Comparison between one selected alternative procurement strategy Essay

Comparison between one selected alternative procurement strategy against the traditional lump sum contract - Essay Example There have been many developments in the field of procurement management over the years. Partnering, Construction Management, Management Contracting , Built-Operate-Transfer / Public Private Partnership, Guaranteed Maximum Price etc are some of the commonly used procurement strategies. With this background, the present essay discusses and compares differences in the procurement of management Contracting and the traditional lump sum contracting. The main tasks of the procurement professional are to assess and choose material suppliers based on accessibility, dependability and cost in order to find the good quality products (or services) at the best feasible value (Marsh, 2000). In an online article-Supply and Demand Chain Executive, October, 2003- the author remarks that "while procurement is a critical business function for virtually every company, senior management often misunderstands it. In general, procurement is usually viewed as a cost center, which can only be marginally improved through the application of information technology" (Smith, 2003). Irrespective of the developments in the field, there are some problems and challenges that many companies still are confronted with in the area of procurement management. ... The failure to establish pricing agreements for certain suppliers; Lack of accessibility to contract information; Inability to perceive the supplier performance and reliability based on contract terms; Comparison between Management Contracting Lump-sum Contracts A lump sum contract refers to a kind of fixed price contract where the buyer comes to a fair deal with the provider (or seller) by agreeing to pay a fixed total amount for a well-defined product (Chen, 2001). In other words, while payment is the common factor between these two contract types, differences prevail in terms of the payment modes that can be fixed or contract-based regarding the former, but have to be fixed when it comes to the latter. Whereas management contracting is an arrangement under which a separate enterprise performs the managerial functions of the principal enterprise in exchange of payment. It involves a wide range of functions including the operational functionalities of the enterprise, production, accounting, marketing, and so on (Procurement practice guide, 2008). It is suitable for fast track projects, complex buildings, and a developing brief. However, it perform less in areas characterized by inexperienced clients, cost certainty before starting construct ion, and clients wanting to pass risk to the contractor. These two types of procurement strategies can be further compared and contrasted in with the major points such as organizational structure, contractual relationships, risk control mechanism, and Suitability criteria and the impacts on the project outcomes. Organizational structure While payment being the common factor between management contract and the traditional lump sum contract, there are several other aspects in which the two can differ as well. In order to