The potential of new models of construction procurement to counter cost overruns in construction projects: an exploratory study from a contractors’ perspective

Abstract

Purpose: Cost overrun is a significant issue in construction, an undesirable feature the industry has long been associated with. Poor procurement practices are often blamed for subsequent cost overruns in construction, especially with conventional procurement methods leading to outrageous cost overruns. The purpose of this study is to review the features of the new models of construction procurement (NMCP) and assess their potential to reduce cost overruns in construction projects. Design/methodology/approach: A literature review was conducted to identify the issues of procurement leading to cost escalations. Primary data were obtained through exploratory, semi-structured interviews using a case study approach. Findings: Clients’ lack of knowledge was highlighted as a key issue in procurement that interlinks with many factors causing cost escalation. The findings suggest that the features contained within the NMCP, such as early contractor involvement and collaboration throughout the project team, have the potential to make a positive contribution to addressing cost escalation in construction. Research limitations/implications: The primary research was undertaken as an exploratory study and presents the contractor's perspective. Further research is therefore suggested, with multiple organisations representing all key stakeholders in a construction project, including clients, consultants, sub-contractors and suppliers. Practical implications: The study recommends awareness of the NMCP be raised throughout the industry, and simplified information must be made available to help widen uptake of these contemporary procurement methods. Originality/value: Addressing the dearth of research concerning the use of NMCP within the industry, this study makes a niche contribution to the body of knowledge on construction cost management by illustrating the potential offered by these new procurement methods for addressing cost escalation. For an industry where collaboration is accepted with reservations, this case study demonstrates how novel collaborative strategies such as open book costing, project bank accounts and shared pain and gain mechanisms can be implemented as part of the procurement strategy and how such strategies can contribute towards minimising the cost escalation inherent in construction projects.