Procurement Selection Model: Development of a Conceptual Model Based on Transaction Costs

Mohammed A Rajeh, John Tookey, James Rotimi


Abstract

Procurement is a major improvement area and a crucial element contributing to project success, and the selection of an optimal procurement system is an important and difficult step in project execution. The criteria for choosing suitable procurement methods are based on client’s objectives and priorities, and influenced by project constraints. The procurement path determination chart has largely dominated research in procurement selection process in construction. Eight factors need to be considered by the client when developing procurement selection criteria. At the procurement strategy the focus should be on factors such as cost, quality, and time, while at the procurement route the consideration should focus on complexity, certainty, risk, responsibility, and degree of control by the client. However, including certain criteria and ignoring the magnitude of transaction costs (TCs) associated with uncertainties in the transaction environment simplifies this process. This study addresses this shortcoming by combining evaluation criteria with TCs incurred because of external and internal environmental uncertainties in a theoretical model on procurement selection. This is achieved by developing a conceptual framework model based on TCs. Uncertainties in the transaction environment have a positive or negative impact on the magnitude of TCs such as information, procurement, administration, and enforcement. The model represents an analytical form of a suitable combination of factors influencing procurement systems, which guide procurement decisions. The model will increase understanding of how efficient procurement selection of construction projects can be achieved through appropriate procurement procedures, which could positively impact project performance.

Keywords: Construction, Procurement systems, Transaction costs

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