PhD Final Thesis April 2013.pdf - Anglia Ruskin Research Online

Thesis Keith Gale 2013procurement, focussed upon obtaining the best price through market economics(Friedman, 1957). It has been recognised that acceptance of the lowest bid does notalways represent good value. This is due to extreme economic conditions thatencourage suppliers to ‘under bid’ (bid below actual cost) when workloads are low,or ‘over bid’ (increase mark up values) when work is plentiful. Murdoch and Hughes(2008, p130) recognised this phenomena by distinguishing between a lowest tenderprice submitted by suppliers and the actual price for the work – the latter usuallybeing higher than the lowest bid. This problem has also been recognised for aconsiderable time with public sector tendering. The Placing and Management ofBuilding Contracts (Simon, 1944) recommended less emphasis upon oneroustendering processes and warned against always accepting the lowest price.Contractual arrangements comprise a form of contract, risk apportionment andpayment methods. These form the basis of an agreement between clients andsuppliers – and this agreement is often are linked further down the supply chain tosub-suppliers. Development of new procurement methods rely upon availability oflegal documentation and subsequent understanding by the industry in order thatchanges may occur. Use of legal forms of contract which clarify risk allocation andencompass management techniques was a requirement for change suggested by Egan(1998). An industry response was the New Engineering Contract which introduced aframework contract at the 3 rd Edition (2005). Adoption of this form by theconstruction industry has allowed the use of framework agreements to expand asreflected by the RICS survey (RICS, 2010).3.16 Construction economic and market competition theoriesAn investigation into drivers of construction price determination and economicforces has discovered two predominant areas of literature.One view, often described as traditional, applies a probability approach. Individualconstruction elements of cost are calculated at net and a supplier then applies a‘balancing adjustment’ to arrive at a tender price based upon the likelihood ofwinning the project. Known as tendering theory, this approach was proposed byFriedman (1956) and has subsequently been supported by Gates (1979), Rosenshine(1972) and Fuerst (1976).69