Developing a procurement path determination chart SEM-based approach

Abstract

The choice of an appropriate procurement system is crucial to construction project success. Procurement selection is largely based on path determination charts, with at least eight key criteria needing to be weighted by decision-makers. Including certain criteria whilst ignoring client-borne transaction costs (TCs) resulting from environmental uncertainties simplifies this process. TCs are ‘unseen’ costs associated with pre- and post-contract work. The effects of uncertainties in the transaction environment and procurement systems on TCs are investigated, comparing the traditional and design-build procurement systems. A cross-sectional sample approach was deployed, involving survey questionnaire and results verification through ‘real-world’ cases. Data was sought from construction professionals in management, design and operation of construction projects. The research participants evaluate their time spent on procurement activities using a five-point Likert scale. Hypotheses of the relations between environmental uncertainties, procurement systems, and pre- and post-contract TCs are tested using a structural equation modelling (SEM) approach. The study found that TCs account for about 46.75% and 42.88% of the daily time spent by project managers in traditional and design-build procurement systems in New Zealand respectively. The study concludes that the TC concept is a useful framework for determining objective instead of subjective opinions for procurement decisions.