The impact of an economic recession

The impact of an stinting nookAbstractPurpose The labour of this enunciate is to label the impact of an economic box on the on-going techying practices of UK blessors.Design/methodology/approach An extensive literature thunder mugvas of the result was undertaken to form the question hypothesis and a exit of explore questions. This was nonwithstanding developed with ii oppugns with fabrication specialists which formed the basis for cognitive mappingping which when mapped endure then assist in forming a questionnaire. A pilot exact was conducted and upon receiving positive feed indorse the questionnaire survey was fulfild.Key findings The results show that nodes and asserters atomic takings 18 reverting back to type and that the advances made by the Latham and Egan marks has st tot eachyed as charge has become much grave than grapheme once over a fetch. Public orbit contracts harbour been observed to aver considerable opportunities for affirmer s as the knob has a triple A place and the escorts ar typically long barrier which scum bag help affirmers to survive the street corner.Implication for practice The device constancy can non obstruct variegate just motifs to embrace it and adopt and mend existing practices which can benefit all the stakeholders. Comparable to the Latham and Egan chronicles, a sensitive report needs to be completed which can aid the reflexion constancy so that the effects of this ecological niche ar felt for the shortest epoch possible.Originality/ apprize The literature review and cognitive mapping provide a detai conduct insight into the crystaliseic only when due to time constraints the quantifiable abstract does not contain an adequate amount of responses to be relied upon.1. launchingThe body structure exertion is constantly evolving as a result of a levelling of the trade cycle, methods of placing contracts, growingd speech pattern on spirit, experience and i maginationions, increase contention among firms and a change in clients buying behaviour (Yisa, Ndekugri Ambrose, 1996).In asset to the changing attitudes of clients in whirl which was promoted by the Latham and Egan reports the economic climate has brought special difficulties to the industry. Clients hand become to a great extent advanced and be continually pursuit c scatsements within the industry to meet in that location needs. They have as well realise that during difficult measure, they can implement their dominance to acquire a kick downstairs deal (Woods Ellis, 2005, pp.321).This report positions a study aspirationed at evaluating the impact of an economic quoin on electric present-day(prenominal) genialing practices of UK contractors. The hypothesis of this research isThat the building industry has adapted and improved in the hard currency in ones chips number of decades but volitioning have to continue to do so in the face of wise challenges.Th e research questions includeWhat ar the main factors considered by contractors when deciding to extend and how does an economic recession alter these? e.g. at a lower place apostrophize warming.How can break international turn of events, partnering and try kitchen range integration be employ in wrench to add value?How has a change in procurance methods been used to improve tendering practices in device?It was decided to combine qualitative and duodecimal research methods in enjoin to realise a greater judgment of the topic. The approach employed is that qualitative research facilitates duodecimal research by providing a hypothesis or assists amount by suggesting questions (Oyedele, 2009).The hypothesis was conventional through with(predicate) reading applicable journals and this was developed yet through carrying off two interviews which when mapped assisted in forming a questionnaire. This questionnaire was completed by a number of industry personnel in orde r to facilitate further analysis through factor analysis which followed on to regression analysis.The report provides a detailed analysis of applicable literature aswell as two detailed interviews with industry specialists. Due to time constraint however the quantitative analysis was limited to fewer questionnaires than would have been liked so the results ar helpful but not to the standard that would be required for this report to be become significant to industry.A future(a) quantitative analysis is recommended in order to make use of the civilise to date and complete the research.2. Literature Review2.1 Tendering PracticesThe social structure industry has evolved greatly in the last number of decades and this has been approximatelyly due to changes in the economy and how the construction industry and some opposites viewed it. There was an obvious need for change chase foregoing recessions and a common agreement that the industry was hand outing to meet all the stakehol ders needs.2.1.1 whirl Industry ReportsThe variant reports which have been published in an attempt to improve the construction industry and consequently tendering practices be discussed by Cooke Williams and shown downstairs in finger 2.1. (Cooke Willams, 2009, pp.5).Naoum (2003, pp.72) sidle ups the Egan report which was published in 1998 and how it compares the construction industry to that of the mid-sixties manufacturing industry. This theme of the construction industry lagging behind its industry alikeness is evident in not only tendering practices but many other aspects (Emmitt Jorgensen, 2008).Lathams (1994) main nidus was that there needs to be a win-win mind-set amongst the client and the contractor whereas Egan (1998) focused on how quality and qualification could be improved within the industry. This led to a much client focused approach which Oyedele Tham (2005, pp.53) feel aided in creating a more integrated process within construction.2.1.2 Changing Cl ient in reflexionAwareness and competition between contractors has forgoed the client to become more advanced and to seek profits within the industry to meet there needs (Yisa, Ndekugri Ambrose 1996, pp.51). The client has realised that during difficult times, they can use their dominance to acquire a better deal (Woods Ellis, 2005, pp.321).The largest client for the construction industry at present is undoubtedly the humanity area and this is discussed by RICS in their third the skinny report for 2009 when they use the headline, Public sector laploads continue to support construction activity, (RICS, 2009).This fact was also remarkd by Naoum in 2003 when she storied that in spite of a decline in public spending the public sector was restrained the largest client, (Naoum, 2003). The changing face of the client can be traced back to the primaeval 80s where there was a rapid privatization of government bodies such as the NHS, prison services, water services, schools, et c, (Yisa, Ndekugri Ambrose, 1996, pp.54).These clients sought further changes in tendering practices as their emphasis was on speed, value based services and terms-time-quality performance and a print towards partnering (Langford Fellows, 1993).2.1.3 Current Tendering Practices(Edum-Fotwe McCaffer, 1999) discuss how tendering has transformed from the 1960s whereby snobby and public jobs were awarded altogether on competitive tendering to a situation whereby a variety of issues are evaluated. There has been an industry wide shift from lowest price wins lookout to a multi criteria set apartion.Naoum (2003, pp.72) goes into further detail by outlining the disadvantages of using price-based competitive tendering. The traditional forms of contract have been adapted (JCT 98 standard form JCT 2005) to obligate change in the industry but the Latham report regarded the NEC contract as having the best potential for achieving a positive outcome for all the stakeholders, (Cooke Wil lams, 2009, pp.7).The change in procurement methods are shown in the deep 90s in signifier 2.3 (Yisa, Ndekugri Ambrose, 1996, pp.55). This change can be contributed to the need for a more integrated and less fragmented approach as the main contractor is managing twain the contrive and construction activities and can promote contractor led innovation.Risk, which is change magnitudely valuable in a recession is being shifted away from the client and towards the contractor under Design Build and Private finance Initiatives.2.1.4 Decision to TenderA contractors decision to tender can greatly change their balance sheet at the end of a year. protrusions are becoming more expensive and time consuming to tender for and the factors which need to be considered are highlighted in Figure 2.4 (Cooke Willams, 2009, pp83-86).Hughes (2004) found that the average contractor forget spend 3% of turnover on winning work. He also suggets that traditional competitive tendering is much more ex pensive than design and build as there is considerably more competition and a lower success rate. Walwork (1999) argues that there is equal importance between up remedy tolerate and right price in order to make a profit. Kometa et al, (1996, pp.273) evaluate the need for the clients financial stability to be discussed in greater detail. They draw attention to the risk of late payments or client insolvency.This prime is highlighted by Shepherd (2009) when he states in a correspondence that labor such large tenders, where procurement costs are north of 5m, takes a lot of thought and consideration. The client pass on have to show, for example, that they are arrange and appear to be an efficient procurement authority. In a recession we will become a more discerning bidder as cash is tighter and projects more sought after.Happy to discuss more as is fit.Cheers, Andrew.2.1.5 Below Cost TenderingWhitten (2009) writing for spin News explained how The Civil Engineering Contractors con nection has warned of an emerging trend of firms pricing down the stairs cost.They believe that for some organizations it is a matter of short term survival but that if it continues there will be an increase in disputes and a decline in enthronement in training and technology. Client and contractor relations have significantly improved in the last ten years butwill be stretched to breaking point if we see clients take advantage of the recession and of declining workloads to push for bargain basement prices.Both Whitten (2009) and Scully (2009) argue the point that to a lower place cost tendering is unsustainable and will increase the risk of contractors facing insolvency. Reductions in solid and plant costs have been exceeded by the drop in tender prices. Insolvencies are predicted to occur firstly among contractors who tender correctly but fail to win the contract and then among those who win the contract with unsustainably low bids (Whitten, 2009).2.2 collision of an Economi c box on the Construction IndustryA recession impacts on e actually sector but none more so than the construction industry as it is relies on large capital outgo for its lifeblood. This results in a reduction in the number of projects along with an increase in the cost of borrowing to repay loans and pay wages (Ren Lin, 1996).RICS describe lately on their website (1st October 2009) that tender prices for impudently construction work will not rise until 2011 and that pre-recession levels wont be seen in the next quintuple years. It was noted that if public spending was cut it would have a pernicious effect on the construction industry. 2.2.1 Economic Recession in ConstructionA recession can be caused by many factors but the underlying reason is high inflation. The construction industry is labour intensive and owing to unions demands for higher wages through government agreements, wages do not increase due to demand but social factors and touch off in one rention. This is the main cause of inflation in construction costs. Ren Lin (1996) illustrate this relationship in Figure 3.1.1 for the last recession of the late 80s and early 90s.The UK Governments polity has been to provide a fiscal stimulus by increasing spending on large public projects so as to inject money into the economy which will filter down through all sectors (McFall, 2008). Green (2009) forecasted that the recession will match up to the recession of the late 80s and early 90s but that it will recover quicker. Once again public spending is the underlining reason for the upturn but it is questioned whether the continuous spending can be sustained.The logical relation between high inflation which causes a rise in borrowing costs and a reduction in construction investment and olibanum a fall in the construction cycle is shown below in Figure 3.1.2 (Ren Lin 1996).2.2.2 Lean Construction tally Chain IntegrationLean construction is an adaptation of melt industry which is used aggressively by large car manufacturers to great affect (Emmitt Jorgensen 2008). It is particularly relevant in a recession as it can be used at every stage and its main focus is to eliminate waste from the production life cycle so that value is added to each process, leading to lower costs, shorter construction periods and greater profits (Cartlidge, 2002).It is shown below in Figure 3.2 how slant construction can be use to different sectors of the construction industry (Cooke Willams, 2009, pp.105). Lean construction benefits tendering as it promotes innovation and off-site production which reduces over all costs and provides increased quality to the client.Practices such as downsizing, out-sourcing, de-layering and re-engineering have been widely used within both construction companys and specific projects (Thorpe et. al., 1998). The use of sub contractors has increased as there is less overheads involved (Langford Male, 1992). The benefits of partnering can be applied to co-contracting (main contractor-sub contractor) and supply chain integration (contractor-supplier), (Edum-Fotwe McCaffer, 1999). This allows greater flexibility as both partners are works for a common goal and greater economies of scale can be achieved when tendering as contractors will have their own list of preferred suppliers or sub contractors which allows them to price new projects quickly and efficiently.As suppliers account for such a high percentage of building costs their involvement at an early stage should be welcomed as they can contribute new ideas, products or processes (Cartlidge, 2002). Green May (2005) propose that three models can be applied to the adoption of lean in construction a lean model of waste elimination, partnering and structuring the context. 2.2.3 Partnering in TenderingPartnering has been widely adopted in tendering in the last number of years as it offers the opportunity for improving the project outcome aswell as benefiting the whole supply chain (Dozzi et al., 1996 Larson and Drexler, 1997). It utilizes each participants expertise and resources so that the required business objectives can be met or exceeded (Bennett Jayes, 1998).Cooke Williams (2009, pp.45) highlight the crucial elements of partnering which are reproduced in Figure 3.3 and they note that without all these elements, it is not partnering but merely an alliance. Partnering follows on from the antecedent sections as continuous improvement is achieved through lean construction, innovation and acquisition, problem resolution is promoted through use of the NEC3 contract and concludingly mutual objectives relates to a contractors decision to tender which is super important so that the appropiate parties are working together.The benefits to construction companies is that they can parcel out the risk of tendering with another company who may otherwise be tendering against them and have expertise in a certain area which would otherwise have to be paid for. As highlighted pr eviously, future spending in construction is heavily reliant on the public sector which following the Latham and Egan reports is difficult to adopt a team-building approach which promotes partnering.Due to the economic recession in UK construction, companies have been using partnering to expand into global markets which have not been as widely affected. In a bid to reduce risk most companies form local partnerships so as to utilize local fellowship as well as reducing the costs associated with labour transfers (Edum-Fotwe McCaffer, 1999). plot of ground a more open relationship now exists between the different participants of a construction project Wood Ellis (2005, pp.324) estimate that it will still be some time before a fully accredited relationship exists as there is an engrained culture of mistrust and deception. Successful partnerships offer the opportunity for paraphrase work but the client must be assured that tenders remain competitive within the relationship of trust .2.2.4 Strategic Tendering Project MixStrategic tendering and project mix become even more crucial to a companies success during times of a recession. As the private sector feels the impact of a recession firstly and for a slightly longer period it is in a companys long term pursuance to carry out a more aggressive bidding policy towards the public sector (Ren Lin, 1996). Another advantage of the public sector is its transparency and openness during the tender stage. While the public sector may be susceptible to mal-practice, construction companies know that they will be impartially assessed and receive feedback under new regulations (Statutotory Instrument, 2006).Strategic planning can be very beneficial as it seeks to align a company in a certain direction. In todays climate contractors need to evalute the client when deciding to tender as many contractors have commenced work on a project only to instructed to withdraw as the funding has been restricted (Edum-Fotwe McCaffer, 1999). A number of contractors have also begun to take on jobs at cost or even a loss in an effort to win work with the misfortune of repeat work. Also this asserts the company name in circulation and also to hold onto valued staff that might otherwise have to be made redundant.Shepherd, the bid conductor for Building Schools for the Future (BSF) is of the opinion that prominent procurement projects, such as BSF, lose some of the benefits of group procurement by being so expensive to procure. This creates a barrier to entry, which in some ways may affect the value in the procurement. The brazen-faced side is that for a contractor, you know you will be involved in a procurement process where you have a realistic incur of winning and that your scale delivers value.2.2.5 mental institution Learning in Construction ane of the most revolutionary changes in tendering has been the use of e-tendering which has been used most notably on the multibillion pound development for the Olymp ic Games in London 2012. Innovation in tendering can offer many advantages as it provide secure resource savings to a major part of the supply chain, with the key benefits being enhanced communication, time savings and cut down costs (Stephenson Tindsley, 2008). IT has aided smaller companies in allowing them to compete with their larger counterparts in certain areas. Thorpe et. all (1998) argue that construction has yet to receive the full benefit of IT advancements compared to other industries.Due to the competitive culture in the construction industry, up until recently there has been a lack of organisational learning which promotes the sharing of knowledge and experiences between companies (Barlow Jashapara, 1998). There has been very little research into organisational learning but Poyner and Powells (1995) report emphasised its importance in providing competitive advantage which is especially relevant in an economic recession. 3. Research MethodologyThe research objective is to evaluate the impact of an economic recession on the current tendering practices of UK contractors. In order to receive a greater understanding of the topic we are have qualitative and quantitative research methods. The approach employed is that qualitative research facilitates quantitative research by providing a hypothesis or assists measurement by suggesting questions (Oyedele, 2009).The research hypothesis was established through reading relevant journals and this was developed further through carrying out two interviews with industry specialists which when mapped can then assist in forming a questionnaire. A pilot study was conducted and upon receiving positive feedback the questionnaire survey was completed.Figure 3.1 Research Methodology.The literature review was sourced in the Queens, university library from textbooks, databases, journals, magazines and the internet. This source was particularly valuable as it allowed the author gain instant access to a vast array of w ebsites, on-line articles, publications, current news etc.3.1 Unstructured InterviewFollowing on from the previous chapter, two unstructured interviews were completed by industry specialists. The main aim is to develop a greater understanding of the issuance in auxiliary to the literature review and to stumble upon any differences between the two. This type of interview has no set format beyond the opening question but the interviewer may have some key questions which they can use to keep the interviewee on the topic. The interviewer is receptive to the interviewees responses and the interview follows a conversational style. Both interviewees are employed by the largest privately owned construction company in the UK with offices also in India, Australia and the United Arab Emirates. The company has an integrated capability thus allowing a holistic view of construction.The first interviewee is a project manager who has experience of tendering with Lagan and Farran construction and is currently working alongside NIW on a large PFI project valued at approximately cxxx million.The second interviewee is a bid manager for on the building schools for the future framework (BSF). He is leading a team on a project worth over 1 billion with a figure of 5.6 million.3.2 Qualitative Research cognitive MappingYin (1989) observes that in qualitative research the broadest question should be stated so that data can be drawn from a number of sources such as archival records, direct observation, documents, interviews, participant observation and physical artefacts. Qualitative research is any form of research that produces findings not arrived at by means of statistical procedures or other means of quantification (Strauss and Corbin, 1990). The interviews form the basis for the cognitive mapping and allow a greater understanding of the subject.3.3 Quantitative Research Questionnaire SurveyCreswell (2003) explained quantitative research methods are used to test or verify the ories or explanations identify variables to study, relate variables in questions or hypotheses use statistical standards of asperity and reliability, and employ statistical procedures for analysis. The next step was to formulate a advance questionnaire based on the main topics raised in the literature review and interviews and this was used to conduct a pilot study.Slight modifications were made following the pilot study and a final questionnaire was produced which contains thirty eight factors that can be considered as significant in impacting on the tendering practices of UK contractors. In the questionnaire, the rating of the factors was done on a fivesome point scale ranging from 1 to 5, where 1 represents strongly disagree, and 5 represents strongly agree. Respondents who had no opinion concerning the factors could select the answer of indifferent.The third section of the questionnaire will be used in our regression analysis and it involves establishing a relationship betwee n the different factors of our analysis. The final section allows respondents to write additional comments on any outstanding issues which had not been brought up in the questionnaire but which they felt were important.A total of forty one respondents replied to the questionnaire and despite this being lower than was wished, due to time constraints the statistical analysis had to be completed nonetheless. Shown below in Table 3.1 are the total number of respondents and a breakdown of their characteristics.4. Qualitative Results and Analysis Cognitive MappingCognitive mapping allows the analysis of large amounts of qualitative development and can be used to structure messy or mixed data for problem solving. It is especially useful as a note taking method during interviews and assisting the process by increasing the understanding of the subject (Ackermann et al., 1992).Decision explorer is a tool which allows relationships to be pictured relating to a subject. Data entry is provide d using ideas, which capture the core aspects of a notion. The concepts are then linked to show the relationship and factors of importance between ideas (Brightman, 2002).Figure 3.1 shows the three methods which can be used to question where a concept is leading towards. For the purpose of this analysis the method Action Outcome was employ as it was felt that it is best suited to exploring the subject and discovering the goals/outcomes. Once completed, surround and reflection can then follow on the most important factors which have been established.4.4 Analysis DiscussionUsing the maps in the previous section the main factors can be discussed and their influence on other concepts. 4.4.1 key Concepts AnalysisCentral analysis reveals the concepts that have been linked the most times with other concepts and means that the concepts listed below have the greatest influence on the analysis. A central analysis was conducted and the following top five concepts were revealed potpourri in Contractor Client Attitudes20 from 39 Concepts.Contractors Using below Cost Tendering19 from 35 Concepts.To Remain Lean and Competitive During the Recession15 from 31 Concepts.Economic Recession14 from 32 Concepts.increase Likelihood of Repeat Work14 from 29 ConceptsAll these top five concepts are directly related as the economic recession and change in attitudes has resulted in contractors using below cost tendering and lean construction to remain competitive during the recession with the increased likelihood of repeat work.The main issue/driver mentioned in the interviews was the economic recession which as stated in my literature review impacts severely on the construction industry as there is a reduction in the number of projects along with the cost of borrowing to repay loans and pay wages increasing (Ren Lin, 1996). This logical relation was explained in my literature review and is illustrated in Figure 4.1.The change in attitudes from both the contractor and client was a lso discussed with Latham (1994) arduous to adopt a win-win mentality and Egan (1998) focusing on improving quality and efficiency and creating a movement for change. This change from the 1960s mentality whereby private and public jobs were awarded solely on competitive tendering to a situation whereby a variety of issues are evaluated (Edum-Fotwe McCaffer, 1999) has put additional pressure on contractors forcing them to withstand quality and project time but reduce their tenders to below cost if necessary.Clients are having a greater participation and have requested a less fragmented approach which has resulted in a change of contracts to a more frequent use of design and build (Yisa, Ndekugri and Ambrose, 1996).Interviewee No.2 feels that clients are manipulating the current climate in order to get the same quality of work done cheaper whereas Interviewee No.1 is of the opinion that it is the contractors who are quick to adopt below cost tendering in an effort to hold onto staf f as other projects are completed.The concept of remaining lean and competitive during the recession is extremely important and is discussed in great detail in my literature review. Cartlidge (2002) describes how lean construction eliminates waste so that value is added to each process, leading to lower costs, shorter construction periods and greater profits.The concept of leanness incorporates reduced bid frequency as overheads need to be reduced. Walwork (1999) and Interviewee No.1 both stress the need for contractors to select the right project which will then give a greater chance of success. Innovation can reduce costs through organizational learning (Barlow and Jashapara, 1998) but both interviewees felt that as overheads need to be reduced innovation should come from your supply chain which have budgets for research and development. As discussed in my literature review suppliers involvement should be welcomed at an early stage so that they can contribute new ideas, products, or processes (Cartlidge, 2002).increase likelihood of repeat work was felt by Interviewee No.1 to come through partnering which allows a greater outcome for the whole supply chain (Dozzi et al., 1996 Larson and Drexler, 1997). A better outcome is achieved as the required business objectives can be met or exceeded (Bennett Jayes, 1998). Interviewee No.2 felt that early involvement with the client allowed links to be established thus leading onto repeat work.4.4.2 Domain Concepts AnalysisThe reality analysis counts the highest number of links in and out of a concept and establishes connections with other issues within its immediate domain. It analyses local complexity but fails to rise the wider context of the subject. A domain analysis was conducted and the following top five concepts were revealed8 relate around1 Change in contractor client attitudes2 Contractors using below cost tendering6 Links around3 Increased public spending4 Partnering and increased communication5 To rema in lean and competitive during the recessionThe previous central results determined the concepts with the greatest influence on the entire map and therefore it follows that these should have the highest number of links. Changes in attitudes, below cost tendering and lean construction were central to my literature review and interviews and this is why they have been highlighted here. The drivers for change are changing attitudes and below cost tendering with lean construction providing a number of strategies to improve through off-site manufacturing, innovative design and assembly, pre-fabrication, supply chain integration and pre-assembly (Cooke and Williams, 2009).The governments policy of increased public spending was noted by both interviewees and McFall (2008) in my literature review as oblation a company strategy to survive the economic recession. RICS (1st October 2009) reported that tender prices for new construction work will not rise until 2011 and that if the public spend ing was cut it would have a detrimental effect on the construction industry.This is further supported in my literature review which states that strategic tendering and project mix is even more crucial during a recession. Ren and Lin (1996) sound out that it is in a companys long term in