodologique, la difficulté a réellement été d’obtenir de l’information précise sur les projets spécifiques au Sénégal ou à Dakar. Les technologies de l’information sont en effet peu développées, rendant ainsi l’information difficilement accessible car non traitée et non échangée électroniquement. La première étape du processus de recherche consistait de décrire (et de représenter) le schéma classique de l’organisation de projet applicable au Canada et aux pays donateurs. Cette vision globale de l’organisation des projets de construction dans les pays du « nord » permet de cibler les différents intervenants ainsi que les interactions liant ces acteurs dans un projet de développement international (Voir Figure 1, page suivante). En parallèle, une recherche dans la littérature sur le développement et sur la gestion de projet à l’international a été effectuée, à laquelle a été ajouté de l’expérience de Benoit Pilote, ingénieur/conducteur de travaux pour Tecsult, lors d’une consultation du cyberjournal d'affaires internationales au Québec, Commercemonde. De plus, une recherche dans la presse locale sénégalaise sur la participation des firmes québécoises dans les projets de construction a permis de dégager des renseignements pertinents pour notre étude de cas. Une première série d’interviews a été réalisée sur acteurs clés de ces projets : aussi bien en amont qu’en aval des projets : •

Une entrevue avec un acteur en amont des projets, côté Québécois : Monsieur Marc Parent directeur, Tecsult International,

•

Une entrevue avec un acteur en aval des projets, côté Sénégalais : Monsieur Pape Ndiaga Bâ, ingénieur Sénégalais travaillant pour Eiffage-Sénégal.

L’objectif des entrevues a été de valider les postulats et hypothèses sur la gestion des projets de construction au Sénégal. La forme de l’entrevue a été adaptée en fonction de la localisation géographique des répondants : questionnaire électronique pour Monsieur Pape Niaga Bâ et entretien de visu à Tecsult International avec Monsieur Marc Parent. Les questions posées aux intervenants étaient cependant sensiblement similaires. Les résultats obtenus ont été interprétés, suivis d’une confrontation des idées et la validation ou le refus des postulats émis. À ces résultats j’ai ajouté mon expérience personnelle: deux stages effectués à Eiffage Sénégal durant deux étés consécutifs dans le cadre de projets de construction Nord-Sud. Cette expérience a permis de reconnaître certains sous-entendus des interlocuteurs. Par la suite, un modèle a été proposé et validé pour les projets de construction Nord-Sud au Sénégal. Suivait une deuxième série d’entrevues similaires avec les mêmes acteurs, avec la même forme. L’objectif de la seconde série d’interviews est la de validation du modèle proposé et de mettre en lumière le détail de l’analyse en ce qui concerne certaines phases des projets à hauts risques.


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Fig. 1. Organigramme décrivant les relations entre les différents intervenants dans un projet de construction. Source : adaptée de Glover, 1974. Résultats Le contexte du Sénégal La « collaboration » Nord-Sud au Sénégal a plus de 200 ans d’histoire. Péninsule tropicale, Dakar, la capitale, attire non seulement les touristes, mais surtout les investisseurs. L’actuel président, Abdoulaye Wade, a manifesté depuis longtemps son désir de moderniser la ville à travers de grands chantiers de construction. En effet, le secteur du bâtiment et des travaux publics (BTP) au Sénégal enregistre une croissance supérieure à 10% annuellement depuis 4 ans et contribue activement à la croissance du PIB. Plus de 820 millions d’Euros ont été injectés au Sénégal en 2003 dans ce secteur dont 63% émanant du secteur BTP. Des projets ambitieux sont présentement à l’étude et permettront de redonner un second souffle à une ville qui concentre près de 80% des activités économiques du pays. Des projets tels que la construction d’un nouvel aéroport à 45km de Dakar ou de l’autoroute de 32 kilomètres Dakar-Diamnadio en sont quelques exemples. Les sources de complexité Les projets initiés dans les pays en voie de développement sont plus complexes qu’ils n’y paraissent. En s’exportant dans ces pays, les firmes Québécoises sont aujourd’hui conscientes qu’ils vont initier des projets beaucoup plus longs que chez eux. Marc Parent, directeur aujourd’hui de Tecsult International affirme que « les projets en Afrique ne se développent pas en 3 mois, ça peut aller jusqu’à 3 a 5 ans. Il faut développer des relations émotionnelles avec les Africains, il faut les toucher, rigoler un peu avec eux, comprendre leurs problèmes … . Il faut qu’il vous appelle en toute confiance » (Marc Parent, communication personnelle). Alors pourquoi une telle différence dans les délais ? Le rapport machinerie/main d’œuvre en est une raison évidente. Au Canada, on estime ce rapport à 80/20% alors qu’une situation contraire se produit au Sénégal. Étant donné qu’une grande partie de la population évolue en dessous du seuil de pauvreté, la main d’œuvre locale est peu dispendieuse mais retarde souvent l’exécution des travaux. Les entrepreneurs essaient donc d’éviter l’utilisation de machineries parfois trop complexes. Benoit Pilote, ingénieur à Tecsult, est certain qu’il peut trouver « une main d’œuvre qualifiée, mais d’une technologie inappropriée ». 352

Les projets de construction au Sénégal (PCS) sont marqués par deux pôles de communication. Un premier, en amont des projets, est formé par un ensemble de participants comprenant l’État, l’entrepreneur, le maître d’ouvrage et les ingénieurs/architectes mandatés du projet. Un second pôle, en aval incluant également l’entrepreneur, plus l’État fiscal et juridique, et un réseau de sous-traitants. Dans chacun de ces deux pôles de communication, les décisions sont centralisées autour de l’État; des relations de concertation informelles se dessinent entre les différents intervenants. Le modèle de l’organisation des PCS (voir Figure 2, page suivante) emprunte ainsi la forme d’une bicyclette, où les roues évoquent cette polarisation, et dont le guidon est conduit par un financement encore aujourd’hui largement dominé par les investisseurs privés. Comment cette « bicyclette »peut-elle s’arrêter et d’où proviennent les problèmes de gestion – notamment en ce qui concerne les délais - dans les PCS ? Contrairement au Canada, la majorité du financement dans les grands PCS provient d’origines externes via des organismes multilatéraux ou bilatéraux : Banque Mondiale, l’APIX (agence chargée de la promotion de l’investissement et des grands travaux - organisme paragouvernemental), le FMI (Fond Monétaire international), la BAD (Banque Africaine de Développement). Les procédures de financement qui leur sont associées retardent souvent l’exécution des travaux, leur objectif étant de s’assurer que ces projets seront convenablement menés à terme sans externalités ni détournements. En effet, les investisseurs déplorent la pesante existence des charges fiscales au Sénégal ainsi que la lourdeur des procédures associées. De ce fait, les investisseurs attendent bien souvent que le projet se termine pour les financer.

Fig. 2. Représentation schématique (dite «la bicyclette») des relations formelles et informelles caractérisant les projets d’aménagement dans les pays émergeants. Au Sénégal on évoque de façon récurrente les partenariats publics privés (PPP) où les organismes privés s’occupent de la phase de préparation des projets : définition du projet, sélection de consultants, formulations d’avis sur le projet. L’État prend pour sa part la responsabilité de superviser les travaux en assurant un suivi et une coordination des entités étatiques impliquées et de la mise en œuvre des projets en termes de délais et de gestion de la building abroad, Montreal, October 2008

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qualité. Ainsi, se dessine une nouvelle source de retard de travaux des PCS engendré par l’État, notamment à cause du problème de la sous-traitance. Les grands PCS adoptent en général une organisation similaire. Un constat global peut être fait : les appels d'offres auxquels les soumissionnaires répondent sont exclusivement internationaux, et ils gagnent indubitablement en transparence, grâce à la pratique du « moins-disant » (Guerrad, 1999). Les PME locales sont encore jeunes et manquent d’expérience; leur demander de soumissionner pour ces projets paraîtrait alors présomptueux et si on ajoute à cela une relation privilégiée de longue durée de collaboration entre le Canada et le Sénégal (la firme de génie conseil, Tecsult s’est implantée en Afrique depuis les années ’60), les PME locales ont peu de chances d’obtenir ce genre de marchés. Les M-PME : Quelle est donc la solution pour ces petites et moyennes entreprises ? Le secteur du BTP concentre un nombre important d’entreprises dans le secteur informel. On parle de plus de 20 000 entreprises non enregistrées, exerçant leur activité en dehors de la sphère légale et fiscale. Selon une étude récente de la Banque Mondiale, ce secteur génèrerait 97% de la création d'emplois dans un pays très touché par le chômage. L’avantage de passer via ce canal informel, est d’éviter de payer les taxes imposées par le gouvernement souvent coûteuses (taxe d’égalisation, patente, impôt forfaitaire, TVA, etc.). Le gouvernement ferme évidemment les yeux à ce « réseau de sous-traitants » car leur mettre des bâtons dans les roues reviendrait de ce fait à nuire aux PCS. Au Sénégal, on parle de plus de M-PME qui sont des micros entreprises constituées d’une à deux personnes enregistrées dans le secteur formel selon un mode d’acquisition d’une couverture sociale institutionnelle de l’entreprise [affiliation à la Caisse de Sécurité Sociale (CSS), à l’Institut de Prévoyance Retraite du Sénégal (IPRES) et enfin par l’immatriculation NINEA (Numéro d’Identification Nationale des Entreprises et Associations). Les chefs de ces M-PME emploient par la suite bon nombres d’employés via l’informel (ouvriers en manutention, journaliers…). Les grandes firmes de construction au Sénégal sous-traitent ces M-PME en signant un contrat avec des clauses fiscales et judiciaires. Néanmoins, un réseau impressionnant de relations sociales et personnelles se forment entre le chef de la M-PME et ces employés. En effet, d’après Agence Nationale de la Statistique et de la Démographie (ANSD), 50,3% de la main-d’œuvre du secteur informel entretiennent des liens de parenté avec leurs employeurs. Enfin, l'importance des relations personnelles se mesure aussi au niveau de l'embauche : 85,3% de la main-d’œuvre des établissements informels ont obtenu leur emploi par relation (familiale, d'amitié), et seulement 11,4% par démarche directe auprès de l'employeur. Évidemment ces M-PME exercent, à travers la sous-traitance des grands groupes, une activité spécifique en maçonnerie, climatisation, plomberie/menuiserie, etc.; cependant elles manquent pour l’instant de savoir-faire et d’expérience pour se voir confier la réalisation de grands travaux (ANSD, 2003). En même temps au niveau fiscal et judiciaire, le gouvernement retarde énormément les procédures, les autorisations de construire et les procédures douanières. En effet, selon M. Moubarack (2007) ancien conseiller économique au cabinet de l’ancien Premier Ministre Sénégalais Moustapha Niasse, « l’administration Sénégalaise demeure globalement plus tournée vers le contrôle et l’encadrement que vers l’accompagnement intelligent du dynamisme économique et de la compétitivité. Ses lenteurs et complexités demeurent, malgré les nombreux rapports et décisions de principe en faveur de la réforme de l’État ». Il existe donc une dualité économique entre le secteur formel et informel dans les grands PCS. Les secteurs informel et moderne sont tantôt partenaires, tantôt concurrents - partenaires parce 354

que les entreprises légales locales ont besoin de relais pour commander et délivrer les matières premières nécessaires aux travaux de constructions, concurrents au niveau de l’attribution des marchés, où les M-PME proposent un service moins couteux. Or, le secteur informel dispose d'un réseau national de distribution qui tire son origine de l’utilisation des règles sociales comme la bienveillance et l’entraide, l’interdépendance et la coopération, fondamentaux de l’amélioration de la performance du marché. Une étude de cas : L’autoroute Dakar/Diamniadio Un projet justifié Depuis l’indépendance, Dakar connaît une forte croissance de sa population urbaine : de 1967 à 2003, la population est passée de 500 000 à plus de 2,4 millions. Cette augmentation exponentielle à engendré un problème de gestion d’espace dans la capitale, sous-estimé par le gouvernement n’ayant prévu aucun système de décentralisation approprié. Les zones d’habitats s’éloignent en conséquence, et génèrent un problème inévitable de transport. Aujourd’hui, l’achalandage des voies de circulation est évalué à plus de 70 000 véhicule/jour en heure de pointe sur un rayon de 20 kilomètres. L’État sénégalais s’est rendu compte de la nécessité de créer une infrastructure reliant Dakar, sa banlieue et Diamniadio, une ville situé à 30 kilomètres de Dakar. Le projet consiste en la construction d’une autoroute à péage (de 32 Km) desservant également le futur aéroport international situé à 42 km de Dakar (à Ndiass). Les éléments structuraux constituant le projet comprennent 32 km de chaussée 3x2 voies, un passage supérieur « toboggan », des échangeurs et la reconstruction du pont de Colobanne, une des artères principales de la ville de Dakar. 30 ans d’histoires Un nombre important d’actions a été réalisé pour ce qui concerne le projet d’autoroute à péage dans sa globalité (APIX, 2004) : •

Analyse des études déjà réalisées en 1978

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Reconnaissance du tracé de 1978

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Sécurisation juridique de l’emprise foncière

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Réalisation d’une étude de comptage de trafic sur l’axe Dakar –Thiès (2002)

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Réalisation et mise à jour de l’étude de trafic, de recettes et d’acceptabilité sociale péage (2003 et 2005)

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Réalisation d’une étude complète (2004) du tracé et des coûts de construction, incluant l’étude :

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des effets sur la mobilité et des impacts sociaux et environnementaux

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de la faisabilité et de la rentabilité économique du projet

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Confection d’un modèle financier et sa mise à jour (2003 et 2005)

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Démarrage des opérations de maîtrise foncière (campagne de communication, délimitation physique de l’emprise, recensement des occupants et réseaux situés dans l’emprise, évaluation des dédommagements à payer aux populations) identification des sites de recasement.

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Validation par les autorités des rapports des études techniques, économiques et financières (2005)

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Validation du principe de financement public/privé du projet (2005) building abroad, Montreal, October 2008

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Démarrage des travaux de la première phase Malick Sy–Pikine.

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Le projet est aujourd’hui en cours (2008).

Une stratégie de financement : les PPP Au Sénégal, l’association pouvoirs publics-privés a suivi une évolution conceptuelle depuis l’indépendance. Depuis le choc pétrolier de 1979 et le début des années d’ajustement, l’État a opté pour une nationalisation de secteurs clés comme l’eau (1971) et l’électricité (1971 et 1983), en se basant sur le modèle français. Contrairement à ce dernier, les entreprises publiques sénégalaises ont connu plusieurs difficultés de financement, souvent interdépendantes et affectant le budget de l’État. Le courant libéral de l’époque préconisant « moins d’État, mieux d’État » a induit au Sénégal, la liquidation d’entreprises publiques pour favoriser la privatisation. Cette forme d’organisation se dédouble en 2000 en accordant une part prépondérante à l’État pour favoriser l’accélération de grandes infrastructures clés pour le développement du pays. On a donc recours aux partenariats-publics/privés (PPP) dans la gestion des projets de construction. Le projet de l’autoroute Dakar-Diamniadio, estimé à plus de 200 milliards de francs CFA (400 millions de $ US) adopte cette stratégie de financement en voulant intégrer public et privé de manière efficiente. La préparation du projet est ainsi déléguée à l’APIX (partenaire privée) finançant le projet à 60% comprenant : définition du projet, sélection de consultants, identification des actions menées par l’administration pour favoriser le développement des projets, formulation d’un avis sur les projets, facilitation de la réalisation des projets. L’État encadre les 40% restants du financement par le suivi et la coordination des départements ministériels impliqués et par le suivi de la mise en œuvre des projets (délais/qualité).

La sélection de consultants. L’appel proposé par l’APIX, l’organisme privé mandaté du projet, prévoit un concours sélectif des candidats conformément au nouveau cadre juridique sénégalais introduit en 2004, préconisant une intervention du Conseil des infrastructures à différents stades de la procédure. Cette résolution suit l’optique d’une conformité du dossier d’appels d’offres avec les intérêts du Sénégal. L’appel d’offres sous-entend une pré-qualification des entreprises dont la soumission est considérée comme conforme, puis les candidats retenus sont appelés à remettre leurs dossiers techniques suivi d’un dialogue compétitif. Une commission prend alors une décision suite aux propositions complètes et formule par avis ses recommandations. L’ampleur du projet de l’autoroute Dakar-Diamniadio a nécessité une division en plusieurs lots au niveau de l’étude technique. Sept entreprises (dont 5 internationales) ont été sélectionnées : •

TECSULT(Canada)/AFID(Sénégal) pour : l’étude technique, l’étude des impacts sociaux et environnementaux du tronçon à péage de l’autoroute Dakar, les études :

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du tracé et des coûts de construction,

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des effets sur la mobilité et des impacts sociaux et environnementaux,

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d’analyse de faisabilité et de la rentabilité économique du projet d’Autoroute à péage Dakar – Thiès.

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SETEC (France) pour l’étude de trafic et de péage.

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TECSULT (Canada)/AFID(Sénégal) pour l’analyse économique du projet.

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AXELCIUM/APIX (Sénégal) pour l’analyse financière.

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SCET (Tunisie) pour l’étude d’APD Malick Sy-Pikine.

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•

BUURSINK (Suède) pour l’évaluation environnementale et sociale.

L’entreprise Québécoise TECSULT sort gagnante de ce consortium en réalisant une grande partie de l’étude. Les entrepreneurs mandatés de la réalisation sur place du projet ont été également répartis en lots : Le groupe Jean Lefebvre (France), Eiffage (France) et la CSE (Sénégal). En particulier, Eiffage s’occupe des travaux sur la route Patte-d'oie Pont du Cices (l’échangeur en trèfle à quatre feuilles, première au Sénégal). Malheureusement, aucune PME locale n’a été retenue pour encadrer l’étude ou l’entreprenariat du projet. Conclusion L’autoroute Dakar-Diamniadio a bien l’allure d’un grand projet de construction, de par le niveau des investissements, la mobilisation impressionnante d’intervenants et par la volonté d’un gouvernement tourné vers le progrès. L’objectif consiste à donner un second souffle à une ville qui étouffe d’habitants. Rappelons que l’initiative date de 1978, soit 30 ans de réflexion. La question de la gestion de ce projet se pose donc avec acuité. Étant donné que le projet est en cours, l’analyse sur les externalités économiques est difficilement quantifiable. Néanmoins, l’opinion publique suit le projet rattaché à la politique du président Abdoulaye Wade de très près, à travers les médias et les forums de discussion. En dépit d’un financement novateur (PPP), le financement complet des travaux (30 ans) tarde par l’administration contraignante en aval des PCS, comme en témoigne monsieur Gérard Sénac, directeur d’Eiffage : « […], malheureusement nous rencontrons beaucoup de difficultés liées à la libération des emprises (les maisons et stations services qui ne sont pas dégagées). Si on ne libère pas la zone, rôle dévolu à l'Administration, on ne va pas terminer entièrement la route […] » (Communication personnelle). Il est donc prévisible que ce grand projet connaisse des retards dans l’exécution et probablement des dépassements de coût. Mais jusqu’à combien et jusqu’à quand ? Cette question inquiète de plus en plus les observateurs sceptiques, qui déplorent « la folie des grandeurs du chef de l’Etat » suite à un coût évalué à plus de 800 Millions de dollars US. Au delà de cette question, on doit se demander quel équilibre sera établi entre les maîtres d’œuvre provenant des pays donateurs et les M-PME provenant du secteur informel du pays d’accueil. Ces « micros entreprises » toujours très discrètes, sont mis à l’écart d’un marché largement dominé par les grandes firmes de construction et par un pouvoir étatique trop protocolaire. La sous-traitance est une solution de survie obligeant les M-PME à s’organiser en réseau social autour des projets de construction : « le fils de l’entrepreneur est le cousin du chef de la M-PME, le chef de la M-PME emploi ces petits neveux dans son entreprise... ». Cet exemple laisse facilement entrevoir les problèmes auxquels les PCS peuvent être confronté : retard des travaux, corruption etc. Enfin, supprimer ces M-PME reviendrais à fragiliser une économie sénégalaise largement tributaire des gains du secteur informel.


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Les leçons à tirer de cette étude : • Financement lent des projets par l’État, pouvant être accéléré par un partenariat public privé. • Le rapport machinerie/main d’œuvre est 20/80% et source de retard. • Une main d’œuvre qualifiée, mais technologie inappropriée. • Dualité économique entre secteur formel et secteur informel : réseaux de sous-traitants.

Remerciements : Je remercie Pr Colin Davidson et les membres du Groupe de recherche IF pour leur soutien lors de la réalisation de la recherche rapportée ici et de la rédaction de ce texte. Références : ANSD (2003) Agence Nationale de la Statistique et de la Démographie. LE SECTEUR INFORMEL DANS L’AGGLOMERATION DE DAKAR : performances, insertion et perspectives. Disponible à: http://www.ansd.org/Rapport%20phase2%20DakarVersion310804.pdf APIX (2004) Communication. Autoroute à péage Dakar-Diamniadio. Disponible à : http://www.autoroutedakardiamniadio.com/pages/communication_documents.htm [consulté le 04 février 2008] Bierschenk, T., J-P. Chauveau et J-P. Olivier de Sardan (2000) Courtiers en développement. Les villages africains en quête de projets. Paris, Karthala. Froger G. (2006) Mondialisation et développement durable : enjeux et ambigüités .La mondialisation contre le développement durable ? Bruxelles, P.I.E. Peter Lang - Presses interuniversitaires européennes. Glover, M. (1974) Building Procurement – Proceedings of a Workshop, IF Occasional Paper Number One, Montreal, IF Research Group, et Champaign, Ill. Construction Engineering Research Laboratory. Goedefroit, S. (2002) Stratégies patrimoniales au paradis de la nature. Conservation de la biodiversité, développement et revendications locales à Madagascar. Paris, IRD Éditions. Guerrad, P. (1999) Les Africains occupent le terrain. Jeune Afrique. 16 Nov. Disponible à: http://www.jeuneafrique.com/jeune_afrique/article_jeune_afrique.asp?art_cle=LIN16116les afniarre0 [consulté le20 janvier 2008] Moubarack, L. (2007) A propos. Blog du Le Monde. Disponible à : http://moubaracklo.blog.lemonde.fr/a-propos/ [consulté le 20 Mars 2008] Potvin, C., J.-P. Revéret, G. Patenaude et J. Hutton (2002) «The Role of Indigenous Peoples in Conservation Actions. A Case Study of Cultural Differences and Conservation Priorities». In P. Le Prestre ed., Governing Global Biodiversity. Londres, Ashgate Publishing Company: 159-177. 358

Biographie de l’auteur : ième

Latyr Niang est étudiant en 3 année en génie civil à l’Ecole Polytechnique de Montréal. Il est Directeur du journal-étudiant Le Polyscope (Polytechnique) et il cumule déjà cinq expériences de recherche et d’acivités professionnelles:- stage en bâtiment à Eiffage-Sénégal (2005), stage en travaux publics à Eiffage-Sénégal (2006), bourse de l’initiation à la recherche de Polytechnique (UPIR), chercheur pour le groupe de recherche IF de l’université de Montréal sous la supervision de monsieur Colin Davidson (2007-présent (projet : gestion de projet de construction au Sénégal), et auxiliaire de recherche pour le laboratoire de structure HydroQuébec de l’école Polytechnique de Montréal (2008).


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HOUSING RECONSTRUCTION IN ACEH: RELATIONSHIPS BETWEEN HOUSE TYPE AND ENVIRONMENTAL SUSTAINABILITY David O’Brien, The University of Melbourne email: [email protected] Iftekhar Ahmed, The University of Melbourne email: [email protected] Dominique Hes, The University of Melbourne Email: [email protected]

Abstract In the aftermath of the December 2004 Indian Ocean Tsunami, housing reconstruction agencies typically engaged specialist contractors to build multiple houses using massproduced construction materials. The dominant house type built by reconstruction agencies followed the ubiquitous ‘bungalow’ model and was constructed with industrialised materials. Other types were hybrid models that used the industrialised materials but traditional ‘house on stilts’ typologies. In Aceh, Indonesia, the adoption of these types extended existing trends away from vernacular traditions and materials such as timber and bamboo. While it can be argued that this mass housing introduced efficiencies of procurement, scale and cost, the long-term sustainability of these houses must not be overlooked if this type is to be portrayed as a suitable response to this type of humanitarian disaster – particularly as these types will define the future housing culture. This research questions the sustainability of three houses built by reconstruction agencies in Aceh and makes comparisons with a typical timber vernacular house. As a measure of sustainability it quantifies two forms of life-cycle costing – the greenhouse gas (CO2) emissions and the ecological footprint of each of the selected house types. Results demonstrate that reconstruction houses are linked with levels of greenhouse gas emissions up to fifty times higher than traditional types and triple the ecological footprint of traditional types. This increase is primarily due to the overwhelming use of externally procured and imported construction technologies and mass-produced materials. Keywords: Tsunami Reconstruction; Housing Sustainability; Life-Cycle Analysis; Greenhouse Emissions; Ecological Footprint. Introduction The housing culture of Southeast Asia, including the Daerah Istimewa Aceh (Special Region of Aceh), traditionally utilised organic building materials for construction such as timber, thatched grasses, and bamboo. The region’s isolation from Indonesia’s major population centres and economic base kept housing demands at relatively low levels. Land availability was high, resources were plentiful, and the vernacular construction systems did not unduly compromise the


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local environment. For many generations the local housing systems developed closely with the cultural needs and remained relatively sustainable. More recently, within the last generation, a series of economic and cultural shifts have taken place that, amongst other things, have reconfigured local approaches to housing. Logging contractors have stripped local forests and the resultant high timber prices are linked to deforestation, industrialisation, overpopulation, and corruption (Dauvergne 1997, Food and Agricultural Organisation of the United Nation 2001, Global Witness 2002). Within the Aceh region quality timber is now expensive and is commonly only available in lengths that are shorter than those customarily required for house construction (Nas 2003). Furthermore the new aspirations of inhabitants have also led to new housing forms. Regionally it has been noted that access to television has introduced new living patterns and aspirations closely connected to consumerism, new lifestyles, and new forms of housing (Ockey 1999, Hamilton 1992, Askew 2002). The masonry bungalow, the typical model promoted by the media, is now commonplace throughout Southeast Asia. Nas (2003) argues that the motivations that lead to contemporary bungalow housing types in Aceh include diminished access to suitable timber supplies, lack of craftspersons skilled in traditional construction techniques, and the notion that the traditional house is less ‘practical’ than its contemporary alternative. On a less tangible level Nas suggests that people are expressing an ‘interest in change and wish to keep up with the times’, and that ‘modernization and the availability of modern building materials such as brick and concrete stimulate people to alter their immediate living environment’ (Nas 2003). Changes to the housing culture are fuelled both by pragmatic concerns and by the desire to relate to an ideal of modernity emanating from industrialised and consumerist cultures – often from urban cultures manifesting within the same country. The 2004 Indian Ocean Tsunami dramatically exacerbated these changes to the Acehnese housing culture. The widespread destruction of houses led to a massive relief effort and dozens of international and local aid agencies participated in one of the most comprehensive reconstruction programs ever mounted. Reconstruction agencies working in Aceh have readily adopted the bungalow type and its derivatives and have built with reinforced concrete, masonry (concrete block and brick), steel framing, and corrugated iron sheets. However there has been little research evaluating the environmental sustainability of this approach. While Roseberry (2008) identifies that the construction materials used in reconstruction are associated with high levels of embodied energy and embodied CO2, a close comparison between specific house types has not been undertaken. Research methods

Research questions: How does the sustainability of house types built by reconstruction agencies compare with each other and a traditional Acehnese house type? What are the greenhouse gas emissions and ecological footprints associated with each type? This paper questions the relationship between house type and environmental sustainability, more specifically, the relationship between construction technologies and environmental impacts. In this study three houses, designed and built by development agencies as post-tsunami reconstruction housing for Aceh, have been selected and a Life Cycle Assessment (LCA) performed on those houses. The results from these houses are then compared with results from a typical traditional timber house in Aceh. 362

LCA is a technique for assessing the environmental aspects and potential impacts associated with a process – in this case a process that produces the four case-study houses. It calculates the effects that this process has on the environment over the entire period of its entire lifecycle. It does this through two steps. Firstly it requires an inventory of relevant inputs and outputs of a product system before evaluating the potential environmental impacts associated with those inputs and outputs (International Standards Organization 1998). After this step an evaluation is made using SimaPro – a computer program developed by PRe Consultants in the Netherlands and incorporating a database provided by the Center for Design at RMIT University, Australia. The SimaPro process incorporates a series of generalisations and assumptions, and is based on data from industrialised countries. Its value to this research is that it charts a transparent process that analyses each component of a system to enable quantifiable comparisons to be made. This data then enables researchers to compare the environmental sustainability of selected case-study houses. Two measures of sustainability have been quantified - the carbon footprint and the ecological footprint. The carbon footprint is a measure of the quantity of greenhouse gases emitted across the full life-cycle of the house - from the extraction of the raw materials used in construction through to the disposal of the materials at the end of the life of the house. The ecological footprint shows how much biologically productive land and water a house requires throughout its life-cycle. These calculations are focused on the life-cycle costs associated with construction processes and running costs. The complexity of the calculation is high and certain boundaries must be placed around the study to make it feasible. For example, the SimaPro process includes the energy used by mechanical equipment used during the construction process but does not calculate the environmental costs of human labour – for example the environmental impact of the food consumed by the construction team during the building process. Further assumptions were made so as to be able to make direct comparisons. Firstly it is assumed that all houses have similar lifespans and that all have comparable electricity usage (calculated at two fluorescent lights, a small television set and two electric fans). Finally it is assumed that all will be recycled to a similar degree at the end of their lifespan. Four case-study houses in Aceh have been selected for this analysis. The first is an example of the traditional Acehnese timber house type built approximately thirty years ago. Houses 2, 3 and 4 were built by international aid agencies. House 1 – Traditional Acehnese House The traditional Acehnese house is well documented (Collier and Collier 1997, Dall 1982, Nas 2003) and the description here draws upon these accounts. This analysis is based on Dall’s series of drawings published in ‘The traditional Acehnese house’.

Fig. 1. Traditional Acehnese house building abroad, Montreal, October 2008

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The house Dall describes is built almost entirely from organic building materials such as timber, bamboo and thatch. The house is raised above the ground on timber posts that rest on flattened stone blocks. The elevated floor is made of bamboo slats and supported by a system of timber joists and bearers. Walls are made of timber planks with decoratively carved skirting boards and panels. Upper wall components have latticed screens of bamboo or rattan that enable cross ventilation while doors and windows commonly have decorated wooden shutters. The thatch roof, usually made with palm fronds, is supported on a system of timber and bamboo battens, major and minor rafters, and carved king posts. The house is held together with a series of crafted joints and no metal nails are required. The space under the house is utilised for various activities including relaxation, rearing of animals and storage. Overall the house has generous proportions and typically the upper floors cover 90m2 with an additional 90m2 of relaxation space, animal stalls and storage below. House 2 – Caritas This house is one of three types built by Caritas International and closely follows the bungalow model. The load-bearing walls are from hollow concrete block and rest on reinforced concrete strip wall footings. Walls are reinforced with reinforced concrete posts and the floor is made from reinforced concrete. Interior partition walls are made from fibre-cement boards attached to a steel frame. Concrete block walls have been coated with a sand/cement mix and painted. Door panels and frames are timber and window frames are aluminium with sliding operable glass panels. The gabled roof and gable ends are clad with corrugated iron sheet attached to a steel truss system.

Fig. 2. Reconstruction house built by Caritas The main entry into the house is through a covered porch into a combined living/dining room. The two bedrooms are accessible by an internal corridor leading out to the kitchen, toilet and then outside to the rear of the house. The total area of the house is 52m2. House 3 – Habitat for Humanity House 3 was built by Habitat for Humanity and uses both local and imported construction techniques. The wall footings use local rubble stone and a thin reinforced concrete strip footing supports brick masonry walls. The masonry walls are reinforced at wall junctions with reinforced concrete posts and additional strength is provided from two reinforced concrete horizontal bands running continuously through the masonry walls. The masonry walls are finished with sand/cement plaster coat and are painted. Doors and windows are timber framed, doors have 364

timber panels and the windows are glazed. Timber has been used for the walls of the kitchen and roof framing. The lower part of the kitchen walls are masonry with plywood panels above. The gabled roof is built from corrugated iron sheet cladding over a timber truss framework.

Fig. 3. Reconstruction house built by Habitat The layout of the house follows a typical bungalow format – a front porch leads to a living/dining room and onto a pair of bedrooms. A kitchen and toilet are located at the rear as is an additional outdoor porch. The house covers a total area of 56m2. House 4 - Uplink Uplink houses were designed with two main types – one type is based on the bungalow format as described in Houses 2 and 3 whilst the other type is raised above ground on a series of stilts and forms a link with traditional Acehnese house typologies.

Fig. 4. Reconstruction house built by Uplink This type uses reinforced concrete columns arranged in a grid and interconnecting with reinforced concrete beams supporting the floor. The enclosed living area is built on a reinforced concrete floor slab raised 2 metres above ground level. The walls of the enclosed living space are brick masonry to waist height with timber framed and clad walls above. The gabled roof of the house has corrugated iron sheet attached to a timber truss frame. The bathroom is the only enclosed building abroad, Montreal, October 2008

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space at ground level and has been constructed with brick walls and internal ceramic tile cladding. The remaining open area below the house offers scope for additional social activities and the storage of household goods in much the same way as the traditional Acehnese houses. A timber staircase leads from the ground to the upper floor and includes a mid-level timber landing. All doors have timber panels and timber frames and windows are top-hung with glass panels and timber frames. Excluding the staircase this house covers 32m2 on each level.

Research Objectives: The objective of the research is to provide a comparative analysis of the relationship between house type and environmental sustainability (as measured by greenhouse gas emissions and ecological footprint).

Research results Many factors differentiate the four houses described above: types of materials, size, form and spatial arrangements. The first phase of the research measures the quantities of construction materials used to build each house. Each house has undergone an inventory analysis whereby every single construction component is quantified and recorded in cubic metres. Results are summarised in Table 1. Table 1. Summary of material quantities (m3) Material

Traditional

Reinforced concrete Timber

15.345

Thatch

8.215

Bamboo

1.313

Caritas

Habitat

Uplink

5.832

5.010

10.622

2.191

2.415

0.653

1.832

12.150

4.848

Plywood

0.100

Concrete block

10.000

Brick Stone

1.152

Cement plaster

0.845

Fibre-cement Paint

10.920 0.750

0.522

0.015

0.010

0.084 0.010

0.015

Ceramic tile

0.016

Steel

0.233

Corrugated iron

0.033

0.039

Gypboard

0.032 0.339

Aluminium

0.002

Glass

0.047

0.015

0.022

Greenhouse gas emissions per house Figure 5 compares the carbon dioxide (CO2) greenhouse gas emissions (measured in kilograms) associated with the construction and running costs of each of the four studied houses as described earlier in this paper.

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Fig. 5. Greenhouse gas emissions per house (kg CO2eq) It reveals that the traditional timber house has an exceptionally low greenhouse impact as compared with the reconstruction types that demonstrate significantly higher greenhouse emissions. The Caritas house is nearly forty times higher, the Habitat house nearly thirty times higher and the Uplink house emissions up to fifty times higher than the traditional house. Greenhouse gas emissions per square metre The disparity between the construction type and quantity of emissions is further placed in perspective when considered on a per square metre basis. At 32m2 the Uplink house provides the smallest amount of enclosed space,- nearly one-third the amount as compared with the 90m2 traditional house. It would be most unlikely that the Uplink house, or for that matter either the Caritas or Habitat examples, could house as many residents as the larger traditional house. In the aftermath of any natural disaster, such as the tsunami, larger houses become a more valuable asset as they have the capacity to support larger numbers of displaced residents. Hence house size, measured in square metres, must play an important role in any evaluation of house type.

Fig. 6. Greenhouse gas emissions per square metre (kg CO2eq) Figure 6 compares greenhouse gas emissions per square metre of enclosed space, that is, the spaces within a house enclosed with both roof and walls. Results show an increased disparity between the amounts of greenhouse gas emissions associated with traditional timber construction techniques as compared with contemporary construction techniques employing mass-produced materials. Emissions associated with the traditional house are negligible as compared with each of the reconstruction houses. On a comparative basis the traditional house produces less than one percent the emissions associated with the Uplink house, less that 1.5% of the Caritas house and less than 2.3% of the Habitat house. building abroad, Montreal, October 2008

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Ecological footprint per house Figure 7 compares the Ecological footprint associated with the construction and running costs of each of the four studied houses as described earlier in this paper. The ecological footprint shows how much biologically productive land and water a house requires throughout its life-cycle.

Fig. 7. Ecological footprint per house (hectares) The traditional house has an environmental footprint of 3.7 hectares – meaning that 3.7 hectares of land is required to build and maintain the house throughout its life-cycle. Caritas and Habitat houses require marginally less at 2.9 and 3.2 hectares each respectively. The Uplink house requires the most number of hectares at 5.3. Therefore a single one hundred acre plot could support 27 traditional houses, 34 Caritas houses, 31 Habitat houses but only 19 Uplink houses. Ecological footprint per square metre Again it is useful to make comparisons on a per square metre basis given that each of the houses differ in size. On a per square metre basis the traditional house requires the least amount of land at 0.041 hectares with both the Caritas and Habitat houses requiring 0.055 and 0.057 hectares respectively. By contrast the Uplink house requires significantly more at 0.150 hectares.

Fig. 8. Ecological footprint per square metre (hectares) Therefore, a single one hundred acre plot could support 2439 square metres of traditional housing, 1818 square metres of Caritas housing, 1754 square metres of Habitat housing or 667 square metres of Uplink housing.

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Discussion and conclusions The two measures of sustainability outlined in this paper - CO2 emissions and ecological footprints - confirm that traditional housing types constructed with locally harvested timber remains the key to reducing the environmental impacts associated with housing. This is particularly true when considering that CO2 emissions stemming from timber production are negligible. Furthermore the ecological footprint of timber houses remains less than the massproduced alternatives when considered on a per square metre basis. However the lack of a sustainable local timber industry within Aceh, coupled with the demand for industrialised and ‘Westernised’ housing, required reconstruction housing to be constructed with externally procured imported materials and mass-produced products. This life-cycle assessment shows that these samples of reconstruction housing built by international agencies are all significantly less sustainable than traditional types. Mass-produced industrialised materials dramatically increase CO2 emissions, particularly products used in larger quantities such as reinforced concrete, concrete block, brick, and steel. The manufacturing processes that produce these materials require high levels of energy that in turn, contribute to the high CO2 emissions. The major limitation of this study is that it does not measure cultural appropriateness. The Uplink house, which measures poorly in quantitative terms, is most alike to the traditional house in its spatial planning. Both the traditional and Uplink houses are raised on stilts and provide additional sheltered space in their undercroft - space which could allow for additional living areas at low financial and environmental cost. This space could conceivably provide opportunities for residents beyond the scope of this research project’s capacity to identify and evaluate. Furthermore a house raised on stilts is perhaps more likely to survive any possible future tsunami and would conceivably raise the chances for residents to survive this type of threat. The structure required to raise the Uplink house - reinforced concrete - has significant environmental impacts that raise the CO2 emissions and ecological footprint associated with its construction. However the potential for improved cultural appropriateness and capacity for the house to withstand any future tsunami should be considered before a comprehensive judgement of these houses is made.

Key Lessons Learned Timber is the more sustainable construction material as it is associated with significantly lower CO2 emissions overall and a lower ecological footprint on a per square metre basis. Bungalow type reconstruction houses use considerably less construction materials than reconstruction houses built on stilts and are associated with lower CO2 emissions and ecological footprints.

References Askew, M. (2002) Bangkok: Place, Practice and Representation, Routledge, New York. AS/NZS (1998). AS/NZS ISO 14040:1998 (ISO 14041:1997) Environmental Management - Life cycle assessment - Principles and Framework. Homebush, Standards Australia and Standards New Zealand.


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Collier and Collier (1997) Aceh. In Encyclopedia of Vernacular Architecture of the World (Ed. Oliver, P.). Cambridge (UK), Cambridge University Press. Dall, G. (1982) The Traditional Acehnese House. In The Malay-Islamic World of Sumatra (Ed. Maxwell, J.). Monash University, Melbourne. Dauvergne, P. (1997) Globalisation and Deforestation in the Asia-Pacific, Research School of Pacific and Asian Studies, Canberra. Food and Agriculture Organisation of the United Nations (2001) State of the World’s Forests, Food and Agriculture Organisation of the United Nations, Rome. Global Witness (2002) Deforestation Without Limits, London. Hamilton, A. (1992) ‘Family Dramas: Film and Modernity in Thailand’ Screen, 33, 259-273. King, A. D. (1995). The Bungalow: The production of a global culture. Oxford University Press, New York Nas, P. J. M. (2003) ‘Ethnic identity in urban architecture: Generations of architects in Banda Aceh’ in (eds) Indonesian Houses, vol. 1, eds. R. Schefold, G. Domenig and P. Nas, KITLV Press, Leiden, The Netherlands. Ockey, J. (1999) Creating the Thai Middle Class. In Culture and Privilege in Capitalist Asia (Ed, Pinches, M.) Routledge, London. Roseberry, R (2008) A Balancing Act: An assessment of the environmental sustainability of permanent housing constructed by international community in post-disaster Aceh. In Proceedings of the International i-Rec Conference – Building Resilience: Achieving Effective Post-Disaster Reconstruction. University of Canterbury, Christchurch.

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Author’s Biography David O’Brien is a design and construction lecturer at the Faculty of Architecture, Building and Planning at the University of Melbourne. He has worked as an architect in Australia and South-East Asia and has extensive experience investigating rural housing. He has assisted NGO groups addressing housing needs and advised on policy, design and technical issues.

Iftekhar Ahmed has a doctorate from Oxford Brookes University and a Master of Science from the Massachusetts Institute of Technology. He has taught at the Bangladesh University of Engineering & Technology and worked as consultant on building and disaster related projects for several international agencies including the United Nations Development Programme, Asian Disaster Preparedness Center and the European Commission Humanitarian Assistance Office.

Dominique Hes received a science degree from Melbourne University and followed this with a graduate diploma in Cleaner Production and a doctorate from RMIT University, Melbourne. Her research supports the integration of sustainability in building projects. Her research interests are to identify and fill the knowledge gaps in sustainability practice and application in the built environment.


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THE BUILDING ACT AND RECONSTRUCTION PROGRAMMES IN NEW ZEALAND: MATTERS ARISING

James Olabode Rotimi, University of Canterbury email: [email protected] Suzanne Wilkinson, University of Auckland email: [email protected] Dean Myburgh, 80/20 Options NZ Limited email: [email protected] Kelvin Zuo, University of Auckland email: [email protected] Abstract The study is an on-going research initiative to determine the effects that the implementation of the Building Act 2004 will have on post-disaster reconstruction programmes in New Zealand. Particularly, in large-scale disaster events with suddenonsets, the provisions of this Act and other legislative provisions need to be supportive and enabling so as to facilitate speedy reconstruction and reinstatement. An on-line survey of building control officers and other disaster practitioners in New Zealand was undertaken and their responses to issues connected with application of the Building Act 2004 are analysed quantitatively. The results indicate that there remain challenges to meeting reconstruction objectives both efficiently and effectively under the new Building Act regime. Prevalent amongst the matters raised were those of procedural constraints as a result of high consenting standards and other logistic considerations. Considerable attention is required to implement the Building Act and other legislation during the two overlapping phases of response and recovery. The desire is to create the best possible conditions that will encourage rapid rebuilding of lives and communities after large-scale disasters in New Zealand. Keywords: Building Act; Legislation; Post-Disaster Reconstruction.

Introduction There is no doubt that 21st century communities are more vulnerable than ever to most forms of natural disaster. The scale and magnitude of recent destructions are unprecedented. There has to be a proactive engagement in disaster management activities that will not only reduce these


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impacts but also increase the resilience of vulnerable communities to future events. Pre-planning activities are therefore both socially and economically desirable. One aspect of pre-planning is the need to put in place viable policies and procedural arrangements that will facilitate recovery after disasters. Such disaster management policies may include one of a number suggested by Petak & Atkisson (1982): action-forcing, attention-focusing, recovery, technology development and transfer, regulatory, financial planning, system management and optimisation, and direct-action policies. However only recovery and regulatory policies are the focus of the research on which this paper is based. These policies give guidelines for participatory roles of stakeholders, the assignment of authorities and responsibilities to those stakeholders, and how disaster activities are to be coordinated to achieve recovery objectives. An important recovery objective is to re-settle displaced persons as quickly as possible after a catastrophic event. This will help to stem the risks of permanent harm and other psychosocial losses. It is often the case that evacuees to temporary shelter and accommodation end up being permanently kept away from their homes. Reasons for this are traceable to their inability to build back their homes because of restrictive institutional policies or legislations. Studies allude to the fact that subsisting legislations have become impediments to the realisation of post disaster reconstruction objectives (Meese III, Butler et al. 2005; Rotimi, Le Masurier et al. 2006; Middleton 2008). There is always the tension between strictly applying re-development regulations, which aim at preventing a recurrence of the previous community’s vulnerability, and on the other hand, allowing the affected community to move back to their former habitation. Clearly, the quicker communities return to habitability in as many of their homes as possible, the better it will be for restoring a sense of normality (). However disaster management agencies will aim for a ‘build back safer’ situation. Thus it is unwise to allow a deregulated post disaster reconstruction. Decisions pertaining the application and implementation of development regulations will always be a trade-off between idealistic goals and expediency. The current study therefore describes one aspect of a larger research initiative that seeks a compromise between regulatory requirements and post disaster reconstruction objectives in New Zealand. The paper highlights some of the issues that may arise from the implementation of the Building Act (2004) in the event of a large scale reconstruction programme in New Zealand. The Building Act 2004, New Zealand The Building Act provides for the regulation of building work, the establishment of a licensing regime for building practitioners, and the setting of performance standards for buildings, to ensure that : (a) people who use buildings can do so safely and without endangering their health; and (b) buildings have attributes that contribute appropriately to the health, physical independence, and well-being of the people who use them; and (c) people who use a building can escape from the building if it is on fire; and (d) buildings are designed, constructed, and able to be used in ways that promote sustainable development. The Act prescribes the requirements of the national building code which requires buildings and other associated features to meet certain performance standards like durability, fire safety, sanitation (services and facilities), moisture control, energy efficiency and access. It is administered at the national level by the Department of Building and Housing (DBH) and at the local level by Building Consent Authorities (BCA) through a building consent process. The responsibilities of BCAs under the Act can be assigned to Independent Qualified Persons (IQP). IQPs include building and engineering professionals who have undergone an accreditation and certification process to act in the capacity of consent and compliance officers. This provision in 374

the Act for IQPs is useful as it devolves responsibility from the BCAs to IQPs and helps to reduce workloads in times of needs. Building Consent Authorities are themselves required to be accredited by the Department of Building and Housing. Only a few of the local councils have so far received certification under the new Building Act regime. Building consent processing involves the house owners, the designer/builder and the Building Consent Authorities. Consent is required for all building work in connection with the construction, alteration, demolition or removal of a building; and is only granted when the BCA is satisfied that works are in accordance with the building codes and associated regulations. Works cannot commence until approval/consent is granted. Under normal circumstances the building consent process would be expected to last 20 days but the reality is far from this. The Act requires a strict inspection of work progress during construction at ‘hold points’ corresponding to progress milestones. Each defined stage must be inspected and certified before subsequent stages can be started. Inspection provides some certainty about code compliance and construction quality; and that constructed works are in accordance with the original specified in the approved consents. At completion of all works a Code of Compliance Certificate (CCC) is issued. The problems with legislative provisions Legislations that apply to routine construction provide for the safe development of infrastructure, capital improvements, and land use, ensuring preservation and environmental protection. However, there appears to be little provision in several areas of legislations to facilitate reconstruction projects. Feast (2004) identified several issues in relation to planning and construction legislation that would impede reconstruction of Wellington, New Zealand following a major earthquake. The study suggests that much of the existing legislation was not drafted to cope with an emergency situation and was not developed to operate under the conditions that will inevitably prevail in the aftermath of a severe seismic event. For example the Resource Management Act (RMA) places heavy emphasis on a consultative process, whereas the problem of meeting the reconstruction requirements of a devastated city within a reasonable period will preclude such consultative procedures (Feast 2004). In spite of current revisions to both the Building Act and RMA, evidence from flooding events in the Bay of Plenty 2005, suggest that little has changed over the intervening period and the same issues apply to relatively minor disasters as well (AELG 2005). Table 1 gives a situation report of the housing situation 300 days after the Bay of Plenty storm in New Zealand. Only 35 households were permanently re-housed out of a total 300 compulsory evacuations. By the same period, 9 households were still occupying temporary accommodation. Middleton (2008) suggests that this situation could be the result of a poor processing of consents for reconstruction work. Apparently there is clear gap between the process of identifying homes that are suitable or unsuitable for occupation and helping households to recover from a disaster so that they get back to their normal life. A number of reasons could have caused this situation to happen. One may be the lack of resources to carry out stipulated safety investigations, or the problems connected with damage assessments and compensations.


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Table 1. Temporary Accommodation Requirements (Bay of Plenty storm, 2005) Source: Middleton (2008) Period in temporary accommodation

Number of households permanently re-housed

Number of households in temporary accommodation

Up to 60 days

0

293

60 – 150 days

71

222

150 – 200 days

140

82

200 – 300 days

38

44

Over 300 days

35

9

Details not available after 16th March 2006 (303 days after the event) Processing of building consents at the early stages of reconstruction and recovery are a potential bottleneck (Anon 2004). Access to normal resource levels is unlikely and inadvertently there will be shortages of qualified persons and material resources to handle impact assessments and consent processing. It is suggested within this report that a more flexible approach to the standard consent process might be necessary to expedite the process and help cope with the high volume of consent applications after a major disaster. Although MCDEM, (2005) proposes a management structure that could obtain fast-track building consents at the immediate postimpact, such schemes only last as long as a declared state of emergency is in force. This issue is likely to remain an onerous challenge. Under the Building Act, there is a special waiver to allow alterations to take place without necessarily complying with the relevant provisions of the Building Code. The Act provides for such an application to be granted if the BCA is satisfied that: • • •

If the building were to comply with the relevant provisions of the Building Code the alteration would not take place. The alterations will result in improvements to the means of escape from fire or access and facilities for people with disabilities. The improvements outweigh any detriment likely to arise as a result of non-compliance with the Building Code.

BCAs are expected to prepare policies and guidelines on how this discretionary power can be exercised (DBH 2005). There is anecdotal evidence that this may not have been done across many councils. In probably the same vein, BCAs are to prepare modalities for collaboration with other councils and disaster agencies for resource sharing and deployments to relieve the likely demands for external services when consent applications increase. More so after disasters when house owners are eager to re-occupy their buildings. Another dimension to consent processing is with the effect that the process will have on the rights to compensation. The Building Act requires that Territorial Authorities must refuse to grant building consents on land subjected to natural hazards unless they can be protected from the hazard, and where waivers are granted, it requires that notices be placed on the land to indicate the risk of natural hazards they are exposed to. If this provision is strictly implemented, then house owners may not qualify for insurance claims where there is an identified large risk to their facilities. In the same vein, complications may arise from ongoing revisions to New Zealand hazardscape. This would mean that previously risk-free buildings may become risk-prone, hence notices will be placed on them that may prevent them from being compensated in future disasters. 376

The Implications for Post-Disaster Reconstruction Having highlighted some of the issues that may be connected to the implementation of the Building Act; it can be summarised that legislations and regulatory provisions have the following implications on post-disaster reconstruction: •

Loss of vital momentum of action as a result of delays caused by poor planning and implementation; restrictive legislation and regulatory provisions; and lack of government commitment to reconstruction programmes (Aysan and Davis 1993).

•

Loss of commitment to the reconstruction process because disaster practitioners are unable to apply pragmatic solutions to real-time reconstruction problems, due either to inflexible legislation or fear of being held liable for decisions taken.

•

Difficulties in achieving reconstruction deliverables and inability to: accelerate the process of reinstatements (Ye 2004); introduce measures for risk and vulnerability reduction; and aid planning for sustainable developments, Jigyasu (2004), Shaw, Shiwaka, Kobayashi & Kobayashi (2004).

•

Impairment of overall community recovery and quality of life. Of essence, reconstruction should become a tool for empowerment till a level of functioning is reached where communities are self sustaining and require no external interventions, Ofori (2004), Sullivan (2003), and also a therapeutic process for overall community recovery (Aysan and Davis 1993).

The study on which this paper is based therefore seeks best practice approaches that will facilitate reconstruction programmes within an enabling legislative and regulatory framework in New Zealand. Such a legislative framework should prepare disaster agencies to meet recovery objectives whilst not compromising the need to build back safer environments. Research methods The primary source of data for this research was an on-line questionnaire (n = 200) administered to building control officers and other disaster practitioners in New Zealand. The invitation for participation was made through 85 local councils including web links to the on-line survey. The questions were largely in the form of ordinal and Likert scales, with respondents required to rate some statements about the Building Act, in line with their opinions on how the Act will affect the implementation of reconstruction works after disasters.

Research hypothesis: Some of the provisions of the Building Act will constitute significant impediments to the realisation of large-scale reconstruction programmes after a natural catastrophe in New Zealand. The research hypothesis was arrived at based on the premise that the provisions for consent processing within the Building Act will be a source of frustration for disaster-affected building owners as it will slow down the reconstruction work, particularly when there is a wide scale devastation of the built environment in New Zealand.


377

Research Objectives: • To determine the effect that existing provisions within the Building Act will have on the

reconstruction of the built environment after major natural disaster events in New Zealand. • To determine how consent/compliance processes can be simplified and made more

responsive to potential higher demands during the reconstruction period, thus reducing the frustrations experienced under the current process. • To determine if there are memoranda of understanding (MoUs) between different councils

for resource sharing during a major natural disaster. The objective was therefore to determine what the effects of building consent processing will have on reconstruction works and how, if possible, the process can be simplified in a way that it facilitates reconstruction work. A final objective was to determine if the local councils had thought through the establishment of memoranda of understanding amongst themselves as a way of sharing and deploying resources to assist their reconstruction needs. Research results The responses Respondents were required to rate their understanding of the Building Act and to indicate how often they make reference to the Act in the course of their work. This was done for the purpose of reliability; hence only respondents who were familiar with the Act were used for the analyses. A total of 80 responses were received altogether. Of this number 54 (67.5 percent) of the respondents have an average to very high understanding of the provisions of the Building Ac t; while 41 (50.5 percent) very often make reference to the Building Act in the course of their daily work activities. Generally the respondents (above 65 percent) have working experiences, in their various local councils, of more than 15 years. This represents a good profile of the respondents and serves to demonstrate how reliable the responses received from this category of people could be. The building consent process With regards to the building consent process and the potential effects this would have on post disaster reconstruction, 77 percent of the total responses (65) agree that the process may become cumbersome during a large scale reconstruction programme; and 74 percent agree that councils will struggle to meet the requirements for consent processing after a major disaster. These reflect the reality that there will be a spike of consent applications for reconstruction that will overwhelm the local councils’ capacity to cater for. Obviously this is in consonance with current fears of a slowing down of the consent process by the Building Acts procedural requirements. However the process in itself may not be cause of the problem but rather the resources available to facilitate the process. Most of the respondents have indicated that the capability of the building consent authorities, coupled with designers and engineers (independent qualified persons, IQPs) for on-the-spot assessments of built facilities, is in doubt. During normal times, councils struggle with the consent process because of inadequate resources and would be challenged further by a larger volume of requests if the current resource levels are maintained during ‘abnormal times’. 378

Councils will need to make prior arrangements for the deployment of resources from neighbouring councils and from outside the country to meet resource demands. On-the-spot assessments of affected built facilities would facilitate decisions on whether: facilities are safe enough to be reoccupied; will require minor repairs before occupation; or that the repairs would be extensive. Such timely assessments are a necessity. This will depend largely on prior arrangements and preparations for the high demands. However, only 39 percent believe that the local councils have made adequate arrangements for such on-the-spot assessments. On whether section 71-74 notices in the Building Act will prevent disaster-affected built facilities from receiving compensation for damages, there is little agreement on this statement. 27 percent opine that this provision will prevent compensation; 21 percent disagree; while the remaining 52 percent are unsure of the effects that the provision will have on insurance claims. Simplifying consent processing Generally, 55 percent of respondents hold the view that the strict application of the Building Act provisions will result in inefficient reconstruction operations. However very few (25 percent) are of the opinion that the procedural arrangements can be shortened in anyway for post disaster reconstruction. The view commonly held is that the benefits outweigh the disbenefits. Therefore New Zealand communities are more likely to suffer from a relaxation of the provisions for thoroughness in the processing of consents. 61 percent are of the opinion that the building consent and compliance process must be followed through irrespective of the scale of the disaster. There appears to be only two circumstances by which the consent process can be bypassed. One is if an application is made by the facility owner under Urgency or where an allowance is made by a council to allow for construction work to take place without complying with the relevant provisions of the building code. Memoranda of understanding for resource sharing Considering the importance of resource availability in the consent process, respondents were requested to indicate if there were memoranda of understanding, between councils in New Zealand, for resource sharing in the event of a major disaster. 45 percent confirm the existence of loosely written memoranda. These memoranda are considered very generic documents that may not commit neighbouring councils to their implementation.16 percent of respondents are not aware of its existence in their councils; and 39 percent are unsure. An average 50 percent of the respondents are not aware of the contents of such memoranda. However of the those that indicate that memoranda of understanding exist; indicated that such memoranda contain the following: procedural arrangements (responsibilities, liabilities etc) between councils, information dissemination and sharing, personnel sharing and deployment modalities, arrangements for financial contributions and financing, operational logistics and assistance, and the participation of external aids/agencies.


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Discussion and conclusions

Key Lessons Learned • Building consent processing in accordance with the Building Act at post disaster may be

cumbersome, and may slow down reinstatements and reconstruction programmes. • The benefits for controlling the reconstruction of the built environment outweigh those of

a deregulated reconstruction process. • Reconstruction can be facilitated through prior arrangements for resource sharing and

deployment to hasten structural and safety assessments. • Local councils need to prepare memoranda of understanding that detail the modalities

for exchange of resources, and of receiving external aid and assistance. Recovery is an integral part of the comprehensive emergency management process (Sullivan 2003). Recovery activities begin immediately after the initial response to a disaster situation and would normally extend until the community’s capacity for self-help has been restored. In other words, the end-state is when the assisted community reaches a level of functioning where it is able to sustain itself in the absence of further external intervention (Sullivan 2003). The effectiveness of every recovery process will depend on how much planning has been carried out and what contingencies are provided for in preparing for the disaster. Recovery objectives will include reinstatements (reconstruction of the built environment) to improved states that will be guided by regulations such as the Building Act. From a recovery perspective the Act would prevent among others, a reduction of the previous vulnerabilities by disallowing construction to pre-disaster situations. The consent and compliance process may be cumbersome but is largely unavoidable considering the benefits they are from. The current study has established that Local councils in New Zealand would have to facilitate the reconstruction process by making resources available for structural and safety assessments. This can be achieved through prior memoranda of understanding between councils that gives details on the modalities for exchange of resources and of receiving external aid and assistance. If this can be arranged prior to disasters, assessment activities at the immediate post-impact will be both efficient and effective. The study believes that provisions of the Building Act can be implemented without a compromise to the needs of the community for quick recovery. The challenge is to consider all logistic issues before the actual disaster.

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References

AELG (2005) Resources available for response and recovery of lifeline utilities, Auckland Regional Council Technical Publication. Anon (2004) Post-Disaster Building Procedures: Guidelines for Territorial Authorities, Wellington Region Local Authorities Working Group (Unpublished). Aysan, Y. and Davis, I. (1993) Rehabilitation and Reconstruction, United Nations Development Programme (UNDP): pp. 1-49. DBH (2005) Building officials' guide to the Building Act 2004, Department of Building and Housing, New Zealand. Feast, J. (2004) "Current Planning and Construction Law: The practical consequences for rebuilding Wellington after the quake." pp. 161-169. Jigyasu, R. (2004) Sustainable Post-Disaster Reconstruction Through Integrated Risk Management. Second International Conference, Coventry University, Conventry Centre for Disaster Management. MCDEM (2005) Focus on Recovery: A holistic framework for recovery in New Zealand. Information for the CDEM Sector. Wellington, Ministry of Civil Defence and Emergency Management. Meese III, E., Butler, S. M. et al. (2005) "From Tragedy to Triumph: Principled Solutions to Rebuilding Lives and Communities." Heritage Special Report SR-05. Retrieved 20th October, 2006. Middleton, D. (2008) Habitability of homes after a disaster. 4th International i-REC Conference on Building Resilience: achieving effective post-disaster reconstruction. Christchurch, New Zealand. Ofori, G. (2004) Construction Industry Development for Disaster Prevention and Response. IInd International Conference on Post-Disaster Reconstruction: Planning for Reconstruction. Petak, W. J. and Atkisson, A. A. (1982) Natural hazard risk assessment and public policy. New York, USA, Springer-Verlag Inc. Rotimi, J. O. B., Le Masurier, J. et al. (2006) The Regulatory Framework for Effective PostDisaster Reconstruction in New Zealand. 3rd International Conference on Post-Disaster Reconstruction: Meeting Stakeholder Interests, Florence, Italy. Shaw, R., Shiwaka, K. et al. (2004) "Linking Experience, Education, Perspection and Earthquake Preparedness." Disaster Prevention and Management Vol. 13(1), pp.39-49. Sullivan, M. (2003) "Integrated Recovery Management: A new way of looking at a delicate process." The Australian Journal of Emergency Management Vol. 18(2), pp. 4-27. Ye, Y. (2004) Chinese Experience with Post-Disaster Reconstruction. IInd International Conference on Post-Disaster Reconstruction: Planning for Reconstruction, Conventry University.


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Author’s Biography James Olabonde R. is a Doctoral research student in the Department of Civil and Natural Resources Engineering, University of Canterbury. His background is in Construction Management and he has had various construction related experiences including an associate role in a quantity-surveying consultancy practice in Nigeria. James is a professional member of the Nigerian Institute of Building and the Institute of Management Consultants, Nigeria. James research is within the ambit of Objective 3 – Resilient Organisations research programme. He is evaluating the provisions of the Building, Resource Management and the Civil Defence and Emergency Management Acts to determine if they are in tandem with the likely demands for reconstructing physical facilities in the event of a major natural disaster in New Zealand. His evaluative study should proffer suggestions towards a policy framework for post-disaster reconstruction in New Zealand. Suzanne Wilkinson graduated with her BEng (Hons) and PhD from the Oxford Brookes University. Her PhD was in the area of construction management. She then moved to New Zealand and worked at Unitec before joining The University of Auckland in 1996. She is now an Associate Professor in the Civil and Environmental Engineering Department, University of Auckland. Her research interests are in project management, construction management and construction law. She is currently involved in two large Government funded research projects (over $5 million). The first project is Resilient Organizations, where she is leading the contract management component of the project (see www.resorgs.org.nz for all research publications and project details). This project examines the management problems associated with post-disaster reconstruction. The second project is “Retrofit Solutions” where she is also leading the financial analysis section of the project which is examining retrofitting New Zealand buildings to protect them against seismic damage (see www.retrofitsolutions.org.nz for all research publications. Dean Myburgh holds a Doctorate in Industrial Relations from RAU (now University of Johannesburg) and an MBA from the University of Stellenbosch. He is a Director of two consultancies, 80-20 Options NZ Limited and Emergency Planning Limited and has a keen interest in enhancing organisations’ resilience through organisation development interventions. Dean’s consulting focus is the facilitation of strategic and operational decision-making related to organisational change management, process improvement, and risk and emergency management. A Fellow of the NZ Institute of Management, Dean has held senior leadership roles in public and private sector organisations, both within New Zealand and abroad. He was a member of the Committee that prepared the NZ Handbook Risk Management for Local Government (SNZ HB 4360:2000) for the Standards NZ Council and has authored ‘The Risk Management Toolbox – A Guide to Facilitating Risk Thinking and Problem-solving in Organisations using the Risk Management Diagnostic Survey (RMDS)’. As a member of the Resilient Organisations Steering Group and Industry Researcher, Dean has also authored publications related to the Resilient Organisations research programme (refer www.resorgs.org.nz).

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Kelvin Zuo is a lecturer in the Civil and Environmental Engineering Department, University of Auckland. He received his Bachelor Degree (Hons) in Civil Engineering (2003) with a management focus from Sichuan University and a Master (Hons) of Engineering Studies (2005) from University of Auckland. Since then, he has engaged in research for his PhD under the FRST funded project – “Resilient Organisations”. He is particularly interested in the contractual aspect of civil engineering management, especially the procurement systems used in different construction projects. It first stemed from his fieldwork (2002) in Three Gorge Dam in China and further developed in his master thesis, a tendering systems comparison between Chinese and New Zealand models. His current PhD topic concerns the procurement and contractual systems for disaster reconstruction.


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DUE PROCESS AND CONTRACTOR SELECTION FOR PUBLIC WORKS IN NIGERIA

Olatunji Oluwole Alfred, University of Newcastle email: [email protected]

Abstract Contract procurement processes have a lot of challenges in the construction industry. These challenges are evident in procedures used for selection of contractors and consequent, performance of projects. This study explores the challenges of Due Process Policy Model (DPPM) procedures for the selection of contractors for public projects between 2002 and 2008 in Nigeria. The procedures mandate certain categories of the procurement of public construction contracts to undergo a sequence of activities. Such procedures include advertisement, prequalification, short-listing, invitation, tender action and project execution. Observations are made on procedures of selection of contractors for 47 projects using DPPM. Moreover, interviews were conducted to seek clarifications on some of the challenges identified in DPPM processes. Arguably, DPPM is gaining more popularity in Africa. Thus, observations made on the challenges of DPPM will improve its capacity for adoption within and outside Africa; motivate innovative procurement processes, with significant impact on international contract procurement policy makers and contract procurement officers. International contractors willing to explore the growing capacity of the construction market in Africa will discover significant and appropriate understanding of the basic requirements of DPPM. Keywords: Contract Procurement; Due Process Policy Model (DPPM); Prequalification; Nigeria. Introduction Arguably, objectivity in contractor selection for public construction projects is critical and imperative to the success of the project. This paper reviews the application of Due Process Policy Model (DPPM) in contractor selection procedures for public works in Nigeria. The Due Process Policy is a popular public procurement reform in Nigeria. It was enacted in 2002, before the enactment of the Nigerian Public Procurement Law of 2007. The goal of this procedure is to entrench an effective contractor selection model that is based on world’s best practices. Evidently, adopting the ethos of transparency, objectivity and accountability in value-based public procurement systems had been given keen consideration in many countries (Abdul-Aziz, 1995; Wong and Holt, 2004; Salama et al, 2006). However, the poor economic situation in Africa has strong relationships with the performance of public construction projects and this can not be separated from the contract procurement system. Interestingly, Africa’s 30,065,000Km2 landmass makes it the second largest continent in the world, hosting 10% of the global population. International Monetary Fund (IMF) Outlook (2006) reports an improvement in Africa’s GDP (Gross Domestic Product) growth from 3.7% in 2002 to 5.4% in 2006. This can be closely linked to the recent interventions of African Heads of State and Implementation Committee’s (HSGIC) keen interest and effort to encourage massive infrastructural development across the region. An example of this commitment is the Short Term Action Plan (STAP) of May 2002, to implement projects worth $8,125,000.00 in some sensitive building abroad, Montreal, October 2008

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areas that could have positive impacts on Africa’s economy. Moreover, the interventions of multinational organizations like World Bank, IMF, UNICEF, UNDP, USAID, ADB, USAID etc as well as partnership arrangements are contributing to the improving prospects of African construction markets. According to African Development Bank (ADB) (2005), only 4% of world PFI (Public Finance Initiative) investment is available in Africa; 51% of which is in telecommunication, while 48% of total PFI investment is in South Africa. However, there is overwhelming evidence in empirical reports showing the impressive growth in construction market capacities of many other African countries (Lopes et al, 2002; Zawdie and Langford, 2002; Chrisna, 2005). Nigeria’s 148,000,000 (2007 UN estimate) population is the largest in Africa and the eighth largest in the world. The contribution of the construction industry to the growth of the Gross Domestic Product (GDP) of Nigeria is steady and improving; from about 5% in 2001 to over 13% in 2007 (Central Bank of Nigeria - CBN, 2008). This growth is motivated by continued interest of government to reposition Nigeria’s economy as one of the top 20 largest economies in the world. Interestingly, the government is responsible for about 75% of infrastructural development in Nigeria (BMPIU, 2005). Evidently, there is very strong relationship between the Nigerian construction industry and larger economies, both in Nigeria and Africa at large. Thus, the government is not only keen to the development of the Real Sector of the economy but there is also critical interest for the government to improve the image of the country through the construction sector. Before the advent of the Due Process Policy, contract procurement process for public construction projects in Nigeria was facing a lot of challenges. These challenges included the implication of project failures on the image of the Nigerian construction industry in terms of project abandonment, delay in project delivery, cost inflation, poor quality of work, high initial cost of projects and so on. Arguably, poor methods and procedures of selection of contractor could be linked to this. However, these methods are not only subjective; decisions on public contract awards are based on informal relationships between contractors, public officials and project teams. Thus, most of the models of assessment used for the selection of contractors are not based on value and merits of bids but on tender price and “initial” lowest bids, as well as other informal factors (Olatunji, 2007a). Therefore, this challenge triggers mismanagement of funds through public contract by erring contractors as well as unethical practices by construction professionals. There was instability and lack of growth in national economy while poverty, unemployment, corruption, undue influence and the image of the construction industry suffered (Obiegbu, 2005). Evidently, imperfections in contractor selection are not limited to the developing economies (Doree, 2004; Wong and Holt, 2004). However, until recently, perhaps after the advent of Nigeria’s Due Process Policy, many African countries had not incorporated objectivity in their approaches of selection of contractors for public works. African, as well as other developing countries, could be motivated by the overwhelming success of the strategic application of Due Process Policy in Nigeria. According to Obiegbu (2005), the Policy was not only able to save the country over $1bn within 3 years of its application but there was also a critical factor of national rebirth – “no more business as usual”. Therefore, the need to motivate and sustain proactive public procurement system is inevitable. This study focuses on reviewing processes and procedures for the selection of contractors for public construction projects in Nigeria under the Due Process policy between 2002 and 2008. The objectives, therefore, include: (1) to identify the procedural framework of contractor selection through Due Process Policy Model (DPPM), and; (2) to identify the challenges associated with the current application of DPPM in Nigeria.

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The Due Process Policy and Nigerian Public Procurement System The Nigerian Due Process Policy is administered by the Budget Monitoring and Price Intelligence Unit (BMPIU), Office of the President, Federal Republic of Nigeria. The goal of BMPIU is to ensure full compliance with laid down guidelines and procedures for the procurement of major and minor capital projects and associated goods and services. Also, it is to serve as official guide for public contract procurement and as administration system in Nigeria, prior to the enactment of Public Procurement Act (2007). It is designed to revamp the system as a disincentive to corruption and unethical practices, through purposeful focus on principles of integrity, transparency, competence-based selection, accountability and value-driven competition as national ethos in public contracting. According to Oguonu (2005), the set objectives of BMPIU include: • • • • • •

To harmonize existing government policies/practices and update the same for public procurement To determine whether or not Due Process has been observed in the procurement of services and contracts To introduce more honesty, accountability and transparency into the procurement process To establish and update pricing standards and benchmarks for all supplies to government To monitor the implementation of projects during execution with a view to providing information on performance, output and compliance with specifications and targets To ensure that only projects which have been budgeted for are admitted for execution

Therefore, BMPIU enforces Due Process procedures; sets and regulates standards and guidelines for public procurement as well as monitor professional ethics in the process. The Unit also maintains a public procurement database and issues Due Process Validation Approval for all procurements that complied with stipulated Contracts Award Processes – this must be done by the recognized Right Procuring Entity (RPE). The RPE is the end-user parastatal, which must present project justifications and details. The Resident Due Process Team is there to ensure that Due Process principles are followed before the approval of BMPIU is sought. Thus, this has been a vital strategy to prioritize openness and fair-play in public procurement, rather than to allow only few people to take the decisions. Figure 1 shows the organization mechanism of BMPIU

FAD1

FADn

The Presidency Budget Procurement

BMPIU

Treasury

Parastatals

Public debt Accounts Contractors Bank1 Bank2 Fig. 1. Organization Mechanism of BMPIU building abroad, Montreal, October 2008

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BMPIU relates with other Offices in the Presidency to facilitate an improved process of fiscal discipline in public procurement. Thus, there are provisions in the Due Process procedures which institutionize capacity correlations between national budget, treasury and the management of federation accounts. This is critical to the system of public procurement and national debt management. Moreover, there are Resident Procurement Officers at all the stages of the Due Process certification and approval processes in bottom-to-top order. Smaller projects, in cost values less than N1m (US $80,000), may be approved by Executives of parastatals without recourse to approval by BMPIU. Resident Due Process Team (RDPT) of the parastatals is authorized to approve projects with cost values less than N50m (US $400,000). However, projects of higher cost values are processed in accordance with government guidelines as approved by the Ministerial Tender Board before being forwarded to BMPIU to obtain a Due Process Certificate. When certification is obtained from BMPIU, the project would be forwarded to Federal Executive Council for approval before an award can be made. This procedure is aimed at making sure that Due Process procedures are complied at all levels; thus, institutionizing the culture of openness in public procurement. However, project conception originates from end-user parastatals, the size of which must correspond with budgetary allocations and justifications available with the Financial Administrative Division (FAD) of the enduser Ministry. For projects of cost values higher than N1m, FADn of parastatals relates with FAD1 (or Office of the Account General of the Federation), Ministry of Finance. Consequently, the contractor would be paid directly from the Federation account through the Central Bank (Bank 1). Interestingly, Contractor’s Bankers (Bank2) are liable in case of default; having established bonding arrangement with the contractor in respect of the project. Moreover, proper documentation is critical before BMPIU’s Due Process Compliance Certification is granted. The requisite documents include the Project Policy file, evidence of openness and transparency in the procurement processes, Tender Returns, Tender Evaluation Report, Contract Award Letter and Agreement, Original Contract Bills of Quantities, Contract Drawings, Other Contract Documents, Financial Summary and Statements, Progress Reports, Variation Requests and Variation Orders arising, Interim Valuation, and Certificates. Therefore, once the set conditions are met, the recommended winner of contract is believed to be the Right Bidder, whose bid offers the appropriate value for money in respect of the project milestones (Quality, Time, and Safety). Challenges of Contractor Selection Model of Due Process Policy Generally, the processes of public contract procurement stipulated by BMPIU must pass through the following: Project planning, Advertisement, Prequalification, Short-listing, Tender action, Determination of Winning Bid, Award of Contract and project execution. Mostly, consultants are engaged to handle Project Planning, while Invitations for prequalification for major projects are done via major national dailies and the Federal Tenders’ Journal. Prequalification is a significant aspect of selecting contractors for public projects in Nigeria. Arguably, it aimed at “filtering” out incompetent hands from the contract procurement system. Prequalification is a mechanism for assessing the capability of candidate competitors to ascertain their competencies in handling prescribed technicalities and financial investments of clients (Russell and Skibniewski, 1998; Hatush and Skitmore, 1997). It has been a significant tool to ensure risk-free project delivery system and maximize value for money in the project delivery system in the construction industry. The assessment criteria are similar to global standards and these have been applied to generate national models for selection of contractors for public works in Nigeria (Olatunji 2005b). However, the principle of prequalification is to enact the ability of contract administrators to understand desires of clients and establish the best set of criteria to be used for assessing contractors (Bulama 2005). Thus, these criteria are not meant to be rigid because expectations of clients on performance and functional requirements of projects are dynamic and flexible (Herbsman and Ellis, 1992). 388

Generally, prequalification is based on multivariate selection criteria like past performance records for similar projects, financial capacity, management capability, location factor, technical capability in terms of human and mechanical resources, general information about candidate firms, as well as other indices that might be very significant to the success of the project (Holt et al, 1995). However, these variables are often markedly assessed using other sets of subvariables (Olatunji 2007a). Thus, Due Process Policy Model (DPPM) is not designed for rigid application in the Nigerian procurement process. Evidently, this is why some criteria carry heavy points on some projects and may be considered less significant on other projects. For instance, the DPPM used as prequalification criteria guide reflects some fundamental information about candidate contractors as having null weightings. However, competitors may be disqualified for not having them. Such include evidence of incorporation of business name registration, registration with Federal Ministry of works (in relevant category), company’s audited account for three years, and evidence of tax clearance certificate for three years. Arguably, these items might be considered imperative to the success of some other projects and be awarded points. The guide also considers the following as graduated criteria and may carry stipulated weightings: Table 1. Graduated criteria may carry stipulated weightings (1) (2) (3) (4) (5) (6) (7)

Evidence of financial capacity and banking support Experience / Technical qualification and experience of key personnel Similar project executed and knowledge of the industry Equipment and Technology capacity Annual Turnover Faithfulness to Value Added Tax Bonus of 5% each for contractor’s evidence of commitment to Local Content emphasis and Community Social responsibility. TOTAL

15% 25% 20% 20% 5% 5% 10% 100%

Also, the stipulated criteria and weightings are not fixed. Contract administrators in various public procurement offices have the mandate to review the criteria and the weighting at their discretion. Though it must be done in fairness, and commitment to openness and accountability. In most cases, successful candidate contractors must satisfy the client in terms of facts relating to capabilities, competencies and sound understanding of project peculiarities in terms of evidences of past performance on similar projects (including the presentation of letters of awards and certificates of practical competition on recent and similar completed projects). Moreover, depending on the number of applicants, a successful applicant contractor during prequalification must have scored not less than 70% in the assessment. Thus, with a minimum of 3 prospective bidders of good assessment scores, it is unlikely a successfully prequalified is turned down during bidding for reasons of incompetence. Based on the foregoing, there may be some challenges the current models of prequalification have yet to provide answers to: (1) Presentation Problems: Most contractors with excellent performance records may not have impressive scores during assessments. This is largely a result of presentation problems. It is either that the intending contractor does not have good understanding of how to present basic data required for assessment or that the client’s requirements are ambiguous. For instance, evidence of past performance does not mean pictures of executed projects; assessors expect copies of letters of awards and certificates of practical completion on similar jobs executed in the last five years. Commendation letters from previous clients may be added advantage. Moreover, when contractors are requested to present details of plants and equipment intended for the work, the list of plants and equipment by name, location, age, building abroad, Montreal, October 2008

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ownership details and availability details are required, not pictures and plant catalogues. Also, information required for prequalification may not be limited to primary information contained in company profile; contractors may need to review company profiles to conform to the required size of information at every point in time. Therefore, smaller firms with specific verifiable documents are more likely to be considered at the expense of the larger and competent firms. (2) Vulnerability of paper based prequalification: Basically, DPPM’s guide for prequalification is based on contractors’ information and evidence given on paper records. This provides avenues to present the firm’s capabilities on facts based on documents showing relevant past experience and peculiar reputation in such projects. In most cases, public contracts are procured within a valid annual budget. This means most decisions in the construction process must be made within a year. Perhaps, due to time limitations during procurement processes, consultants usually do not have the time and resources to confirm the state of some of the claims of the contractors. Moreover, as some contractors form fictitious claims on ongoing and recently executed projects, there are possibilities that cartels be formed in the process. The problem associated with cartels in public contract procurement system is such that a group of contractors can connive in such a way as to debilitate the competition processes. On the other hand, technical capacities of contractors are measured based on the credentials of key technical and support staff on the payroll of the contractors. In most cases, assessors are misinformed. Perhaps, due to skill shortages, fictitious lists and credentials are presented. This implies many firms can lay claim to a single individual, without his consent or to untraceable persons (dead, bankrupt, and illegal entities) as the technical members of their firm. Evidently, many contractors do not have the capacity to sustain the required number of qualified professionals in their payroll and may not use them on the projects. Moreover, bank financial statements are parts of the documents used for the assessment of contractors. Arguably, an indication of huge credit balance may not signify the credit worthiness for a contractor. This is because it may be difficult to separate contractor’s liabilities from his credit base in relation to his intended commitment for the project. Regrettably, information provided in annual audited accounts can not be effective in communicating this. This may mean that contractors would wait for mobilization from clients after award of contract, before they mobilize on site. Unfortunately, amortization of mobilization may be difficult; leaving the client with very limited options of effective project funding – for the project to progress, some financially weak contractors may need to be paid upfront throughout the project. (3) Prequalification of consultants: Arguably, the problems with the construction industry are not limited to contractors alone (Latham, 1994; Egan 1998). However, consultants on construction projects are mostly over-protected from prequalification. Perhaps, due to limited time, many construction contracts have been executed without prequalifying consultants. This implies there is no basis for the validation and physical assessment of records regarding the capacities claimed by consultants. Moreover, contractors may be spared the full responsibilities for some problems in the construction process e.g. design error, professional negligence, professional misconduct, corruption and so on. Thus, prequalifying the capacity and competence of consultants will improve project delivery process in construction. (4) Prequalification and the growth of the construction industry: The assessment of contractors’ competencies and capabilities are based on credible financial bases, convincing records of past performance on relevant projects and strong technical strengths. Evidently, this may put new and keen contractors at serious disadvantage. For instance, that a firm is new and has not undertaken many projects does not mean the firm will fail if given an opportunity. If the technical strength of the firm under assessment is composed of real and experienced 390

professional, innovation and growth of the industry may be motivated. On the other hand, the fact that a firm performed on a similar project some years ago is not, in itself, an indicator that the same firm can perform again. Thus, to a reasonable extent, there is a limit to discriminating contracting firms based on records of past performance. Interestingly, work environments are not perfectly identical, while the industry remains dynamic. Therefore, the growth of the industry may depend largely on the commitment by all stakeholders to be more objective in assessing contractors for selection based on tangible variables at hand rather than using subjective methods (5) Cumbersomeness of prequalification criteria: The construction industry requires objective assessment criteria to guarantee an effective procurement system. However, it has been a critical challenge for the construction industry to generate universal assessment criteria (Hatush and Skitmore, 1997). This has significantly affected procurement processes for construction and supply projects. Evidently, similar prequalification models are still being used for both construction and supply projects in many cases. Whereas, desire and risk variables for both are very different. For instance, most supply projects may have a shorter initial contract period when compared to an average construction project. Thus, considerations for risks variables in terms of insurance, bonding arrangements, equipment, and method related technologies, etc are different. Additionally, there is still confusion as to the level of content of professionalism a supplying firm should have. For instance, a technically sound construction contracting firm should have fully registered professionals like Architects, Quantity Surveyors, Engineers and Builders. However, in a supply project having to do with the procurement of laboratory equipments, the firm may only need to demonstrate convincing expertise in laboratory instrumentation. There may be basic academic provisions but insisting on professional qualifications may be very cumbersome. Research methods Structured interviews of randomly selected individuals and direct observation methods are used for this study. 7 senior public Procurement Officers and 12 contractors were interviewed. The respondents are qualified and experienced professionals with basic construction backgrounds. They have taken part in an average of 6 construction projects per annum in the last 5 years; mostly in the construction of educational and health projects. Due Process Policy is applied equally across board, thus their opinions may represent a fraction of possibilities of challenges in the application of DPPM in the Nigerian public procurement process. This may not reflect overall opinions of all the stakeholders in public contract procurement system in Nigeria. However, their opinions are responsive to findings on observations made on randomly selected 47 construction projects reviewed and reported in this study.

Research question: • How effective is DPPM in establishing the relationship between project delivery and competence of selected contractors for public projects?


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Research Objectives: • To establish the need for transparency and fair-play in contracting procedures for the procurement of public contracts. • To investigate the relationship between objectiveness in models used for selecting contractors for public works and standards of project delivery • To review public procurement structure and challenges of culture on models used for the selection of public contractors in Nigeria

Research results The aim of the interview is to establish the implications and challenges of DPPM in the Nigerian construction industry as it relates to the trade-off between purpose and results of application. On the structure of DPPM, all interviewees strongly believe in the transparency and accountability mechanism of Due Process Policy in public procurement in Nigeria. However, about half of them are not totally convinced that the policy has created more job opportunities. Paradoxically, 53% own up to the fact that a lot of incapable hands have been fazed out of the system, while competent hands have more opportunities. About 85% of the respondents consider this as an advantage in the economic reform of Nigeria. This confirms media reports that the Policy has saved the system from recurrent incidences of project abandonment after advance payment as used when incompetent hands are involved (Wahab, 2005). About 25% see the lowest bid selection criteria as not the best option to save cost as the project is at the risk of optimum performance in the project’s economic life. Moreover, on issues related to DPPM’s systemic effectiveness, respondents strongly agree that Due Process Policy makes the procurement of public contracts in Nigeria faster and orderly. However, 62% of the respondents see prequalification system in use as not an effective mechanism to assess contractors’ competence. They expect a more decisive mechanism to motivate keener, accurate, effective and objective contractor selection technique. Moreover, about 45% of the interviewees believe in the strength of prequalification as a function of the prequalifiers’ mindset to uphold professionalism and show commitment to the course of government. Also, 85% consider it imperative that the assessment criteria should be modified to make it more effective. 35% of the respondents opine that going by lowest bid syndrome, which in most cases are cover price bids, quality cheat is the cheapest way out. However, 85% of the interviewees believe that contractors under Due Process are employed on merit of competence and capabilities as the best available and at the best of their capacities to dispense highest order of quality jobs. In order to establish the effects of DPPM on contract procurement, 47 selected sites were observed for 90 days between January and March 2008. The average contract period of the projects is 24 weeks. Perhaps due to lowest tender price syndrome, about 35% of the contractors on the project sites do not have the appropriate competencies. For the substantial period of observation, there were shortages of workmen on site, while materials in use were not likely to conform to minimum standards. Plant capacity is poor and obsolete and crises are common among workmen. Crises observed were as a result disagreements on fair pay, respect and faithfulness to terms and conditions of employment and job security. As of the time of survey, about 60% of the construction projects visited might result in delay of delivery. Based on workprogram targets, about 10% of the projects are about 90 days behind schedule; 45% are about 60 days behind schedule, while; 35% are about 30 days behind time target. Moreover, 10% of them are about 10 days behind time. About 48% of interviewees blame delays on shortfalls in cash-flow as a result of resource allocations being made available beyond 21 days after payment 392

certificates are raised. Other causes of delay in project delivery witnessed were poor project planning methods and techniques, and uprising among workmen due to challenges of fair remuneration and welfare. 65% of the respondents affirm that project expectations in terms of functional specification and performance are too complex and not comprehensive enough to facilitate error-free construction. In some cases, consultants are alleged to be negligent and frequently deny faults. Discussion and conclusions The Due Process Policy Model (DPPM) of contractor selection for public works in Nigeria is a proactive mechanism to institutionalize transparency and accountability against corruption, favouritisms and professional indiscipline between construction contractors and public contract administrators. This is an improvement over previous practices where the processes of selecting contractors for public works are subjective. The study confirms the lowest-bid syndrome as the largest single factor compelling contractors to deliver low quality projects. Also, Nigerian local contractors are technically challenged. This is evident in their dispositions to contemporary advancement in construction technology, and effective planning tools and techniques. However, this does not mean that when provided with appropriate atmosphere, they can be found wanting. Moreover, as DPPM is gaining more popularity in Africa and other developing nation, it is vital that some of the challenges identified are effectively addressed with time. Arguably, project performance in Nigeria depends largely on ethical inadequacies rather than conditionality of procurement policies. Thus, it is strongly recommended that: •

•

•

There should be strict adherence to global standard in contractor selection and this should be based on objectivity, flexibility, reliability, and adaptability of the chosen criteria as they apply to projects peculiarities. There should be flexibility in the procurement conditionality under Due Process to deemphasize price–data driven selection process and uphold tender value as the bases for contractor assessment. More focus should be motivated to re-orientate the public procurement system about ethics, procedures and standards rather than reforms. Faithfulness in habit may be the main traceable solution to moral decadence, perhaps not paper facts.


Objectivity is critical to value-based procurement principles; however, paper-based evidences may not be sufficient justifications for defining the competence of contractors.

•

Communication is as vital as technical strength in reputation and corporate goodwill of contracting firms. Contractors should improve on their marketing strategies through appropriate but flexible presentation techniques.

•

Keenness in the selection of contractors has its merits; however, it could damage value-sharing, innovation and competition when misapplied.


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References Abdul-Aziz, A R (1995) Examination of the eclectic paradigm as applied to international contracting: with emphasis on the internalization dimension. Engineering, Construction and Architectural Management, 2(2), 105-20. Budget Monitoring and Price Intelligences Unit ( BMPIU) (2005) A manual on public procurement reform Programme in Nigeria. State House, Abuja. Bulama, Mustapha (2005) Prequalification/Selection of Consultants and Contractors under Due Process. 35th National conference / Annual General Meeting of the Nigerian Institute of Building on Due Process and the Construction Industry Central Bank of Nigeria (CBN) (2008) Annual Reports and Statement of Accounts (of the Federal Republic if Nigeria) for the Year ended 31st December, 2007, The Central bank of Nigeria, Page 1 – 131. http://www.cenbank.org/OUT/PUBLICATIONS/REPORTS/RD/2008/ARP2007PART%201.PDF , accessed 26th August, 2008. Chrisna du Plessis (2005) Action for sustainability: preparing an African plan for sustainable building and construction, Building Research and Information, 33(5), 405–415 Doree, A. G (2004) Collusion in the Dutch Construction Industry. An industrial Organization Perspective. Building Research and Information, 32(2), pp 145 -156. Egan, J. (1998) Rethinking Construction, Department of the Environment, Transport and the Regions, London Hatush, Z and Skitmore, M R (1997) Criteria for contractor selection. Construction Management and Economics, 15(1), 19-38. Herbsman, Z., and Ellis R., (1992) Multi-parameter bidding system – innovation in contract administration, Journal of Construction Engineering and Management, 118(1), p 167 – 172. Holt, G. D., Olomolaiye P. O. and Harris, F. C. (1995) A Review of contractor selection practice in the UK Construction Industry. Building and Environment vol. 30 (4) pg. 553 – 561 Latham, J. (1994) Constructing the Team, Joint Review of Procurement and Contractual Arrangements in the UK Construction Industry, Ministry of Environment, Transport and the Regions, London. Lopes Jorge, Ruddock Les and Loforte Ribeiro Francisco (2002) Investment in construction and economic growth in developing countries, Building Research & Information, 30(3), 152– 159 Herbsman, Z. and Ellis, R (1992) Multiparameter bidding system innovation in contract administration. Journal of construction Engineering and Management, 118(1), 142 – 150. Obiegbu, M.E. (2005) Due Process and the Procurement Methods in the Construction Industry. Proceedings of 35th National conference / Annual General Meeting of the Nigerian Institute of Building on Due Process and the Construction Industry, Nigerian Institute of Building, Nigeria, Pg 23-47. 394

Oguonu C. N. (2005) Due Process and Procurement in the Nigerian Public Sector Featured Articles, Holler Africa. http://www.hollerafrica.com/showArticle.php?catId=1&artId=248, accessed, 28th August, 2008. Olatunji O. A (2007a) Evaluating the Efficiency of Pre-Qualification as an Imperative Tool in Competitive Equation in Construction in Developing Countries, Proceeding of 2007 Quantity Surveyors’ International Convention, Kuala Lumpur, Malaysia, pp 132 – 141. Russell, J. S and Skibniewski, M. J., (1998) Decision Criteria in Contractor Prequalification. Journal of Management in Engineering 4 (2) 148 – 164. Salama, M, Aziz, H A E, Sawah, H E and Samadony, A E (2006) Investigating the criteria for contractors' selection and bid evaluation in Egypt. In: Boyd, D (Ed.), 22nd Annual ARCOM Conference, 4-6 September 2006, Birmingham, UK, Association of Researchers in Construction Management, Vol. 1, 531-40. Wahab, Kunle Ade (2005) the Builders and Due Process Proceeding. 35th National conference / Annual General Meeting of the Nigerian Institute of Building on Process and the Construction Industry. Pg. 63-76.

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Wong C and Holt G (2003) Developing a contractor classification model using a multivariate discriminate analysis approach, Royal Institution of Chattered Surveyors, Foundation Research Papers Series, Volume 4, Number 20, pp 1 - 24 Zawdie G. and Langford D.A. (2002) Influence of construction-based infrastructure on the development process in Sub-Saharan Africa, Building Research & Information, 30(3), 160–170

Author’s Biography Olatunji, Oluwole Alfred is a member of the Nigerian Institute of Quantity Surveyors. He has published 15 articles in international journals and conferences on major issues in the construction industry. His research interest include innovative procurement practices, ethics, computer aided estimating (CAE) and building information modelling (BIM).


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THE LEVEL OF AWARENESS AND USE OF ICT IN SUPPLY CHAIN MANAGEMENT IN THE NIGERIAN CONSTRUCTION INDUSTRY Mohammed K.A. Olayiwola, Kabola Associates, Abuja-Nigeria email: [email protected]

Abstract There is a need to improve supply chain management in the Nigerian construction industry, in order to improve the contracting process, avoid rampant abandonment of projects, and subsequently to improve contractor’s profit margins. Desk and field studies of a multi-national construction company and a paint manufacturer’s ICT based procurement operations were conducted using questionnaires, in-depth interviews, and observation techniques. Results show the need for, and significance of, Information and Communication Technology (ICT) based homogenous standard mediums of exchanging information at all stages of construction procurement to maximize the advantage of synergy among procurement professionals. The depth of ICT experiences, in the case studies, show the flaws inherent in construction procurement exercises and the interdependant planning nature caused by low level of ICT mediums of communication. The ICT medium enhances the process of exchanging/sharing information through intranet/extranet/internet or enterprise resource planning (ERP) depending on the nature of information to be shared. The study serves as a potential tool for improving efficiency in the supply chain and in contractor’s profit margins, and reduces rampant abandonment of buildings through the use of ICT. Keywords: Nigeria; ICT; Supply Chain Management; Information Sharing; Intranet; Extranet; Internet.

Introduction The Nigerian construction industry is characterised by several incomplete and abandoned major capital projects, mostly owned by the government agencies and public corporations alike. This is caused by a lack of continuity in government policy, poor strategic corporate plans, and inefficient use of ICT communication systems, especially at procurement planning stages. This menace was one of the priorities of President Obasanjo’s democratically elected federal government of Nigeria in 1999. He established a commission of enquiry into failed contracts and abandoned projects nationwide. Of the major procurement routes, Design-Bid-Build (conventional) and Packaged Deal (Turnkey/Integrated) are preferred by both public corporations and private organisations respectively. According to Oyegoke (2004), these preferred routes allow for inter-relationships among interdependent task organizations. This enables them to establish links among themselves to form the project team: owner management, legal, and contractual parameters that guide their inter-relationships. The team’s medium of exchange of information during procurement planning and execution stages becomes the most important item which determines success or failure of any procurement system.


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The basic information shared is mainly drawings and other contract documents. This medium of exchange, in modern practice, is a network of computers within an office connected, by using Intranet or an Internet, to other organizations located elsewhere. Procurement information can only be shared efficiently if data generated is both in transferable and in an understandable format, also the organizations involved in the supply chain must be willing to share critical and confidential information. For data to be transferable, a standard must be agreed upon either by the supply chain members or by key industry leaders, in this case the construction industry professionals or bodies. The aim of the paper is to examine the effect of poor use of ICT among stakeholders in the Nigerian construction industry


To identify mediums and standards used in the production of procurement inputs, the information constraints, with a view to adapting a supply chain management standard format.

•

To identify and study the contribution of low level use of ICT in the construction industry with regards to contractor profitability and the frequent abandonment of capital projects in Nigeria between 1980 and 2007, during which about 65% of respondents did not use the medium

Literature Review Procurement Planning A key part of planning any project is to consider the best method for procuring the goods and services required for its delivery. Makarand and Sya (2005) observed that a construction project will require the followings: • • • •

Technical services for surveys, Design (Architecture and Engineering), Cost consultancy, and Other essential construction services for the supply of materials, etc to carry out construction work on site.

Effective procurement systems thus require a strategy for sourcing both technical and construction services, and its implementation, so that all the services required for the project are identified. To manage project information from a diverse number of firms and construction work activities, Oyegoke (2004), agreed that procurement strategies are used as a contractual framework to manage/coordinate inter-firm activities. Construction procurement can be classified as integrated or fragmented depending on the nature of the contractual and functional relationships that exist among the players. The design and build route is referred to as integrated because it allows for a single point of responsibility for design and construction. The contracting processes of design-bid– build, otherwise known as traditional method, and management routes allow for separate responsibility and risk between the players, thus are referred to as fragmented. According to Bresnen and Marshall (2002), vertical integration will diminish; as it relates to traditional procurement planning where design teams (namely, Architects, Structural and Services 398

Engineers, and Quantity Surveyors) exchange information in successive order. While horizontal integration, often achieved by alliances and partnership, will flourish. Yeo and Ning (2002) stated that efficient supply chain mechanisms are pivoted by three components, namely: •

Information system management,

•

Strategic material management, and

•

Managing supply chain relationships.

These mechanisms include mainly: real time information sharing, coordinated procurement processes in the whole chain, and collaborative attitudes among all of the chain members. Kashiwagi and Byfield (2002) observed that construction professionals have been struggling to reduce bureaucracy associated with the administration of design and construction, increase staff productivity, and increase the value of construction procured for the tax payer. The challenges ,therefore, were to lower management costs using a device called Performance Information Procurement System (PIPS), an information procurement system with an artificial intelligence (AI) processor, to minimize subjectivity and make the selections. Naim and Barlow (2003) quoted Barlow (1998, 1999) that while house builders were making efforts to re-organize their supplier relationships, many of the key features of lean characteristics have barely penetrated the industry. Naim and Barlow (2003) further observed the perception amongst the house builders that the logistics of house building make it hard to organize just-in-time delivery of materials and its impact on profitability was unclear. Also, that the transfer of risk down the production chain to subcontractors reduced the incentive to introduce leaner supply models for house building, while the house builders tended to rely on subcontractors to act to reduce waste. Lloyd, et al. (2001) and Wong (2001) postulated that the project information management system (PIMS) provides greater collaboration and improved communication on major construction works. The duo stated that a specialist could be outsourced from an independent application service provider (ASP) in order to achieve cost-savings and allow the construction companies to focus on their core business areas. An IT management system enables effective coordination and improves cooperation among the players.

Research methods Desk and field studies were conducted of a multi-national construction company and a paint manufacturer’s ICT based procurement operations using questionnaires, in-depth interviews, and observation techniques, subsequent upon the general respondents of the 50 stakeholders. The targeted population were professionals in the construction industry namely clients, consultants, contractors, subcontractors, building material manufacturers, and construction academia. The sample size of 50 well established respondents though seemingly small is a true representation of the particular population of the industry based on the local factors, and nature and complexity of construction within Abuja, the base of the research. The main focus is the measurement of levels of adaptation of the ICT medium of exchange in construction procurement input/information among the respondents. The major procurement routes adopted are traditional/conventional, Design and Build (with outsourced consultants), and Design and Build (with in-house professionals): Management Contracting: Agency Construction Management: and At-risk Construction Management systems, respectively. The assessment of the effects of inefficiencies in the routes was based on the practices as follows: the level of transparency, ICT usage, and introduction of internet environment as a tool for all factors and chain members. The problems identified and information gathered in the building abroad, Montreal, October 2008

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questionnaires prompted the need for two case studies that were carried out on very experienced stakeholders. The case studies involve a construction company (Julius Berger Nig. Plc) and a building material manufacturing company (Berger Paints Nigeria Plc). Results of the questionnaire survey show the following: i

The need to shortening information interchange protocols, to make the supply chain more efficient with respect to ICT.

ii

The need to create stakeholders’ awareness, in essence to continue professional development through conferences, workshops, and seminars to develop expertise in the use of ICT based supply chain management in the Nigerian construction industry.

iii

The need to standardize the development and use of common software that can be used by all chain members.

iv

The use of internet as an efficient medium as in the exchange of procurement information in the manufacturing sector and could be adapted in project procurement planning.

v.

The ICT based procurement route should be modelled to include all the relevant construction professionals.

Case studies Cases study No 1: Julius Berger Nigeria Plc (www.julius-berger.com) Company’s brief supplied the following information In 1890, Julius Berger incorporated his construction company, named after himself, in Germany and came to Nigeria in 1965. Julius Berger AG's first contract in Nigeria was the construction of the Eko Bridge, Lagos, in August 1965. The Company, which meets international standards and is certified to implement and maintain Quality Systems to international standard organization (ISO) 9001, operates independently its own quarries, mixing plants, repair and recondition workshops, source basic materials which are obtained from its Abuja Headquarters or from their subsidiaries and sister organizations. Julius Berger’s reputation is based on its capability to plan, design, construct and maintain a variety of civil engineering and building projects. The company offers innovative and cost effective solutions to clients, including conceptual ideas, engineering design, procurement, construction, and long term maintenance. Also, they aim at the followings: to sustain their reputation for extremely short construction schedules and quality performance in accordance with international standards achieved by a continuously trained and skilled Nigerian workforce, and a fleet of modern construction and marine equipment; executing work based on partnership with communities, clients, suppliers, and individuals. Use of ICT based supply chain in construction procurement The survey and extensive interviews with the construction company officials show that, the company has a very versatile and effective supply chain based on the concept of intranet whereby all the activities of each respective division maintain an online intranet communication for all their sites, the division head, the inter division, the main head office both in Nigerian and in their Germany Head office. Electronic data interchange is adopted for use among all the company’s subsidiaries both locally and internationally for ordering, tracking, and delivery of their basic construction material inputs. The system adopted here is intranet, while the internet is open to the public to view the company’s corporate profile showing their services, capability, the past jobs, etc. This system is 400

adaptable to all construction supply chain members and other authorized persons’ requiring access to any specific project. Inherent advantages The company has a very big network of work stations/site establishments or cost operating centres. Each centre has it own supply chain network and sub-networks. Ordinarily, effective management of all these chain links would attract higher over-head costs to cope with all the resources involved, both human and material. To overcome this, Julius Berger introduced an efficient intranet (for internal) and internet (for external) interrelationship among the supply chain members. The system operates as a typical computer network within a site set up where information saved on one computer desktop could be accessed from another desktop, possibly from another office within the site. This network is used to send routine reports, access head office stock and inventory, data, etc. The company uses internet dishes/antennae to provide internet servers facilities to the information communication devices. However, it is worth noting that having information displayed on the internet does not make it mandatory to require internet connection in one’s office. It could be established and managed by others on retainership basis, except that for the owner to access, send, or operate with data there must be internet access from any point. The intranet could be linked to that of their allied or/and vice versa, regular suppliers, subcontractors, consultants, etc with the arrangement. Case study No 2: Berger Paints Nigeria Plc (www.bergerpaints.com) Company’s brief supplied the following information Berger Paints Nigeria Plc started from a background of a quality paint manufacturing company incorporated on 9th January 1959 as British Paints (West Africa) Limited. It commenced business on 15th March 1961 by importing paints from its Newcastle Headquarters of British Paints in the United Kingdom. During this period, distribution of imported paints by the company, in Nigeria, was done through the outlets of Patterson Zochonnis (PZ) and Brossette, mainly because of their strong distribution network across the country. Local market for paints was gradually developed and this built up the confidence of the expatriate owners to venture into paint manufacturing after critically looking into the potential of Nigerian market. With the acquisition of 6.5 acres of property and construction of a small factory, as well as employment of forty Nigerians plus five expatriates, local paint manufacturing commenced in March 1962 at the premises of British Paints (West Africa) on Oba Akran Avenue, Ikeja – Lagos, Nigeria. Use of supply chain The company maintained a high level of quality and adopted a high level information database. It shares information among all its depots and nationwide offices using most recent Enterprise Resource Planning (ERP) software called Sage Line 5. The software enables instantaneous monitoring of stock, sales, product movement, as well as automatically and simultaneously access from all their depots and the head office located in Lagos. The same software is capable of sharing construction project information simultaneously among all the chain members with an access code for protection and confidentiality. The various depots and outlets are given passwords to input sales details such as bank deposit slips, amounts deposited, and the volume of sales paid for, name of the customers and sales person/depot, etc. However, the access to some other classified information is restricted to higher levels of officers for prevention of fraud, security and confidentiality purposes.


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Inherent Advantages The software used by this company is an enterprises resource planning (ERP) software called Sage Line 5. It is accounting software capable of operating data base inputs with certain restrictions. It is operated based on an internet environment; here the software must be installed on computer that is connected online to an internet service provider. Berger paints operates several depots and its sale outlets are all linked to the head office via the internet. At each cost centre or depot the computer operator can view the inventory level of stock in both other depots and head office/factory anytime. The depots make requisition for stock, lodge payment of money received from customers with such details as the bank name, teller no, amount paid, paid by which customer/distributor, specific product and quantity, etc. The depot operators have their own access code to log-on to the network, which is limited. Restricted zones could be accessed in the network, such as confidential financial data, transfer, etc. Such classified data may be coded strictly for the top echelons of management. The system makes fraudulent practices very difficult if not impossible. Notably this network is linked to their major distributors’ and allied supplier chains network, with restrictions and vice – versa. The Challenges Inclement weather or fault from internet providers may render the network inaccessible at an urgent time, rendering the whole related work force redundant. Although, the software might be relatively expensive for a small firm, several firms could share the overhead cost. It is difficult to use where there is no provision made for computer on site, and where there is no power supply to power both the system and the air conditioned office from where it could be used.

Research Questions •

Can ICT be used as a medium of sharing information, simultaneously around the world by construction professionals and stakeholders?

Research results • •

•

Today’s construction clients’ taste and demands are increasingly selective, thereby challenging the efficiency and profitability of today’s construction business. Construction products have become more complex and competitive in terms of alternative or substitute component materials, which depend upon an increasing range of technologies and competencies to enhance a specific choice. The viability of the vertically integrated corporation and the sustainability of the interrelationship among the horizontally integrated companies are called into question.

Discussion and conclusions The awareness about the use of ICT based supply chain management to construction businesses is minute and where it exists, mostly among manufacturing sub-sectors of the industry, it is perceived as a very expensive and laborious concept. Procurement of project information/input among the construction chain members are mostly carried out using manual or hard copy/paper formats as the medium of exchange. 402

The software adopted by respective professional chain members and stakeholders are all different. There is little knowledge in the use of each other’s relevant software. This result is a lack of homogenous software that could, presently, be adopted among chain members for sharing all the construction information/inputs, as such there is currently no standardized medium. All the professional chain members are usually not simultaneously involved at early stages, consequently their inputs are belated preventing their worthwhile contributions.

Key Lessons Learned: • The use of ICT in the management of interrelationships and interdependence on each others’ information/input among the procurement chain members proves vital in this research. • Considering the fact that 65% of respondents do not use electronic medium to exchange information among each other shows a very poor level of ICT use in construction industry in Nigeria. • The construction costs in Nigeria could be greatly reduced if the economic time lost during procurement planning stages due to these inefficiencies, is eliminated. • The level of abandoned and collapsing of construction structures that litter Nigeria are becoming more rampant, but ICT could help end these failed projects.

References Berger Paints Nigeria Plc. (2006) Cases study No 2. Production and Distribution Planning, www.bergerpaints.com. Bresnen and Marshall (2000) Bresnen, M and Maarshall, N (2002). Partnering in construction: a critical review of issue problems and dilemmas, construction management and economics, Volume 18, pages 229-237. Julius Berger Nigeria Plc. (2006) Cases study No 1, Operation and procurement strategy, www.julius-berger.com. Kashiwagi, D.T and Byfield, R. (2002) Testing of minimization of subjectivity in best value procurement by using Artificial intelligence systems I state of Utah Procurement intelligence systems in state of the Utah Procurement, Journal of construction engineering and management, Nov/Dec. 2002ed. PP 496 –502. Lloyd, R.H., Boughton, G.S and Siu, K.C. (2001) A project information management system, providing greater collaboration and improved communications on major construction works, proceeding of 2001 International conference on construction in Hong Kong, pages 484- 495. Makarand, H. and Sya, M.(2005) “Building process optimization with supply chain management in the manufactured housing industry“ [email protected] and [email protected]. Naim, M and Barlow, T. (2003) “An innovative supply chain strategy for customized housing, Journal of Construction Management and Economic, Vol. 21 September, 2003 ed., PP 593 – 602. building abroad, Montreal, October 2008

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Oyegoke, A.S. (2004) The importance of management systems over points of responsibilities in construction procurement, The Quantity Surveyor: Journal of the Nigerian Institute of Quantity Surveyors Vol. 48 ISSN: 116 –915 X, July–September, 2004, PP 18-19, 22– 23. Yeo, K.T. and Ning, J.H. (2002) Supply chain management and construction procurement, International Journal of Project Management, vol., 20, pages 253-262.

Author’s Biography Mohammed Kabir Aderemi Olayiwola, MNIQS, RQS, AMNIM Kabola Associates: M.K.A Olayiwola is a principal partner of Kabola Associates. He obtained his Master of Science in Construction Management from the University of Jos, Nigeria in 2006. Kabir has over 15 years of experience in the construction industry spanning consulting, contracting, and manufacturing. He is an active member of the Nigerian Institute of Quantity Surveyors and holds full membership.

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CATEGORISATION OF CONSTRUCTION PROCUREMENT ROUTES: AN IN-DEPTH CRITIQUE Adekunle S. Oyegoke Salford Centre for Research and Innovation in the Built and Human Environment email: [email protected] Michael Dickinson Salford Centre for Research and Innovation in the Built and Human Environment email: [email protected] Malik M. A. Khalfan Salford Centre for Research and Innovation in the Built and Human Environment email: [email protected] Peter McDermott Salford Centre for Research and Innovation in the Built and Human Environment email: [email protected] Steve Rowlinson Department of Real Estate and Construction, The University of Hong Kong email: [email protected] Xianguang Li1,2 1 Institute of Construction Management and Real Estate at Southeast University 2 Salford Centre for Research and Innovation in the Built and Human Environment email: [email protected] Abstract In recent years construction procurement has been subject to considerable transformation from lowest cost to best value procurement and a revised agenda for delivering broader policy goals related to social and environmental sustainability. As construction procurement evolved many different types and categories of procurement routes have been developed. The overall aim of this paper is to examine different categories of building procurement routes based on organisational, contractual, financial and technical issues. At the present stage of the study, an extensive review of literature and conditions of contracts has been carried out. The UK construction industry serves as a general frame of reference. The RICS survey of contracts in use from 1985 to 2004 is used to probe the share and value of contracts along different procurement routes and across different conditions of contracts in the UK. The logic is that the value and the share of contracts will indicate the behaviour of different procurement routes in the UK construction market while the in-depth analysis of conditions of contracts will show the gaps and relationships between the general definition/categorisation and contractual context (conditions of contracts) of each of the procurement routes. The preliminary result of the analysis shows that traditional routes remain the main types of procurement routes within which different management and incentivisation systems are applied for greater efficiency. The conditions building abroad, Montreal, October 2008

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of contracts in the UK support this assertion by aligning different procurement routes to different conditions of contracts and additionally specifying different forms of agreements, special provisions and incentivisation in order to increase performance, reduce risks and improve compensation methods. The study can serve as a learning opportunity for the construction stakeholders internationally, especially clients in differentiating between procurement routes, management oriented systems, relational contracting and incentivisation. Keywords: Procurement; Management System; UK; Conditions of Contracts; RICS. Introduction Project delivery systems have gone through different stages in their evolution. In early 1900s, most projects were completed under lump sum contracts (traditional system) and this trend continued for most the first half of 20th Century with only some limited exceptions developed in the private sector to improve costs, schedules and adversarial relationships through contractor centred approaches (design and build) (Dorsey 1997 and Oyegoke 2001). Construction management emerged in the 1960s but fully developed in the 70s in the UK due to the recession in the economy (Dowd, 1996), consultative design and build in the 70s, and program management in the 1980s (Dorsey 1997) as clients sought more efficient ways to complete complex projects. Other management-oriented approaches like partnering and framework agreements based upon the concepts of teamwork, integrated team and collaborative working arrangements became more prominent during the late 1990s and early 2000s (McDermott and Khalfan 2006). The aim of this study is to differentiate between construction procurement methods, the management systems and factors that influence the efficiency of procurement routes. Research methods The study begins with an extensive literature review and statistical data analysis of the Royal Institute of Chartered Surveyors (RICS) survey of Contracts in Use. The survey was undertaken from 1985 to 2004 and because 2004 was the last full year that the survey was completed special emphasis is placed on that particular report (RICS, 2004). The review identifies procurement routes in terms of types and evolution, and critiques categorisation methods and the conditions of associated contracts. The conditions of contracts are explored because they set out project organisation and how production is carried out. The data contained in the RICS reports is valuable because the reports are one of the few data sources with a reasonable representative sample of contracts in use in any one country (in this instance the UK). For example, more than 3700 projects were investigated in the 1993 study amounting to 17.7% of the proportion of total value of new orders. In 2004, 2330 projects were captured in the survey, which were worth a total of £3,035m, amounting to 8.6 per cent of the total value of new orders. The study logic is that the value and the share of contracts will indicate the behaviour of different procurement routes in the UK construction market while the in-depth analysis of conditions of contracts will show the gaps and relationships between the general definition/categorisation and contractual context (conditions of contracts) of each route.

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Research questions: • What are the main distinctions between different procurement routes? • How can procurement route categorisation assist in understanding its working

mechanisms?

• What are the normative principles that inform procurement route categorisation?

Research Objectives: • To understand the working mechanisms of the prevalent routes; • To categorise prevalent routes and identify good practices; • To differentiate between procurement routes and mechanisms including management and

incentivisation systems that aid their usage;

• To develop a novel procurement route that will utilise the strengths of the existing routes

and eliminate their weaknesses.

General overview from the RICS survey The RICS conducted a survey of Contracts in Use from 1985 to 2004. For simplicity and practicality the procurement cases are reclassified based on two main principles: (i) by combining related types e.g. all lump sums under traditional routes, and (ii) by recognising those procurement routes that have sizable number and value under RICS’ categorisation. Table 1 presents percentage share of different procurement routes from 1985 to 2004. Traditional approach remains the most popular route with over 76 per cent of the total number of contracts in 2004. However, the traditional route has been decreasing in usage by almost 16 per cent from 1985 to 2004. The design and build approach has shown a significant improvement, from 3.6 percent in 1985 to more than 13 per cent in 2004. Combined, the traditional and design and build routes dominate the market with 90 per cent because most clients are satisfied with one of their alternative ways of distributing of risks and allocation. According to RICS (2004) some clients required a degree of risk transfer away from themselves (design and build) while others were happy with the majority of design and procurement risks. Cost reimbursable contract is another form that is increasing in usage, from 0.2 in 2001 to 6.2 per cent of total number of contracts in 2004. This is because it encourages an additional contract provision of incentivisation. The increase of partnering, since 2001, has been remarkable. It represented about 0.6 percent of the total number of contracts in 2001 and surged to 2.7 per cent in 2004. The RICS’ survey indicates that partnering is particularly very strong in the public procurement of social housing.


407

Table 1. Percentage Breakdown of Procurement Routes Procurement

1985

1987

1989

1991

1993

1995

1998

2001

2004

Traditional

92.6

92.9

92.3

89.7

82.4

85

76.6

84.2

76.7

Design and Build

3.5

3.6

5.2

9.1

16

11.8

20.7

13.9

13.3

Management routes

1.7

1.2

1.6

1

1.3

2.5

2.3

1

1.1

0

0

0

0

0

0

0

0.6

2.7

2.1

2.3

0.9

0.2

0.3

0.7

0.3

0.2

6.2

Partnering Cost reimbursable contracts

Source: RICS - Contract in use (2004) Table 2 presents the value of the contracts across different procurement routes from 1985 to 2004. The value of work done through the design and build route amounted to 43.2 percent in 2004 which is highest in this category. The RICS survey attests to the fact that the use of all types of design and build form progressively increase in number from lower (up to £100k) to higher bounds (over £50m) of contract value. A larger proportion of the contracts valued between £20£50m were executed under the design and build form. The JCT with contractor’s design (WCD) dominates the field of design and build in number of contracts. WCD data shows an even distribution by value within a wider value range of £500 000 to £5m but mostly between a £2-£5m value band. Conversely, the GC/works design and build form was used in some of the larger schemes. The value of traditional contract has plummeted to 36.8 percent in 2004 against 79.9 per cent in 1985. This was due to the substantial decline in the use of the lump sum – firm bill of quantities about 30 per cent decrement from the 1985 survey. Though the lump sum – firm bill of quantities has surged from over 2001 survey values prompting a come back or reverse in trend. The survey in 2001 recorded over 20 percent use of lump sum – specification and drawings but took a nose dive to 10.7 per cent in 2004. Cost reimbursable contracts have grown in value from 5.2 per cent in its peak of 1987 to almost 12 per cent in 2004. The issue of higher demand chasing less supply has boosted different forms of incentivisation in projects. The RICS survey found that some form of incentivisation provision was used in both small and large project amounting to 3.3 per cent of contract under survey in 2004. The most remarkable contract under cost reimbursable form is target contracts with about 11.6 per cent of the contract value in this category. The trend in partnering arrangements is becoming interesting. The surge in partnering arrangements cannot be dissociated from ‘integrated team building’ canvassed by Latham (1994) and Egan (1998). This working arrangement has been embraced by public clients. It is too early to know if the present trends in partnering will stand the test of time. If there is no meaningful way to balance demand and supply in construction industry, the death of partnering could be imminent. The influence of market cycle (structure, behaviour, risks and responsibilities) will always affect the way demand is placed in the market. This was the case with management routes which gained prominence in 1980s but since reversed more recently. The decline in the usage of management routes might be due to two factors: (i) because the structure of management routes is similar to collaborative working arrangement which result in the use of trade and specialist contractors, (ii) because a hollowing out of contracting capabilities by main trade contractors also leads them to develop their management capacity.

408

Table 2. Value of the contracts Procurement

1985

1987

1989

1991

1993

1995

1998

2001

2004

Traditional

74.9

73.2

66.1

57.8

54

58.3

40.1

43.3

36.8

8

12.2

10.9

14.8

35.7

30.1

41.4

42.7

43.2

14.4

9.4

21.9

27.3

10.1

11.1

18.1

11.9

1.7

0

0

0

0

0

0

0

1.7

6.6

2.7

5.2

1.1

0.1

0.2

0.5

0.3

0.3

11.7

Design and Build Management routes Partnering Cost reimbursable contracts

Source: RICS - Contract in use in UK Critique of procurement routes categorisation According to Love et al. (1998) procurement is an organisational system that assigns specific responsibilities and authorities to people and organisations, and defines the relationships between the different elements of construction in a project. In other words, project procurement set outs ways in which works are placed in the market and establishes the contractual framework that determines the nature of relationship between the project team for the duration of their interactions. Several different classifications of procurement routes have been proposed by different authors from several different perspectives. Categorisations have been created by considering the process through the work is carried out, the contracting party that carries out the project, the bearer of risks and responsibilities, the form of relationships between the parties, the compensation method employed and the management process adopted. According to the Office of Government Commerce (2008) report of the Public Sector Construction Clients Forum: PFI, design and build, and prime contracting represent the majority of the procurement strategies adopted by Government clients and account for the majority of public sector construction expenditure. The report also states that in some instances, clients have developed hybrid forms of procurement based on one or a combination of these strategies, e.g. Department of Health’s Procure 21 arrangement, an enhanced form of design and build that uses integrated supply chain. Categorisation based on the ways projects are organised There are four prevalent procurement routes in the UK: general contracting, design-and-build, management contracting and construction management. The categorisation of procurement systems from Franks (1990), Yates (1991), Cornick (1991), Seeley (1997) and Oyegoke (2001) fall under these four headings: •

Designer-led competitive tender/lump sum/conventional either sequential or accelerated;

•

Design and build/package deal either direct, competitive or develop and construct;

•

Design and manage, either by contractor or consultant;

•

Designer-led construction works managed for fee/fee construction/management method either management contracting or construction management.


409

Mohsini’s (1993) classification meanwhile pursues the following logic: in terms of the sequence in which building procurement options are performed (design/bid/build), the dominant contractual framework (design/build, turkey), and central control of the processes (management-oriented, integrated and co-operative). There is a technical misunderstanding, which might lead to confusion in Mohsini’s (1993) categorisation. For instance, design and manage is categorised under management oriented type, while design and manage is also a major part of the traditional method as the architect designs and manages construction administration. The categorisation of management-oriented, integrated and co-operative approaches under the same centralised control of processes is also a concern as it is applicable to other routes as well. This shows that project procurement is a complicated issue and that success is based on a combination of project conditions and the organisational form the client intended to employ. Masterman’s (1992) categorisation is broad in nature and it includes separated and cooperative strategy (traditional system plus many of its varieties), integrated strategy (turnkey, owner build), and management-oriented strategy (agency, and at-risk). The technical similarities within separated and cooperative strategy approach are the multiple points of (performance) responsibilities and risks. In a nutshell, the traditional system ‘lump sum’ allows for a multiple points of (performance) responsibilities and risks. The design responsibility is placed on separate organisations. In principle, the owner normally contracts with consulting firms to produce design documents, which are used to solicit fixed price bids (lump sum) from construction contractors. One contractor is usually selected and enters into an agreement with the owner to construct a facility in accordance with the plans and specifications. Subcontractors usually have direct legal relationship with the construction contractor. Lump sum contract can be based on bills of quantities (BQ), specification and drawings, schedules of rates and approximate quantities. The technical similarities within the design and build classification (integrated routes) are that design and construction is the responsibility of a single firm (single point of responsibility), usually a construction firm. In practice, portions of the responsibilities are subcontracted to other firms/companies especially documentation and specialised works. The management routes allow for the involvement of management consultants or contractor, usually in agency capacity. The agency agreement between the management firm and the owner may cover partial or full responsibility in contracting services, construction co-ordination, project management, and construction administration. Other points of responsibility include design, construction and handover and therefore this approach is termed multiple points of responsibility. JCT (1987) describes management contract as a binding agreement between an employer and a building contractor, in a situation where the building contractor plans, co-ordinates, organises, supervises and generally manages and secures the construction of the building project. Seeley (1997) refers to construction management contract as a situation where the client assumes the contractual position of the main contractor and the works contractors directly engaged by the client carries out the actual work. Categorisation based on financial issues

Delivery and financing options Procurement routes have also been categorised based on delivery and financing options by Miller (2002) as shown in the four-quadrant framework in Figure 1. Basically the classification follows the independent and interdependent nature of major construction contract variables: design, construction, operation, maintenance and finance. For instance, the traditional design and build is in quadrant I because the route allows a combination of design and construction (single point of responsibility) while still under a direct form of financing. The weakness with categorising the 410

procurement routes by quadrants is that many of routes are confused in the execution of real life projects and/or take more than one basic form which means that they could be placed in several quadrants. On the vertical axis is the financing strategy, which might be direct (cash appropriations or debt financing) or indirect (income stream, incentives, debt, equity, and bond financing). On the horizontal axis is the delivery routes categorised as fragmented (multiple point of responsibilities) and integrated (single point of responsibility). Direct

DBB CM MC

I DB Turnkey

Delivery

methods Financing

Fragmented

methods

IV

III

DBO BOO BOT DBOM BOOT DBFO

Integrated

II

Indirect

Fig. 1. Construction procurement categorisation based on organisation and financing strategies (applying Miller 2002) There have been arguments about using financing methods for categorising procurement routes. The argument in support is based on the practical meaning of procurement, i.e. ways of placing jobs in the market. Financial modalities play a major part in shaping the ways jobs are placed and the market behaves. In this regard, PPP (Public Private Partnership) and PFI (Private Finance Initiative) can both be classified as procurement routes. The counter argument is that different financial modalities can be used in different procurement routes. Secondly, PFI and PPP is a description of a financial tool that is used to execute a DBO procurement type or any of its acronyms as for infrastructure projects in quadrant II of Figure 1. Mohsini (1993) also classified procurement routes under financial modalities. This is based on the organisational variables affecting the performance of the process (private finance initiative, build own, operate and transfer). The weakness of this element of Mohsini’s (1993) categorisation is the inclusion of costdriven contracts and tendering method as a procurement method. Incentivisation or reimbursement contract The cost reimbursement contract is sometimes referred to as cost-plus or prime cost contract. In cost reimbursement contracts the employer pays the contractor the actual cost of the work plus a management fee which will include the contractor's overheads charges, supervision costs and profit. In a cost-plus contract, negotiations may include procedure for pre-qualifying and selecting subcontractors after key trade contractors have been identified. The owner may set guidelines for hiring subcontractors, including minority participation and use of local entities. Most often the general contractor is given a degree of latitude in selection, with the principal criteria being reasonable costs, timely completion, and good quality. Nevertheless, the owner has the right to approve subcontractors, while the general contractor remains responsible for the performance of all subcontractors (Robert 1997). The most typical form of cost reimbursement contracts are


411

based on prime cost plus percentage contracts, prime cost plus fixed fee contracts, and prime cost plus fluctuating fee contract. Another form of contract in this family is target cost contracts. In this form of contract, a basic fee is quoted as a percentage of an agreed target estimate usually obtained from priced bill of quantities. The target estimate may be adjusted for variations in quantity and design and fluctuations in the cost of labour and materials. The actual fee paid to the contractor is determined by increasing or decreasing the basic fee by an agreed percentage of saving or excess between the actual cost and the adjusted target estimate. In practice various methods have been used for computing this sum. An alternative method that has been used is to pay the contractor the prime cost plus the agreed fee and for the difference between target price and prime cost, whether a saving or extra, to be shared between the employer and the contractor in agreed proportions. Distinctions need to be made between procurement routes and additional contract provisions. For instance, the negotiated contract is an additional provision indicating negotiation rather than normal tendering processes. Additional incentivisation provision is more of a price provision rather than form of contract, e.g. Guaranteed Maximum Price (GMP), fluctuations contract, cost plus, target cost. Other provisions may look into ways of advancing the procurement strategy, e.g. electronic tendering, two stage procurement strategy. Categorisation based on the conditions of contracts The conditions of contract seek to establish the legal framework under which the work is to be carried out. There are a variety of conditions of contracts: standard forms which comprise one of any of the pre-printed forms and take precedence over the other contract documents. The conditions of contract in any of its forms have a high degree of comparability, but are different in their details. All of these conditions (e.g. JCT, NEC, etc.) cover different forms of contracts families of forms – e.g. design and build, and minor works. It can be summarised from the RICS survey (2004), that there are some conditions of contracts that suit certain types and values of contract, e.g. the ICE forms were not used for a project over £5m value and accounted for less than 0.5 per cent of the total project value recorded, compared to 0.7 per cent in 2001. Conversely, there are others like JCT conditions of contract that were used across different contract bands but more pronounced in contracts of £2-5m, amounting to over 75 per cent of this band in the survey carried out by RICS in 2004. Further breakdown shows that JCT standard form with Contractor’s Design amounted to 35.6 per cent, followed by traditional method that amounted to 32.8 per cent. In a distant third is the management contract which amounted to 1.2 per cent, the major project form was 0.4 per cent while reimbursable contracts amounted to 0.1 per cent. General conditions establish a common basis for the relationship of all of the parties by using language of proven legal merit. The NEC Engineering and Construction (ECC) forms i.e. NEC family of contracts were used in different contract value bands. According to RICS report, NEC variants accounted for 6.7% and 12.8 per cent of all the number and value of contracts recorded in their survey in 2004 respectively. Overall all the types of JCT standard forms continue to serve a highly significant proportion of the market amounting to 78 and 71 per cent in 2004 both in total number and value of contracts. Although there is a slight drop of 13 and 7 per cent in the total number and total value of contracts, respectively, when compared with 2001. This is due to the preference of clients in adopting NEC and PPC2000 in contracts with higher contract values and the introduction of 135 non-standard forms by local authority for small contracts below £100,000. Another standard form that is gaining prominence in use is the Association of Consultant Architects (ACA Standard Form Project Partnering PPC 2000) form. This form covered contracts between £100,000 and £20m in value, and has accounted for 1.9 and 6 per cent of number and value used in the survey. 412

As well as the standard forms, the usage and importance of the non standard forms has increased. Non-standard bespoke forms accounted for 8.1 and 3.2 per cent of the number and value of contract in RICS survey of 2004. The prominence of these types of forms is due to its usage and acceptance by the local authorities for small contracts below £100, 000 values. A good example of contradiction in procurement route categorisation through the conditions of contract is divergence in the meaning of design and build. In recent times there has been confusion on the true meaning of design and build. Design and build can be generally categorised based on two principles: (i) the bearer of responsibility, and risks on performance and nonperformance of the project, (ii) economic notion of separable activities under common ownership. The earlier allows for a fragmented supply chain through outsourcing of key project skills under a single responsibility of a contractor or designer for risks related to non-performance. The latter allows the contracting firm to posses both design and construction capability in-house for the execution of the project. This is the true form of integration in traditional design and build contract. The JCT Design and Build Contract (DB) – Main Contract – comprises of different attributes that potentially support the economic and non-performance notions of integration in design and build. The contract document stipulates that the design and build conditions of contract form is appropriate where detailed contract provisions are necessary and employer's requirements have been prepared and provided to the contractor. In addition, it is also appropriate where the contractor is not only to carry out and complete the works but also to complete the design. Another major attribute of the document can be closely associated with the traditional form of contract that allows a separate trade contractor or main contractor to design and build a small (specialist) part of the project. The conditions of contract stipulates that the document can also be used where the contractor is restricted to design small discrete parts of the works and not made responsible for completing the design for the whole works. The fact that Design and Build sub-contract (DBSub/A and DBSub/C) contains sub-contract agreement and conditions of contract provisions negate against economic and non-performance notions of integration. In an economic sense, the subcontracting firm is supposed to be part of the firm under single ownership while, in the non-performance sense, it should be back-to-back agreement between the design and build firm and subcontracting firm. The DBSub/A and DBSub/C documents emphasise its appropriateness for use with the design and build contract; and for sub-contract works whether or not they include design by the sub-contractor. In response to market changes the Major Project Construction Contract (MP) was developed. According to the RICS (2004) report, this condition of contract is appropriate for major works where the employer regularly procures large-scale construction work and where the contractor to be appointed is experienced and able to take greater risk than would arise under other JCT contracts. It is also applicable where the contractor is not only to carry out and complete the works but also to complete the design; and where the works are to be carried out in sections. These documents support the assertion that there are varieties of design and build forms (Akintoye 1994). The terms used in the conditions of contracts show the differences in meaning. The JCT puts emphasis on contractor’s design (JCT with contractor’s design), the GC document on works design and build, the ICE on design and construct, and the Defence Estate’ Defcon 2000 focusing on contractor’s design. There are others, non-standard employer or quantity surveyor forms. The divergence in categorising design and build can be divided into two: based on point of responsibility for performance (non performance) or based on economic notion of common ownership.


413

Categorisation based on management process, relational contracting and integrated working arrangement The management process adopted in bringing the project team together has recently been used as a form of procurement route. This is sometimes referred to as relational contracting or relationship-based procurement (Walker, et al. 2000). Some of the notable examples are partnering and framework agreements. McDermott and Khalfan (2006) refer to partnering and strategic alliance as a form of procurement. Partnering represents commercial agreements in a two stage multi party-contract and can be immensely useful in managing potential relational risks. The Association of Consultant Architects document PPC 2000 allows the clients, consultants, contractors and specialists to sign an agreement at early stages and work towards an agreed maximum price and a commencement agreement. Kululanga et al (2001) sound a note of caution because of the fact that the numbers of contractual difficulties continue to rise even though the construction business environment has moved toward partnering arrangements. Steer (2007) suggests that the partnering arrangement is dying because the rise in demand has not been matched by the supply chain. This is indicative evidence that partnering and other forms of social integrative devices are temporary arrangements which are often shaped by a market cycle. Dorsey (1997) asserts that success or failure of any contractual arrangement is heavily dependent upon performance, trust, and co-operation among the parties. Distinctively, this form of relational contracting is applicable for use in conjunction with prevalent routes or any form of JCT form of contract. The partnering with JCT has room for incorporation under a non-binding partnering charter for single project. This also negates the general belief that partnering is always used for series of projects. Partnering with ICE is, in a form of addendum, allowing for partnering to be incorporated in other forms of contracts. The partnering with NEC allows its use in conjunction with ProCure21 or use as a secondary option as part of the NEC family of contracts. Therefore partnering is a way of fostering collaborative working arrangements between supply chain members through different contract forms. These collaborative mechanisms can be through binding partnering agreement, or non binding ‘partnership’ or ‘alliance’ provisions. In response to the integrated supply chain management, the JCT - Constructing Excellence Contract (CE) was developed to cover procurement of construction works and construction related (professional) services throughout the supply chain. The RICS postulate that it is appropriate for use where participants wish to engender collaborative and integrative working as well as partnering. It can also be used whether or not the supplier is to design or if works are carried out in sections and either for a target cost or lump sum. Another special provision for project team agreement JCT - Constructing Excellence Contract Project Team Agreement (CE/P) allows for the members of the project team to enter into a multi-party pain/gain agreement. Another response to market behaviour for an integrated supply chain is a Framework Agreement (FA) which has been applied by many local authorities in the UK. The Local Government Task Force report describes construction frameworks as an extension and application of partnering principles advocated by Latham (1994) and Egan (1998) to individual projects to programmes. Though this is not entirely new, especially from inter-organisational management point of views, i.e. network of organisation. In contractual terms, some of the special features of the framework agreement are the possibility that it can be used by contractors, sub-contractors and/or suppliers sub-letting to others in the supply chain, on single or multiple projects, and used in conjunction with most standard forms of construction and engineering contracts and sub-contracts. In addition the Framework Agreement (Non-binding) (FA/N) is used where the parties do not wish to enter into a legally binding agreement but wish to create a collaborative working environment. The binding agreement is often referred to as a framework agreement while the non-binding alternative is referred to as framework arrangement. The OGC (2008) report attested to the fact 414

that integrated working depends greatly on building interpersonal relationships which in that case should not be viewed as being limited to PFI, design and build, and prime contracting. Another charter that allows for collaborative working environments is Partnering Charter (Nonbinding) (PC/N). According to RICS, this is for use with most standard forms of construction, engineering contracts, and sub-contracts and appropriate where the parties do not wish to enter into a legally binding agreement but wish to create a collaborative working environment. The spontaneous development of different contract formats in the different families of construction contracts also supports the response of the construction sector towards integrated team building and collaborative arrangements. For instance, in the ICE and NEC family, addendum to partnering and partnering option (2001) which is used in conjunction with ProCure 21 was introduced. The Association of Consultant Architect (ACA) introduced ACA PPC 2000 project partnering, an other agreement contract specifically drafted for use in partnering. All these forms of agreements cannot be regarded as a form of procurement as it can only be used in conjunction with standard form of contracts with extra or special agreement binding or non binding between the parties. This agreement is not new as in the area of dispute resolution where Adjudication Agreement (Adj) is always used. Research results • • • • •

It provides insight into different types of procurement routes It differentiates between procurement routes and other catalyst that aid their performance It provides general understanding of procurement routes It will aid project stakeholders in strategic project decision-making and selection It is a preliminary contextual study that will provide the foundation for background understanding and defining the frame of reference for a larger study.

Discussion and conclusions • • • •

Categorising procurement route is increasingly becoming more complex because of their operandi which in principle are fragmented The behaviours of the market, most especially the shift in demand and supply capacity, dictate the trends in procurement The industry structure supply chain encourages collaborative working arrangements The prevalent routes remain the basic forms where management principles, compensation methods, additional special clauses and incentivisation are used to meet the challenges posed by the marketplace.

Acknowledgements The authors would like to acknowledge the contribution of Hong Kong Research Grants Council ref HKU7122/04E to the funding of this project

References Akintoye, A. (1994) Design and build: a survey of construction contractors’ views, Construction Management and Economics, No. 12, pp. 155-163.


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Cornick, T. (1991) Royal Institution of Chartered Surveyor Investment Procurement and Performance in Construction. E & FN SPON. Dorsey, R. W. (2004) Project delivery systems for building construction. 2nd edition. Associated General Contractors of America. Egan, J. (1998) Rethinking Construction: The Report of the Construction Task Force, DETR, HMSO, London. Franks, J. (1992) Building procurement systems. 2nd edition. Blackfords of Cornwall. JCT Joint Contracts Tribunal (1987) Management contract documentations, Practice Note MC/1. RIBA Publications. Kululanga, G.K., Kuotcha, W., McCaffer, R. (2001) Construction contractors’ claim process framework, Journal of construction engineering and management, July/August, p. 309-314. Latham, R. (1994) Constructing the Team, London: HMSO. Local Government Task Force (2006) Transforming local government construction – the power of framework agreements, Centre of Construction Excellence East Midlands. Love, P. E. D., Irani, Z., Cheng, E., and Li, H. (2002) A model for supporting inter-organisational relations in the supply chain. Engineering, Construction and Architectural Management, No. 9, pp. 2-15. Masterman, J.W.E. (2002) Introduction to building procurement systems. 2nd edition. Spon Press. McDermott, P. and Khalfan, M. M. A. (2006) Achieving supply chain integration within construction industry, The Australian Journal of Construction Economics and Building, Vol. 6, Issue 2, pp. 44 – 54. Miller, J.B. (2002) Case studies in infrastructure delivery, Kluwer Academic Publisher. Mohsini, R. A. (1993) Knowledge-based design of project-procurement process. Journal of Computing in Civil Engineering, Vol. 7, No. 1, 107-122. Oyegoke, A. S. (2001) UK and US Construction management contracting procedures and practices: a comparative study. Journal of Construction Engineering and Architectural Management, Vol. 8, Nos. 5/6, 403-417. Robert, W. D. (1997) Project Delivery Systems for Building Construction ,1st ed. Royal Institution of Chartered Surveyors (2004) Contract in use – a survey of building contracts in use during 2004, RICS publication. Steer, R. (2007) Pass the parcel, Building Magazine. Office of Government Commerce (2008) Review of government construction procurement strategies, the final report of the Public Sector Construction Clients’ Forum, Office of Government Commerce.

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Walker, D.H.T., Hampson, K.D., Peters, R. (2000) Relationship-based procurement strategies for the 21st century, Ausinfo Author’s Biography A.S. Oyegoke is a Research Fellow at the Salford Centre for Research and Innovation (SCRI) in the Built and Human Environment, University of Salford, UK. He obtained Doctor of Science in Technology in Construction Economics and Management with emphasis on procurement management from Helsinki University of Technology, Finland, in 2007.

Michael Dickinson is employed by the University of Salford and placed within the construction industry in order to transfer his knowledge gained through his PhD research, which was recently completed. His research relates to procurement, innovation and key performance indicators in construction.

M.M.A. Khalfan graduated with a first class degree in Civil Engineering from NED University, Karachi, Pakistan in 1998. On completion of his PhD in 2001 at Loughborough University he was involved in an EPSRC funded project as a Research Associate. Currently, he is working with the Salford Centre for Research and Innovation at the University of Salford as a Research Fellow.

Peter McDermott is a Specialist in Construction Procurement and Professor of Management at the University of Salford. Peter holds position as an Associate Director at the Centre for Construction Innovation (CCI, Constructing Excellence in the North-West, UK), he has advised and consulted with a wide range of local authorities and government departments on their response to the ‘Egan’ agenda.

Steve Rowlinson is a civil engineer by training, graduating from Nottingham University, and has worked for the past 23 years at the University of Hong Kong. During that time he has been engaged as a consultant and expert witness for a number of companies. Steve has written and co-authored 11 books on various aspects of the construction industry. He has been the co-coordinator of the international working commission W092 of the CIB (www.cibworld.nl) for 14 years and has extensive experience in how construction projects are procured world wide.

Mr Xianguang Li is a PhD candidate at Southeast University (SEU), China, majoring in construction management. Currently he is an academic visitor at the Salford Centre for Research and Innovation (SCRI), UK. His research interests mainly focus on construction supply chain management and competitiveness.


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building

abroad


BUILDING HOUSING ABROAD: COMBINING IMPORTED SERVICE CORES AND LOCAL TECHNOLOGY Roger-Bruno Richard, Université de Montréal email: [email protected]

Abstract Properly applied, industrialisation can deliver affordable, high quality housing to the vast majority of people all around the world, as well as solve the ever widening gap between the formation of slums and the capacity to replace them. The ultimate goal is to bring to the site 3D modules, completely finished at the factory, but these are usually too expensive when building abroad as an important part of the transportation cost goes to carrying “air”, and because of probable conflicts within the local context. An optimal solution is offered by a hybrid approach; concentrating the “Serving areas” (kitchen, bathroom, toilets, laundry room, stairs, mechanical block, etc.) in compact factory-made 3D modules called Service Cores. On site, the Cores are positioned perpendicularly to the façade, while locally built floors and exterior walls span longitudinally between them to generate the “Served areas” (living room, dining room and bedrooms). The Service Core is to housing what the engine is to the body of an automobile, or to the fuselage of an airplane. In Japan, the Sekisui-Heim’s and Misawa Ceramics’ compact steel-framed 3D modules can readily be used as Load-Bearing Service Cores for single-family housing; they are produced on fully integrated assembly lines identical to those of the automobile industry. In Canada, a precast concrete Load-Bearing Service Core is being developed to serve a variety of urban housing types. Keywords: Load-Bearing Service Cores; Serving/Served Areas; Factory-Made 3D Modules; Local Resources; Adaptability. Introduction The demand for affordable quality housing is present in most countries of the world. In some countries, people are looking for better housing whereas in others, the quest to replace slums is ever increasing. “Slums, especially in the developing world, are forming at a rate five to ten times faster than the rate targeted by the international community to upgrade them” (Tibaijuka, 2003). “Today, there are approximately 998 million slum dwellers in the world. UN-HABITAT estimates that, if current trends continue, the slum population will reach 1.4 billion by 2020” (UN-Habitat, 2006). Innovative methods are necessary. An obvious one is the application of industrialised strategies and technologies. If industrialisation is able to deliver complex goods like automobiles and electronic devices to the vast majority of people, there is no reason not to do it for quality housing.


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Yes, some have made mistakes in trying to do it but that is not a reason to abandon the approach altogether. Industrialised Building Systems Industrialisation is, first and foremost. a mathematical equation; a large market (“quantity”) will amortise (divide into marginal fractions) the initial investment in a technology capable of simplifying the production of a finished product. The result is an affordable product offered to the vast majority of people. In the case of construction, the finished product should not be a standard building, as the user needs and sites are quite different each time. The finished product is preferably a “building system”; the same set of coordinated components or tools is generating a large quantity of buildings of different shapes, sizes, functions, and locations. In a building system situation, the details are identical but the buildings could all be different. Building Housing Abroad Many areas of the world depend on others to have access to highly industrialised building systems. Already important, the market will increase as international agencies, hopefully, devote more funds to solve the problem of sprawling slums. The bigger the market the better for industrialised building systems, as their feasibility is directly tied to “quantity”. Research methods Research Hypothesis The key criteria for selecting an industrialised system to “Build Housing Abroad” have to do with: •

Adaptability to different users;

•

Distribution of the work between factory and site; and

•

Response to the local context.

Which System? Although there is no such a thing as the universal “best” system applicable anywhere, a set of specific “performance” criteria would be the most objective way to select an optimal type of system for “Building Housing Abroad”. Performance Criteria “The concept of performance specifications relates to what products must do rather than what they must be…The concept of specifying by performance provides for new ways to meet a given set of criteria, and opens new opportunities for ingenuity and innovation in the development of new methods and technology, and potentially for new ways to meet the basic user requirements” (Ehrenkrantz, 1989). Of course, many performance criteria could be outlined but, considering the specifics of aiming at different users in different geographical environments, the key ones have to do with (a) 420

adaptability of the dwelling unit to a diversity of layouts, (b) distribution of the work between factory and site, and (c) response to the local context. Adaptability of the dwelling unit Wherever the location and whatever the cultural patterns, two types of spaces are present in any building: the “Served”, and the “Serving” areas. These spaces are predominant features in the design of any building type. The Served areas are completely open spaces, accommodating the main activities of the building and occupying most of the floor areas (± 70 to 80%); in housing they usually include the living room, dining room, family room, and bedrooms. The Serving areas are support facilities of generic nature occupying a limited but strategic part of the floor areas (± 20 to 30%); in housing they normally include the kitchen, bathroom(s), powder room, laundry room, staircases, elevator shaft, mechanical shaft (water heater, electrical panel, HVAC machinery, etc.) and they integrate most of the electrical-mechanical conduits. As each individual and each household is different from itsneighbour and different from himself/herself/themselves through time, the building system should provide flexible Served areas whereas the Serving areas, catering to more basic human needs, can display similar features from one dwelling unit to another. Distribution of the Work between the Factory and the Site Factory production offers climatic protection, justifies sophisticated production tools and handling equipment that can simplify the process, permits a rationalised distribution of the work along an assembly line thereby allowing for the use of semi-skilled labour, assures the conditions for a better quality control, provides a single delivery point for bulk purchasing, and eliminates all the usual wastes found on traditional construction sites. The ultimate goal is to bring to the site 3D modules completely finished at the factory, but these are too expensive when building abroad, because a major part of the transportation cost goes to carrying “air” and because of probable conflicts within the local context. An optimal industrialised building system would then maximize factory production, while minimizing transportation, especially when building abroad, and simplifying the work to do on site. Local Context Local resources and architectural heritage should be priorities in any given project, whether built by local or foreign contractors. Local resources make sense economically, at least for some parts of the process, and people are usually proud of their architectural heritage up to the point where a foreign design can be rejected.


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Research Objectives •

The Served areas are completely open spaces accommodating the main activities of a dwelling unit whereas the Serving areas are support facilities of generic nature. As each individual/household is different from its neighbour and different from himself/herself/themselves through time, the building system should provide flexible Served areas whereas the Serving areas can similar features from one dwelling unit to another.

•

Ideally, an optimal industrialised building system would maximize factory production, minimize transportation, especially when building abroad, and simplify the work to do on site.

Selecting an optimal building system for “Building Housing Abroad” Which type of industrialised building system would better meet the three criteria? As buildings are site-related and as technology is mostly factory-related, three basic building systems strategies are identified and should be considered: the Site-Assembled Kit-of-Parts, the Factory-Made Module and the Hybrid (Richard, 2007). •

The Site-Assembled Kit-of-Parts (“Meccano”) strategy regroups the Post & Beam, the Slab & Column, the Panels, and the Integrated Joint. All the sub-systems, including the structure, are usually produced in large quantity at the component level in various specialised plants and transported separately to the site where an intensive series of jointing operations takes place. However, there is a major deterrent when building abroad; most of these jointing operations normally require skilled labour which, very often, has to come from the exporting country and at a very high cost due to transportation, premiums, and many other fees.

•

In the Factory-Made 3D Module strategy, all spaces and all components of the building are entirely assembled and finished at the plant as 3D modules. “The ultimate goal of prefabrication technology is to transport a finished product to the site” (Utida, 2002). Once on site, they are rapidly attached to the foundations and connected to the main service entries, as well as between themselves. However, there is a major deterrent when building abroad; factory-made 3D modules are normally too expensive because a major part of the transportation cost goes to carrying “air”, as most of the volume is occupied by the served areas (±70 to 80%), and because of probable conflict within the local context.

•

The Hybrid strategy reaches for the best of both worlds, manufacturing at the plant the complex parts of the building and leaving the simple and/or heavy operations to the site. Three different approaches are proposed: the Load-Bearing Service Core, the Megastructure, and Site Mechanisation. Load-Bearing Service Cores are factory-made 3D modules concentrating the Serving areas of the building and, once on site, acting as the sole vertical support of the Served areas.

Whereas the Site-Assembled Kit-of-Parts and the Factory-Made 3D Module strategies are confronted with major deterrents when building abroad, the “Load-Bearing Service Core” approach proposed within the Hybrid strategy is quite close to the performance criteria set above.

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Research results The Load-Bearing Service Core The “Service Core” concept governs the architecture of many buildings. In a typical office building for instance, the Serving areas are usually clustered into a volume identified as the “Service Core”, mainly because of its key role in the building and because of its location at the very center, in order to leave the window frontage to the Served areas. “Service cores are an increasingly important aspect of building design, architecturally, structurally, and from the building scientist’s point of view. This importance is attributed to many factors, not least of which is the increased level of mechanical and electrical (M&E) engineering systems within modern buildings… Some designers even regard the core as the most important part of the building” (Yeang, 2000). In the “Load-Bearing Service Core” approach applied to housing, the Service Cores are compact factory-made 3D modules containing all the Serving areas: kitchen, bathroom(s), toilet(s), laundry room, stairs, utility block, etc. The Cores are similar in size but their interior layouts can accommodate different equipments of different configurations and dimensions. The transportation of those 3D modules, even for long distances, is justified by its high valueadded content, by the fact that such content would have to be transported to the site anyway and by a geometry within the standards for road transportation. On site, the Cores are positioned perpendicularly to the front of the building and spaced to generate the Served areas between them. The Service Core approach fully meets the sustainability agenda when mechanical (“dry”) joints are used in order to permit reconfigurations without any demolition. The Service Cores become “thick party walls” acting as the single vertical “Load-Bearing” elements of the building, supporting the Slabs and Exterior Wall Panels sub-systems that constitute the Served areas. These sub-systems can be supplied locally: either prefabricated in regional plants or built right on site.

Fig. 1. Schematic distribution of Serving and Served areas in the Load-Bearing Service Core approach


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Therefore, the Load-Bearing Service Core meets the three “Building Housing Abroad” performance criteria outlined above: • The Served areas generated between the Cores are functionally adaptable, open to a diversity of scenarios and accommodating either “loft” or partitioned arrangements. • The generic nature of the Cores provides the quantity required to benefit from a sophisticated mass-production line and its compact high value-added content justifies long distance transportation. • The construction of the Served areas, and its adaptability to suit changing needs, is a simple activity which deserves to be done locally, both for economical and cultural reasons. The exterior wall panels are curtain walls connected to the Cores; they constitute an open sub-system in terms of materials and forms, and they can play a determinant role in responding to the local culture. Service Cores are much more generic than the buildings they serve. Indeed, the Load-Bearing Service Core is to housing what the engine is to the body of an automobile, or to the fuselage of an airplane: a small but highly complex element essential to a series of variations. Discussion and conclusions Planning Discipline The presence of transversal Cores at regular intervals (depending on the span of the floor structure – usually between 4.5 and 7.0 meters) does impose a strict planning discipline but it is a useful one, as those “thick party walls” help both with soundproofing and fireproofing. A discipline is not a constraint. A discipline can become an incentive for creativity; the discipline of the piano notes is the starting point for a great concert by the artist who masters them. To an imaginative designer, the transversal Cores are the elements of an architectural language offering variations at four levels: in planning the interior layouts, in planning the open space between the Cores, in treating the facades, and in combining the Cores to generate various geometries. Frontage Constraint In a standard dwelling unit, the “Serving areas” are usually parallel to the façade and located in the middle of the unit. As the Cores are perpendicular to the façade and as the “Served areas” still need comfortable dimensions, the total frontage will consequently be wider. That is a constraint (or a limit) of the system and, most likely, a factor increasing the linear distribution of infrastructures. However, there is a compensating reward; the transversal space offers visual transparency, natural cross-ventilation (comfort without air-conditioning), 360° vistas and, continuous day-lighting (including solar radiation gain if desired). Two Options Two options of the Load-Bearing Service Core approach are presently or prospectively available: • Steel-framed lightweight Service Cores suitable for single-family housing, detached or attached, readily available from Sekisui-Heim and Misawa Home in Japan; • Precast concrete Service Cores suitable for single-family attached or multifamily housing, being developed in Canada. Steel-Framed Service Cores from Japan In Japan, Sekisui-Heim and Misawa Ceramics are producing 3D modules on fully integrated assembly lines, identical to those of the automobile industry, and capable of generating a different house each time. No single house is like another. Sekisui-Heim and Misawa Ceramics achieve diversity notably by combining different standard components within a modular multipurpose 424

framework, thereby fully applying the concept of “mass-customization” (Richard and Noguchi, 2006).

Fig. 2. Typical Sekisui-Heim assembly line A regular single family house would require 12 to 16 modules, which makes them too expensive for exportation to most foreign markets, since an important part of the cost would go to carrying “air” and because there would be too many jointing operations on site. However, shipping only 2 to 4 “Core Units” containing all the services and equipments (the most expensive parts) is something else. A Research Fellowship from the Japan Society for the Promotion of Science (JSPS) was granted to the author in the Fall of 2007, in order to do research at the University of Tokyo on the implementation of Japanese 3D “units” as Load-Bearing Service Cores. The research was undertaken with the support of Dr Shuichi Matsumura, Professor at the Department of Architecture and Head of the Matsumura-Fujita Lab. The conclusion is a recommendation to consider the Sekisui-Heim and Misawa Ceramics modules as ready to be used as Load-Bearing Service Cores for single family detached or attached hosing all over the world. The conclusion is based on the fact that these modules are structurally rigid, autonomous, of extremely high quality, and close to the size of a container; they are framed at the edges, thereby leaving each horizontal or vertical plane completely adaptable. The great advantage of the Sekisui-Heim and Misawa Ceramics modules lies with the fact that they are produced on sophisticated assembly lines which have been operational for more than a quarter of a century. Obviously, the investment is quite amortised by now. The fact that these assembly lines are presently not running at their full capacity does increase their availability for a Load-Bearing Service Core version. A Load-Bearing Service Core version would be processed exactly like a regular 3D module. The operations would be initiated by a regular purchase order and no modification of the production line would be necessary. Produced in Japan, the Cores can then be easily shipped anywhere in the world and combined with local technology.


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Fig. 3. Typical combination of Japanese factory-made Service Cores with local technology On site, longitudinal beams bolted along the steel frame of the Cores will support the components of the Served areas between them: • Lightweight Floor Joist options (wood or open-web steel, pre-engineered wood “I”, or “PSL” or LVL”) or Slab options (stressed-skin wood, lightweight-steel concrete composite, steel decking, etc.). • Lightweight Exterior Envelope Panels options (stressed-skin, wood or steel lintels, metal curtain walls, fibreglass reinforced polyester sandwich, lightweight concrete, bamboo lattices, steel framed, mashrabiya screens, etc.). • Variable roofing options. Sekisui-Heim would use a proprietary adaptor to reach the exact dimensions and geometry of an ISO container, removing and bringing the adaptor back at the plant once the Core reach its final destination.

Fig. 4. Typical floor plans of single level and of “maisonette” single-family detached houses using Sekisui-Heim 3D “units” as Load-Bearing Service Cores 426

Misawa Ceramics is already producing the equivalent of the Load-Bearing Service Core with its “Hybrid-M” series. Initially, the objective was to avoid transporting “empty” 3D modules to the site i.e. to avoid carrying “air”.

Fig. 5. Assembly of a typical Hybrid “M” house produced by Misawa Home

Fig. 6. Floor plans of a typical Misawa Hybrid “M” model Precast concrete Service Cores from Canada When urban housing is required, precast concrete cores are most appropriate, notably to meet both the fireproofing and soundproofing criteria (Richard, 2005). The Richardesign precast concrete Load-Bearing Service Core system is presently being developed in Quebec, Canada. The Core is exactly the size of an ISO container. Its production will be shared between a precast concrete plant for the shell and a modular housing factory for the installation of the services & equipment, together with the finishing. The shell can be produced in two moulding operation: casting the walls and ceiling shell through collapsible formworks, and the floor panels on a regular horizontal casting table.


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Fig. 7. Combination of Richardesign precast concrete Load-Bearing Service Cores with Slab and Exterior Wall Panel sub-systems Produced in Canada, the Cores could then be easily shipped anywhere in the world and combined with local technology; the total weight is still under the weight-volume ratio conditioning for maritime transportation. On site, longitudinal beams bolted along the Core will support the components of the “Served” areas between them: • Slab options (hollow core pre-stressed, steel-concrete composite, ribbed, etc.) • Exterior Wall Panel options (precast concrete sandwich lintel, metal curtain wall, fibreglass reinforced polyester sandwich, metal sandwich, lightweight concrete, etc.). • Variable roofing options. Most housing types and groupings are available: straight line (with a rectangular slab) or curved (with a trapeze-shaped Slab); single level, two-storey “maisonette”, or split level (when the cores are staggered vertically); plurality of sizes (from the small 1-Core low cost R+4 apartment to the large 5-Cores condominium or townhouse).

Fig. 8. Typical Richardesign Load-Bearing Service Core townhouses

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Fig. 9. Typical Richardesign Load-Bearing Service Core multifamily housing Procurement The Core should be considered as a sub-system and its manufacturer as a subcontractor. The mass-customization potential of the Core is available to any project that follows the modular coordination and the interfacing details. Purchase orders will govern the production and the manufacturer will normally transport, as well as install the Cores on the site. The general contractor or its equivalent will schedule the interactive installation, prepare the foundations and coordinate the Core-Slabs installation sequence, whereas the installation of the Exterior Envelope Panels and Roofing can be completed independently later. The responsibilities are easy to distribute as the boundaries between the Core and the rest of the building are clearly defined.


Load-Bearing Service Cores are factory-made 3D modules concentrating all the Serving areas of the dwelling unit. Their compact high value-added content justifies long distance transportation and, positioned perpendicularly to the façade once on site, they act as the sole vertical support of locally built Served areas, open to a diversity of scenarios.

•

The Load-Bearing Service Core approach is introducing a planning discipline of its own; a wider façade is imposed but that constraint is balanced by a Served transversal space offering visual transparency, cross ventilation, and continuity with the path of the sun.

•

The compact lightweight steel-framed 3D modules presently produced in Japan by Sekisui-Heim and Misawa Ceramics are ready to serve as Load-Bearing Service Cores for single-family housing. The precast concrete Load-Bearing Service Core presently developed in Canada is specifically designed to serve a variety of attached single-family and multifamily types.

•

The Service Core is to housing what the engine is to the body of an automobile, or the fuselage of an airplane. Full of value-added elements and compatible with the geometry of a container, the Load-Bearing Service Core can easily be transported anywhere in our globalised world, to developed or developing countries alike, and/or be the object of a technology transfer.


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References Ehrenkrantz, Ezra D. (1989) Architectural Systems. McGraw Hill; New York, p. 43. Richard, Roger-Bruno (2007) “A Generic Classification of Industrialised Building Systems” Open Building Manufacturing: Core Concepts and Industrial Requirements, Chapter 3, pp 33-48. ManuBuild and VTT-Technical Research Center of Finland, Espoo. Richard, Roger-Bruno (2005) “Looking for an Optimal Urban Residential System?” International Journal of Construction Management, Vol. 5, No 2, pp 93-104. Richard, Roger-Bruno and Masa Noguchi (2006) Japan Solar Photovoltaic Manufactured Housing Mission 2006, CANMET Energy Technology Centre, Varennes (Quebec), 38 p. http://cetc-varennes.nrcan.gc.ca/fichier.php/codectec/En/2006-166/2006-166e.pdf Tibaijuka, Anna (2003) Meeting the Challenge of Housing the Urban Poor, Keynote Address to the 36th World Congress of the IAHS, Montreal. UN-Habitat (2006) State of the World Cities 2006/7. Earthscan; London. Utida, Yositika (2002) The construction and culture of architecture today: a view from Japan. Ichigaya Publications Co. Ltd, Tokyo, p 53. Yeang, Ken (2000) Service Cores. Detail in Building collection, Wiley-Academy, Chichester, Great Britain, p. 9.

Roger-Bruno RICHARD, M.Arch. (Berkeley), Architect (OAQ), is Professor at the School of Architecture, Université de Montréal and was Director of that School for a period of ten years (1989-1999). Specialized in Industrialised Building Systems, he is the author of several technological and functional innovations in housing, notably “Load-Bearing Service Core” systems, various solar residential buildings, and manufactured housing prototypes. His research is aimed at industrialised strategies & technologies capable of simplifying production and offering adaptability, in order to get quality architecture available to the people. His Generic Classification of Industrialised Building Systems is recognized internationally.

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abroad


THE USE OF PARTNERING IN LARGE-SCALE URBAN PROJECTS

David Ross, Université de Montréal email: [email protected]

Abstract Ville de Montréal wishes to facilitate the planning and execution of large-scale urban projects within the city limits. These projects promote a positive image of the city, increase real estate values and thus increase the city’s revenues. The use of partnering facilitates the planning and execution of urban projects. It has numerous positive impacts as long as a definite set of criteria is respected. It brings all stakeholders together, enables them to develop better communication and to share their interest in the project, unifies them in the quest for a common solution and gains everyone's commitment. To confirm the hypothesis, a multiple-case study was undertaken with the objective of producing a literal replication. The implementation of partnering in three recentlycompleted projects in Montreal was examined: Quartier des spectacles, Anjou-sur-le-lac, and Quartier international de Montréal (Project Management Institute’s Project of the Year 2005). The multiple-case study validated the hypothesis and led to draw a set of principles that, if respected, will enable Ville de Montréal to facilitate the planning and execution of urban projects on its territory. Keywords: Partnering; Urban Project; Montreal; Case Study. Introduction Cities are inhabited by groups of people with different sets of values, needs and interests that are not always compatible. The delicate balance between those values, needs and interests is continuously changing. Conflict can arise easily. In order to avoid disorder or even chaos, public authorities exercise control upon urban activity and development by conceiving and implementing plans and policies. Montreal’s municipal council adopted a new master plan in 2002 that is meant to be “the municipal reference document for any action pertaining to urban development within the City” (Ville de Montréal, 2004, unnumbered page). That plan identifies, among other things, large-scale projects that should accelerate the city’s development and increase Montrealers’ quality of life. Notwithstanding the broad-based support of the master plan, its implementation can be a source of disagreement, and disagreements can evolve into conflicts (Afzalur, 2001).


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Much of the academic literature on conflict focuses on their resolution rather than on their prevention. Yet, prevention of conflicts has many positive impacts as Clay, MacNaughton and Farnan (2004) have shown: • • • •

It facilitates the identification of new opportunities, It creates a positive work environment, in which new conflicts are less likely to appear, It helps build trust between stakeholders, Etc.

Partnering Partnering is a conflict prevention method conceived by the construction industry (Clay et al., 2004). In its strictest definition, partnering is a formal procedure by which stakeholders with diverse interests and objectives are reunited, a positive and collaborative working environment is created, and stakeholders are lead to pursue common objectives. In a broad sense, partnering can be seen has a work philosophy by which one must work towards the development of a collaborative environment. This definition is produced by combining the most interesting aspects of the definitions put forward by Pinnell (1999), Moore (2005) and Clay et al. (2004). The underlying objective of the method is clearly stated by Clay et al. (2004, p.44): “to enable stakeholders to complete their project within budgets, on schedule, and without disruption resorting to adversarial dispute resolution.”

Montreal Ville de Montréal has experienced many difficulties while planning and executing large-scale urban projects. It also faces many hurdles when it comes to attracting and fostering the development of projects which could have a positive effect on urban renewal. This situation is not without its consequences for Ville de Montréal, whether it is in terms of its reputation or in terms of revenues derived from the imposition of the property tax. The multitudes of municipal actors, poor communication and coordination, as well as power plays, are hindering the planning and execution of projects. Ville de Montréal wants to reduce the number of municipal employees working on the same project, to improve communication between these employees, to improve the coordination of interventions, and to limit the negative side-effects. The first step taken by Ville de Montréal is to entrust each large-scale urban project requiring municipal intervention to a project manager. This manager has the responsibility of establishing the delicate balance between the needs, interests, and objectives of stakeholders. Achieving this balance resolves a number of conflicts but creates some as well. The project manager is faced with a choice: managing conflicts once they have arisen in which case many techniques are available or prevent conflict, by using partnering for example. The city’s project managers are learning to use partnering but some are not convinced of its effectiveness, especially if used in a heavily bureaucratic organization such as Ville de Montréal. Research methods To answer the research questions and to validate the hypothesis presented in the box below, a multiple-case study was undertaken. This strategy was deemed the most appropriate because, as Yin (1984, p.23) states it “investigates a contemporary phenomenon within real-life context; when 432

the boundaries between phenomenon and context are not clearly evident; and in which multiple sources of evidence are used.” The interest in this research strategy is threefold. First, it allows the explanation of cause-effect links within real interventions. Second, it offers an opportunity to describe the context of a real-life intervention. Finally, it facilitates the exploration of some aspects for which the effects of partnering are not all that obvious.

Research questions: •

How can Ville de Montréal facilitate the planning and execution of large-scale urban projects within city limits?

•

Can project managers use the partnering method to attain this objective?

•

How can the method be made operational in order to produce the desired effect?

Research hypothesis: •

The use of partnering facilitates the planning and execution of urban projects. It has numerous positive impacts, as long as a definite set of criteria is respected. It brings all stakeholders together, enables them to develop better communication and to share their interest in the project, unifies them in the quest for a common solution and gains everyone's commitment.

Based on the research hypothesis, it was determined that the research should focus on the following points: • • • • •

The impact of bringing together all major stakeholders, The state of communication between stakeholders before and after the partnering session, The means by which stakeholders are led to look in the same direction in order to identify an advantageous solution for everyone involved, The identification of the basic principles of partnering, And the formulation of partnering success factors.

Research Objectives: • To identify a mean, facilitating the work of Ville de Montréal’s project managers. • To determine how to make this mean operational over time. In order to facilitate the analysis of the research results and the formulation of specific, objective, and rigorous conclusions, a theoretical framework was carefully established. It stated the conditions by which partnering facilitates the planning and execution of urban projects. Three cases were studied: Quartier des spectacles, Anjou-sur-le-lac, and Quartier international de Montréal. They were selected in the hope of producing a literal replication. All cases present the following characteristics: • •

They are urban projects located in Montreal, They were successful projects, building abroad, Montreal, October 2008

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The partnering method was used in each case but to answer different needs, The projects took place in a fairly recent past.

• •

Table 1 presents the period of time covered by research work for each of the case. Table 1. Period of time covered by research work for each case Project name

Beginning of the time period covered

End of the time period covered

Quartier des spectacles

April 2007

November 2007

Anjou-sur-le-lac

July 1994

December 1999

January 2000

October 2004

Quartier international de Montréal

In each case, data was collected by reviewing documentation produced specifically for the project’s partnering session and by interviewing the individuals responsible for the planning, the execution, and the follow-up of the partnering session. In addition, direct observation was undertaken for Quartier des spectacles. Research results

Theoretical framework The complexity that characterizes the planning and the execution of urban projects comes, in part, from the number of stakeholders involved. Demers (November 8, 2002; April 9, 2008) identifies four types of stakeholders, to which a fifth one can be added: • • • • •

Citizens, Municipal elected officials, Municipal employees, Developers and their sponsors, Corporate citizens.

These stakeholders have different interests in the same project. These differences become conflicts when they reach a critical level (Afzalur, 2001). Four sources of differences can be identified namely: facts, objectives, methods, and values (Schmidt and Tannenbaum, 2000). Although many authors recognize the positive effects of conflict (Amason et Schweiger, 1997; Benabou, 1984; Dolan et Lamoureux, 1990; Myers, 1984), Aflzalur (2001) indicates that these effects emerge from cognitive conflict. This type of conflict is functional, because it fosters debate, but only as long as its intensity remains moderate. Therefore, cognitive conflicts must be resolved to reduce their number and their intensity below the level beyond which they become dysfunctional. Affective conflicts must be avoided altogether as they only have negative effects (Afzalur, 2001). To resolve conflicts, one can resort to legal action or to negotiation. The difference between the two lies in the voluntary nature of negotiation; it can take place only if all stakeholders agree to partake in the process. Besides, legal action should be the last recourse because of the strain it puts on the relations between stakeholders, whereas those relations are critical to the success of an urban project.

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The initial stage of negotiation is of the utmost importance because strategic choices are being made (Lewicki et al., 2004) and stakeholders’ behaviour is set (Bazerman, Curham, Moore and Valley, 2000). Four strategies are available to negotiating parties: avoidance, competition, accommodation, and collaboration. They make a choice asking themselves whether the substantive outcome is important or not, and whether the relational outcome is important or not (Lewicki et al., 2004). When it comes to urban projects, both the substantive and the relational outcomes are important. Hence, stakeholders should adopt a collaborative strategy through which they can reach a winwin solution (Bazerman et al, 2004; Lewicki et al., 2004). Negotiation can use many conflict prevention or resolution techniques. Partnering and mediation are two of them. They present a number of similarities: a confidential procedure, a voluntary and non-binding commitment, and the contribution of a neutral party (C. Demers, November 8, 2002; Mose and Kleiner, 1999). Partnering is used to prevent conflicts while mediation is used to solve them. Moore (2005), Pinnell (1999) and Clay et al. (2004) all deem partnering to be a reliable method and philosophy when it comes to conflict prevention. Many advantages can be drawn from its use, namely it can: • • • • • • • • • • •

Increase teamwork (Clay et al., 2004; Pinnell, 1999), Reduce the number of conflicts (Clay et al., 2004; Pinnell, 1999), Help to identify new opportunities (Clay et al., 2004), Lead to the acceptance of the project by all stakeholders (Clay et al., 2004), Transform relationships between stakeholders marked by conflict into positive ones (Clay et al., 2004), Bring together individuals and organizations with varied points of view and expertise (Namus, 2006), Foster team spirit (Namus, 2006), Challenge standard business processes (Namus, 2006), Clarify communication channels (Clay et al., 2004), Clarify decision making processes (Clay et al., 2004), Etc.

Partnering banks on a few simple principles; a group has a greater information processing ability than any individual (P. Ménard’s idea reported by C. Demers, November 8, 2002 and November 15, 2007)and the early implication of stakeholders is bound to improve the project (C. Demers, November 15, 2007). The use of the partnering method is not a warranty of success. Its application must abide by a few rules. First, the decision to use the method must be made early in the project (Clay et al., 2004). Second, the partnering session must take place soon after this decision has been made (C. Dermers, April 19, 2007; C. Lehoux, November 15, 2007; M. Maillet, November 28, 2007). Finally, stakeholders must respect and trust each other at the end of the session. Different ways of using the partnering method exists (Clay et al., 2004; C. Demers, November 15, 2007; C. Lehoux, November 15, 2007) but the application of the method is always built around three periods of time: planning, execution, and follow-up. The logical sequence of the application of the method is presented in figure 1. It is based on the analysis of Clay et al. (2004), a conference of C. Demers (November 15, 2007), an interview of C. Lehoux (November 15, 2007), and direct observation.


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One of the most important steps is the selection of a facilitator by the project manager. The facilitator is the person responsible for the planning, the animation, and the follow-up of the partnering session. The facilitator stimulates the exchange of ideas between stakeholders (Auvine et al., 2002; C. Beaulac, September 24, 2007; Büchel et Moss, 2007; Susskind, 2006) but does not get involved in the content of the exchange and does not steer decision making (C. Beaulac, September 24, 2007; C. Demers, Avril 19, 2007; C. Lehoux, November 15, 2007; Susskind, 2006). Idealy, the facilitator must be experienced (Büchel and Moss, 2007; Namus, 2006) and must have knowledge of the industry (Büchel and Moss, 2007; Pinnell, 1999). Planning Project entrusted to a project manager

Partnering?

Choice of a facilitator

Choice of a date

Preparation of the agenda

Choice of participants

Preliminary invitation

Agenda

Official invitation

Partnering session Beginning of the partnering session

Welcome activities

Informational activities

Innovative activities

Commitment activites

End of the partnering session

Follow -up Follow -up activites

Fig. 1. Logical sequence of the application of the partnering method (Ross, 2008)

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The agenda of the session must be planned in such a way that the stakeholders will gradually begin to share some values and objectives. Stakeholders must be represented by a high-ranking individual with the power to commit its own organization. The theoretical framework has led to the identification of a set of rules and principles that must be respected for the partnering to be successful: 1. The decision to use partnering must be made early in the project and the partnering session must take place soon after this decision as been made, 2. The project manager selects a facilitator that will plan, lead, and make a follow-up, 3. The facilitator must be experienced and have knowledge of the industry, 4. The partnering session must last no less than a day and a half, and no more than a day, 5. The agenda must be crafted in a way that enables stakeholders to gradually share values and objectives, 6. Stakeholders must be represented by a high-ranking employee with the authority to commit its own organization, 7. The planning and the execution of the project must be the object of a close follow-up by the facilitator once the partnering session is over. Case studies The partnering method has been used in the context of urban projects taking place in Montreal. It is possible to compare the research hypothesis to these projects. Quartier des spectacles is a redevelopment project of both public and private property of an area located in Montreal’s central business district. The project was launched in 2007. The planning of the works is framed by a special planning program (SPP). The preparation and the adoption of SPPs is regulated by an Act respecting land use planning and development (L.R.Q., A-19.1), a provincial law. A partnering session was held prior to the preparation of the SPP, which was the first step of the project. Anjour-sur-le-lac is a large-scale real-estate development project that took place on a private property affected by environmental problems. The project was headed towards failure. In hope of transforming the situation, the project was entrusted to another project manager, which opted to use partnering to involve municipal authorities, journalists, citizens, buyers, builders, and the owner of the project (C. Demers, November 15, 2007) and to revise the concept. Quartier international de Montréal is also a redevelopment project of both public and private property of an area located in Montreal’s central business district. This project is now completed. It was a great success both in terms of economical fallouts and of the district’s renewal. Project Management Institute named it the 2005 Project of the Year. Table 2 presents the main characteristics of the use of the partnering method in each of these three projects.


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Table 2. The use of partnering in three urban projects Quartier des spectacles

Anjou-sur-le-lac

Quartier international de Montréal

Launch

Re-launch

Construction

Decision to use partnering

End of March 2007

Summer 1994

February 2002

Facilitator

Project manager with the help of a neutral party

Project manager

Independent facilitator

Participants

- Citizens

- Citizens

- Corporate citizens



- Municipal employees

- Municipal elected officials

- Municipal elected officials

- Builders



- Builders

- Builders

Dates

April 19 and 20 2007

October 27 and 28 1994

March 20 and 21 2002

Number of participants

33

17

31

Main activities

- Breakfast

- Informational presentation

- Informational presentation

- Fieldtrip

- Leadership training exercise

State of the project Planning

Partnering session

- Informational presentation - Fieldtrip

- Workshops

- Workshops

- Cocktail

- Cocktail

- Mayor’s motivational speech

- Assessment of the session

- Problems identification - Preparation of an action plan - Preparation of a partnering charter

Follow-up Follow-up tools and activities

- Partnering report

- Ad Hoc committee

- Partnering report

- Meetings with stakeholders

- Information bulletins

- Additional partnering session

- Additional partnering session

- Meetings with local journalists

- Information bulletins

Discussion and conclusions Each of the case studies was compared with the seven rules and principles stated above. It was determined that they were respected, although the interpretation of the second and third principles varied from one case to another. In light of that comparison and of the analysis of each case, a revised list of rules and principles is proposed: 1. The decision to use partnering must be made early in the project and the partnering session must take place soon after this decision as been made,

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2. The project manager selects an independent facilitator that will plan, lead, and make a followup until the end of the project, 3. The facilitator must be experienced and have knowledge of the industry, 4. The partnering session must last no less than a day and a half and no more than a day, 5. The agenda must be crafted in a way that enables stakeholders to gradually share values and objectives, 6. Stakeholders must be represented by a high-ranking employee with the authority to commit its own organization, 7. The planning and the execution of the project must be the object of a close follow-up periodically by the facilitator once the partnering session is over.

The facilitator can have some links to the project as long as the stakeholders trust him and believe he can remain neutral and impartial during the partnering process.

As for the benefits, they were numerous and varied. In Quartier des spectacles, the use of partnering allowed for: • • • • •

The building of mutual trust between stakeholders, The unification of the stakeholders in favour of the project, The meeting of individuals and stakeholders with different point of views and expertise, The testing of ideas, The challenge of standard business processes.

In Anjou-sur-le-lac, the following benefits were noticed: • • • • •

The identification of new opportunities, The building of mutual trust between stakeholders, The unification of the stakeholders in favour of the project, The relationships, marked by conflicts, were transformed, The stakeholders committed to collaboration.

As for Quartier international de Montréal, the main benefits were: • • • • • •

The reduction of the number of conflicts, The identification of new opportunities, The lowering of the risk that a simple a misunderstanding transforms itself in a conflict, The building of mutual trust between stakeholders, The clarification of communication channels, The clarification of decision making processes.

In conclusion, Ville de Montréal’s project managers can use the partnering method in order to facilitate the planning and execution of large-scale urban projects. When the rules and principles are respected, the method brings all stakeholders together, enables them to develop better communications and to share their interest in the project, unifies them in the quest of a common solution and gains everyone's commitment.


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Key Lessons Learned: • Planning of the partnering session must begin as early as possible. • The facilitator must have credibility with the stakeholders. • The follow-ups must take place until the end of the project or there is a risk of loosing the benefits of the partnering session.

References Afzalur, M. R. (2001) Managing Conflict in Organizations (3e édition). Wesport, CT : Quorum Books. Amason, A.C. and Schweiger, D.M. (1997) The Effects of Conflict on Strategic. Decision Making Effectiveness and Organizational Performance. In C. De Dreu et E. Van De Vliert (editors), Using conflict in Organizations (pp. 101-115). Thousand Oaks, CA : Sage Publications. Auvine, B., Densmore, B., Extrom, M., Poole, S. and Shanklin, M. (2002) What Do We Mean By Facilitation. Group Facilitation, (4), 53-55. Bazerman, M.H., Curhan, J.R., Moore, D.A. and Valley, K.L. (2000) Negotiation. Annual Review of Psychology, 51, 279-314. Benabou, C. (1984) Les conflits entre les groupes de l’organisation : diagnostic et intervention. Gestion, 9(4), 26-36. Büchel, B. and Moss, I. (2007) Using Facilitation to Drive Change – The Change Leader’s Guide. Perspectives for Managers. (151), 1-4. Clay, G.S., MacNaughton, A.L. and Farnan, J.F. Jr. (2004) Creating Long-Term Success Through Expanded « Partnering ». Dispute Resolution Journal, 59(1), 42-48. Dolan, S. and Lamoureux, G. (1990) Psychologie du travail et des organisations (2e édtion). Boucherville, Québec, Canada : Gaëtan Morin éditeur. Lewicki, R. J., Saunders, D. M., Barry, B. and Minton, J.W. (2004) Essentials of Negotiation (3rd edition). New York : McGraw Hill/Irwin. Moore, J.P. (2005) The Challenge of Partnering in the Middle East [electronic version]. Dispute Resolution Journal. Mose, D. and Kleiner, B.H. (1999) The Emergence of Alternative Dispute Resolution in Business Today. Equal Opportunities International, 18(5/6), 54-61. Myers, G.E. (1984) Les bases de la communication interpersonnelle : une approche théorique et pratique. Montréal, Québec, Canada : McGraw-Hill. Namus, B. (2006) Leading the Vision Team. The Futurist, 30(3), 21-23. Pinnell, S. (1999) Partnering and the Management of Construction Disputes. Dispute Resolution Journal, 54(1), 16-22. 440

Ross, D. (2008) L’utilisation du partnering dans le cadre de projets urbains. Unpublished M.Sc.A. (Aménagement) extended essay, Université de Montréal, Montréal, Canada. Schmidt, W.H. et Tannenbaum, R. (2000) Management of Differences. In Harvard Business Review on Negotiation and Conflict Resolution (pp. 1-26). Boston, MA: Harvard Business School Publishing. Susskind, Lawrence. (2006) Bring Talks Back on Track with Facilitation. When tempers flare and anarchy threatens, an outside expert can increase the productivity of group negotiation. Harvard Negotiation Newsletter, 9(9), 4-6. Ville de Montréal. (2004) Plan d’urbanisme de Montréal. Yin, R.K. (1984). Case Study Research: Design and Methods ( L. Bickman, editors). Beverly Hills, CA : Sage Publications.

Other sources Beaulac, C. Interview with the general director of the Ordre des urbanistes du Québec. September 24 2007. Demers, C. Interview with the general director of Quartier international de Montréal. April 2 2008. Demers, C. Interview with the general director of Quartier international de Montréal. September 26 2007. Demers, C. Modes de résolution de conflits en aménagement et en développement. Regards neufs sur l’urbanisme. Promouvoir un urbanisme processuel (sic) et passer du réglementaire à l’argumentaire. [fichier PowerPoint] Conference held for the Ordre des urbanistes du Québec. November 8 2002. Demers, C. Le partnering. Les outils de gestion dans les projets d’aménagement urbain. Conference held for Service de la mise en valeur du territoire et du patrimoine of Ville de Montréal. November 15 2007. Lehoux, C. Interview with the president of Maxima Partnering Inc. November 15 2007. Maillet, M. Interview with Ville de Montréal’s project manager for Quartier des spectacles project and former principal manager of Quartier international de Montréal. Novembre 28 2007.


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Author’s Biography David Ross, M.C.I.P., O.U.Q., recently completed a master’s degree in applied sciences (Aménagement – Option montage et gestion de projet) at Université de Montréal. He also holds a master’s degree in urban planning and a major (honours) in geography. He currently works for Ville de Montréal as an urban planner on the Quartier des spectacles project.

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PUBLIC PRIVATE PARTNERSHIPS AS A MECHANISM FOR MUNICIPAL SERVICE DELIVERY IN SOUTH AFRICA –THE CASE OF WATER SERVICE AT ELM

Pantaleo Mutajwaa Daniel Rwelamila, Graduate School of Business Leadership, University of South Africa (UNISA), South Africa email: [email protected] Frank Snijder, PSU International, South Africa email: [email protected] Abstract Since 1994, the South African sphere of local government has been in transition towards creating municipal governance structures that would cover both urban and rural areas. The impetus for this transformation is a constitutional directive that places local government at the centre of service delivery. While Public Private Partnerships (PPPs) are recognised in South Africa as an option to improve service delivery at the local level, very few municipalities have opted for PPPs to deliver water services to their communities. The water services sector is one area where service delivery is critical – from an environmental and health perspective as well from the perspective of basic human rights. While the municipal environment is regulated by a single set of policies and legislation, individual municipalities differ in their capacity to comply with these requirements. Nonetheless, most municipalities are in need of improved revenues and must consider options to improve the efficiency of their service delivery mechanisms. It is therefore paramount to: describe the municipal service delivery context (legislated and institutional environments), with specific reference to the water services sector; assess the understanding of key concepts underpinning the PPP market, define the water services environment, and provide a municipal perspective on service delivery challenges in relation to legislated requirements; and identify success factors where PPPs were implemented at local government level. This is done through a case study of ELM –a local municipality in South Africa. Interviews were carried out focussing on: the mechanisms to deal with various forms of project risks, the impact on project beneficiaries, and the basis for the calculation of rewards. Six in-depth interviews were held with representatives from the public and private entities. The research results suggest that small-scale PPPs can be successfully negotiated with the assistance from external technical advisors. National regulations could be eased when implementing small-scale and short-term PPPs and normal municipal Supply Chain Management (SCM) policies can be used to guide the procurement process. Short-term PPP contracts such as those at the ELM seem to be better suited to the water services environment in that they have the potential to achieve relatively quick results. Keywords: Public Private Partnerships; South Africa; Municipal Services; Mater Services; Project Management.


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Introduction Participation of the private sector in public service delivery is not a new concept. Over the last 15 to 20 years, a growing market for public-private partnerships has developed globally. Particularly in industrialised countries, the private sector has for many decades serviced public needs through a range of construction, maintenance, and management contracts. There are diverse references to such partnerships – in the United Kingdom (UK), USA, Chile, India, and in Australia but all reveal that the primary reason for their establishment is access to finance. A PPP may, therefore, be defined as a mechanism by means of which the public sector procures services from the private sector for an extended period and usually involves the use of public assets and/or investment in assets by the private sector (Handley-Schlacher, 2003). Public-private financing initiatives were first introduced in the UK at the level of national government, notably the transportation sector. Subsequent development of a framework for implementation and the degree to which control over such initiatives devolved away from national spheres of government has created an extensive PPP market at the local government level. In the UK, for instance, extensive use is made of private finance Initiatives (PFIs) in the development of educational facilities and health services, while in the United States of America (USA) most (local) water treatment works are privately operated. Recent political liberalisation in the European Union (EU) in favour of democracy and the subsequent civil and political rights given to citizens has opened the market for PPPs in that region. Edwards & Shaoul (2003) argue that over a period of 25 years, public policy and the economic agenda of many capitalist countries have moved towards the privatisation of public enterprises. In the UK, economic depression and the need to curb local government capital spending in Britain gave rise to the notion of involving private sector financing in delivering public services from 1992 onwards (Broadbent & Laughlin, 1999 &2003). Subsequent government administrations have endorsed and expanded the use of private finance in delivering public services such as health care, transportation, and the provision of educational facilities. In the USA, public service assets have historically been privately owned, albeit those services have always benefited from public funding. In the past three decades, and especially in recent years, the focus of government has been on reducing the size of the public sector workforce and now concentrates them on functions for which they are best suited. The delivery of public services has shifted more towards employing business practices to ensure greater efficiencies. The most dominant area where PPPs have gained momentum in the USA is in the water and wastewater treatment facilities. Torres & Pina (2001) place the PPP debate in the EU at the centre of modernisation of public administrations by taking advantage of management skills available in the private sector and the transfer (or sharing) of risk. The anticipated outcomes of such arrangements are greater customer satisfaction, and improved efficiency and effectiveness. EU governments remain involved in public service delivery, primarily in a regulatory role. Events of the past few decades suggest that the emergence of a PPP market in industrialised countries was primarily driven by macro-economic considerations, reducing government capital expenditure, in an environment where the demand for services was greater than the commitment of funding to public sector capital development programmes. More recent debates indicate that the involvement of private sector players in public sector projects has been entrenched through new approaches to public management and administration.

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In contrast, the PPP market in non-industrialised countries has been driven by growing infrastructure requirements, in part initiated by foreign investment from international funding agencies, and in response to limited state resources to develop such infrastructure. For instance, the World Bank (2004) proposed considerable levels of private participation in providing public services infrastructure in Lesotho. The Southern African Development Community (SADC) Banking Association has facilitated a PPP capacity building project for SADC member countries in order to develop appropriate skills in the public sector based on the belief that PPPs are a critical vehicle for infrastructure development and service delivery. Commenting on the state of public institutions in non-industrialised countries, Rodriguez (2004) lists a range of constraining factors with respect to the water services sector, including limited long-term planning, low efficiencies and high losses, dismal revenue streams, rising costs and low credit standings, and argues for greater private sector involvement to improve service delivery. PPP in South Africa Non-industrialised countries, such as South Africa, are increasingly looking for private sector resources to help achieve development objectives set by the public sector. In fact, the South African model for the implementation of PPPs is based on the advances made and lessons learnt in the UK and USA. The rationale for the development of a local PPP market in South Africa is rooted in the recent history of transformation augured with the first democratic elections in 1994 and the service delivery targets set by the government. A substantial portion of the capital funding was to come from national government through its various grant-funding mechanisms. However, capital investment forecasts predicted a considerable shortfall on the national allocations to municipalities for the extension and maintenance of services (Jackson & Hlahla, 1999). The municipal services partnership (MSP) policy framework was developed to respond to the need at local government level for the improvement of services. Sinclair (1999) provides a broad outline of the development process and the key features of the policy framework, which identifies three main partnership options: •

Public-private MSP,

•

Public-public MSP – a partnership arrangement between a local authority and any other public entity, and

•

Public-Nongovernmental organisation (NGO)/Community Business Organisation (CBO) MSP.

In conjunction with the subsequently promulgated Local Government: Municipal Systems Act (MSA), Act 32 of 2000 and the Local Government: Municipal Finance Management Act (MFMA), Act 56 of 2003, the MSP laid the foundation for the development of municipal PPPs with a specific focus on delivering core services to communities. The MSA provides for an assessment of internal and external service provision mechanisms (section 78 and following sections) and the MFMA provides broad guidelines for the establishment of PPP at the local level. The National Treasury subsequently published municipal public-private partnership regulations in 2005. The Municipal Infrastructure Investment Unit (MIIU) was established in 1998 specifically to assist with the establishment of PPPs for the delivery of municipal services through infrastructure development and related projects. Its initial 5-year life-span was extended by a further three years, to 2006. Within the first few weeks of its operation, the MIIU received numerous applications for assistance from municipalities (Hlahla, 1999). The first two PPP contracts that were concluded in the water services sector with MIIU assistance were the Dolphin Coast and the Nelspruit concessions, both with foreign private partners (Kotze, Ferguson & Leigland, 1999). building abroad, Montreal, October 2008

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Private sector involvement in the water service industry in South Africa pre-dates the transformation that commenced in 1994. Much of the infrastructure development (capital projects) had been completed by private contractors and some rural water schemes continued to be maintained by private contractors managed by DWAF and regional water boards. Private sector involvement of this nature has often been quoted in defence of longer-term public-private partnerships (PPPs) in the water service industry. In a paper on the impact of PPPs on the poor (DWAF, 2002), five PPPs are mentioned of which two started prior to 1994. The rationale for these PPPs varied from capital investment requirements to efficiency improvements and operational support. All five contracts have been affected by the local government transformation process, notably the expansion of the municipal jurisdictions after the 2000-demarcation of municipal boundaries. The Water Service Act, Act 108 of 1997(DWF 1997), determines that a municipality may only enter into a service agreement with a private sector water services provider after it has considered all known public sector water services providers willing and able to perform the functions. Despite the availability of technical assistance and resources through the MIIU, water service PPPs in local government have not developed in any way to meet the rising demand for municipal services. The cost of infrastructure development, the demand for higher service levels (more advanced than government-funded minimum reconstruction and development programme (RDP) standards), institutional and organisational limitations of local government to manage and operate service delivery to vast (and often newly constituted) municipal jurisdictions, and poor cost recovery are some of the factors constraining local development, particularly in the water sector. The ongoing transition at local government level and the numerous demands that are made on limited human capital and financial resources to implement national agendas are seriously compromising the development of a strong and co-ordinated local government sector and provide every opportunity to attract private partners to joint service delivery agreements.

PPP Challenges Opposition to PPP in the South African water service industry has come predominantly from the labour movement for similar reasons as those advanced in other countries (Rwelamila, Chege and Manchidi 2003; Chirwa 2003). However, unlike the international PPP market where partnerships are the preferred option in pursuit of operational efficiency and cost containment, the public sector in South Africa has agreed with the labour movement that a PPP approach towards water service provision would only be allowed after all other public options have been evaluated. The result is that strategic decisions concerning service delivery are often compromised in an attempt to avert risk (for instance, avoiding an external mechanism due to inexperience in favour of an internal mechanism for which it is not geared) and minimise the compliance requirements set by national government institutions (stringent financial and operational reporting is required when external service providers are involved). A PPP is different from standard procurement procedures in that the contractual relationship usually spans an extended timeframe (from five up to 30 years) and involves the transfer of risk to the private sector party. In addition, whereas standard procurement practices focus on a specified service, a PPP involves the delivery of a ‘service package’ including a financial investment and is therefore outcome oriented. Traditionally, asset ownership remains with the public institution and tariffs (pricing) are equally regulated by the public sector. However, assets are increasingly left under private sector control for the duration of the agreement and revert back to the state at the end of the agreement. The driving element in decisions about PPPs is the cost-benefit factor, referred to as value-formoney (VFM). The underlying argument is that the involvement of the private sector in delivering 446

public services must be a better alternative to the public sector providing the same service through its line departments and bureaucratic administrations. Consequently, a comparative pricing by the public sector (also referred to as the public service comparator (PSC)) of the required service package must form part of the evaluation process of a PPP deal. Transfer of risk is an element closely linked to the VFM consideration based on the cost associated with service non-delivery and delays in design, construction, and implementation of projects, as well as the private sector imperative of business efficiency. Operational efficiency drives the private sector’s involvement, especially where contract values and service fees have been predetermined in legal contracts. Without adequate transfer of risk, the required level of efficiency will not be achieved by the private sector party, which will in turn obscure the value derived from the partnership. For this reason, the PPP procurement process in South Africa is highly regulated and the final decision determined by a range of feasibility studies and analyses of options. The evaluation of the value-for-money benefit, usually based on ex post facto appraisals of PPP projects, is important for future justification of the PPP option in public service delivery. Edwards & Shaoul (2003) discuss two case studies which sought to determine the VFM benefits derived from the projects involving the information technology sector. They conclude that the effective transfer of risk to the private sector is not easily achievable. Hood & McGarvey (2002) concur with this view in their assessment of risk management initiatives in Scottish local government, stating that risk transfer is, at best, a very unclear and poorly understood concept and, at worst, weighted in favour of the private sector. In Edwards & Shaoul’s (2003) study, the concluding evidence suggests that the critical risk associated with the two projects were essentially transferred to the user-public in terms of service inconvenience and the irreversible impact of late delivery of service with very limited contractual recourse to penalise the private sector party. A further element of a PPP is the long-term contractual relationship that is established between the public and private sector parties. In view of this (extended) relationship, the procurement process is generally protracted and characterised by several phases, e.g. pre-qualification bids, selection bids, evaluation of proposals, and negotiations with parties for the identification of the preferred bidder with whom the final agreement is negotiated. The formal nature of the relationship and the extensive responsibilities carried by both parties imply the need for contract management expertise on both sides of the agreement. Grimsey & Lewis (2004) developed a model for the governance of contractual relationships based on the reality of uncertainty in any long-term contract and the consequential importance of a relational contract – a contractual environment in which changing conditions can be negotiated – as opposed to the more traditional transactional contract environment. In an attempt to maximise the VFM objectives, contractual arrangements are to include adequate contract management capacity, incentives to the provider for on-time service delivery and penalties for poor performance, feasible termination options, and ways of dealing with changes to specifications. Globally, contract management is increasingly raised as a concern for the successful implementation of PPP contracts at the local government level. In South Africa, the National Treasury requires that an agreement (contract) management plan is finalised and approved prior to the signing of the contract to ensure that sufficient capacity exists to manage all aspects of the partnership and that contingent provisions have been considered in view of the contract duration. The universal reality of detailed national frameworks and implementation guidelines regulating the PPP market has given rise to the debate about steering mechanisms. The extents to which the market is regulated and the means used to regulate implementation reflect the intention of national governments with PPP initiatives and seem to constrain flexibility at the local level (English & Guthrie, 2003; Broadbent & Laughlin, 2003). The PPP market has become a global building abroad, Montreal, October 2008

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business opportunity for industrialised countries to the extent that national governments are beginning to reconsider their PPP regulatory frameworks to ensure sufficient interest in local PPP markets to meet public sector demand for privatised service delivery (Public Private Finance, 2004). Research methods There seems also to exist a regulatory bias towards large (in monetary terms and duration) and complicated partnerships. Short-term (say five-year) contracts may, however, provide equally rewarding opportunities for the private sector. Poor distinction between the political (legislative) and administrative (executive) spheres of local government (for example Rodriguez, 2004) also compromises the long-term stability of the PPP environment. This raises a number of research questions (RQs) as indicated below.

Research questions: •

•

•

To what extent have the antagonists of the PPP approach created a tension, at local government level, between the social objective of delivering services to communities and the moral objective of employment protection by preventing private companies to ‘enrich’ themselves through service delivery to the poor? Do the regulations imposed by national governments, with respect to PPPs, infringe on this ‘independence’ of local government and therefore act as a disincentive to engage the private sector in developing a strong service delivery environment? Is the municipal environment suited for PPPs, with special reference to the water service industry?

Research design and approach A case study protocol was drafted to guide the data collection process. Prior to this, an extensive literature study was done to identify trends and experiences with respect to PPPs, both locally and internationally (for example Rwelamila, Chege and Manchidi 2003; Rodriguez, 2004; and Jackson & Hlahla, 1999). Several critical factors were identified in the literature review which further guided the interview process: • • •

the mechanisms to deal with various forms of risk, the impact on project beneficiaries – the community, and the basis for the calculation of rewards.

In preparation of the interview process and to become familiar with the technical details of the project, several official reports and project brochures were perused. This assisted to focus questions on specific issues not made clear in the written material. The question guidelines comprised of eleven questions, as indicated elsewhere (Snijder 2007). However, the discussions were allowed to develop their own momentum. Probing questions were posed to clarify information and to gain deeper understanding of the additional matters that were raised voluntarily by the interviewees. Based on the eleven questions discussed elsewhere (Snijder 2007), six in-depth interviews were held with representatives from the public and private entities, the project financiers, as well as the regulating body. The interviews were held at the offices of the various organisations in Vanderbijlpark, Pretoria, Midrand, and Johannesburg. Discussion notes were taken during interviews and discussions were restricted to about two hours per session. Documentation 448

obtained during the interviews, such as minutes of meetings, correspondence, and contracts was used to verify and substantiate statements made and explanations given for actions taken during the course of the project. Interview results were organised according to a draft case study report guide which became the basis for the following section of this paper.

Research Objectives: • • • • •

To describe the municipal service delivery context, with specific reference to the water services sector (the context refers to both the legislated and institutional environments); To assess the understanding of key concepts underpinning the PPP market, such as costbenefit (value-for-money) and risk transfer; To provide an analysis of the experience at local government level of the regulative framework for PPPs; To define the water services environment and provide a municipal perspective on service delivery challenges in relation to legislated requirements; and To identify success factors where PPPs were implemented at local government level.

Research results Emfuleni Local Municipality (ELM) is the southern-most municipality in Gauteng province, situated in what is commonly known as the Vaal Triangle and is one of three municipalities in the Sedibeng District. It was established in 2000, following the amalgamation of the municipal administrations of Vereeniging, Sasolburg, and Vanderbijlpark into a single municipality after the demarcation of municipal boundaries. According to the 2001 Census data (see Table1), ELM represents about 82% of the population in the district and 7% of the province’s population (excluding the three Metropolitan Councils). The population is predominantly urban (99%), and Sebokeng and Evaton are the largest suburbs in the municipality with a combined population of about 500,000, or 80,000 households. Table 1. Population figures Area

Population

Households

Urban Households

1,698,650

447,148

427,470

Sedibeng DM

794,605

225,098

216,461

Emfuleni LM (ELM)

658,421

187,043

185,964

Gauteng Province

1

Source: Municipal Demarcation Board (2005) 1

Excludes the population and household figures for the three Metropolitan Councils

According to DWAF (1997), ELM became the water service authority for its municipal area of jurisdiction in January 2003, after the responsible minister (Minister of Provincial and Local Government) declared his position The Water Services Act (Act 108 of 1997) (DWAF 1997), defines the responsibility of a water services authority as follows: “To progressively ensure efficient, affordable, economical, and sustainable access to water services”. building abroad, Montreal, October 2008

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In response to ELM’s severe financial constraints and in order to begin to address the substantial water services infrastructure challenges, its water services unit (Metsi-a-Lekoa), entered into a partnership with the joint venture (JV). The stated objective of the PPP was to achieve savings in the water supplied to the project area by Rand Water Board. Due to the substantial losses in the reticulation network and through domestic leaks, bulk water purchases cost the municipality the most, to which ELM sought a solution. The JV proposed the installation of a pressure management unit on the main inlet pipe into the area that would reduce pressure during off-peak hours, thus reducing the amount of water lost through leaks in the network. Reduced water losses would mean a reduction in water supplied to the area by Rand Water Board, which in turn would result in a reduced water bill from Rand Water Board to ELM. The PPP Agreement, which was drawn up with assistance from the now defunct MIIU, contains several clauses relating to the financial benefits of the Agreement that may accrue to the JV. The basis of the calculation of the savings is the projected baseline demand, calculated from an analysis of 10-year historical consumption, projected into the future for the five-year project period. The difference between the baseline and actual demand constitutes the savings – the efficiency gains – of which a capped percentage is due to the JV as a project reward, in return for the R5-million (approximately 625 000 US$) capital investment made towards the installation. The monetary savings to ELM during the first year of operation (in 2006), amounted to more than R27-million (US$ 3.4 million), of which approximately 15% was paid in fees to the JV. The JV is contractually bound to operate and maintain the installation – a measure that would ensure that the installation is not merely an award-winning engineering intervention Operational staff spent about 60% of the time at installation monitoring the pressure management process and dealing with incidental repairs on the installation as well as to the reticulation network, among other tasks. The installation of the pressure management unit revealed several system weaknesses unrelated to the installation of the unit but which caused service malfunctioning that affected consumers. During public meetings, the implications of the installation on services were explained and consumers were assured that it would bring about a general improvement in service. Although unanticipated, the technical corrective action that was required in order to deal with weaknesses in the infrastructure exposed through water supply pressure management improved not only service quality but also the health of the environment. In contrast, common objections to private participation in public service delivery, such as tariff increases, were unfounded in that the reduction in water losses reduced the fixed service charges to unmetered properties by about 46%, based on anticipated monthly savings in consumption (essentially the reduced volume of water lost through domestic leaks) of about 10kl per household.

Discussion and conclusions The research questions that guided this study sought to determine the feasibility of municipal water service PPPs. The questions were influenced by the promulgated municipal PPP regulations in South Africa and the increasing pressure on local government to provide basic services to its citizens. While the enabling PPP environment was established less than 10 years ago, and only in 2003 with respect to the local sphere of government, this did not bar public institutions from engaging with the private sector for the delivery of infrastructure and services. In the water service sector, five PPPs were concluded well before the promulgation of the MFMA in 2003 and the finalisation of the regulations with respect to municipal PPPs in 2005. In fact, all 450

five PPPs were driven by the need for improved service delivery to end-consumers. The ELM project also did not have to comply with the regulations since it was initiated before these were promulgated. While the agreement is now governed by the MFMA, the entire process, from conceptualisation through to the conclusion of the agreement, was managed on the basis of ELM’s internal supply chain management (SCM) policy. The Emfuleni PPP is evidently different from the previous water service PPPs established under the auspices of DWAF. In fact, global experience of PPPs in the water service industry generally entails much larger contracts in the form of multi-year concessions. In stark contrast, the Emfuleni PPP was only a five-year R5-million contract. Every long-term concession referred to and discussed in the preceding sections has had to be altered and renegotiated for a variety of reasons. The South African PPPs were, without exception, affected by the expansion of the municipal boundaries at the end of 2000. While this provided the concessionaires with additional operational opportunities, it also revealed the contrasting service delivery environments; wellmaintained and equipped towns (generally included in the concession area) on one hand and poorly serviced neighbouring townships and largely under-serviced settlements in remote rural areas on the other. Capital investments were, in some instances, absorbed by unintended maintenance and repair programmes necessary to bring the infrastructure to a functional standard conducive for cost recovery. Service delivery improvements through PPPs are, therefore, not without challenges. Concessions are dependent on cost recovery and the current poor service payment level (the national municipal service debt is estimated at R23-billion US$ 2.9-billion) is a hindering factor in the promotion of municipal water service PPPs. A formidable risk is placed on the private sector partner when there are vast differences in water service infrastructure within the same municipality, which is compounded by uncertainty about cost recovery. Ironically, where the prospect of cost recovery is the least, capital investment in services infrastructure is required the most. In this context, long-term contracts by their very nature are more susceptible to material changes in the environment and, therefore, require greater contract and relationship management experience. Trust precedes collaboration and is fundamental to the partnership concept. The signatories to the EMF partnership recognised that trust was an indispensable element to the agreement. Unlike standard procurement contracts, a PPP seeks to extract mutual value through a collaborative partnership. The EMF PPP was perhaps unique in that the private sector partner had the advantage of prior contract experience with the municipality. Nonetheless, collaboration implies a shared appreciation of the task at hand and a common perspective on the anticipated outcome. Without trust and commitment, any PPP runs the risk of being derailed by conflicting understanding of the intended outcome, even when based on the detailed contractual regulations imposed by National Treasury, and paralysed by legal disputes and litigation. In this regard, the EMF PPP has demonstrated the importance of reliable base-data to justify the partnership. Although not explicitly stated, the PPP was an important intervention towards achieving the KPIs set by DWAF and National Treasury. The former was concerned with operational inefficiencies that led to the recurring ‘uncontrolled’ discharge of untreated waste water into the Vaal River while the latter demanded a measurable improvement in its financial standing through improved management systems. Both objectives were achieved through the partnership in, as far as its activities were able to influence, the KPIs. While this may also have been possible under a more comprehensive concession, the specific definition of its focus and the demarcation of the project area were consciously directed by Emfuleni at achieving the external objectives. The appropriate transfer of risk to the private sector partner and the concomitant financial reward were essential to the achievement of the first year’s results. The JV would not have engaged in this partnership if it did not make business sense. While it may be true that there is an element of intuition in any partnership agreement, it is equally imperative that all known factors are considered prior to the signing of the contract. This links back to the relationship of trust; the JV had access to critical information for the determination of its business building abroad, Montreal, October 2008

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case and it shared technical data with Emfuleni for the calculation of the cost savings. The role of the independent auditor was critical in ensuring that the public institution remained objective in its assessment of the proposals from the private sector partner. The complexity of the water services industry has contributed to the limited appetite for municipal PPPs. Consolidation of the management of water service infrastructure under newly appointed water service authorities and the reassessment of the water services provider mechanisms (through the section-78 mechanism) flowing from these changes have created a considerable degree of uncertainty. Poor cost recovery, again, is having an exacerbating effect on this environment. In this context, the EMF PPP succeeded in identifying a smaller aspect of the water service function, thus avoiding the lengthy section-78 assessment and circumventing the negative impact of consumer debt on the viability of the partnership. It also circumvented detractors from raising concerns about providing public services through private, profit-driven means. A constricted economic climate in the UK facilitated the establishment of a PPP market. In contrast, while the South African economy has benefited from increased government spending on infrastructure, it has hampered the establishment of water service partnerships at the local level. Concessions, such as the Nelspruit and Dolphin Coast contracts, are generally developed in order to attract (additional) investment capital for service delivery. National government has committed substantial funding to the expansion of basic services infrastructure, especially in under-serviced areas. In addition, it has allowed for free basic services through special budget allocations from national revenue sources. This has already led to problematic role allocations between the public and private parties where the public institution assumes most of the infrastructure development costs, leaving the private sector partner with limited financial risk. In one sense, the active participation of national government in the funding of infrastructure refutes the purpose of PPPs. The Emfuleni PPP seems to suggest that targeted investments linked directly to localised and distinctly identifiable service delivery challenges (improvement opportunities) have a greater chance in succeeding in relation to the delivery of water services. Moreover, funding for such interventions are generally dependent on independent financial resources. Such interventions are, therefore, at a greater risk of being neglected by municipalities with detrimental effects on service delivery in general and specifically on the realisation of citizen rights with respect to access to basic services. This case study has identified several opportunities and constraints with regard to the implementation of small-scale PPPs at the municipal level. With a view to enhance the existing opportunities and address the current constraints, the following lessons are put forth:

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The need for National Treasury regulations to: distinguish between small and largescale PPPs, and provide municipalities with greater autonomy over the implementation of small-scale PPPs based on municipal supply chain management policies already in force. This will simplify the procurement process. A small-scale contract could be defined in terms of the investment value and contract duration.

•

The need to change current perspectives on municipal PPPs – long-term leases and concessions – to include practical and quick-win service delivery solutions. In this manner, PPPs will be able to circumvent much of the detracting debates and offer valuable technical and management support to public institutions, which ultimately improve service delivery to citizens.

•

The need to provide surety to private sector partners in small-scale projects, through enforcement of financial accountability in accordance with the PPP agreements. Unsolicited favours and financial mismanagement in local government have a negative impact on the appetite for and viability of municipal PPPs.

•

The need to pursue water savings projects in every municipality as a means to improve their financial sustainability. This will also reduce the substantial losses of scarce natural resources. Water savings projects benefit all citizens.

•

The need to develop a financing model for small-scale water service PPPs that would facilitate access to investment capital to expedite the implementation of technological solutions with substantial financial benefits to municipalities. The capping of the reward paid to the private sector partner needs to be capped in accordance with the risk it carries during the contract period.

References Broadbent J & Laughlin R. (1999) The private finance initiative: clarification of a future Research agenda. Financial Accountability and Management, Vol. 15, No.2, pp.95-114. Broadbent J & Laughlin R. (2003) Public private partnerships: an introduction. Accounting, Auditing and Accountability Journal, Vol.16, No.3, pp.332-341. Chirwa D. M. (2003) Socio-economic rights and privatisation of basic services in South Africa, ESR Review, Vol.4, No.4, pp. 4-7. Department of Provincial and Local Government - DPLG (2000) Municipal Systems Act (MSA) (Act 32), Government Printer, Pretoria. Department of Provincial and Local Government - DPLG (2003) Municipal Finance Management Act (MFMA) (Act 56), Government Printer, Pretoria. Department of Water Affairs & Forestry (1997) Water Services Act (Act 108), Government Printer, Pretoria. Department of Water Affairs & Forestry (2002) Water PPPs in South Africa and their impact on the poor, Unpublished, Pretoria: DWAF. building abroad, Montreal, October 2008

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Edwards P and Shaoul J. (2003) Partnerships: for better, for worse? Accounting, Auditing and Accountability Journal, Vol.16, No.3, pp. 397-421. English L. M. and Guthrie J. (2003) Driving privately financed projects in Australia: what makes them tick? Accounting, Auditing and Accountability Journal, Vol.16, No.3, pp. 493511. Grimsey D. and Lewis, M. K. (2004) The governance of contractual relationships in public-private partnerships. Journal of Corporate Citizenship, Vol.15, No.3, pp.91-109. Handley-Schlacher M. (2003) Can the private finance initiative be used in emerging economies? – lessons from the UK’s successes and failures. Managerial Finance, Vol. 29, No.5/6, pp. 36-51. Hlahla M. (1999) The Municipal Infrastructure Investment Unit: the government’s PPP -enabling strategy. Development Southern Africa, Vol.16. No.4, pp.565-583. Hood J. and McGarvey N. (2002) Managing the risks of public-private partnerships in Scottish local government. Policy Studies, Vol.23, No. 1, pp. 21-35. Jackson B. M. & Hlahla M. (1999) South Africa’s infrastructure delivery needs: the role and challenge for public-private partnerships. Development Southern Africa, Vol.16, No. 4, pp. 551-563. Kotze R., Ferguson A. and Leigland J. (1999) Nelspruit and Dolphin Coast: lessons from the first concession contracts. Development Southern Africa, Vol.16, No.4, pp.623648. Municipal Demarcation Board (2005) Assessment of capacity for the 2005/06 period; district municipality report. Available from: http://www.demarcation.gov.za [Accessed 20 October 2006] Rodriguez R. (2004) The debate on privatisation of water utilities: a commentary. Water Resources Development, Vol. 20, No.1, pp.107-112. Rwelamila P. D. Chege L. and Manchidi T. E. (2003) Public-private partnerships in South African local authorities: risks and opportunities. In : Akintoye A, Beck M & Hardcastle C (eds). Public-private partnerships. Oxford: Blackwell Science, pp. 301-315. Sinclair M. D. (1999) Regulation and facilitation of public-private partnerships: the MSP policy framework. Development Southern Africa, Vol.16, No.4, pp.585-606. Snijder, F. (2007) Public-Private Partnership as a Mechanism for Municipal Service Delivery in South Africa – the case of water services at Emfuleni Local Municipality, Unpublished Masters in Business Leadership Thesis, Graduate School of Business Leadership (GSBL), University of South Africa (UNISA), South Africa. World Bank (2004) Private solutions for infrastructure in Lesotho. Published paper, Washington: World Bank.

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Author’s Biography Professor Pantaleo D. M. Rwelamila graduated in Building Economics – ARI/UCLAS, DSM, Tanzania. He has a Masters Degree in Project Management from Brunel University, London, UK and a Ph.D. in Project Management and Procurement systems from the University of Cape Town. Professor Rwelamila is a Professor of Project Management at the Graduate School of Business Leadership (GSBL), University of South Africa (UNISA) and the current President of The South African Council for Project and Construction Management Professions (SACPCMP). Professor Rwalemila is involved with several organizations and consulting firms, and has worked in a number of countries, including Tanzania, Kenya, Uganda, Botswana, Zambia, Australia, United Kingdom and Sweden. Professor Rwelamila has published more than 140 peer-reviewed journal papers, sections in books, and conference proceedings. Frank Snijder obtained a Masters Degree in Anthropology from the University of Johannesburg and a Masters Degree in Business Leadership (MBL) at the SBL, University of South Africa (UNISA). He has since been engaged in a wide range of developmental projects in various sectors, including the agricultural and water services sectors. Frank Snijder is the Operations Executive at PSU International, a South African private firm which operates in the public services and utilities industry. Prior to joining PSU International he has worked as an independent consultant engaged by the British DFID to manage the implementation of service delivery projects in collaboration with provincial, regional, and local authorities in the Mpumalanga Province (South Africa) and participated in the debate for free basic services for poor communities and the right to access to basic services to secure their livelihoods. He also participated in several social impact studies in South Africa and Swaziland to support the establishment of small-scale farmers on communally held land and has had a keen interest in developing appropriate mechanisms for the implementation and management of service delivery infrastructure at the local level.


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DYNAMIC COMPETENCY THEORY IN POST-DISASTER RECONSTRUCTION

Jason Von Meding, Queen’s University Belfast email: [email protected] Lukumon Oyedele, Queen’s University Belfast email: [email protected] David Cleland, Queen’s University Belfast email: [email protected] Victoria Harris, Article 25 Development & Disaster Relief email: [email protected] Abstract In a natural disaster scenario, a vital part of the humanitarian mandate relates to the reconstruction of the affected built environment. In the aftermath of recent natural disasters, NGOs have become increasingly involved in the permanent reconstruction of affected communities. These organizations, often operating well outside their expertise, encounter significant barriers as they implement reconstruction programmes. The objectives of this research are: a) To determine the competencies deployed by NGOs involved in reconstruction projects following major disasters, b) To compare best practices among NGOs involved in permanent reconstruction projects, c) To investigate the barriers that NGOs have faced during reconstruction, d) To define how these barriers can be overcome through a dynamic competencies approach and e) To develop a dynamic competencies framework model that can be used by NGOs in post-disaster reconstruction projects. Drawing on established theories of management, a unique perspective is developed from which a theory of dynamic competency within reconstruction emerges. A research study based on this theory among a sample group of UK NGO participants will commence in late 2008. The chosen methodology establishes significant relationships between critical success factors, barriers, and competencies set in the context of strategic action taken during post-disaster reconstruction. The research will eventually culminate in the formation of a dynamic competencies framework model that can be used by NGOs in post-disaster reconstruction projects. This will be an essential tool for NGOs involved in such projects and will help to define the standard of best practice to which future projects might align themselves. Keywords: Dynamic Competency; NGOs; Post-disaster Reconstruction; Critical Success Factors. Introduction This paper sets out the theoretical basis and proposed methodology for a PhD research study set to commence in late 2008. Drawing on established theories of strategic management and existing principles of disaster management and project management, a unique theoretical framework evolves. The central theme of this framework is the dynamic competencies of NGOs in postdisaster reconstruction. building abroad, Montreal, October 2008

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At present, based on scientific evidence, there are escalating concerns over global warming and its effects on weather patterns. Many experts warn that due to climate change, the risk of natural disasters occurring is growing, in parallel to the magnitude and frequency of hazard events (Webster et al. 2005). Climate change will always be closely tied to disaster risk, by virtue of its inherent relationship to natural hazards. Natural hazards trigger disasters, the scale of which is largely determined by vulnerability, which itself is becoming more and more clearly a development issue (Cannon 1994). Developing countries generally suffer the most due to natural disasters. In fact, the unequal burden of disaster mortality is striking; 11% of people exposed to hazards live in low-development countries yet they account for 53% of those killed (UNDP 2004). Vulnerability to disasters is increasing due to growing populations, rising poverty, armed conflict and other development issues. Schipper & Pelling remind us, “Blame gets placed on the hazard rather than on the conditions of vulnerability that have resulted from, for example, poor governance and corruption, unchecked neoliberal development policies and marginalisation of the poor.“ (Schipper, Pelling 2006) It is within this climate of instability that we consider the subject of post-disaster reconstruction. Reconstruction is only part of the recovery process which devastated communities must undertake in the aftermath of a natural disaster. However, within disaster management practice, no area is more poorly executed (Duyne Barenstein, Pittet 2007, Boen, Jigyasu 2005, Barakat 2003, Lizarralde, Boucher 2004). When we consider the trauma and loss inflicted on communities that must be addressed, it is clear that a multi-faceted recovery process is vital. If implemented correctly, a successful reconstruction project can be the catalyst for sustainable community developmentpsychologically, physically and economically, while significantly reducing vulnerability to future hazards (Paton, Smith & Violanti 2000, Paton 2003). Ribot issues a challenge to NGOs undertaking reconstruction, “Actions taken today to reduce vulnerability- actions which have been justified for a long time- will increase resilience and security by providing a buffer against vulnerability to future consequences of climate change.”(Ribot, Magalhaes & Panagides 1996) Following the Asian tsunami, NGOs flocked to affected countries with large budgets and the best of intentions. Reconstruction projects became a priority both for NGOs and their donors. However, during their rush to be involved in reconstruction, many NGOs operated well outside their expertise due to the fact that action was urgent and essential, and did so without the capacity, capabilities and competencies in place to deliver satisfactory projects. (Duyne Barenstein, Pittet 2007, Adams, Harvey 2006, Kilby 2008, McGirk 2005, King 2007) In light of these facts, the opportunity is clear for research to be undertaken that will investigate the underlying factors contributing to the inability of NGOs to effectively manage reconstruction projects. This research is urgent and essential. The chance to create, test and validate a new theoretical framework for NGOs in reconstruction which is useful in the field is an exciting prospect. This study will draw on established theories of organisational strategy from the various fields of management, and in particular the resource-based view of dynamic competencies while for the first time applying such thinking to disaster management theory. A new theoretical approach to post-disaster reconstruction is proposed, focused on developing effective strategies by deploying appropriate organisational capabilities and dynamic operational competencies. This represents a significant theoretical and empirical contribution to knowledge in the field of disaster management. 458

Research methods It is vital that this research has a sound theoretical basis upon which to build research questions and develop sound hypotheses. A new theoretical perspective has evolved, drawing on literature from disaster management, strategic management and project management. These elements combine to birth a new theory of dynamic competency within reconstruction. This study will examine current NGO operations within the scope of organizational management and will draw research questions from a strong theoretical grounding in management literature. These grounded and informed research questions will allow hypotheses to be formed and subsequently tested by the proposed methodology.

Research hypothesis: By building dynamic organizational capacity, capabilities, and competences, NGOs will be much better equipped to move forward with reconstruction projects that all stakeholders can have confidence in. Disaster management Drabek and Hoetmer define disaster recovery and reconstruction as a qualitative improvement of community life; it usually includes rebuilding of infrastructure and damaged structures, evaluation of codes and land use regulations, and adoption and implementation of hazard mitigation measures (Reddy 2000). Natural disasters are the cause of death, loss and a departure from normalcy for many affected populations every year. In such scenarios, NGOs are quick to respond with humanitarian aid, with large budgets bringing considerable weight in the marketplace (McGirk 2005). It is clear, however, that post-disaster humanitarian assistance can increase long-term vulnerability in certain communities (Schipper, Pelling 2006). Any post-disaster initiative must address cultural, social, economic, technical and political dimensions to ensure sustainable outcomes and successfully reduce vulnerability (Kilby 2008, Broadbent, Broadbent 2004, Doocy 2006, Rubin, Barbee 1985). Naturally, this applies to reconstruction projects. Unfortunately, NGOs do not possess a good track record when it comes to the implementation of reconstruction projects which address the areas outlined above. In contrast, some of these areas are particularly neglected as part of substandard and expensive projects. As Barakat argues, “The urgent need to do something within a short space of time is not conducive to good, sustainable housing reconstruction nor is the tendency of donors to set short timeframes for the disbursement of emergency funds.”(Barakat 2003) In recent years, we have seen this problem manifested. There are now many examples of substandard post-disaster reconstruction projects, from those implementing badly designed, poorly constructed, inappropriate housing (Lizarralde, Boucher 2004, Adams, Harvey 2006, Garcia, R. et al. 2006) to those ignoring social and cultural markers and developing projects that are eventually abandoned in favour of traditional housing (Boen, Jigyasu 2005). NGOs have not been able to deliver satisfactory reconstruction projects and this is something that must be remedied as a matter of urgency. In fact, the goal should be far greater; to deliver exceptional projects which transform communities. NGOs will often promote the ideal of community participation but where such programmes are really successful a reconstruction project will display vastly different characteristics and outcomes building abroad, Montreal, October 2008

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(Paton, Smith & Violanti 2000, Reddy 2000). It is clear to see when an NGO goes beyond words and actually commits to involving the community in a project. NGOs are not run like construction firms. If they were, it is likely that reconstruction projects would be far more efficient and of a higher quality. NGOs do bring a wealth of knowledge to the table within the humanitarian sector, and this study aims to determine how a shift in strategic management could enable such organisations to develop an approach that would yield projects to satisfy all stakeholders. The need for such a study is urgent and the results will be immediately useful as NGOs continue to become involved in reconstruction projects worldwide, for which they are all too often ill-equipped. Strategic management The theoretical grounding of this work in strategic management will focus on 3 views; the resource-based view, the competence-based view and the dynamic capabilities view. Mintzberg argues that all strategies lie somewhere between deliberate (intended, planned) and emergent (realized without intention) (Mintzberg, Waters 1985). In theory, a pure deliberate strategy is that which is realized exactly as intended; there must be precise organisational intentions which are accepted among all actors and no external interference (market, technological, political etc.). A pure emergent strategy is that which is realized with the complete absence of intention about it; this is unlikely within organizations but could happen if a particular environment directly imposes a pattern of action on an organization. Thompson urges the importance of the study of learning and involvement in people as part of an emergent strategy (Thompson 2005). Among the strategies outlined in Mintzberg’s 1985 framework for organizations, NGOs can be seen as adopting a strategy having most in common with the ideological strategy. This can profoundly affect their reconstruction operations. Among NGOs, the members of any organization generally share a collective vision and identify with it so strongly that it becomes the driving force behind their actions. The fact that fulfilling the vision is paramount to these organizations is manifested in certain aspects of their operation, as demonstrated, for example, by the imposition of unsuitable housing solutions based on what NGO ‘experts’ decide is correct (Duyne Barenstein, Pittet 2007, McGirk 2005). In most cases an ideology clearly informs intentions as part of a deliberate strategy. Ideological strategy is highly deliberate and this study hypothesises that a more emergent strategy such as the process strategy could improve performance significantly. The process strategy is well suited to an environment which is complex, unpredictable and uncontrollable. This is exactly what faces NGOs in post-disaster scenarios. As part of a process strategy, the leadership of an organization can exercise a degree of deliberate behaviour by controlling the process of strategy formation, while leaving the content of strategy to others. The leadership may create the organizational structure and appoint staff of its choice (deliberate) but with a view to allowing those staff to develop their own adaptive and innovative strategies (emergent). The process strategy can therefore be referred to as deliberately emergent (Mintzberg, Waters 1985). Brews points to a link between unstable environments and improved performance in certain types of planning. Planning increases as environmental instability grows. The planning types encouraging most improved performance in organizations in unstable environments are generative and transactive planning, representing adaptation and innovation within organizations (Brews, Purohit 2007). In generative planning, project/service/process innovation is the key and all organizational plans are assessed through this lens of innovation. Meanwhile, transactive 460

planning involves plans which are formed on an ongoing basis based on continual adaptation and feedback/learning. Within this context the research will focus on three main views of strategy: Resource-based view: it is the dominant school of strategic thought; there is a need for a fit between the external market context in which a company operates and its internal capabilities; competitive advantage is derived from the ability of an organization to assemble and exploit an appropriate combination of resources. Competence-based view: it is a vehicle for achieving organizational performance; it articulates both the expected outcomes of an individual’s efforts and the manner in which the activities are carried out; resources must be fully utilized to develop capabilities which form competencies while driving change; competencies must be valuable, rare, and difficult or costly to imitate, without an easy or direct substitute available if they are to yield sustainable competitive advantage. Dynamic Capabilities view: a dynamic capabilities approach will deploy and exploit resources, capabilities and competencies that are unique to an organization; to pursue a dynamic capabilities view, an organization must be well equipped to reconfigure its operations to respond to changing environments; an extension of the resource-based view; capabilities that ensure that an organization can adapt and change quickly and therefore perform better and grow. Although some strategists and managers may use each of these views exclusively, the literature suggests that the underlying theory may be much the same for all three. The resource-based view is the original assumption that organizations must match their internal resources to the external environment. The competence-based view suggests that an organization must create for itself a strategic position within a market and embed distinctive competencies to maintain that position. The dynamic capabilities view links these together. A dynamic capabilities approach will deploy and exploit resources, renewing capabilities and developing competencies. Fig. 1 presents a model for a dynamic competency framework which this research will follow.

Fig. 1. Dynamic Competency Framework Key collective capabilities in organizations form competencies. Capability is defined by Hafeez as ”the ability to make use of resources to perform some task or activity”. In terms of reconstruction, resources may be physical resources (e.g. building materials, tools, financial endowment), human resources (e.g. labour skills, training, field experience) or organizational resources (e.g. NGO status/image, policies/processes) (Barney 1991). Jurie defined organizational capacity as ”the inherent endowment possessed by individuals or organizations to achieve their fullest potential.“ Capability, meanwhile, is the action taken on capacity to realize this potential while competence is attained by developing capability and expanding capacity.(Jurie 2000) Thompson summarizes that organizations must display strength of resources facilitating distinctive capabilities thus forming strategic competencies, all of which creates superior building abroad, Montreal, October 2008

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competitive position & performance (Thompson 2005). Each of the three views discussed thus far have important elements which feed into the new theoretical framework. However, none of these could in isolation equip an organization to pursue best practice in reconstruction. When the three are seen as complimentary views, it enables us to develop a more complete theoretical framework for NGOs involved in post-disaster reconstruction that will contribute to best practice upon implementation.

Project management Project Management as a theoretical field has been described as a set of models and techniques for the planning and control of complex undertakings (Packendorff 1995). What is a project? Unique and complex undertakings which are limited in terms of time and scope, such as constructing a building or fighting a battle, are seen as projects, as are many business activities. In most project management literature the project is defined as: a unique, one-time task with a predetermined delivery date, being subject to performance goals and consisting of a number of complex and/or interdependent activities. Literature touching on project management covers an extremely diverse range of topics such as risk analysis, project leadership, investment planning, group dynamics, human resource management etc. Key concepts from organizational theory such as learning, participation renewal and innovation must feature more prominently in modern project management thinking if it is to move forward and develop. Project management knowledge is applicable to any sort of project in all kinds of industries and environments. While a construction project may differ from a product manufacturing project in terms of outcomes and knowledge requirements, for the purposes of planning, controlling and leading, the projects are run along the same principles. Project management is an important part of post-disaster reconstruction. It brings a structure to the process and sets clear objectives and deliverables. However, there are drawbacks to using the project management approach. Project management is often applied as a general theory, whether dealing with well defined, easily planned projects or unpredictable and ambiguous ones (Turner, J. R. Cochrane, R. A. 1993). Also, the literature on project management offers an abundance of normative advice but rather little empirical evidence explaining why projects fail (Packendorff 1995). Projects are generally divided into three stages; development, implementation and termination. Meanwhile, the theoretical field of project management can be described in terms of the planning, controlling and evaluation theories. A new theoretical framework for reconstruction A theoretical framework for post-disaster reconstruction will be developed as the primary deliverable of this research study. The framework will draw on existing theory from the fields of disaster management, strategic management and project management to construct the model and integrate the results of the research study. Applying a combination of the management theories which have been discussed for NGOs in reconstruction, we can see that in the pursuit of best practice, these organizations must become more adaptive and innovative. Central issues to address in any organizational shift will be capacity, capabilities and competences, which, this study argues, must become more dynamic in nature. In this context, a ‘dynamic’ organization will be flexible, adaptable to unstable environments and will possess competences that will help them address multiple barriers. The key is to break down the important theories in the arena of management and bring together a new framework that NGOs can understand. By validating such a model, NGOs can feel confident 462

to implement these concepts of change and support an organizational shift. Various UK NGOs have admitted to failures during tsunami reconstruction, and many of their shortcomings can be explained to some degree by the lack of a dynamic competency framework within their organizations. This research has the potential to facilitate widespread movement towards best practice in reconstruction.


To determine the competencies deployed by NGOs involved in reconstruction projects following major disasters.

•

To investigate the barriers that NGOs have faced during reconstruction and define how these barriers can be overcome through a dynamic competencies approach.

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To define how these barriers can be overcome through a dynamic competencies approach.

•

To develop a dynamic competencies framework model that can be used by NGOs in post-disaster reconstruction projects.

Research results This paper sets out a theory of dynamic competencies within post-disaster reconstruction. This theory is the foundation of a research study that will commence in late 2008, compiling data pertaining to NGO post-disaster reconstruction. The theory and methodology proposed herein will drive the project and inform the field work. Discussion and conclusions A grounded theory methodology is proposed for this study. Grounded theory was introduced to address the need for sociological research to generate new theories, rather than verifying existing theories. It is a style of conducting qualitative data analysis. Grounded theory emerges from the data collected, providing a new understanding of social processes emerging from the context in which they occur, without placing the data into the constraints of previous theoretical frameworks (Cassell, Symon 2004). A grounded theory methodology is especially relevant to NGO research because it will produce descriptions of organizational reality which are easily recognized by members of the NGO sector. These findings will lead to positive discussions within the field around the important issues uncovered, and provide a basis for organizational change. The chosen methodology will promote participation from NGO field workers and such an input will increase the credibility of the framework and streamline the validation procedure. It is proposed to involve a number of UK NGOs in the study that have implemented reconstruction projects both in Indonesia following the Asian tsunami, and Bangladesh following Cyclone Sidr.. Concentrating on these recent natural disasters, and in particular on the efforts of UK NGOs implementing reconstruction programmes, will enable the theories and hypotheses that have been outlined to be developed and tested. These disasters are particularly appropriate for this research study for a number of reasons. There was a large UK NGO response to each disaster, meaning that there will not be a lack of available information or interviewees. The reconstruction projects which have been implemented


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following these disasters are large in scale and hold the most potential in terms of yielding detailed information about best practice as appropriate to this type of NGO project. By comparing two disasters in two countries with different external environments and factors affecting reconstruction projects, it will open up possibilities for comparison between the two disasters or between organizations. It will be interesting to discuss how NGOs applied learning from the tsunami to reconstruction practices in Bangladesh. Stage 1 data collection Field work will commence with the selection of willing NGO participants. Field work will initially be largely conversational in nature with relation to Bangladesh in particular; that is, the researcher will be UK based, collecting data through email and phone conversations with NGO staff in the field. Interviews with field workers based in the UK with experience of relevant reconstruction projects will take place with regard to both disasters, while those currently abroad will be interviewed upon their return to the UK. Access to field reports will be provided by NGOs. Mapping is used in the behavioural sciences to study people’s relationship to the environment and is generally broken down into behavioural and cognitive maps. Behavioural maps record people’s locations and actions while cognitive maps record what people believe to be important in an environment, how they take action and the reasoning behind the decisions they make (Sommer, Sommer 2002). Taking the concept a step further is causal mapping, which refers to the complex causes and consequences of every issue we encounter (Bryson et al. 2004). In the case of this study, what is referred to as an event mapping procedure will be conducted; a reconstruction project from start to finish will be documented with complex linkages between success factors, barriers and the actions taken by NGOs. This will combine behavioural and cognitive mapping techniques to develop an in-depth picture of a particular project. It is proposed that three NGO partner organizations be secured as participants for each disaster (both Tsunami and Sidr if possible), and within each organization, three individuals with field experience be the subject of cognitive mapping exercises with regards to each disaster. Based on this course of action, three separate interviews will be conducted within each participating NGO in each disaster, facilitating data triangulation. (See Fig. 2) The total number of interviews in this first stage will be 18 and after compilation of the data there will be 6 organization specific event maps.

Fig. 2. Event Mapping Proposed Data Collection Stage 1 data analysis Once the 6 event maps are constructed, careful analysis will proceed, allowing the extraction of critical success factors and barriers in reconstruction. Organizational capabilities and competencies will also be more fully understood through this mapping exercise. Using this 464

method, interviewer and interviewee may not know the relevance of each piece of data until the map is fully constructed. This technique will allow the root cause of specific barriers or difficulties to be discovered and will link causes and effects that may not otherwise seem connected. As well as analysing each map individually, there are some particularly compelling discussions that will develop by comparing the maps to each other. Initially we will compare 1A & 1B, 2A & 2B and 3A & 3B. This will allow us to discuss the differences in NGO response from one disaster to another. We will be able to see whether NGOs applied lessons learned from their tsunami reconstruction projects to their current undertakings in Bangladesh. A comparison of 1A & 2A & 3A or 1B & 2B & 3B will allow us to discuss the difference in NGO reconstruction projects within a similar environment. Stage 2 data aollection and analysis The comprehensive event maps, having been constructed for each event within each NGO, will subsequently be brought back to the organization for a second stage of data collection. Further interviews/workshops will be conducted in the UK base of each organization with appropriate staff members. The focus of this second stage of research would be to consolidate and enhance the findings of the study thus far (eg. Central issues as analysed) and develop the dynamic competency model through the input of each NGO. It is intended to expand and further develop the models through this process. Following this second stage of interviews it will be possible to merge the three Asian Tsunami maps and the three Cyclone Sidr maps and again analyse and discuss. A final model will then emerge, combining the two event maps into an overall dynamic competencies framework model where NGOs organizational and operational competencies will interact with time/cost/quality as well as critical success factors and barriers. The model will enable NGOs to assess past practice and plan for future events, as well as provide a working model for disasters in-motion. A comprehensive validation process will then be undertaken across the sector in order to test the dynamic competency model in NGOs other than those taking part in the research, and also among beneficiaries of humanitarian reconstruction projects. Conclusion In recent years, NGOs have played an increasing role in reconstruction projects in disaster affected areas. It is clear that such projects have usually not been managed efficiently and that many NGOs do not possess the operational and organizational competencies that are vital to best practice, however much knowledge they might bring in terms of the humanitarian sector. Teece defines dynamic capabilities as, ”the ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece, Pisano & Shuen 1997). Based on the theoretical framework outlined in this paper, it is clear that NGOs can and should apply the theories of strategic management and the practices of construction management to their own organizations and their programmes for reconstruction. This research has the potential to be very useful to NGOs involved in reconstruction projects as they strive towards best practice and mould their operational and organizational structures.


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The following hypothesis is the cornerstone of the study: by building organizational capacity, capabilities and competences to be dynamic in nature, while focusing on a more emergent strategic approach, as compared to traditional strategic planning, with emphasis on adaptive capability and innovation, NGOs will be much better equipped to move forward with reconstruction projects that all stakeholders can have confidence in.

Key Lessons Learned: • Current NGO practices display serious flaws in strategic thinking, leading to substandard reconstruction projects. • Management theory has not been applied in the development of NGO to a degree which would allow them to function satisfactorily in reconstruction. • To effectively match an unstable environment, the internal capacity, capabilities and competencies of an NGO must be flexible, adaptive and diverse. • A dynamic competency theory which NGOs can apply to their organizational strategy and structure will help develop best practice in reconstruction.

References Adams, L. & Harvey, P. (2006) Learning from cash responses to the tsunami, Humanitarian Policy Group, London. Barakat, S. (2003) Housing Reconstruction after Conflict and Disaster, Humanitarian Practice Network, London. Barney, J. (1991) "Firm Resources and Sustained Competitive Advantage", Journal of Management, vol. 17, no. 1, pp. 99. Boen, T. & Jigyasu, R. (2005) Cultural Considerations for Post Disaster Reconstruction: PostTsunami Challenges, UNDP Conference, www.adpc.net. Brews, P. & Purohit, D. (2007) "Strategic Planning in Unstable Environments", Long Range Planning, vol. 40, no. 1, pp. 64-83. Broadbent, S.G. & Broadbent, D.M. (2004) Traditional vs Modern Construction Practices, International Conference and Student Competition on post-disaster reconstruction "Planning for reconstruction" April 22-23, 2004, Coventry, UK. Bryson, J.M., Ackermann, F., Eden, C. & Finn, C.B. (2004) Visible Thinking: Unlocking causal mapping for practical business results, John Wiley & Sons, Ltd, Chichester. Cannon, T. (1994) "Vulnerability Analysis and the Explanation of ‘Natural’ Disasters" in Disaster, Development and Environment, ed. A. Varley, John Wiley & Sons, Chichester, pp. 13-30. Cassell, C. & Symon, G. (2004) Essential guide to qualitative methods in organizational research, SAGE Publications, London; Thousand Oaks.

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Doocy, S.e.a. (2006) "Implementing cash for work programmes in post-tsunami Aceh: experiences and lessons learned", Disasters, vol. 30, no. 3, pp. 277-296. Duyne Barenstein, J. & Pittet, D. (2007) Post-disaster housing reconstruction: Current trends and sustainable alternatives for tsunami-affected communities in coastal Tamil Nadu, ISAAC, Lugano. Garcia, R. et al. (2006) "Sustainable resorts: learning from the 2004 tsunami", Disaster Prevention and Management, vol. 15, no. 3, pp. 429-447. Jurie (2000) "Building capacity", Journal of Organizational Change Management, vol. 13, no. 3, pp. 264. Kilby, P. (2008) "The strength of networks: the local NGO response to the tsunami in India", Disasters, vol. 32, no. 1, pp. 120-130. King, D. (2007) "Organisations in disaster", Natural Hazards, vol. 40, no. 3, pp. 657-665. Lizarralde, G. & Boucher, M.F. (2004) Learning from Post-Disaster Reconstruction for PreDisaster Planning, International Conference and Student Competition on post-disaster reconstruction "Planning for reconstruction" April 22-23, 2004, Coventry, UK. McGirk, J. (2005) Western NGOs and the tsunami test, openDemocracy, http://www.opendemocracy.net Mintzberg, H. & Waters, J.A. (1985) "Of Strategies, Deliberate and Emergent", Strategic Management Journal, vol. 6, no. 3, pp. 257-272. Packendorff, J. (1995) "Inquiring into the temporary organization: New directions for project management research", Scandinavian Journal of Management, vol. 11, no. 4, pp. 319-333. Paton, D. (2003) "Disaster preparedness: a social-cognitive perspective", Disaster Prevention and Management, vol. 12, no. 3, pp. 210-216. Paton, D., Smith, L. & Violanti, J. (2000) "Disaster response: risk, vulnerability and resilience", Disaster Prevention and Management, vol. 9, no. 3, pp. 173-179. Reddy, S.D. (2000) "Factors Influencing the Incorporation of Hazard Mitigation During Recovery from Disaster", Natural Hazards, vol. 22, no. September, pp. 185-201. Ribot, J.C., Magalhaes, A.R. & Panagides, S.S. eds. (1996) Climate Variability: Climate Change and Social Vulnerability in the Semi-Arid Tropics, Cambridge University Press, Cambridge. Rubin, C.B. & Barbee, D.G. (1985) "Disaster Recovery and Hazard Mitigation: Bridging the Intergovernmental Gap", Public administration review, vol. 45, pp. 57-63. Schipper, L. & Pelling, M. (2006) "Disaster risk, climate change and international development: scope for, and challenges to, integration", Disasters, vol. 30, no. 1, pp. 19-38.


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Sommer, R. & Sommer, B. (eds) (2002) Practical Guide to Behavioral Research: Tools and Techniques, 5th edn, Oxford University Press, Oxford. Sphere Project (2004) Sphere project: Humanitarian Charter and Minimum Standards in Disaster Response, Oxfam, Oxford. Teece, D.J., Pisano, G. & Shuen, A. (1997) "Dynamic Capabilities and Strategic Management", Strategic Management Journal, vol. 18, no. 7, pp. 509-533. Thompson, J. (2005) Strategic Management: Awareness and Change, 5th edn, Thomson Learning, London. Turner, J. R. Cochrane, R. A. (1993) "Goals-and-methods matrix: coping with projects with ill defined goals and/or methods of achieving them", International Journal of Project Management, vol. 11, no. 2. UNDP (2004) Reducing Disaster Risk: A Challenge for Development, UNDP, Geneva. Webster, P.J., Holland, G.J., Curry, J.A. & Chang, H.R. (2005) "Changes in tropical cyclone number, duration, and intensity in a warming environment", Science, vol. 309, no. 5742, pp. 1844-1846. Young, H. & Harvey, P. (2004) "The Sphere Project: The Humanitarian Charter and Minimum Standards in Disaster Response: Introduction", Disasters, vol. 28, no. 2, pp. 99.

Author’s Biography

Jason Von Meding is currently a postgraduate researcher at Queen’s University Belfast, working towards a PhD in the field of Disaster Management. He is 26 years old and is married with two young children. He is a graduate of the BSc Architecture (2004) and the BArch (2007) degrees at Queen’s University Belfast and brings his architectural background to new application in an area he has a great passion for. Jason has also spent the past 4 years in practice (full and part-time) with a leading Belfast architectural firm, gaining valuable experience of the construction industry in while simultaneously furthering his academic experience at Queen’s University. A highlight of Jason’s first year of postgraduate research was having a paper entitled ‘Flooding in New Orleans, USA and Hull City, UK: Comparing Disaster Management Strategies’ published at the CIB sponsored BEAR 2008 Conference in Sri Lanka this past February, which he attended, presenting his work to academics and practitioners in the field of Disaster Management. Jason will be conducting his PhD field work in late 2008 and early 2009 and looks forward to publishing the results in subsequent papers.

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Lukumon Oyedele BSc (Arch.) MArch., MSc (Proj. Mgt.), MSc (Struct. Eng.), LLM (Constr. Law), MCIOB. Lukumon is a lecturer at the School of Planning, Architecture and Civil Engineering at Queen's University Belfast. He is the Founder and Programme Director of the MSc in Construction and Project Management. He teaches in the areas of research methodology, construction engineering and project management. His research interests include strategic management and organisational behaviour in construction, procurement and contract law, design management and disaster management. His research continues to be published widely in these field both in international journals and conferences. He is a reviewer and editorial board member of journals in these fields and has served as a member of the scientific committee on several international conferences. He is a founding member for the CIB committee for disaster management in construction (TG63) and a member of the Committee for Disaster Reduction in Africa (DRA).

Professor David Cleland BSc, PhD, CEng, FICE, FIStructE is Head of the School of Planning, Architecture, and Civil Engineering at Queen's University Belfast, a multidisciplinary school with about 1000 students and over 50 academic staff. He is also a member of the Academic Council at QUB. His teaching interests are in Structural Engineering and Construction while his research is also mainly within these fields. In both subjects he is widely published and many of his projects have been supported by EPSRC. He has been involved in a number of research task groups within RILEM, CIB and fib. He serves on the management committee of COST534 and is co-ordinator of Working-Group 5. He is a member of the Northern Ireland Construction Industry Training Board, Vice Chairman of the NI Region, a member of Council of the Institution of Civil Engineers, and a member of the Engineering Council (UK) Board.

Dr Victoria Harris set up article[25] with the founder Trustees in June 2005 (then known as Architects for Aid). She has a BSc in astrophysics and PhD in nuclear physics from Imperial College London which she then followed with five years in investment banking and two further years in banking consultancy, working in the areas of derivatives and securitisation. Victoria lead on projects as diverse as football gate-receipt receivables financing to headhunting teams for investment banks. While seeking a career change into the not for profit sector, Victoria began (though did not finish this time) a second PhD (in experimental psychology) at Cambridge University working on research with the charity the Autism Research Centre. At the same time she also undertook professional experience in psychology working in some hostile environments including conflict zones. This influenced her interest in and move across into full time development work and post disaster projects, and ultimately to setting up article[25]. Victoria is currently a visiting academic supervising a PhD at Queens University Belfast. Victoria is the full-time chief executive of the charity.


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SUPPLY CHAIN ANALYSIS AND THE SUSTAINABILITY OF POST DISASTER CONSTRUCTION

Kelvin Zuo, University of Auckland email: [email protected] Regan Potangaroa, Unitec email: [email protected] Suzanne Wilkinson, University of Auckland email: [email protected] James Olabode Rotimi, University of Canterbury email: [email protected]

Abstract Producing buildings call on the expertise of a wide range of people, initially with the design of the building and finally with its construction. This process is becoming increasingly complex and the industry has developed, over time, methods of accommodating this complexity which it has embedded into the management of such projects. Relationships are set out in well-known contractual forms and the process of design deadlines, deliverables, sourcing, delivery, pre-assembly and final erection continue to be refined with new technologies and working methods. While the interaction between the design and construction aspects of such a process are fascinating, this paper looks at the supply chain management (SCM) associated with the sustainable construction side of this process and more specifically, at the situation of post disaster reconstruction of housing in Aceh following the tsunami of December 26, 2004. This paper examines the adoption of sustainable practices at all stages of the supply chain and as well as the implications of such practices in post disaster reconstruction. Lessons learnt are given so that a more sustainable response to post disaster reconstruction can evolve and be adopted. Keywords: Supply Chain Management; Sustainability; Post Disaster Construction. Introduction SCM Literature Overview In order to accommodate the growing complexity of construction process, various management systems and methods have been developed in academic researches and well applied in industry practices. Among those, supply chain management (SCM) becomes increasingly popular, especially within the context of broader cooperation, vertical disintegration and the viewpoint of a networked supply chain in the construction industry. Its popularity has been stimulated by a range of sources including the quality revolution (Dale et al. 1994), notions of materials management and integrated logistics (Carter and Price 1993), a growing interest in industrial markets and networks (Ford 1990, Jarillo 1993), and influential industry-specific building abroad, Montreal, October 2008

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studies (Womack et al. 1991, Lamming 1993). ‘Supply chains’, ‘demand pipelines’, ‘value streams’, ‘support chains’ are some examples of the terms used to describe this process. A predominant approach to SCM research is the so-called ‘supply management’, which emphasizes primarily the buyer-supplier relationship (Leenders et al. 2002) within the process. Since suppliers have a profound and direct impact on cost, quality, time and responsiveness of the buying firms, the management of relationships with other members of the supply chain (i.e. buyer–suppler relationship) is increasingly being referred to as SCM (Chen and Paulraj, 2004). The literature on SCM has constantly emphasized the importance of effective two-way communication to the above relationship. Carr and Pearson (1999) argue that in order to jointly find solutions to material problems and design issues, buyers and suppliers must commit a greater amount of information and be willing to share sensitive design information. However, this is often achieved through engineer-to-engineer communication on design issues keeping in mind improved process capability, manufacturability and performance without affecting profit margins (Bhote 1987, Dobler et al. 1990, Turnbull et al. 1992). Poor communication was often a fundamental weakness in the interface between a buying firm and its supplier, it undermined the buying firm’s efforts to achieve increased levels of supplier performance (Lascelles and Dale 1989). This is a major problem experienced by various agencies involved in the Aceh reconstruction and embodied in competition for resources and increased difficulty in materials procurement. Traditional practices of supply chain management tend to contract with multiple suppliers even for the same material or component. This is partially due to the consideration of risk reduction with multiple options and avoidance of becoming source dependent. However, reduction of the supplier base is a unique characteristic of contemporary buyer–supplier relationships (Newman 1988, Helper 1991), because the administrative or transaction costs associated with managing a large number of vendors often outweigh the benefits (Dyer 2000). This is especially the case in the Aceh reconstruction given the limited availability of construction materials and often inadequate administrative ability of reconstruction agencies. Many firms are reducing the number of primary suppliers and allocating a majority of the purchased material requirements to a single source (Pilling and Zhang 1992, Kekre et al. 1995). The benefits attributed to this practice often exceed those achieved through traditional bidding from multiple sources, which often emphasizes low price at the expense of performance (Mohr and Spekman 1994). Moreover, supply base consolidation sets the stage for future development of the chosen suppliers (Handfield 1993). Long-term relationships between supplier and buyer have become a crucial characteristic of modern supply chain relationships (Shin et al. 2000). Through close relationships, supply chain partners are willing to share risks and reward and maintain the relationship over a longer period of time (Cooper and Ellram 1993, Stuart 1993). Hahn et al. (1983) compared the potential costs associated with different sourcing strategies and suggested that companies would gain benefits by placing a larger volume of order with fewer suppliers using long-term contracts. Moreover, through a long-term relationship, the supplier will become part of a well-managed chain and will have a lasting effect on the competitiveness of the entire supply chain (Choi and Hartley 1996, Kotabe et al. 2003). A well-coordinated joint order of similar construction materials by several NGOs would be a good example of sustainable management of such practice. A recent trend of supplier certification provides a potential solution to the procurement problems relating to the selection of tenders. It involves the thorough examination of all aspects of a vendor’s performance and is expected to enhance buyer–supplier trust and communication; to improve supplier product quality, to reduce communication errors and to reduce inspection and inventory costs for the buyer (Schneider et al. 1995, Larson and Kulchitsky 1998, Ittner et al. 1999). Recently, supplier certification has been extended to include the logistics function. American Quality Foundation and Ernst and Young (1998), in their international quality study of 472

over 500 organizations, reported that formal programs for certifying suppliers showed an across-the-board beneficial impact on performance, especially in quality and productivity. Sustainable Development in Construction Industry As discussed above, SCM has long been considered an important strategy for public sector governance. It has, however, proven difficult for all governments, globally, to implement (Burnes and Coram 1999). Research shows that relationship management brings about more harmonious working relationships (Cheung et al. 2006). Relationship management is a sustainable approach to the industry in terms of social, environment and economics sustainability, as well as helping to satisfy client and stakeholder interests (Darwin et al. 2000; MacNeil 1978; Rousseau and Parks 1993). Clients and contractors can potentially make savings in their operations under a relationship management regime through sharing and exchanging technical and managerial knowledge of the project. The quest for sustainability has put the construction industry under immense pressure from the Government and general public to improve its unsustainable pattern of project delivery. Sustainable development was popularised and defined by Brundtland (1987) as “development that meets the needs of the present without compromising the ability of the future generation to meet their own needs”. Analysis of the construction industry’s project delivery process substantiates the need for the industry to engage with sustainable development (BRE, 2000). The implementation of sustainable development in the construction industry could be referred to as “sustainable construction”. Sustainable construction comprises many processes through which a profitable and competitive industry delivers built assets to enhance quality of life and stakeholder satisfaction (DETR 2000). Embedded in this definition is the notion of economic growth with an emphasis on social and environmental integrity. The environmental, social and economic impacts of the construction industry are extensive, often irreversible, readily identifiable and sufficiently documented (Oforig 1992, Griffith 1994, Chen and Chambers 1999). Recent research has shown that it is becoming more apparent to the industry that the sustainability agenda falls beyond environmental protection but also includes social and economic objectives (CRISP 1999). Increasingly, sustainability is becoming a major part of project procurement criteria, which is a crucial factor to be considered, especially in postdisaster reconstructions. Research methods The methodology used in this research includes a comprehensive review through the modern literature of SCM, focusing on several aspects closely related to the post disaster procurement process in Banda Aceh, namely, communication needs, supplier base reduction, supplier and logistics integration, long-term relationship management and sustainable construction. These topics will later be addressed and referred to in case experiences discussions. Two authors of this paper spent a month fieldtrip in Banda Aceh, 2 years after the Tsunami, then followed up one year later with another 2-month fieldtrip working with the Indonesian branch of an international humanitarian aid organisation involved in the house reconstruction project for local refugees. During those trips, extensive interviews were carried out with construction managers, procurement managers from different NGO’s and UN agencies, representatives from local authorities overseeing the reconstruction process in Aceh and local staff in those NGO’s as well as members from the Village Development Committee and affected communities. Major obstacles associated with construction materials procurement were identified during interviews. Two typical methods representing local and international supply chains for timber procurement were selected out for detailed analysis. Data collected and ideas generated from building abroad, Montreal, October 2008

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this series of interviews and pilot case studies were incorporated and expressed in the discussions within the following sections. Several recommendations were made in the conclusions to tackle the problems encountered in post-disaster procurement to streamline the supply chain for reconstruction. Research results During the 2004 Boxing Day Tsunami, some 130,000 people were killed in Aceh alone and 37,000 remain missing. 3 months later, another big earthquake on March 28 2005 added 1,300 to the death toll in Nias, Simeulue and the southern coastline of Aceh. These consequent tragedies caused immense economic, social and environmental devastation to Aceh and surrounding areas that were already under the poverty line. It is estimated in an official report (BRR April, 2006) that approximate 123,000 new houses are needed for re-establishment, relocation and resettlement of Acehese tsunami victims, let alone the accompanying tremendous reconstruction of infrastructure. A major problem faced by almost every organization involved in the Aceh reconstruction is the supply and procurement of legal and sustainable construction materials, especially the massive need for timber. As mentioned in a NGO’s report on supply chain management, “whilst timber has been previously procured, it has not been without delays and the quality in some cases has been questionable.” A review and general introduction of timber supply problems inherited in the Indonesian context will first be made, followed with the analysis of the possibility and proposed procedure of procuring local and international timber. Timber Supply Problems Although costal areas were seriously damaged during the 2004 Tsunami, 70% of mainland Aceh is still covered by natural tropical forests: the best remaining tropical forests in Indonesia and rich in biodiversity. One can see the beautiful green land under the plane when flying over the Sumatra Island. It is the natural gift inherited by generations of Indonesian people but now forced “open for exploitation” (Indonesia-Relief News). In spite of a moratorium on logging in Aceh, implemented pre-Tsunami, extensive illegal logging is currently taking place in Aceh forests. This is usually referred in relation to a so-called “Timber Mafia” situation; a term used to describe a consortium of government officials, army, police, businessmen, etc who allegedly conspire together to gain large profits from the illegal logging of the forest estate. Problems in getting a legal and sustainable timber supply for reconstruction are a frustrating experience for almost every reconstruction agency and this situation could continue for longer. The Government of Aceh (represented by BRR regarding reconstruction) is reviewing its timber policy in light of the Tsunami and the need for timber for recovery. The acting Governor is in favour of a “Green Aceh”, with no logging and supports WWF and other conservation NGOs’ programmes promoting the use of imported timber from sustainably managed forests for reconstruction. These are also supported by the Ministry of the Environment. On the other hand, the Government of Aceh realizes the tremendous need for legal timber supply within the area. At the end of 2005, Indonesian Ministry of Forestry decided to restore forest concession (HPH) to 11 companies in Aceh to enable them to supply timber needed for the Aceh reconstruction and agreed to increase timber quota for Aceh to 400,000 cubic meters for 2006. This decision had to be made since timber suppliers from other provinces, such as Riau and Kalimantan, are reluctant to cater for the needs in Aceh due to a high cost of transportation and the complicated process of applying for legal documents to facilitate transportation.

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It is estimated in a survey conducted by BRR1 and The World Bank (2006) that the bribes and illegal payments that truck drivers pay on the Banda Aceh - Medan road with corrupt police, military, state officials and preman (criminal) groups at various security posts and weigh stations are Rp. 340,000 on average (single trip in either direction).This not only constitutes a major cost for timber transportation but also has negative influences to potential timber dealers from outside provinces. However, the number of illegal payments experienced a significant decline with the pull-out of troops and police from the Aceh province mandated by the Helsinki peace agreement. There are other specific problems in timber procurement in Aceh, such as the legitimacy of importing timber and associated timber treatment methods. It is partially due to confused and sometimes conflicting information from different government sources; which could only be explained as internal uncertainty and inconsistency with Indonesian timber policies or failure in execution of established standard regulations. A list of 25 local timber supplier companies approved by BRR was given to representatives from various NGO’s during a BRR’s timber policy meeting in July 2006, which, several days later was reduced to a list of 5 and handed out to local project managers during another local staff meeting. These were only recommended as reliable and not guaranteed as legal. The responsibility of ensuring the legality of procurement with those companies remains on NGOs’ shoulders. It is almost impossible for any organisation to take on such a big risk (even one piece of illegal timber will result in the whole package being confiscated) and be able to continue operating. Feasible Timber Procurement Procedures In spite of these difficulties, timber for Aceh reconstruction is still procured legally and sustainably, or at least non-illegally and non-unsustainably, from some sources to some organisations. All of them can be categorized either as locally supplied or internationally imported/donated. The procedure followed in each will be introduced and generally reviewed: International timber procurement A sequential steps of international timber procurement procedure has been identified as below, based on an introductory paper of suggested purchase flow prepared by Ralph Douglass from British Red Cross (Douglass July, 2006).

1

BRR: Aceh and Nias Rehabilitation and Reconstruction Agency (Badan Rehabilitasi dan Rekonstruksi), representative and coordinating body of Government of Indonesia in tsunami reconstruction process building abroad, Montreal, October 2008

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Table 1. International timber procurement procedure for Aceh reconstruction

1. prepare house design and detailed Bill of Quantities

2. prepare purchase documents: a. Request for Quotation, b. Technical specification schedule, c. Proforma Invoice

3.send above documents to potential suppliers and invite to bid

4. submission of bids and tenders evaluation 7. the Irrevocable Letter of Credit 2 (ILC) prepared by purchaser’s bank accepted and confirmed by supplier’s bank using the information in Proforma Invoice (2c)

6.successful tenderer accepts the offer and submits a Proforma Invoice (2c), thus a contract relationship is formed

5. notify successful tenderer and confirm intent by issuing a purchase order

8.production initiated

9. shipping schedule organised and notified to the purchaser by the supplier

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10. shipping documents sent to the purchaser by the supplier on port of departure

11. purchaser applies to the BRR for tax free gift status on the basis of being a registered tsunami reconstruction programme in Aceh 12. ILC payment and documents exchanges occur

14.following logistics from ship at arrival port (Belawan, Medan) to final destination

13. purchaser or its shipping agent arranges customs pre-clearance, phytosanitary etc. using the shipping documents and support letter from BRR

Imported timber from New Zealand or Canada using the above procedures has usually been treated as a Hazard Class H3.1 standard for an above ground application. The specific treatment method is LOSP (Light Organic Solvent Preservative) rather than CCB and CCF used in Indonesia. The prices range from USD$420-590/m3 CIF (Cartage, Insurance and Freight) at Medan depending on required grade, treatment and processing options, while local timber prices are usually within USD$350 – 550/m3 from legal sources. Although the price of imported timber is understandably higher than the local supplies, there are several advantages of importing timber for the Aceh reconstruction. The first advantage is the longer and guaranteed durability, protection from weather changes and protection from insects and fungi attack under Indonesian conditions. It has an internationally recognized guarantee of sustainable management and production of timber as well as with other internationally recognized 3rd party certification and audit of treatment standards, certificate of origin and chain of custody. Another advantage is the large amount available (30,000 – 40,000 m3/month if long term orders are placed) while uncommitted local supply is limited to approximate 1/10 of that from international sources. The supply chain is

2

the basis and payment terms of international timber trade, almost no suppliers will start purchasing logs or initiating production without a satisfactory ILC confirmed by their bank first. 3 including documents of clearance of goods through customs and quarantine requires: a. Invoice b. Packing list c. Phytosanitary certificate from port of loading d. Air Bill or Bill of Lading (B/L) as a substitute for other documents but only possible for a temporary period 476

simplified and bureaucratic process of applying SKSHH4 and other legal documents from the Government of Aceh could be avoided. Most importantly, for every log sourced internationally for use in Aceh, one tree from local tropical forests could been saved. However, some disadvantages are obvious and make this option less attractive when decisions are made at an individual organisational level. Besides the higher prices, the longer delivery schedules (at least 4-6 weeks, but generally believed as 10 weeks) often excludes it as an option. The required amount of timber is limited at each time of procurement, thus, the large availability of international sources is no longer an advantage. This is partially due to the lack of overall supply chain management and communications between procurement and project teams. A large order of timber could be streamlined and procured at a lower price, then subdivided into small packages with only several hundred cubic meters each and procured once in a while however this creates a longer and complicated timeline. Storage of a large amount of international timber is another problem because of the associated demurrage charges that are extremely expensive if the shipment has to be left at the port. Timber is a natural product that must be kept dry and out of direct sunshine if possible. Thus, warehousing facilities are essential in the logistics of transporting timber from port to construction site while, local timber could be delivered to the site at vendor’s expenses as required each time. The uncertainty of legitimacies within the Indonesian context related to imported timber together with issues related to donation and standard treatments required, further contribute to the unpopularity of international timber procurement in Aceh. Local timber procurement Similarly, in order to understand the local timber procurement procedure, a flowchart developed and handed out as a suggested guideline by BRR is attached below: Procedure for obtaining recommendation of timber transportation Program Rehabilitation and Reconstruction NAD -NIAS

Chief operation officer (COO) Housing Unit (Project clarification and validation)

Supplier (SKSHH)

Users (Agencies, NGOs, Institutions)

Timber Help Desk (Cross check SKSHH) & Tim Terpadu (recommendation for transportation)

Logistic Unit (Consultation / advise)

Infrastructure Unit (Project clarification and validation)

Coordination Flow: Structural Flow:

WFP SS Documents of goods: -SKSHH -Recommendation letter -Port clearance etc.

Fig. 1. Local Timber Procurement Suggested Procedure from BRR 4

a legal document for cross-provinces timber transportation in Indonesia, only valid per truck per travel building abroad, Montreal, October 2008

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Although aiming at providing recommendations for timber transportation, this flowchart could also be used as a guideline for local timber procurement and associated logistics. There are some terms used only in Indonesian timber industry that are worth explaining. The big circle in the flowchart represents Timber Helpdesk and Tim Terpadu at BRR headquarter; the most important interface to users, suppliers, shipping agencies and other departments in Government of Aceh. Timber Helpdesk was designed by BRR in order to address timber issues for reconstruction and rehabilitation in Aceh and Nias. It has a dual role; to facilitate the demand and supply of timber and to monitor the timber used for reconstruction within this region. SKSHH appears many times within the flowchart, as explained in footnotes before, it is a set of documents used to define the legality of timber and it is required when the log is transported from the concession companies to the industry or when semi-wood products are ready to be marketed and transported to their final destination. It is worth noting that SKSHH is not required for imported and donated timber. A typical procedure for local timber procurement could be categorized in 3 steps, with different relationships between timber user/ purchaser and other involved parties, demonstrated below:

Timber User (NGOs, Agencies, Institutions) Contract Timber Supplier (list of 25 registered suppliers) Step 1

Letter of Recommendation Timber Help Desk (BRR) Step 2

Contract Timber Transporter (WFP SS or other shipping agencies)

Fig. 2. Typical Procurement Procedure for local timber supply As can be seen from above table, in order to procure local timber, the user has to contact a potential supplier based on the names registered with BRR in step 1. Then the classic tendering process needs to be completed within this step and an agreement or formal contract needs to be entered into with the preferred supplier. After this, the user moves to step 2 and submits a request to Timber Help Desk in BRR for a Letter of Recommendation to purchase timber. In order to process this request, BRR has to check with its Housing Unit and/ or Infrastructure Unit for the project clarification and validation to make sure that the user is permitted to order timber and that the amount and type of timber requested is in accordance with their needs (Fig. 2). Photocopies of the user’s Project Concept Note5 and the Contract in previous step are required in order to issue the recommendation letter. Then in step 3, the user has to provide photocopies of documents gained from step 1 and 2 (Contract and Letter of Recommendation) together with an order request to the timber transporter and enter into another contract for transportation. The transporter recommended by BRR to reconstruction agencies in Banda Aceh is the shipping services provided by WFP (World Food Programme). Overall, it is important that timber users understand the definition of legal timber and the assurance measures in obtaining only legal timber. Legal timber as defined in a BRR guideline (BRR July, 2006), means that the timber is harvested from legal concessions in accordance with national regulations. Legal concession is a legal timber company that holds a permit for forest 5

Project Concept Note should be approved beforehand by BAPEL BRR, the executing agency.

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utilization from the Ministry of Forestry. The user can purchase timber or timber products directly from merchants, but the responsibility for obtaining legal timber remains that of the user. It is recommended that all the timber bidders for the Aceh reconstruction are required to provide valid forestry permits as well as SKSHH as a pre-qualification for tender. Review of Other Options Alternatives to limited timber supply and other options for sourcing materials for construction are explored and reviewed by organisations involved in the Aceh reconstruction. Those alternative methods and suggestions include using steel trusses (or steel high-pitch roofs) windows, doors and ventilation frames or coconut trees as structural component as replacements to timber products. The high prices associated with using steel trusses as replacements for timber are the main obstacle. Several factors may contribute to the problem. It is understandable that steel is more expensive than timber but this shortfall could be reduced if less steel is needed for a roof than the amount of timber needed for a timber truss. Actually, a steel high-pitch roof requires much less steel in volume than a traditional timber truss roof. The high price is partially because the mass produced steel roof systems commercially available mainly cater to the needs of factory storage and heavy industry buildings. The pricing of steel roofs for Tsunami relief houses could be significantly reduced if all the reconstruction agencies with the same intention in Aceh organize their individual requests into a bulk order and choose both local and international companies with reliable reputations for a competitive tender for mass production. This is more easily said than done. However, the current coordinating agency BRR has growing power and may be able to do this for its prefabricated houses in the future. Another concern about the use of steel trusses is their acceptance by the community. People are more conservative in remote areas and it is still unclear whether they are willing to move into a “light and shining” steel roof house. This will require a significant amount of on-site community participation and socialization beforehand. Coconut trees in the form of “palmwood”, as another alternative to timber, is a relatively new process but has huge potential to ease the pressure on the world’s rainforests, especially in Banda Aceh coastal area, as an ecological substitute to endangered and limited hardwoods. They usually come from farmed plantations of old coconut trees and really are an enormous source of timber that until now have been a wasted by-product from the fruit and food industry. In recent years people have recognized and explored the potential use of this vast, alternative supply of timber and found that it performs as well as or even better than traditional hardwoods. Usually, the outer, harder part of coconut trees is used in structural materials for building construction, flooring/decking and furniture design, while its relatively soft inner core is suitable for cladding, screening and homewares. These could be used as profitable by-products for the milling workshop owners if mass production of coconut timber for construction is feasible in Aceh in the near future. Another advantage is that the coconut palm is branchless; palmwood is free from knots, which makes it an ideal timber. The issues related to the level of acceptance by the affected community and forestry authority remain. The mass production of coconut timber in Aceh remains a good theory. As more and more research results and real life experiences in favour of this option become available internationally, it is a good opportunity to explore this idea further in Aceh using a government or community-based initiatives to cater the massive needs for timber.


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Discussion and conclusions The incorporation of sustainable considerations into the design of procurement routes for post disaster construction is well recognised. This starts with the need for more effective and efficient communications along the stream of the overall supply chain and within each and every individual organisation forming this chain. As mentioned earlier in the SCM literature review, buyers and suppliers must commit a greater amount of information and be willing to share sensitive information to achieve increased levels of supplier performance. Good communication is the basis for building a long-term relationship with reliable suppliers. This should be encouraged in order to reduce the supplier base and minimise the administrative or transaction costs associated with managing a large number of vendors. Certain certificates or well-designed criteria for pre-qualification will contribute to the supplier selection process and supplier base consolidation (e.g. require timber bidders for Aceh reconstruction to provide valid forestry permits as well as SKSHH before further consideration of their tenders). Integration, another key principle in contemporary SCM, is suggested in the Aceh reconstruction practices at both supplier and logistic levels. As relating to the timber procurement process, the procedures of international and local timber supply for reconstruction in Aceh are reviewed in this paper followed by discussions on alternative ways of using steel trusses or coconut timber as solutions to the current problem. It is suggested that reconstruction agencies should seek every possible way of using local timber sources with policy clarifications and transportation suggestions from local reconstruction authority BRR, while exploring the legal, economic and logistic feasibility of imported timber. In order to facilitate the process, it would be better to have an overall procurement plan for the whole project rather than a range of small ones, before starting any negotiation with potential vendors. This should streamline the supply in later stages and result in a better supply arrangement. More studies are required as to the use of coconut timber. It remains an attractive potential for rural areas and isolated islands when policy barriers have been removed. The possibility of milling and use of seized timber or timber from other sources should also be investigated. The use of familiar and locally available materials for reconstruction should be encouraged. The sustainability dilemma with regards to the use of timber is the balance between the preservation of the environment and the provision of housing. The supply of offshore timber might provide great relief at initial response but in long term effects, it means that the important economical "kick start" provided by aid in country (and specifically in Aceh) is lost. The aftermath are people housed in a context of greater poverty. This leads to the need for alternatives such as the use of coconut timber and other possible substitutions for the major uses of timber in house reconstruction. Recycling certain construction materials from damaged houses remains another possibility. Most steel doors and window frames post-disaster were not seriously damaged and are in large demand. Substitutions could be the use of light gauge steel sections, roofing that can span without the need for timber trusses and different door and window frames. Furthermore, there is also the option to use shorter life span materials for doors and windows with the idea that they would need to be replaced earlier than usual (lowering quality). Although more expensive than timber, steel trusses could be a back up option given the short time and high demand. With a more integrated and sustainable supply chain, prices could be lowered with mass production. This could be made possible through the joint efforts of other reconstruction agencies.

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References American Quality Foundation and Ernst Andyoung (1993) The International Quality Study Best Practices Report: An Analysis of Management Practices that Impact Performance (Milwaukee, WI: American Society for Quality/Ernst and Young). Bhote, R. K. (1987) Supply management: how to make US suppliers competitive New York: American Management Association Membership Publications Division. BRR (2006) Building a Land of Hope: One Year Report. Executing Agency of the Rehabilitation and Reconstruction Agency for Aceh and Nias, April. BRR (2006) "Timber procurement and transportation guidelines (draft)” July. BRR and The World Bank (2006) "Trucking and Illegal Payments in Aceh." Brundtland G. H. (1987) Our Common Future: Report of the World Commission on Environment and Development, Oxford University Press, Oxford. BRE (2000) Building Research Establishment. Sustainable Construction - the Data. CR258/99. BRE, Watford, March. Burnes, B. and Coram, R. (1999) "Barriers to partnerships in the public sector: the case of the UK construction industry." Supply Chain Management: An International Journal, No 4(1), pp. 43-50. Burton, T. T. (1988) JIT/repetitive sourcing strategies: trying the knot with your suppliers. Production and Inventory Management Journal, No 29, pp. 38-41. Carr, A. S. and PEARSON, J. N.(1999) Strategically managed buyer-seller relationships and performance outcomes. Journal of Operations Management, No 17, pp. 497-519. Carter, J. R. and Price, P. M., 1993, Integrated Materials Management (London: Pitman). Chen, J. J. and Chambers, D. (1999) Sustainability and impact of Chinese policy initiatives upon construction. Construction Management and Economics, Vol. 17, No 5, pp.679 - 687. Chen, I. J. and Paulraj, A. (2004) Understanding supply chain management: critical research and a theoretical framework. International Journal of Production Research, Vol. 42, No 1, pp. 131-163. Cheung, F. Y. K., Rowlinson, S., Jefferies, M. and Lau, E. (2006) "Relationship Contracting in Australia." Journal of Construction Procurement, 11, Accepted forpublication. Cooper, M. C. and Ellram, L. M.(1993) Characteristics of supply chain management and the implications for purchasing and logistics strategy. International Journal of Logistics Management, No 4, pp. 13-24. CRISP (1999) Integrating Sustainability and Rethinking Construction, CRISP Sustainable Theme Group, Eaton House, Oxford.


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Dale, B. G., Lascelles, D. M. and Lloyd, A. (1994) Supply chain management and development. In B. G. Dale (ed.), Managing Quality (London: Prentice-Hall), pp. 292–315. Darwin, J., Duberley, J., and Johnson, P. (2000) "Contracting in ten English local authorities: preferences and practice." The international Journal of Public SectorManagement, 13 (no. 1), pp. 38-57. Department Of The Environment, Transport And The Regions (2000) Building a Better Quality of life: Strategy for more Sustainable Construction. Eland House, London. Dobler, D. W., Burt, D. N. and Lee JR, L. (1990) Purchasing and Materials Management New York: McGraw-Hill. Douglass, R. (2006) "Aceh Reconstruction Timber Supply - Suggested purchase flow." Dyer, J. H. (2000) Collaborative Advantage: Winning through Extended Enterprise Supplier Networks New York: Oxford University Press. Ford, D. (1990) Understanding Business Markets London: Academic Press. Galt, J. D. A. and DALE, B. G. (1991) Supplier development: a British case study. International Journal of Purchasing and Materials Management, No 27, pp. 19-24. Griffith A. (1994) Environmental Management in Construction. Macmillan, Basingstoke. Hahn, C. K., PINTO, P. A. and BRAG, D. J. (1983) Just-in-time purchasing and the partnership strategy. European Journal of Purchasing and Supply Management, Fall, pp. 2-10. Hahn, C. K., WATTS, C. A. and KIM, K. Y. (1990) The supplier development program: a conceptual model. International Journal of Purchasing and Materials Management, No 26, pp. 2-7. Handfield, R. B. (1993) The role of materials management in developing time-based competition. International Journal of Purchasing and Materials Management, No 29, pp. 210. Harland, C. M., LAMMING, R. C. and COUSINS, P. D. (1999) Developing the concept of supply strategy. International Journal of Operations and Production Management, No 19, pp. 650-673. Helper, S. R. (1991) How much has really changed between US automakers and their suppliers. Sloan Management Review, Summer, pp. 15-28. Jarillo, J. C. (1993) Strategic Networks: Creating the Borderless Organization Oxford: Butterworth-Heinemann. Kekre, S., Murthi, B. P. S. and Srinivasan, K. (1995) Operating decisions, supplier availability and quality: an empirical study. Journal of Operations Management, No 12, pp. 387-396. Khalfan, M. M. A., McDermott, P. et al. (2006) "Procurement Impacts on Construction Supply Chains: UK Experiences." Kotabe, M., MARTIN, X. and DOMOTO, H. (2003) Gaining from vertical partnerships: knowledge transfer, relationship duration, and supplier performance improvement in the 482

U.S. and Japanese automotive industries. Strategic Management Journal, No 24, pp. 293316. Krause, D. R. (1999) The antecedents of buying firms’ efforts to improve suppliers. Journal of Operations Management, No 17, pp. 205-224. Lamming, R. C. (1993) Beyond Partnership: Strategies for Innovation and Lean Supply Hemel Hempstead: Prentice Hall. Larson, P. D. and Kulchitsky, J. D. (1998) Single sourcing and supplier certification: performance and relationship implications. Industrial Marketing Management, No 27, pp. 73-81. Lascelles, D. M. and Dale, B. G. (1989) The buyer–supplier relationship in total quality management. Journal of Purchasing and Materials Management, No 25, pp. 10-19. Leenders, M. R., Fearson, H. E., Flynn, A. E. and Johnson, P. F. (2002) Purchasing and Supply Management New York: McGraw-Hill/Irwin. MacNeil, I. R. (1978) "Contracts: adjustment of long-term economic relations under classical, neoclassical and relation contract law." Northwestern University Law Review, pp. 854-905. Mohr, J. and SPEKMAN, R. (1994) Characteristics of partnership success: partnership attributes, communication behaviour, and conflict resolution techniques. Journal of Strategic Management, No 15, pp. 135-152. Newman, R. G. (1988) Single source qualification. Journal of Purchasing and Materials Management, No 24, pp. 10-17. Ofori G. (1992) The environment: the fourth construction project objective. Construction Management and Economics, Vol. 10, No. 5, pp. 369-395. Pilling, B. K. and Zhang, L. (1992) Cooperative exchange: rewards and risks. International Journal of Purchasing and Materials Management, No 28, pp. 2-9. Rousseau, D. M., and Parks, J. M. (1993) "The contracts of individuals and organizations." Research in Organizations' Behaviour, No 55, pp. 1-43. Schneider, H., Pruett, J. and Lagrange, C. (1995) Uses of process capability indices in the supplier certification process. Quality Engineering, No 8, pp. 225-235. Shin, H., Collier, D. A. and Wilson, D. D. (2000) Supply management orientation and supplier/buyer performance. Journal of Operations Management, No 18, pp. 317-333. Stuart, F. I. (1993) Supplier partnerships: influencing factors and strategic benefits. International Journal of Purchasing and Materials Management, Fall, pp. 22-28. Turnbull, P., Oliver, N. and Wilkinson, B. (1992) Buyer–supplier relations in the UK automotive industry: strategic implications of the Japanese manufacturing model. Strategic Management Journal, No 13, pp. 159-168. Womack, J. P., Jones, D. T. and Roos, D. (1991) The Machine That Changed the World New York: HarperCollins. building abroad, Montreal, October 2008

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Author’s Biography Kelvin Zuo is a lecturer in the Civil and Environmental Engineering Department, University of Auckland. He received his Bachelor Degree (Hons) in Civil Engineering (2003) with a management focus from Sichuan University and a Master (Hons) of Engineering Studies (2005) from University of Auckland. Since then, he has engaged in research for his PhD under the FRST funded project – “Resilient Organisations”. He is particularly interested in the contractual aspect of civil engineering management, especially the procurement systems used in different construction projects. It first stemed from his fieldwork (2002) in Three Gorge Dam in China and further developed in his master thesis, a tendering systems comparison between Chinese and New Zealand models. His current PhD topic concerns the procurement and contractual systems for disaster reconstruction.

Suzanne Wilkinson graduated with her BEng (Hons) and PhD from the Oxford Brookes University. Her PhD was in the area of construction management. She then moved to New Zealand and worked at Unitec before joining The University of Auckland in 1996. She is now an Associate Professor in the Civil and Environmental Engineering Department, University of Auckland. Her research interests are in project management, construction management and construction law. She is currently involved in two large Government funded research projects (over $5 million). The first project is Resilient Organizations, where she is leading the contract management component of the project (see www.resorgs.org.nz for all research publications and project details). This project examines the management problems associated with post-disaster reconstruction. The second project is “Retrofit Solutions” where she is also leading the financial analysis section of the project which is examining retrofitting New Zealand buildings to protect them against seismic damage (see www.retrofitsolutions.org.nz for all research publications and project details).

Regan Potangaroa is an Associate Professor at the School of Architecture, Unitec, Auckland. However, during the semester breaks he is on standby as a RedR Engineer (refer to www.redr.org), often being assigned to the United Nations in various disaster situations throughout the world. In the last 7 years has worked in Aceh (following the 2004 tsunami disaster), Pakistan (following the Afghanistan conflict and again follwing the 2005 earthquake), Syria (at the time of the Iraq conflict), West Timor (at the establishment of a separate Timor), West Darfur (during the initial onset of internal conflict) and Geneva (with UNHCR). In all, 16 such overseas assignments. Regan has Bachelor and a Masters degrees in civil engineering from Canterbury University, a Master in Architecture from Victoria University, and a Master in Business Administration and a PhD in Architectural Engineering from James Cook University in Townsville, Australia. Despite this academic background, his professional experience has been as a consulting structural engineer with 25+ years experience gained in 13 different countries. His research interests deal with both the qualitative and quantitative aspects of disasters under the general headings of: Management ~ Mitigation ~ Indicators.

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James Olabode Rotimi is a Doctoral research student in the Department of Civil and Natural Resources Engineering, University of Canterbury. His background is in Construction Management and he has had various construction related experiences including an associate role in a quantitysurveying consultancy practice in Nigeria. James is a professional member of the Nigerian Institute of Building and the Institute of Management Consultants, Nigeria. His research is within the ambit of Objective 3 – Resilient Organisations research programme. He is evaluating the provisions of the Building, Resource Management and the Civil Defence and Emergency Management Acts to determine if they are in tandem with the likely demands for reconstructing physical facilities in the event of a major natural disaster in New Zealand. His evaluative study should proffer suggestions towards a policy framework for post-disaster reconstruction in New Zealand.


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INTERNATIONAL PROJECT EXPERIENCE IN GENIVAR

Karima Anouche, Genivar email: [email protected]

Summary Given the performance of the national economy and recent lifestyle shifts among Trinidad & Tobago’s population, the Urban Development Corporation of Trinidad and Tobago (UDeCOTT) mandated GENIVAR to prepare urban master plans for the Central Area of Port of Spain and Great Scarborough. The overarching goal of the Urban Master Plan for Port of Spain is to create conditions with a “Strategic Vision” for the revitalization of the city as an attractive, lively, and economically successful 21st century city that assumes a prominent role in the Caribbean region. The city has an outstanding opportunity to move forward with a major revitalization program that improves the image, functionality, and vitality of the urban environment for citizens at all income levels, and ensures its destiny as a predominant urban centre within the Caribbean region. For the city of Scarborough, the Urban Master Plan for the development comprises two principle components: the development of an Urban Master Plan for. Greater Scarborough and the Waterfront, and the preparation and implementation of an Urban Rehabilitation Plan for their Central Business District (CBD). For both Port of Spain and Scarborough plans, the rehabilitation of the Central Business District including the following: • • • •

Rehabilitate outdated infrastructure, Realign streets and sidewalks, Install new street lighting, and Provide urban landscape and furniture.


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COMMUNITY BUILDING IN LAOS

Andrea Chynoweth, Bolaven Farms email: [email protected]

Summary In south Laos, a demonstration farm on the fertile Bolaven Plateau is being established by a private Hong Kong company to train landless and land-poor farmers in effective organic coffee cultivation as a means to a stable livelihood. These farmers and their families will live on site in a newly-built worker settlement village. In October 2007, this village construction process was initiated with the design and construction of the first phase of single-family homes. Work was done with architects and builders from Laos, Hong Kong, Canada, and the United States, and material and equipment was sourced locally. The objective of the project was to build the first twenty-eight homes before the onset of the rainy season in April 2008. The main opportunity inherent in the project was the capacity to use the construction process to build upon current Lao construction knowledge and practices. Traditional rural Lao houses are built of hardwood trees and in heavy-timber construction; a method becoming increasingly difficult and expensive due to lumber shortages and new government restrictions on logging policy. Builders with expertise in North American wood construction were brought in to demonstrate these techniques as an alternative to current practices. It was also hoped that, by using light frame construction, it would be possible to eventually transition into building with softwood lumber, a process potentially more sustainable over the long-term than the readily-available yet endangered species of hardwood. There were however a few key difficulties that severely hampered the project and resulted in no houses being completed at all. Time constraints and a lack of project personnel and labourers aborted the initial plan to harvest, mill and dry lumber from the farm land in favour of purchasing lumber from local mills. This proved to be equally challenging as many mills had closed or reported that they had nothing to sell. In the end, after much frustration, the company ended up purchasing hard wood lumber from a high quality export mill as a last resort attempt to complete houses that would shelter workers from the impending rains. However, these delays resulted in the mismatching and mismanagement of the short time span the builders from North America had on the ground with materials in-hand. They were able to partially complete two houses and set foundations for four before their departure, leaving local people to complete the job. This resulted in gross inefficiency, material loss, and general confusion on-site. By that time, other farm projects, notably the planting of coffee, required more immediate attention; labourers were moved to these projects and construction was abandoned until more builders could be found. The lessons that can be extrapolated from the project are simple and clear. First, local people build a certain way for a reason, often many reasons. Changing perceptions and practices, especially with limited resources and time, is incredibly difficult given the complex and intertwined cultural, economic, political, and physical aspects of any society. Second is that the management and organization of staff, especially foreigners, must be above all flexible to adjust to changing project parameters and must be able to overcome language and other cultural integration barriers so that the skills and knowledge these people possess can be used to their full effect. Third and building abroad, Montreal, October 2008

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last is that an undertaking of this nature will take a significantly larger amount of time than ever expected; consequently, design and construction strategies must think much farther ahead, plan for the unexpected, and try to stay as simple as possible.

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QUELS MÉCANISMES, AUTRES QUE LE PROCÈS, ONT ÉTÉ DÉVELOPPÉS POUR RÉGLER LES DIFFÉRENDS RELIÉS AUX TRAVAUX DE CONSTRUCTION SUR LES PROJETS INTERNATIONAUX? Serge Pisapia, Serge Pisapia, Avocat médiateur et arbitre email: [email protected] Résumé Il est désormais généralement reconnu que les différends font partie intégrante de tout projet de construction. Le succès d’un projet dépend, en grande partie, de la capacité de l’équipe de projet de les prévenir et de les gérer de façon efficiente. La grande majorité des différends sur un projet de construction se règlent par la négociation entre les parties constituant l’équipe de projet. Or, qu’advient-il de ces différends qui n’auront pas été réglés par la négociation? Depuis plusieurs décennies, tous les acteurs de l’industrie de la construction s’entendent pour affirmer que le procès ne répond généralement pas à leurs besoins et attentes en matière de règlement des différends. Si cette affirmation tient dans les pays où la règle de droit prévaut, elle est d’autant plus pertinente dans les pays où le système judiciaire est peu fiable. Voilà pourquoi l’arbitrage conduit sous l’égide d’institutions internationales telles que la Chambre de Commerce Internationale (CCI) de Paris et la London Court of International Arbitration (LCIA) a traditionnellement été le mode de règlement privilégié par les parties à des contrats de construction internationaux. Or, bien que ces arbitrages répondent aux impératifs de légitimité du processus de règlement des différends, ils s’apparent de plus en plus au procès quant à leur efficience en matière de coûts et de délais. C’est pourquoi les acteurs de l’industrie de la construction ont développé d’autres modes plus souples et plus efficaces pour résoudre leurs différends. Il s’agit de processus faisant intervenir, dès le début des travaux, des experts neutres et indépendants de l’équipe de projet, lesquels suivent l’évolution du projet et peuvent être appelés à régler tout différend qui leur aura été soumis, pendant les travaux, par l’une ou l’autre des intervenants du projet. Il s’agit des Dispute Resolution Boards (DRB) auxquels réfère entre autres, le contrat-type de la Fédération internationale des ingénieurs-conseil (FIDIC). Le présent exposé traitera des particularités et du fonctionnement des ces DRB de même que de leur succès sur les projets internationaux. L’exemple du processus de règlement des différends conçu pour la construction de l’aéroport international de Chek Lap Kok de Hong Kong sera donné.


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FROM EMERGENCY RELIEF TO LIVELIHOOD RECOVERY: LESSONS LEARNT FROM POST-TSUNAMI EXPERIENCES IN INDONESIA AND INDIA Philippe Regnier, University of Ottawa email: [email protected] Summary Post-disaster economic security and livelihood recovery are on the forefront of current international policy research in humanitarian and development cooperation circles. However, documented case studies and lessons to be learnt are still scarce to feed possible best practices. The paper examines two field case studies, in Aceh (Indonesia) and Tamil Nadu (India), where a well-established European NGO carried economic relief and micro-entrepreneurship rehabilitation from 2005 to 2007. These field case studies are used to investigate the issue of post-disaster livelihood recovery through economic rehabilitation, with the illustration of post-tsunami promotion of micro-entrepreneurship activities generating employment and income among the affected populations. Despite unlimited trust in rapid reconstruction capacity, post-tsunami livelihood recovery has been chaotic and uncoordinated. Contrary to humanitarian agencies in charge of emergency relief, only few development agencies and NGOs were able to deliver a rapid rehabilitation of microeconomic activities existing locally before the disaster. There are values but also obvious limits to comparing the micro-level experiences of a major European NGO in two different locations such as Aceh and Tamil Nadu, and to deducing macroand meso-level lessons to be learnt. The practical implication is the difficulty in benchmarking the division of labour, but which is necessary for coordination among development agencies and their humanitarian counterparts in the field of post-disaster sustainable economic rehabilitation.


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CANADIAN DIPLOMATIC COMPLEX, SEOUL, KOREA – ARCHITECTURE AND PROJECT MANAGEMENT IN A UNIQUE SETTING Andrea Richardson, Zeidler Partnership/Architects email: [email protected] Summary Started as a design build, the Canadian Diplomatic Complex project in Seoul was re-issued by DFAIT (Department of Foreign affairs and International Trade) as an RFP (Request for Proposal) to Consultants in 2002 at a budget of $18M. The RFP requested assembly of consultant teams to deliver the 90,350 sf. Canadian Diplomatic Complex in Seoul Korea through a two stage tender process for base building and fit-up. The RFP requested an integrated team approach with Canadian and local consultants as required. After the initial Design Build team with BFC Civil, Zeidler Partnership assembled a team for the new RFP and was selected as the proponent to proceed. Zeidler entered into a Client Architect agreement with DFAIT and in turn, Zeidler retained the Canadian A/E consultants as well as the local architect, including local engineers and landscape architects. The project has recently received the highest CSLA award for 2008, recognizing its integration of architecture and landscape. The objective was to create a new, permanent home for the Canadian mission in Seoul through the construction of this chancery and residence. The consultant team was committed to creating a project that would be integrated with the site and the neighbourhood. There were several project challenges that arose: the incorporation of the 520 year old “scholar” tree, the site in a historic neighbourhood, the difficulty to obtain surveys, unprecedented “cultural deliberations”, and the need for a three package tender. The project shares the site with a 520year-old tree in the historic Jeong-dong district. As a cultural treasure the tree required attention in design and construction phases. Specifically DFAIT retained academic professors to monitor the tree’s health and to comment on proposed measures to tank around the tree and protect it during construction. The site is in a historic neighbourhood that has accommodated embassies and palaces over hundreds of years. The current walk to the site follows the undulating stone wall of the Deoksungung palace and is a popular green walking avenue, removed from the city traffic. The project had the responsibility to become part of this walk and to accommodate the historic tree at its base. Simply to obtain an accurate survey for this tight urban site was a challenge. In a country subject to many historic occupations survey records are not standard files. The entire process of requesting, defining, and obtaining the survey was unusual. An unanticipated review by the “Gu” was required after submission for building permit and this focused on the cultural fit of the project in its context with materials and textures in this historic setting. The project required 3 packages (substructure, superstructure and fitup) with prequalification and tender of each package instead of the 2 packages originally planned. This revision addressed the requirements of local authorities to be under construction within one year of building permit issue but also affected the final cost of $25 M. The Economist Magazine declared this the most difficult place on earth to build. We discovered a solid team composition from both countries, Canadian on site representation during construction, selection of local academic tree specialists and Canadian curtain wall specialists, good building abroad, Montreal, October 2008

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communication with DFAIT and a quick response to cultural conditions were all critical for success. We learned that the ability to be flexible, perseverance in efforts to communicate with local authorities and consultants and an approach to integrate the two cultures through an understanding of landscape were essential.

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PROJECT UBICAR

Alfonso Solano de Francisco, Pontificia Universidad Javeriana email: [email protected] Abstract Colombia is situated in the Northwest corner of South America. It is bordered by the Caribbean Sea to the North, Venezuela and Brazil to the East, Peru and Ecuador to the South, the Pacific Ocean to the West, and Panama to the Northwest. The country is currently experiencing a serious issue of displacement caused by violence with more than three million people displaced. In its mission statement, the Universidad Javeriana highlights seven priority issues, one of these is the displacement caused by violence. In 2001 the Architecture and Design School created project Ubicar to work on the problematic, based on four applications: the Proposal Research Workshop, student practices, social projection, and the research group, in an interdisciplinary environment with students and professors from different departments such as: architecture and industrial design, anthropology, sociology, esthetics, urbanism, ergonomics, technology, psychology, and management. The project is aimed at the town of Cupica in the department of Choco, situated on the Pacific Ocean coast and to the Northwest of the country near Panama. The fieldwork has been developed with community participative methodologies and some projects have been implemented. The community has donated land to the University so that it may develop a Center for fieldwork, research, and social support, which shall be developed over the coming years. Introduction Colombia Colombia is situated in the Northwest corner of South America; it extends over 1,141,748 square kilometers and is the fourth largest country in South America after Brazil, Argentina, and Peru respectively. It borders the Caribbean Sea to the North, Venezuela and Brazil to the East, Peru and Ecuador to the South, the Pacific Ocean to the West, and Panama to the Northwest. It has 2,900 kilometers of coast, of which 1,600 border the Caribbean Sea and 1,300 the Pacific Ocean. Although most of the country is in the Torrid Zone, there is a variety of climates according to altitude. Light rainfall is frequent in the highlands but there are two dry seasons: December to March and July to September. Coffee is the primary crop in the highlands (Colombia is the second largest global producer). 95% of the world's production of emeralds is extracted from the rich subsoil. The deposits discovered on the Guajiran Peninsula render Colombia owner of the largest carbon reserves in Latin America. Colombia has approximately 42 million inhabitants, of which nearly 70% reside in the cities and the rest in rural sectors. The most densely populated area is the Andean region; 75% of the


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national population inhabits this area. Following is the Caribbean Coast with 21%, while only 4% of Colombians inhabit the Pacific and the vast regions of Orinoquia and Amazonia. The majority of the Colombian population is of mixed race: a mixture of the Spanish and their descendants, indigenous people who lived in the region before the Conquest, and black who originally arrived as slaves. The displacement issue caused by the violence in Colombia A displaced person is considered to be any person that has been forced to migrate within national territory abandoning their town of residence or normal financial activities because their life, physical integrity, security or personal liberty have been violated, or they are found to be directly threatened under any of the following circumstances: internal armed conflict, internal tensions and disturbances, general violence, massive violation of human rights, infringement to International Humanitarian Right or other circumstances stemming from the previous situations that could disturb or will drastically disturb public order (Law 387 of July 18, 1997) . In Colombia displacement caused by violence is linked to the territorial control of some of the country's regions and the urgency of national or international organizations in possessing natural resources. In the last decade, different sources have made calculations and found that there are in-between one and a half to three million people in a situation of displacement (García 2004). According to the CODHES, since 1985 the country has experienced an exodus of two million nine hundred thousand Colombians (CODHES 2003). Most exiled people are country folk that are forced to abandon their lives and homes, and who look to settle in marginal urban settlements, which demand drastic changes in their socio-cultural dynamics. These transformations are made difficult because most of the time they are stigmatized and discriminated by the receiving communities. These new communities observe them in a polarized manner, consider them victims and therefore they are patronized or are underestimated in their capacities, or they are considered a threat to the communities and are perceived as potential delinquents. Women are responsible for most of the households and more than half of this population corresponds to youths under 19 years of age. Javeriana University mission In the immediate future, the priority of the Universidad Javeriana is to promote research and education based on the curriculum, strengthen its position as an interdisciplinary university, and invigorate its presence within the country, particularly contributing to the solutions of the following problems; • The ethical crisis and the use of the human being. • The low appreciation for the value of nationality and the lack of conscience regarding cultural identity. • The intolerance and the ignorance towards plurality and diversity. • Social discrimination and the concentration of economic and political power. • The inadequacy and inefficiency of its main institutions. • The deficiency and lethargy in scientific and technological development. • The irrationality in the handling of the environment and natural resources. Project Ubicar Project Ubicar began in October 2001 as the solution by the Architecture and Design Faculty to the University’s concern about the displacement caused by the violence in Colombia.

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Project Ubicar is a student and professor workgroup that aims to look for real solutions to the problem of displacement, which is in line with the Javeriana University mission. Ubicar initiated its operations in January 2002 with students from the Architecture and Industrial Design faculty and teachers from different faculties. The fundamental aim is to seek participation and proposals from different possible points of intervention, through interfaculty work (with a particular emphasis on Architecture and Industrial Design) that for the first time will be carried out in the University and the country; acknowledging there are no references on the topic. Today, after six years of work, there is a much wider view of the possible solutions from the Architecture and Industrial Design faculties. The objective is to contribute physical spatial solutions from an interdisciplinary point of view as well as from the knowledge developed over six years, solutions proposed, and contributions to the investigation developed by other faculties. It takes into account documents, laws, and existing governmental guidelines as well as developments from select NGOs and international entities. Research methods Regarding development, Project Ubicar establishes four work modules that constantly feed off one another, each from the standpoint of its own dynamics. Proposal investigation workshop The main job of the Proposal Investigation Workshop is to acknowledge the issue of displacement and to propose design solutions. It is designed to receive students from different subjects within the Javeriana University and from other universities. Part of the concept of the “Vertical Workshop”, into which students of different levels are admitted, is that they undertake responsibilities according to their semester. Each faculty participating in the workshop has a Project Director (Architecture and Industrial Design) and a professor for each of the following components: anthropology, sociology, esthetics, urbanism, ergonomics, technology, psychology, and management. Fieldwork The aim of the fieldwork is to carry out the proposals developed in the Proposal Research Workshop in real life, during the fieldwork semester for each of the different fields. It is built to receive students from different fields within the Javeriana University. There are one or more field tutors available for each discipline that is participating. Interdisciplinary research group The purpose of the interdisciplinary research group is formal research conducted by an interdisciplinary group, oriented towards building knowledge on the displacement forced by violence, from a spatial and object-oriented perspective. It starts from the basic teachings of the proposal research workshop and encourages the participation of other teachings. This module is currently in the initial phases of development. Consultancy The objective is one of professional support for Project Ubicar and the communities with which it works. The work is carried out by the Student Office in the Architecture and Design Department.


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Architectural and industrial design starting points The fundamental starting point of project Ubicar is that the displacement caused by violence in Colombia is a real situation that is going to have a significant influence on development, primarily within the country’s cities, and moreover, the consequences of which will be present for a very longtime to come. This observation has become more important since Ubicar has concluded that an extremely high percentage of the displaced population is currently located in main cities and has no intention or interest in returning to rural areas. This situation is a consequence of fear as well as a dazzlement of the city’s supposed appeal. Ubicar is based on the postulate that the displacement issue is over-diagnosed and its efforts should be directed at researching and finding rapid solutions of a physical order (spatial, objectbased). It considers that “displaced people cannot take refuge under a law, they need housing; they cannot sleep on a government decree, they require a bed; they cannot feed off institutional directives, they need to eat and not from an investigation but from a table, and moreover, they do not beg but have knowledge and experience they can contribute.” In this way Ubicar, although recognizing the magnitude of the problem, believes it is an immense opportunity from which to build a country. Furthermore, Ubicar knows that the displacement caused by violence has been a process that is connatural to the history of man. On the other hand, Ubicar considers that the solutions to the problem are everyone’s responsibility: citizens, professionals, students, etc. Considering this criterion, the university, in its mission statement and its educational vision, has the duty and the responsibility to make every effort necessary in order to contribute to the solution of the issue and, particularly in reference to its obligation in educating people, to be service-aware, especially on subjects of national priority. To that effect, given the physical and spatial condition of the issue, Ubicar works from the architecture and industrial design perspective but within an interdisciplinary environment. It is considered that contributions made by the university are very important given that the university focus is of service and training and has no interests of economic or political order. This is in addition to the research and service standings that different subjects of the University already have. Proposal research workshop - work methodology The work methodology tends towards cultivating an investigative spirit amongst students as well as to work within an interdisciplinary environment of knowledge building and its systemized recording. To this end, the following actions are carried out: a) research phase contemplating definition of research, information, analysis, and conclusions; and b) design phase contemplating - proposals and projects. These actions are carried out from the architecture and industrial design perspective and from each of the interdisciplinary components that participates, such as: anthropology, sociology, ergonomics, technology, urbanism, esthetics, and psychology. Psychology The aim is to build a psycho-spatial and psycho-objectual interpretation of life accounts that will influence the spatial and object-based designs. Anthropology Advances are made in the analysis of changes within relationships of power, which imply new ways of conceiving the world, the city, and urban spatiality itself. Technology The use of technologies must be adapted to coexist with the social and cultural framework within which they are employed. Their utility depends upon their feasibility, efficiency and reliability to 500

provide solutions that are suitable for a region and particular community, as well as to their commitment to the environment. Sociology Projects are developed that allow the integration of the displaced into their new lives. These try to address challenges they face such as: new surroundings, different values, navigating the city life, the capacity to be able to survive in a competitive medium, and the impact of an indifferent and manipulating society that fails recognize that these problems exist: our latest national tragedy. Ergonomics In some parts of the world it is called “quality of life”; in others it is dubbed “survival”. Regardless of how the term “home” is defined, it is clear that if it is stable and owned or if it is ephemeral and not owned; the human being will live and act in it. Within it, their own existential film will unfold, each minute of their short existence. To live is to act. Urbanism This component considers displacement as an opportunity to consolidate the context and build a country. The building of Colombian cities has not yet finished. This phenomenon relies on a constant process of consolidation that allows cultural diversity to be esthetically expressed as the result of a conglomerate of shared experiences. Management A very simple question must be posed: What makes the projects that are developed specific for displaced populations and not for the rest of the population? The ghost of “discrimination” will always be present. Paternalism is the road least traveled which is why the promotion of autonomy and self-management in processes that are carried out will be decisive. Esthetics Colombia is characterized, as nearly all Latin American nations, by its territorial, ethnic and cultural diversity. Consequently, the concepts that are fundamental to the country’s language, forms of perception, changes, representations, techniques, and empirical modalities, give shape to a group of elements that, due to their singular and specific characters, must be submitted to analysis in relation to the factors that underlie forced displacement. Industrial Design The proposals developed aim to care for the displaced people who are not delinquent or mentally or physically disabled and that as members of society should receive the same treatment as everyone else. Architecture Laws and studies, primarily social and economic, abound; the phenomenon is over-analysed but physical solutions are lacking and attention is diverted by the minutia and political maneuvering. Only in the tangible - in the physical - is where the real solutions can exist. This is where architecture comes into play as the fundamental discipline. Some of the projects developed at the workshop •

Silvania is a housing Project that contains productive communal areas, for families from the Chocó.

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Camello is an individual productive housing project where shops or workshops are being considered, located in the Ciudad Bolívar locality in the City of Bogotá. building abroad, Montreal, October 2008

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The Integral Emergency Station provides immediate housing and basic service solutions during the displacement; has moveable and reusable modules.

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The self-sufficient integral farm promotes the displaced populations’ own agricultural potential based on the concept of self-sustainability.

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Living in a can is a project that re-uses scrap cans as a basic construction material. It is also used as a solution for kitchens, toilets and rooftop crop gardens.

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Agrohousing is a project that, using materials and the concepts familiar to the displaced people, resolves housing and production together with a do it yourself (DIY) construction systems.

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The Habitagua project solves the issue of water supply by collecting rainwater kept in individual containers in each house. It also solves the solid waste problem and is addressing the elimination of the sewage system resulting in a very significant economic savings. It consists of a dismountable unit that can be taken apart and occupies minimum space due to its multifunctional characteristics.

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Quarries present work opportunities for the displaced in the reforestation of exploited old reserves on the outskirts of the city. Workers are blessed with a temporary three-month urban coupling housing arrangement that includes furniture is an integral part of the plan.

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The Production park in Neiva proposes a complex for training, production, and sale of handicraft products in a manner that integrates them with the recreational activities of the visitors as well as childcare and the education of the children.

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The Andamos Project is dedicated to the production of elements for use in daily life with an aim to export. The basic material used is papier-maché: a product made from recycled newspaper. The project proposed is completely integrated into nature and seeks environmental familiarity for the displaced that will facilitate their adaptation to an urban environment. There is a daycare center in the community, thus achieving permanent contact with the parents.

In addition to the above examples, various jobs in the field of architecture and industrial design, which have earned the highest grades, have emerged from the Workshop and practices. Workshop-Showcasing Events (Cook At The Park) One of the purposes of Project Ubicar is to make the projects developed by the proposal research workshop into tangible realities. This is how Cook at the Park was developed. The event aims to boost the culinary knowledge of the displaced and allow them to contribute positively to the city. The displaced people have the opportunity to give cookery lessons and, on Sundays, to sell their products made during the week (without abandoning their children) in modules specifically designed for set-up in public spaces. This event has an experimental component at the beginning where displaced people and students participate, and where students learn from their interactions in a very real situation. It is worth highlighting that this project won the second I-REC United Kingdom 2004 student competition.

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Research Objectives: • Find adequate methodologies for “participative design” with vulnerable communities. • Find new forms of urban planning through experimental methodologies such as those presented by the Senses Workshop. • Conduct research into the possibilities of adequate use of natural resources within the region (especially wood) as the basis for construction, product development and the revival of cultural identity. •

Exploration of the appropriate architecture and design for this type of community.

Research results The job of Project Ubicar is made up of various approaches: a) Working with displaced people and/or communities on the outskirts of large cities: generally in risk zones with no service infrastructure. b) Working during times of emergency: from the moment of displacement up until three months later. c) Working with a population that has a high degree of vulnerability. It is to address this last goal that one of the most relevant jobs for Project Ubicar is undertaken: Cupica Cupica is a village located in the department of Chocó on the Pacific Ocean seashore. It is a rural district (corregimiento) of the Bahía Solano Municipality, with two hundred and fifty houses and one thousand seven hundred afro-descendant inhabitants.

Fig.1. Cupica The village was originally located at the mouth of the river Cupica on the Pacific, which was swept away and completely destroyed by a river avalanche in 1999. Previously, in 1997 a group of people from the region of Juradó, Choco (more to the North) that had been displaced by violence, fled to Panama where they were sent back to Colombia. The people from Cupica took them in by lending them land in Cacique so that they could set up home, thus creating a small settlement on the banks of the river Cacique, 5 kilometers North of the Cupica river (Cupica 2). building abroad, Montreal, October 2008

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Fig. 2. Cupica 2 In 1999, the year of the avalanche, the displaced people who had settled in the community in Cacique were forced to return to their native land. However, given the overcrowding and bad conditions, most of the inhabitants moved and created a new settlement on a small island at the tip of a landing strip that had been built by drug-traffickers (Cupica 3 or La Pista). The government subsequently built a new settlement for the community (Cupica 4 or El Estero) where most of the original inhabitants are now living. Some of them still remain in Cacique.

Fig. 3. Cupica 4 or El Estero It was exactly during this period (2004) that the Architecture and design Faculty was contacted through an agreement with the University and the Government Social Action to start a consultancy in connection with the new shanty-town settlement and the difficulties of various natures that this presented. As a result of this work, those of us who had the chance to lead it “fell in love with Cupica” and acquired a bond with the town that went beyond the merely institutional one. Thanks to this, the relationship between Ubicar and Cupica was born from the Workshop, the coursework, but also particularly from the fieldwork. Thereafter, Project Ubicar undertook a 10-day workshop with the workshop students, where projects considered a priority were developed through participative design with the community. This trip ignited interest amongst the students and some of them went on to choose Cupica as the location where they would undertake their professional training. The placement students implement the projects that have been developed from this fieldwork: Relevant results of this work worth mentioning: •

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Guidelines for the development of Cupica from the Senses Workshop. These guidelines are the result of an experimental workshop which solicited the impressions of the population where the first problems are detected, and from which the plans for development are produced. A close understanding of the habitat is achieved through this.

Fig. 4. Senses workshop •

Senses Workshop. A home improvement plan from various proposals presented by Workshop Ubicar. This plan was later made into a reality and culminated in the graduation project of Diego Avila after the fieldwork semester where various students participated. This interesting piece of work presents House Arana, which consists of a wooden structure that is placed over a one-story bungalow house, thus doubling the area without further use of what little land there is, utilizing local technology, and recovering the local architectonic expression. Furthermore, divisions weaved by the artisans are used. This model is already being implemented in some homes in Cupica.

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Natalia Medina, a student, did her fieldwork in Cupica with Diego Avila, and later developed in her graduation project a plan for the handling of solid waste and for the protection of the environment. This plan has already been implemented in the settlement with a very important impact on the environmental awareness of the inhabitants.

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Publication of the book: “Cupica; what once existed”, (Lo que alguna vez existio), by the architect Santiago Pradill who won first prize in the Annual Colombian Architecture Students in 2006. The book is a historical analysis of the four periods of Cupica and suggests a study methodology also based on the senses.

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Graduation project by T Santiago Pradilla on the central park in Cupica, currently under construction.

Fig. 5. Element of the central park


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Discussion and conclusions The work conducted by the project UBICAR (Locate) that started in 2002, without any foundation of knowledge or any theory to back it up, currently boasts a significant development after six years of experimentation and research. One of the most important achievements has been the work done in Cupica, where during previous years there has been an important development in work with the community. This cooperative work has gained the respect and trust of the community towards the students and the institution, which in turn have significantly benefited from said work. When the Architecture and Design Faculty arrived for the time in Cupica and started the consultancy required, they were greeted with a population that was unhappy with the solution given to them by the government. Although it is important to recognize the efforts made and the investment in infrastructure and services (sewage system, aqueduct, electricity network), it is also important to mention that the urbanism and architecture were inadequate. The set up of the population obeys a grid made up of roads and blocks that were more appropriate for an urban development in another kind of city. Cupica had always been spatially organized very differently to this concept: houses were located close to one another in family nuclei. Between houses there was a certain distance that allowed each house a space where every family had means to their own sustenance with a small vegetable garden and some domestic animals. On the other hand, the concept of ownership was based on respect for daca [SIC] family, which were acknowledged by everyone. The spatial arrangement of the complex was based on facilitating relationships between housing and estaco [SIC] units within particular contexts, especially the close proximity to the sea, given their position as fishermen. They did not have water or a sewage system, or even electricity. Currently in the arrangement of lots of 9 meters wide by 12 deep and row homes, the sense of property has completely changed, thus producing countless social problems that did not exist before. The electricity brought the television. People that once chatted now spend their time watching television with programming that is dicordant with their environment. In the past the women used to go down to the river to do the washing where they also sang and talked; nowadays every woman wants to buy a washing machine. There is now prostitution, consumption of alcohol and sometimes drugs: elements that all were alien to their traditions and belong to urban contexts of a different order. Houses that were traditionally made of wood and colors are now drab constructions made of cement blocks. Our work has been centered on understanding the problems of a population confronted with conditions alien to their own essence and, by investing in services, rescuing the values of their own traditions. The lessons learned have been very important; we have understood how one should work with a village that has become victim to a natural disaster not from the standpoint of the tragedy but that of their potential. The errors of a welfare policy have been highlighted, and a new model is adopted that utilizes the local resources and know-how of the communities, and that restores an identity and sense of self-worth that was lost in the trap of “progress” which was ill-conceived and poorly executed. The university, along with its responsibility in educating people for the future of our country, also has an undeniable social responsibility. It does not matter if a foreign country with its large cities appears to be the responsibility of another government or institution. Only through the conscience of our students learning and training through direct experience, will a good future for our country be guaranteed. It is possible that a settlement like Cupica, where the human quality of its inhabitants is immense, provides absolute clarity in that regard. A clear and concrete example is the fact that they have donated land to the Javeriana University so that it may build a center for student fieldwork, professor research and social projection and for conjoint work. This generosity, and even more so, this clear vision of opportunity by the community, should be answered to immediately. That is why 506

the Architecture and Design Faculty has included the project in its planning for the coming years, and is inviting all faculties of the university to participate; knowing that carrying out the project necessarily implies a conjoint effort as well as an interdisciplinary vision. Additionally, the work in Cupica is set up by a clear model of how academia should act in real life situations, undertaking work that directly supports the development of the country

Key Lessons Learned From the experience of the work, specifically from Project Ubicar (Locate) in Cupica it can be concluded that: •

The students that carried out the work in Cupica as part of their practice or coursework and even in the Workshop, have been “touched” by the reality of the country, have become conscious of their social responsibility and have fallen in love with the place. They have formed a group that has persisted, due to personal interest, constantly supporting the community in Cupica.

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The University, represented mainly by its students, is highly regarded and respected by the community of Cupica. This has facilitated the joint work with the town.

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The work conducted in Cupica is a model that is recognized by the University and by diverse governments and other institutions. The work done by the students during their fieldwork surpasses that which is strictly necessary for the degrees and provides volunteer services of a social and human nature.

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The community in Cupica has accepted the ideas of the students and is implementing them.

References Senses Workshop (2002-2008) Architecture and Design Faculty, Pontificia Universidad Javeriana. Project Ubicar (2001-2008) Architecture and Design Faculty, Pontificia Universidad Javeriana. Cupica, Santiago Pradilla, “What once existed” (Lo que alguna vez existió). Graduation projects on Cupica (2005-2008) Architecture and Design Faculty, Pontificia Universidad Javeriana. Undergraduate fieldwork in Cupica essays (Trabajos de practica preprofesional) (2004-2008) Students from the Architecture and Design Faculty, Pontificia Universidad Javeriana. Law 387 of July 18. (1997) Measures for forced displacement prevention; assistance, protection, consolidation, and social and economic stabilization of people internally displaced for violence in the Republic de Colombia. María Isabel García (2004), Desplazados y confinados en Colombia. Email: www.codhes.org.co building abroad, Montreal, October 2008

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Consultoría para los Derechos Humanos y el Desplazamiento CODHES (2003) La respuesta gubernamental al desplazamiento forzado (Government response to forced displacement), in: El embrujo autoritario. Plataforma Colombiana de Derechos Humanos, Democracia y Desarrollo (Colombian platform of human rights, democracy, and development) Author’s Biography Professor Alfonso Solano de Francisco obtained his degree in architecture with a major in architecture and a minor in lanscaping from Javeriana University in 1970. Currently, he is Program Director in Architecture at Pontificia Universidad Javeriana Bogotá, Colombia. Professor Solano has achieved many awards in his career including the National Honor distinction of Teaching Social Work With Meaning from the Professional Council of Architecture and Related Professions. He is involved with many projects including Project Genesis, Project Ubicar, the Senses Workshop, and the Student Office. Professor Solano has presented at many national and international conferences around the world including: Bogota, Cali, Medellin, Cartagena, Barranquilla, Spain, England, Mexico, Cuba, Panama, Guatemala and Ecuador, among others.

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STAKEHOLDER PARTICIPATION IN RECONSTRUCTION PROGRAMMES: THE “LAKEVIEW MODEL” Isabelle Thomas-Maret, Université de Montréal email: [email protected] Summary The success of rebuilding after a disaster depends primarily on the organisation and coordination of a variety of different efforts and programmes at all levels of government and society in general. Extremes of response vary from heightened bureaucratic processes to direct civilian intervention, however, in all cases, cities need to find the right mix so as to maximize efficiency to effect a timely recovery. The case of New Orleans post-Katrina exemplifies this critical issue. Three years after this massive disaster, the costliest in the nation’s history, there is still no overarching structure to coordinate the multiple recovery strategies in place or pending: responses originate from individual neighbourhood associations or the city recovery team, and include non profit organisations mobilized for particular projects or programs. The sustainable rebuilding of a city post-disaster involves the coordination of stakeholders at all level of governance, but within a well organized structure, that to date, is lacking in New Orleans. If 80% of the city flooded in the wake of Hurricane Katrina, New Orleans’ neighbourhoods had a different status in September 2005. Hence, some communities like Gentilly, East New Orleans, Broadmoor, Lakeview were badly damaged while others like the Garden District, the French Quarter, Uptown had less destruction (Maret I., 2008). The rebuilding status in those heavily flooded neighbourhoods is truly different in 2008. While some areas present clear forms of recovery, others are still struggling, presenting patchy signs of life. Within the same city, successful or inconsistent recoveries can be scrutinized. It raises the need of an understanding of these different recovery outcomes. The literature on disaster recovery brings different sets of explanation regarding resiliency and successful recovery. While some authors explain the importance of structural differences between neighbourhoods (Hass, 1977), others focus on the structure and implementation of rebuilding strategies within the neighbourhoods and the strength of successful resident driven recovery efforts (Bolin, 1998). The importance of collaborative planning as well as close-knit social networks also seems to be a key element (Knox, 2007). In the planning of District 5 (Lakeview district), the rate of return, one criteria of recovery, was 58% in 2008 (New Orleans Index). In some subareas, like Lakewood, the recovery seems to be higher reaching 80% (Survey). Some strategies that were developed and used in Lakewood are already being exported and replicated in other neighbourhoods of the city (Gentilly, Ninth Ward) as well as in other states (Iowa). Hence, the organizational structures, as well as the techniques used in this community, enable us to understand the process of its revival and its possible diffusion. It raises the question of coordination between a neighbourhood’s successful strategies and a city’s plan.


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table of contents

Introduction

Title

Affiliation

Lizarralde, Gonzalo Importance of the subject and Colin Davidson

Keynote presentations

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Université de Montréal

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Some facts about the conference

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Avant propos

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Title

Affiliation

pages

Demers, Clément

Trans-disciplinary management and partnering to better collaborate and innovate in a global context


21

Terrin, JeanJacques

European Public Private Partnerships in a global world

L'École nationale supérieure de Versailles

31

Wong, Francis

Impact of China in the international context of construction

The Hong Kong Polytechnic University

39

table de matières building abroad, Montreal, October 2008

511

building

Academic articles

abroad


Title

Affiliation

pages

Abdul-Aziz, AbdulRashid, Sing Sing Wong and Ahmed Usman Awil

Formulating a holistic model to describe international diversification of construction companies

Universiti Sains Malaysia

53

Arain, Faisal M.

Knowledge management approach for enhancing prompt and effective postdisaster reconstruction: Leveraging on information technology

Southern Alberta Institute of Technology (SAIT)

65

Arkani, Sepideh

The business case development process in the delivery of NHS infrastructure

University of Reading

79

Beauséjour, Julie

Good practices in sanitation infrastructures for peri-urban poor communities: A case in Hanoi


93

Chan, Albert P.C., Patrick T.I. Lam, Daniel W.M. Lam, Esther Cheung and Yongjian Ke

Measures that enhance the achievement of value-for-money in Public Private Partnership (PPP) projects

The Hong Kong Polytechnic University

101

Chebil, Fethi

Public infrastructure project capabilities to respect costs, schedule and scope in public infrastructure projects

École Polytechnique de Montréal

111

Chen, Chuan

An analysis of private participation in infrastructure (PPI ) projects in the Chinese power sector

The University of Melbourne

123

Chen, Chuan

An exploration of the relationship between international diversification and firm performance in construction firms

University of Melbourne

137

table de matières

512

building

abroad


Choudhury, Ifte and Effects of construction cost and change Vijay Sanampudi orders on construction time for industrial and commercial projects in India

Texas A&M University

149

de Blois, Michel

Trans-disciplinary knowledge building during project initiation: A tool for decision making, the EPASE example in St-Étienne, France


157

Ehrlich, Matthias and Robert Tiong

Risk mitigation opportunities for foreign exchange (FX) risk exposure in Public Private Partnership projects

Nanyang Technological University

169

English, Jane

Fighting poverty in South Africa through employment for women in construction

University of Cape Town

183

Fapohunda, A. A. and Windapo, A. O.

Infrastructure procurement through public-private partnership (PPP)

University of Lagos, Akoka

193

Farida Marzuki, Puti and M. Fauzan

Preconditions for value improvements in the Aceh reconstruction project

Institut Teknologi Bandung, Indonesia

207

Farooqui, Rizwan U. and Syed M. Ahmed

Managing site safety on international construction projects – Developing a tool to assess native workforce safety culture

Florida International University

219

Ferrada, Ximena and Alfredo Serpell

Selection of construction work processes: Pontificia Universidad Current practices and a new proposal Católica de Chile

233

table de matières


513

building

abroad


Forgues, Daniel and Lauri Koskela

The influence of procurement on performance of integrated design in construction

École de technologie supérieure, Montréal

245

Jefferies, Marcus, Denny McGeorge and Steve Rowlinson

Bidding for public-private partnerships and the implications for design and construct contractors

University of Newcastle

259

Khalfan, Malik M. A., Adekunle S. Oyegoke, Peter McDermott and Michael Dickinson

Myths of supply chain integration within the UK construction industry

Salford Centre for Research and Innovation (SCRI) in the Built and Human Environment

273

Khatleli N. and David Root

Managing pre-contractual and postcontractual opportunism in BEE delivery in PPPs

University of Cape Town

285

Kivrak, Serkan and Gokhan Arslan

Factors causing construction company failure

Anadolu University

297

Lacerda Santos, Adriana de Paula and Mauro Lacerda Santos Filho

The impact of budget in the purchasing process of construction companies

Federal University of Paraná

307

Lacerda Santos, Adriana de Paula and Antônio Edésio Jungles

Proactive purchasing in civil construction companies

Federal University of Paraná

317

Lewis, Timothy Michael and Winston Riley

The politics of procurement

The University of the West Indies

329

table de matières

514

building

abroad


Nasr, George J.

Evaluating a project’s relative environmental impact across regions.

Lebanese University

339

Niang, Latyr

L’organisation des projets au Sénégal : Le schéma "bicyclette"

École Polytechnique de Montréal

349

O’Brien, David, Iftekhar Ahmed and Dominique Hes,

Housing reconstruction in Aceh: Relationships between house type and environmental sustainability

The University of Melbourne

361

Olabode Rotimi, James, Suzanne Wilkinson, Dean Myburgh and Kelvin Zuo

The building act and reconstruction programmes in New Zealand: Matters arising

University of Canterbury

373

Olatunji Oluwole, Alfred

Due process and contractor selection for public works in Nigeria

University of Newcastle

385

Olayiwola, Mohammed Kabir Aderemi

The level of awareness and use of ICT in Kabola Associates supply chain management in the Nigerian construction industry

397

Oyegoke, Adekunle Sabitu, Michael Dickinson, Malik M.A. Khalfan, Peter McDermott, Steve Rowlinson and Xianguang Li

Categorisation of construction procurement routes: An in-depth critique

Salford Centre for Research and Innovation (SCRI) in the Built and Human Environment

405

Richard, Roger B

Building housing abroad: Combining imported service cores and local technology


419

table de matières


515

building

abroad


Ross, David

The use of partnering in large-scale urban projects


431

Rwelamila, Pantaleo M. D. and F. Snijder

Public-private partnerships as a Graduate School of mechanism for municipal service delivery Business Leadership, in South Africa: The case of water University of South Africa service at ELM

443

Von Meding, Jason, Dynamic competency theory in postLukumon Oyedele, disaster reconstruction David Cleland and Victoria Harris

Queen’s University Belfast

457

Zuo, Kelvin , Regan Potangaroa, Suzanne Wilkinson and James Olabode Rotimi

University of Auckland

471

Supply chain analysis and the sustainability of post-disaster construction

Professional interventions Anouche, Karima

pages

International project experience in GENIVAR

Chynoweth, Andrea Community building in Laos

Pisapia, Serge

Genivar

487

Bolaven Farms

489

Quels mécanismes, autres que le procès, Avocat médiateur et arbitre ont été développés pour régler les différends reliés aux travaux de construction sur les projets internationaux?

491

table de matières

516

building

abroad


Regnier, Philippe

From emergency relief to livelihood recovery: Lessons learnt from posttsunami experiences in Indonesia and India

University of Ottawa

493

Richardson, Andrea

Canadian diplomatic complex, Seoul, Korea - Architecture and project management in a unique setting

Zeidler Partnership / Architects

495

Solano, Alfonso

Project Ubicar

Pontificia Universidad Javeriana, Colombia

497

Thomas-Maret, Isabelle

Stakeholder participation in reconstruction programmes: The “Lakeview model”


509

table de matières


517

building

abroad


Other professional interventions

Allen, Bruce

Le Groupe Arcop, international activities

Le Groupe Arcop

Bebawi, Sami

International construction contracts- risks SNC-Lavalin inc. assessment

Birron, Ivan

International procurement

Lavery De Billy

Chebl, Charles

Projet en Algérie et Ambassade du Canada en Haîti

SNC-Lavalin inc.

Dagenais, Daniel Alain


Lavery De Billy

De la Torre, German

Architecture at Richard Rogers + Partners

Rogers Stirk Harbour + Partners

Donaldson, Sandra

Projects in China and Pakistan

Sandra Donaldson, Architecte Paysagiste

Hogues, François


Desnoyers Mercure Associés

Labelle, André

Project Management in China

Decasult

Lacharité, Mathieu

Développement durable - génie civile

Teknika

Lefebvre, Pierre

PPPs in Quebec

Agence de PPPs, Québec

MacBurnie, Ian

Social and cultural issues in post-disaster Ryerson University reconstruction

MacNamara, Bernard

Architecture de l'urgence

Architectes de l'urgence

Martinez-Sgur, Daniel

Professionals in the international context

SNC Lavalin, Nexcor

Mc Govern, Pamela International procurement

Lavery De Billy

Provencher, Claude

Architecture in the international context

Provencher Roy

Sliwinski, Alicia

Community participation in post-disaster reconstruction

Wilfrid Laurier University

Verreault, Marc

L'expérience de la firme Verrault dans les Verrault PPPs au Québec

table de matières

518

building

abroad



519