Civil Engineering Reference
In-Depth Information
The network of contracts between all participants in the construction
process formally defi nes how a project, however complex, is put together.
For example, in the tendering process contractors compete on price by
calculating their production costs, management overheads, resources
used and a mark-up, taking their allocation of risk into account. Con-
tractors manage their exposure to risk and uncertainty by parcelling the
work into numerous subcontract packages. This implies that a core
competency for contractors is the management of subcontractor prices.
As a result, there is a disengagement from the actual building process
by main contractors.
Each transaction in the supply chain represents an agreement to pur-
chase a supply of a service or a product. Each transaction takes place
within a particular market, with its own unique set of characteristics.
For example, in some markets there may be many variants from which
to select. Each manufacturer produces a differentiated product or service,
with features only their offer can supply. Nevertheless, competing offers
may still be easily substituted for that of a competitor.
Other markets involve a service that is assumed to be identical regard-
less of the supplier, such as the general contracting market. Some
markets require technical knowledge and skills; others require specialist
designs. The degree of competition between suppliers varies depending
on the ease with which new fi rms can enter. Where the barriers to entry
are low, the market is described as contestable. In contestable markets,
even though there may not be many competing fi rms, the prices offered
tend to be similar to competitive prices, because fi rms in the market
fear attracting new entrants, who might reduce prices even further. Even
where there are barriers to entry because of the expense of plant and
machinery, competition can be fi erce in a buyers' market and less so in
a sellers' market. A buyers' market occurs when suppliers fi nd it diffi -
cult to attract customers and offer discounts and additional services to
win orders. A sellers' market arises, when fi rms operate at or near their
full capacity and have to be tempted by clients through higher prices,
prompt payments or even payments in advance. Because of the frag-
mented nature of construction, it is possible for buyers' markets to
coexist alongside sellers' markets on the same project.
The client and construction
With the exception of the very smallest building projects, the con-
struction process is invariably complex, involving several different
