Literature Review on Procurement System Selection Technique
Practically, there is no specific technique in defining procurement system. All the approaches to select procurement system are principally trying to capture a clear understanding and to quantify requirements of clients. Some literature has summary the existing technique to select procurement system selection (TABLE 3).
Table 3. Literature Review for Existing Procurement Methods
Source: Hazmi, 1999; Chang, 2013; NEDO, 1985; RCIS, 2013; Kenedy and Budiawan, 2001
Based on literature review above, the best value for money in the entire life cycle of the project with the optimum balance of risk, control and project funding will be considered together with the client’s requirement for cost, quality and timescale preferences to fit their long term objectives. All the techniques try to make cross-reference project variables in the given situation of market place. However, in construction projects, especially that involves long-term contracts within parties, there is potential unforeseen behavior within the complex organization that leads to unexpected cost of the projects. Modern economic theories of procurement industries use mechanism design to model procurement scheme as one of ex-ante asymmetric information combined with moral hazard (Bajari and Tadelis, 2001).
Furthermore, some empirical studies found that decision to select any construction procurement system commonly depend on past or best experience in similar projects or the most common usage that the decision maker has been familiar with. Kennedy and Budiawan noted that delivery system and procurement failures were strongly correlated with project personnel (principal or agents) actions within a delivery system, which leads to a contract claim and add unexpected cost within the project. In the end, the project performance is not only depend on contingency of procurement system selection point of view but also strongly dependent with management variables, organizational issues and project context. Additionally, Bresnen and Haslam (1991) found that there is no significant link between procurement system and project performance, in which there is no guarantee for project performance improvement based on the contract strategy chosen. Hence, the procurement system is not merely as a determining factor in project success and it must be combined with the most suitable management strategies in order to achieve project success.
Transaction Cost Approach for Procurement System Selection
Construction project lifecycle embodies a set of transaction that requires key procurement decisions in different stages. Thus, there are lots of barriers during the whole process that need to overcome including the question about how to select the procurement system for the project (Chang, 2014). Responding to the current trend in construction procurement system selection, transaction cost approach occurred to address the main factors responsible for...