Graham J. Ive

Rethinking the multi-attribute utility approach based procurement route selection technique

The multi-attribute utility approach (MAUA) provides a possibility of transforming subjective perception or evaluation into objective decision principles. However, as applied to procurement system selection, the advice derived from this approach can be problematical, if the nature of the procurement systems has not been examined carefully. The major weaknesses of the MAUA as applied in this field lie in its selection of priority variables and in some association of procurement routes with priority variables. This paper uses a transac2 tion cost perspective, in a setting of incomplete contracting, to develop these comments.

The economics of the modern construction firm

List of Tables List of Figures Preface List of Acronyms PART I: SOCIAL STRUCTURES OF ACCUMULATION Social Structures of Organization Social Structures Applied to the Provision of the Built Environment Social Structures of Production PART II: CONSTRUCTION MARKETS Towards Usable Concepts of Construction Market Structure Construction Markets and Transaction Costs The Nature of Construction Markets PART III: CAPACITY Capacity of the Construction Industry Capacity of the Firm and Economics of Growth PART IV: PRICING AND INVESTMENT STRATEGIES Pricing and Investment Marketing and Production Decisions of Speculative Builders and Contractors PART V: CAPITAL CIRCUITS The Industrial Capital Circuit Capital Circuits, Conflicts and Strategies Bibliography and References Index

The economics of the modern construction sector

List of Tables List of Figures Preface List of Acronyms PART I: PRODUCTION Construction and Value Added The Capitalist Construction Industry Labour Market Productivity and the Production of Profits PART II: ACCOUNTING FOR PRODUCTION AND ASSETS The Logic of Accounts Value of Stock and Flows of Built Capital at National Level Ownership of and Investment in Built Stock and Land PART III: THE NATURE OF THE CONSTRUCTION PROCESS Actors and Roles The Contracting System PART IV: CONSTRUCTION AND THE ECONOMY Construction Investment, the Multiplier and the Accelerator Economic Growth and Construction Cycles Bibliography and References Index

Reversal of bargaining power in construction projects: meaning, existence and implications

Reversal of bargaining power arising from asset specificity is important for the understanding of hold‐up problems. Various types of asset specificity have been identified in different transaction contexts, but a previously unidentified or unnamed type is developed here: process specificity. Numerous widely used financial and contractual preventive measures in construction practice can be justified as responses to this problem of process specificity. These include bonds and retentions. However, these measures have limitations. Specifically, the client‐led change orders cannot be completely averted and when they occur, the pricing of additional work largely relies on negotiation, implying that bargaining power determines the result. Consequently, the hold‐up problem remains a managerial issue. To mitigate this problem, clients should choose a procurement system by aligning project attributes with the procurement system characteristics.

The principle of inconsistent trinity in the selection of procurement systems

This paper examines the economic characteristics of construction procurement systems partially in terms of transaction cost economics and partly those of project management. It proposes the theoretical principle of an inconsistent trinity, according to which, in selecting a procurement system, the client will inevitably face a trade‐off between the procurement system best able to deliver: (1) fastest completion of the project (and therefore higher discounted present value of revenue from the project); (2) least vulnerability when making changes (lower transaction hold‐up costs arising from temporal or process specificity); as well as (3) least vulnerability to non‐performance (lower transaction measurement costs from greater visibility to third parties for ordering of disputes). The model provides a potentially testable contribution to a transaction cost theory of construction procurement. It also has two implications: (1) the three main family types of procurement systems are held to be intrinsically different in economic terms, so selection of procurement system does matter; (2) no system can enjoy absolute advantage over others, so the proposed strategy of procurement system selection is to align the characteristics of procurement systems with attributes of projects.

The compilation methods of building price indices in Britain: a critical review

The major message that I will be trying to convey is that we often misinterpret the available data because of inadequate attention to how they are produced … (Griliches, 1994, p. 2) The importance of accurate measurement and pertinent modelling of the general level of construction prices cannot be overemphasized. Uses range from macroeconomic statistics such as real value of investment to micro‐level budgeting like construction project price forecasts. Numerous research studies posit that the measured productivity growth rates of the construction sector are distorted and that an inaccurate general construction price index is a main villain of the piece. The academic research published in this arena has primarily focused on models to forecast or predict changes in the general construction price level, whereas this research scrutinizes the compilation methods of the general construction price index in Britain and finds that the indices measure the price movement of more traditional building trades but almost completely ignore the mechanical and electrical services. The existing indices also do not gauge the tender price movements of new building work that is not procured through the conventional lump sum BQs route, such as many projects in private housing and PFI markets. These make out a case for allowing resources to the project of developing alternative methodologies: (1) a revised version of the present method; and (2) hedonic price index.

A theory of ownership types applied to the construction majors

Two sets of firms are identified from the UK of the 1980s, as the dominant types of ‘construction majors’: bisectoral conglomerates (BSCs) and diversified construction groups (DCGs). These types and the phenomena of industrial structure that they describe are contrasted with other forms of industrial ownership and corporate growth. The present importance of such firms is measured and described. DCGs are considered both as a structural phenomenon, rooted in particular economic structures, and as the result of a process of corporate growth and of certain strategic choices. To illuminate the structural and institutional determinants of this form, we compare its characteristics in Britain and in France. To attempt an explanation in terms of corporate strategy, we consider various hypotheses. Two hypotheses, which we term ‘cash-flow balancing’ and ‘profit smoothing’, are considered worthy of further investigation. Finally, we consider the future competitive advantage of firms with the DCG form and the impact o...

Economics and technological change: Some implications for the study of the building industry

This paper is a preliminary attempt to indicate a unified theory of economic and technological change in the building industry. It is limited to a consideration of that part of industrial change which might be termed “deliberate”, that is, cases where analysis and identification of situations and trends has helped form conscious strategies, albeit that the outcomes of those interventions and actions may not have corresponded to what was intended or foreseen. We reject the idea that the building industry is only the unconscious and passive object of external forces acting upon it, and offer instead an interpretation in which various elements of the industry (sometimes powerful “leading” firms acting alone, more often, sets of similarly placed firms, or formal/informal groupings or organisations of firms) and of government move towards a “view of events” which then underpins and shapes the policies, strategic development and choices of government and of firms, which in turn influence the direction and pace of economic, organisational and technical change in the industry. It follows of course that we do not regard the building industry as “the last refuge for the application of perfect competition theory”, nor as a locus classicus for theories of exogenously induced change based on one or another kind of simple determinism (whether determination by the “logic of scientific discovery” or by the “logic of changing user demands”). Deliberate change at the level of the industry or more accurately, the set of building industries must be regarded as “policy” and much of this paper reviews implicit or explicit attempts to define such policies. The paper is principally concerned with work in and on the UK, notably over the last 30 years or so, although it is hoped that the theoretical ideas may have wider application. Students of industrial change appear to approach the phenomenon either by explaining economic change through technical change or vice versa. We regard such a separation as unhelpful generally; in studying building activity it leads to the omission of a major aspect of industry, the building process. Rosenberg (1982) and Stoneman (1983) review very thoroughly the current awakening of

Pricing and Investment

In this chapter we model the pricing and investment decisions of firms, using the Eichner — Wood model (Eichner, 1980; Wood, 1975). This model will bring together the concepts of pricing, output, finance, profit margins, and gross operating profits, but it is the inclusion of growth which introduces a dynamic element, allowing for change and uncertainty. We shall use the Eichner model to demonstrate the tradeoff between the need for internal funding for investment and the constraint of the market on a firm’s ability to raise these funds by increasing its pricing mark-up. We adopt Wood’s approach to determining the maximum rate of sales growth and profit margin and suggest that this model can be applied to firms working in the construction industry.

Cost and value ratios of operating renewed English secondary schools

The relative cost ratios of facility construction and operations, and the value generated from building use have been much debated in recent years. Relative values of these ratios are likely different between alternative facility types. Empirical analyses of ratio estimates are presented for English secondary schools over recent years. Findings challenge established views of the relative cost ratios of 1 (construction), 5 (facility management) to 200 (operations or staff), suggesting the ratios are actually 1/1/5 respectively. The study also estimates the value of investing in schools in terms of improved outcomes, applying educational attainment data for rebuilt schools. These are converted into monetary values using wage uplift indicators. This produces estimates of expected economic benefits (increased productivity and output) and benefits to government via future tax receipts (financial return). Findings suggest the present value of future tax revenues alone do justify investing in school rebuilding. Average economic returns are positive but highly variable, with high dispersion in expected benefits. These benefits are positive only in half the rebuilt schools. The results will help inform allocation of public resources in schools, while also assisting management of the growing independent and semi-autonomous school estate.