Civil Engineering Reference
In-Depth Information
infl uencing tier 1 contractors to collaborate, using the market intelli-
gence data gathered during Stage 2 - described above - when assessing
the benefi ts of the common component strategy.
The common component strategy is drafted by the procurement and
programme supply chain management team and issued for approval to
the programme management executive and client sponsor representa-
tives. The overall contracting strategy ultimately determines the
common component procurement strategy, as the latter comes within
the former.
A number of basic strategic options were given in Table 5.1 above,
including buy and free issue, in which the client purchases the compo-
nent or commodity and issues it to the tier 1 contractor for use in their
delivery. An alternative approach is to use a client supply framework,
where the client procures a framework of suppliers, from whom all tier
1 contractors are contracted to purchase specifi c materials.
A similar arrangement is the tier 1 contractor supply framework, but
in this case the tier 1 contractors enter into the contract to purchase the
component or commodity they need in common. This creates a contrac-
tual arrangement between the tier 1 contractor and the supplier in a
separate transaction agreement. This approach was used by Transport
for London (TfL) in their escalator framework contract (see case study
earlier in this chapter).
Another approach is the benchmark framework, which uses the shared
information found in the common component exercise to establish a
benchmark of performance. If the benchmark cannot be bettered by a
tier 1 contractor's own supply chain, then the contractor must use the
suppliers identifi ed during framework procurement. This approach
requires additional management input but allows fl exibility, especially
if market conditions change in the course of the programme, or if a tier
1 contractor's own buying power across their business is greater than
that of the programme.
The benchmarks are found by taking various measures from the tier
1 contractors' existing supply base. The tier 1 contractor that has the
best value arrangement with their supplier then buys on behalf of the
programme. This benefi ts the tier 1 fi rms, as they increase their turno-
ver and margins, while gaining from their mark-up to other tier 1
contractors.
Yet another option is the use of a buying club. They can be used
where the client is not expected to intervene directly in the supply chain
of a common component. This option requires that tier 1 contractors
