You work for a firm of professional construction advisors.
A prospective client, Regal Racing, established by Trotters Autosports, part of an independently owned global trading business, to create a car and team to compete in the FIA Formula E World Championship, as a means of promoting the conglomerate’s engagement in sustainable development activities.
Your firm has been invited by Regal Racing to bid for the professional services contract to manage the design, procurement and subsequent construction of a project. The proposed project is a head office and a racing car design production and testing facility for Regal Racing on a disused aerodrome in the east of England.
As part of the proposal Regal Racing requires bidders to submit responses to various requests for information.
Your manager has asked you to draft a response to the following request in the form of an essay:
‘One of the issues any purchaser of construction works faces is information asymmetry between client and contractor. This problem of information asymmetry gives rise to the risks of adverse selection, moral hazard and hold-up.
Please outline, with critical appraisal of the reasons for their selection, the arrangements you would put in place, if appointed, to manage the procurement of the contractor for the construction of our proposed facility so as to reduce as far as possible the likelihood of adverse selection, moral hazard and hold-up.’
Note: The company has stated elsewhere in its invitation to bid document that all responses are to be written on the basis that the design of the facility will not be carried out by the contractor.