3 Work allocation

Marketing has been given many definitions. Presently, a popular view is that marketing involves identifying actual and potential customers, determining their needs, gearing the organisation to produce items conveniently for the customers and securing adequate recompense for such provisions. One view, Ohmae (1990), implies that effective and efficient marketing makes the notions of competition virtually irrelevant/redundant. In this context especially, differentiation between marketing and selling is crucial.

Clearly, emphasis is shifting away from price competitive approaches to non-price competition. In construction, recent attention to time performance on projects and the current vogue for quality provision through quality assurance is acknowledgement of the trend. It is regrettable that standard procedures for allocation of work remain focused firmly on price competition as the final/

primary factor. In contrast to the marketing philosophy, price competition in construction is increasingly widespread—most notably due to fee bidding amongst design consultants. However, changes are afoot which accord more closely with developments in marketing. Although sub-contractor selection remains locked into price competition, even the infamous ‘Dutch-auction’, mechanisms for letting work to main contractors is moving towards multi-stage tendering. Simply expressed, the steps in single stage selective tendering are followed but two or three tenderers are selected, usually on price, to give presentations to the client and primary designers of the team, construction methods and management procedures which the contractor will use on the project.

Thus, time, personnel, control, quality and other non-price factors re-emerge as the criteria which determine which contractor is awarded the work.

Unfortunately, although such an approach is common for design and build and management contracting, the majority of projects are let more traditionally with price competition’s remaining the factor which finally determines the successful contractor. Indeed, it is easy to establish that cost to the client remains the sole factor in not only contractor selection but in project selection too. The argument contends that, due to the capitalistic operating criteria required of most organisations (most obviously expressed as ‘profit seeking’), the non-price factors are evaluated through their impact in overall cost and then combined with the tenders to select the best bargain. So, back to price competition but on a global basis. Organisational operating criteria govern behaviour.

4

Sunrise in the east

Fellows (1991) discusses the appropriateness of the law of Karma to bidding in the construction industry. It is contended that hard, bad, unfair etc bargains have

‘circular flows’ which produce results detrimental to the health of the industry through a cause and effect spiral. Given that organisations must earn at least

‘normal profits’ to survive, being on the receiving end of a hard bargain must produce claims, and other consequences, such as pressuring sub-contractors and suppliers prices downwards, suppressing wages etc to obtain the necessary profits through cost reductions. The likely detrimental effects on relationships, quality and other performance measures are well known. Traditionally, major advances in industrial productivity have been secured by increases in the use to plant and via technological developments. Such advances require investment and, although the construction industry in the UK has changed its methods, approaches and plant-based technologies fairly rapidly over recent years, the funding for the investments increasingly has come from overseas. The rise of overseas, albeit European, investment in UK-based construction companies may be viewed as unwelcome by all apart from those whose jobs are saved by those investments; UK investors being reluctant to put their funds to such uses—

possibly due to the period required to yield a return as well as the likely level of the return! However, in comparison with their counterparts in continental Europe, UK construction companies profitability is approximately double.

In many countries, particularly UK, the extension of free-market raw capitalism has been marked. Japan’s economic miracle has been extolled as a shining example of the success of such a system which many have sought to emulate. The Japanese model is different. Trades unions, life time employment in one company, attention to quality and product/service performance in general, just-in-time inventory control—all are Japanese—led arrangements which still distinguish that economy. Far from representing raw capitalism, the Japanese approach has been termed peoplism. Peoplism involves developing employees, links investors and bankers to the company and organises markets in order that long term involvements and relationships prosper. The Japanese system does not

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make shareholders sovereign; companies organise as social organisations in which work is regarded as a mechanism through which people (express their needs to) build social relations.

Whilst UK companies have to sell shares on equal terms to any purchaser, Japanese companies can, and do, sell shares to preferred banks, suppliers etc cheaply thereby creating a favourable and highly supportive ownership through a network of helpful relationships. Many Japanese companies have over half their shares owned by ‘supporters’, the resulting financial structure provides security to enable managers to work on the basis of the company’s having perpetual life (a similar assumption but with a different basis, level of security and performance requirements from UK) and so can organise and involve employees in the company’s future. The upshot is more sharing of information on joint decision taking; groups compete with each other but from a base of extensive internal co-operation.

Japanese legal and financial structures allow external debt to be used by companies to finance investment together with mechanisms to nurture young companies, to protect them from competition and to promote acquisition of skills by people (long term need). High gearing, via bank-based debt financing is common for launches of new products etc. Japanese companies are renowned for aggressive pricing to win market share (even dominance) and cost reductions secured by constantly innovating. The relatively high level of funding for R&D by Japanese companies is well known—many times that of UK construction companies.

In the global context, and in UK, Japan’s construction industry appears to be following hard on the heels of its automotive, electronics and optics industries.

The reputation includes good, reliable products and hard bargaining; high incidence of disputes and conflict does not feature—Japanese face fosters trustworthiness.

As the UK construction industry is subject to an exponentially increasing incidence of disputes, even if at a fairly constant level of ultimate conflict, the disparities in objectives between parties become highly pronounced. Disparities are accentuated through many work allocation mechanisms, especially those which focus on bidding as the crucial stage, and in forms of contract which, all too commonly, accent and foster the adversarial approach. (Interestingly, it is that approach which is enshrined in the mechanism of litigation in UK.)

The law of Karma, with its counterparts in almost every culture, demonstrates that the consequences of someone’s actions, sooner or later, ‘come home to roost’.

A clients’ forcing down contractors (and consultants) bids on a project is likely to have a quite extensive ripple effect; if sufficient clients behave in such a manner, even simple market theory asserts that supply and demand will attempt to restore equilibrium by liquidations of contractors etc and higher prices from the remainder.

Fortunately, sophisticated, repeating clients, whilst glad of low bids, generally do adopt an approach which is commensurate with the long term ‘health’ of the industry—any less responsible approach would be detrimental to their own future projects. So, recognising that all involved are in business, with operational imperatives which have some degree(s) of commonality, is likely to reduce disputes through recognition of others requirements and, thence, removing some of the major causes.

5 Conclusions

The notion of peoplism is complimentary to an approach which accords with the law of Karma. By fostering a wide network of loyalties on a sound financial base which has a long term focus as well as shorter term requirements (in contrast to the popular belief that UK ‘financiers’ are concerned with short term performance only—and increasingly shorter terms at that), cost reductions, technological developments and loyal staff are encouraged. All should benefit.

Simon (1960) noted that an organisation had to adopt sub-optimal performance against individual criteria in order to obtain acceptable performance over the spectrum of criteria, some of which were likely to be in conflict with each other!

If that ‘satisfying’ approach could be employed by all parties on construction projects, perhaps driven by the possible advantages noted in this paper, it is contended that, as noted the introduction, the industry and its clients would benefit and profit through fewer disputes and conflicts—those direct and indirect costs consequent upon disputes occurring would be eliminated. Pity those poor, unemployed and thin claims lawyers which would result!!

6 References

Baumol, W J, Panzar, J C, Willig, R D (1982), Contestable Markets and the Theory of Industrial Structure. Harcourt Brace Jovanovich.

Fellows, R F (1991) Karma Bidding, Habitat International 14, Issue 2/3 December, 115–118.

Fenn P (1991) Managing Corporate Conflict and Resolving Disputes on Construction Projects, Proceedings Annual Conference of the Association of Researchers in Construction Management (ARCOM).

Ohmae, K (1990) How to Win Without Competing. Best of Business International, Whittle Communications International (UK) Ltd, 58–63.

Simon, H A (1960) The New Science of Management Decision, Harper and Row.

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