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

Thesis Keith Gale 2013A second view follows a neo-classical theory of economic price determinationapplied to construction bidding methods but builds upon previous research.Suggested by Hillebrandt (1974) and confirmed by Runeson and Raftery (1998), thistheory applies economic principles of supply and demand set within a perfect marketstatus. Economic price determination assumes that the construction industryconforms to a model of perfect competition with a large number of suppliers whereknowledge of market prices is available. Perfect competition relies upon marketequilibrium where price is determined by interaction between suppliers andpurchasers – the contract price is agreed at an interaction where purchasers achievethe lowest price whilst suppliers achieve the highest price available within themarket. The effect of market conditions was described by De Neufville et al (1977)as a period of ‘good years’ from suppliers where profit margins are increased as areaction to less intense competition, as opposed to ‘bad years’ with less opportunitieswhere projects are bid at low profit margins or at cost. This process is manifestedwithin the construction industry through tendering procedures where interactionbetween supplier (contractor) and purchaser (client) is achieved through tenderedbids.From public sector client perspectives, either price determination theory is embodiedinto procurement systems. The procurement process is heavily regulated throughstanding orders and statutory instruments where bids are confidential, sealed andonly opened after a secure tender period. Traditional public sector procurement oftenrequires the lowest submitted bid to be accepted unless exceptional conditionsprevail (Flanagan et al, 2005).3.17 Impact of frameworks upon a perfect economic marketA significant tenant of framework agreements is the reduced number of suppliers anda special relationship arising from closer links with a client. This is particularlyrelevant in public sector organisations where traditional procurement relied uponextensive select lists of suppliers from which tender lists are compiled. An exampleof this phenomenon is the organisation used for this research (Hampshire CountyCouncil) – prior to introduction of frameworks; the organisation had a list of 52suppliers within a select list for civil engineering contractors. Selection for tenderlists employed a combination of rotational and ‘past experience’ anecdotes. Each70