Construction Clients and the Market for Contracts

Option 1: Select a case study of a construction project and analyze it in the light of the theories discussed in the module

The selected project is the Hong Kong International Airport, China which was completed in the year 1998 at a cost of thirty two billion US Dollars ($ 32 billion) equivalent to 24. 5 billion euros (the figures have been adjusted due to inflation. The Chinese government has recently involved itself in mega construction projects both at home and abroad in what is known as the belt and road initiative. The ambitious projects have been seen by certain quotas as China’s attempt to colonize the world. China is projected to become the global super power by the year 2050 if the status quo and development tempo is maintained.

Image: Construction Clients and the Market for Contracts. Source, legalzoom

The reason for the selected project is the interest it generated considering it was initiated as a government response to slow economic growth and activities. To counter this, the government of China decided to invest in mega development and infrastructural projects aimed at ensuring there is available opportunities for trade and development of the nation. The amount of money spent on these mega project was jaw dropping and it illustrated the pinnacle of what a human can do.

Important phases of the procurement process

There are important events that occurred before, during, and after the completion of the project including

(i) Feasibility study

Feasibility study was conducted to see the viability of the project in the area.

(ii) Land acquisition

At the initial stages of the project, land had to be acquired from the owners. The process of land acquisition involved valuation of the land value by qualified surveyors, lawyers, and land economists representing the government and the owners of land so that there is justice (Chaisse, 2018). The land owners were then compensated and asked to leave and purchase land elsewhere. The airport is connected to over 200 destinations and have been able to serve over 70. 5 million passengers since 2019 to date (Hong Kong Airport, 2021).

(iii) The actual construction was completed and began operation on 6th July, 1998.

(iv) Integrated serviced desk management

The integrated service desk management enables ease of flow of humans and cargo in and out of the airport.

Main features of the selected project

The selected project has been very beneficial in spurring economic growth. It has also served to prove the professionalism of the Chinese people and their ability to do quality work. The project only became profitable 10 years later after the completion. The demand for the services at the airport has increased tremendously since the construction was complete. The latest technologies are in use at the airport (Sarhan et al. 2018). The Hong Kong international airport falls under the transport industry and it has two runways are in operation having moved 4. 8 million tonnes of cargo. Theairport has won the world’s best airport more than once and also employs over 78 000 employees providing employment to many people hence a source of livelihood.

The rationale for the adoption of different governance/contractual arrangements along the procurement process, and the extent to which these have proven (or may prove) to be suitable to the project’s features, and to align the stakeholders’ interests by i) providing the right incentives, ii) overcoming information asymmetry, iii) envisaging suitable risk-sharing

The choice of the highest bidder is dependent on the bid amount and the quality of completed project. The highest bidder may not always provide the best quality hence the need to provide other details from among which the tender committee may decide on which of them to choose from. Publishing the names of the bidders and the tender winner on a public portal is an important milestone because it gives members of the public an opportunity to scrutinize and raise complaints in a timely manner whenever there is one. A government which consistently involve itself in corrupt deals leading to low quality infrastructural projects may lose popularity among the people and fail to get reelected in the next poll.

Option 2: Critically evaluate the role of economic theory in informing the selection of procurement methods

For a long time political ideology of the ruling party has had major influence on the procurement methods of the nation. Unfortunately in few selected scenarios, there have been corruption budgeting where the ruling party since they have the numbers in both houses have bulldozed what is known as corruption budgeting. Corruption budgeting is when the budgetary figures include not only the actual project costs but also costs to pay for bribes. The procurement process begins at the phase of need identification, what do we need and how can we get it. The needs of a national government are usually determined by the parliamentary debates. The assembly members are elected representatives who represent the interests of the people drawn from all regions of the nation. The government may decide to construct the mega project alone or it may seek the assistance of a private investor in an arrangement known as public private partnership (P. P. P). The pressure to get a project emanates from the members of the public through their elected representatives. Then there exists an interdependency between the private owners of capital and the public represented by the government.

Resource dependency theory

Resource dependency theory means that the two entities depend on one another for the successful completion of the project. It is a give and take scenario involving an opportunity cost. In economics, there is no free lunch. During the implementation of a mega project of this caliber, the main stakeholders involved include the local authorities, the government agency, the main contractor, and the sub-contractor in the supply chain archetype.

The members of the public have a right to participate in the public procurement exercises to ensure accountability and prevent corruption budgeting (Hussain & Siemiatycki, 2018). The government which is keen on doing away with corruption sometimes apply austerity measures to reduce waste for instance doing away with staff tea or encouraging government officers to use vehicles that do not produce much smoke or fuel guzzler vehicles. Austerity measures have been applied in countries such as the Republic of Kenya where the government ministers use Passat, which are fuel economic vehicles.

Transparency in procurement has also been made transparent by publishing all applicants for tenders in the government portal. The rationale of doing this is to identify the highest bidder, the lowest bidder, the quality of previous work of the contractor among other issues of public interest (Munge et al. 2020). Indeed it can be uneconomical to award a tender to a company that has previously conducted a shoddy work or has been convicted of a criminal offence in a court of law.

Integrated financial management system (IFMIS)

The use of the integrated financial management system has also been effective in reducing corruption incidences because it is able to detect any malpractice. The auditor general may then raise a red flag on any irregular spending on the portal. The government has also made it mandatory that before launching any project, they have to go through certain bureaucratic processes including being reviewed by the controller of budgets to find their viability, usefulness, and subject to availability of funds (Genovese et al. 2020).

References

Chaisse, J. (2018). China’s ‘belt and road’initiative: mapping the world trade normative and strategic implications. Journal of World Trade, 52(1).

Genovese, A., Morris, J., Koh, S. C. L., & Acquaye, A. (2020). An investigation into design and performance of supply chains for public procurement projects. Production Planning & Control, 1–20.

Hong Kong Airport (2021) At a Glance. Retrieved from: https://www.hongkongairport.com/en/the-airport/hkia-at-a-glance/fact-figures.page, Accessed on 23–03–2021.

Hussain, S., & Siemiatycki, M. (2018). Rethinking the role of private capital in infrastructure PPPs: the experience of Ontario, Canada. Public Management Review, 20(8), 1122–1144.

Munge, K., Mulupi, S., Barasa, E. W., & Chuma, J. (2018). A critical analysis of purchasing arrangements in Kenya: the case of the National Hospital Insurance Fund. International journal of health policy and management, 7(3), 244.

Sarhan, S., Pasquire, C., Manu, E., & King, A. (2017). Contractual governance as a source of institutionalised waste in construction: A review, implications, and road map for future research directions. International Journal of Managing Projects in Business.

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