This guest blog comes to us from Megan Ray Nichols of Schooled by Science
Choosing
the right procurement strategy is vital for completing construction projects.
Every project, whether in the public or private sector, is different. What they
all have in common is the desire to deliver outstanding results.
That
means taking procurement strategy seriously is crucial for success in this
industry. So what are some popular procurement strategies — and when does it
make sense to use them? Here’s a closer look at where procurement stands today.
Why The Right Procurement Strategies Are Essential in
Construction
According
to research, as many as 90% of building projects
undertaken in the public sector come in over budget or fail to meet their
deadlines.
Why
is it so critical to have a procurement strategy? For one, it means you have
established processes in place for dealing with setbacks, such as kinks in the
supply chain. For another, it helps avoid cost overruns and rework as the site
takes shape. Last-minute procurement problems are costly. So are delays. Having
a clear strategy allows you to manage risk more effectively.
Procurement
managers have more options for strategizing and carrying out procurement than
they might imagine. They also have considerable influence over the timeliness
and cost-effectiveness of a project. Procurement skills and the right strategy
are only going to get more crucial as every industry on earth grows more complex
and competitive.
So,
what are some procurement strategies and tips worth considering in
construction? Here are five.
1. Employ the Design-Bid-Build Strategy
You
might call this the “traditional” approach to procurement. Even so, it’s worth
exploring why it endures and why it works for so many business relationships.
Design-bid-build
is advantageous for the owner or owners because it clearly defines the
project’s scope, budget and timeline. This approach brings in contractors who
are qualified or believe they’re qualified to take on the work as outlined.
There are some drawbacks, of course.
By
and large, procurement managers instructed to operate this way will choose the
lowest bid from the lineup. It is a positive thing for the builder, and it may
not have any downsides in projects that are well-understood at every level,
from land use and engineering to design. But it’s potentially not that great a
match for more specialized projects where there may be surprises along the way
that result in work or costs that weren’t specified beforehand.
2. Consider Pre-Qualifying Contractors
Owners
who need construction services want to know their money is buying reliable and
experienced contractors. Procurement managers know this, which is why the
second procurement strategy worth mentioning is pre-qualifying contractors.
The
goal with any procurement strategy is to find partners and vendors who can help
keep costs and rework low. But if the procurement manager wants more control
over the process than the design-build strategy allows or wants to be sure
their specialized project gets committed, industry-specific attention and not
just the lowest bidder, they can pre-qualify contractors.
Unlike
in design-bid-build procurement, pre-qualifying means screening contractors for
responsibility and quality before bidding begins — not after the project is
underway. Only preferred and vetted contractors get invited to submit bids.
Procurement
managers can use any of the usual criteria for pre-qualifying candidates,
including their portfolios of relevant work and past performance. The result
remains the same: less administrative time wasted and, potentially, less
project disruption and rework due to contractors that turn out to be unreliable
after securing the bid.
3. Use Job Order Contracting
What
do public-sector procurement managers and property managers for apartment
complexes have in common? Among other things, one of the tools they sometimes
use is job order contracting.
This
type of procurement has the benefit of streamlining construction and other
types of jobs that are small, happen often and don’t change too radically in
scope over time. Job order contracting is a relationship between an owner and
contractor where the contractor remains “on call” to respond to job orders for
a set of pre-determined work tasks at pre-determined markups for labor, parts
and other overhead.
Again,
job order contracting is a streamlined approach. Procurement managers enjoy
predictable costs and potentially faster timelines, but they don’t necessarily
get lower costs.
4. Seek Expertise on New Technologies and Approaches
By
most standard definitions, procurement managers are experts at choosing cost-effective contractors,
suppliers, business partners, equipment and industrial services.
They
excel in the practical and business side of things, such as strategies for
keeping costs low. But,
unless they work at it or the organization encourages
it, they are not necessarily well-versed in the latest construction
technologies. “It’s always worked before” is a poor excuse to ignore modern
construction technologies or opportunities to work with mold-breaking industry
partners.
If
you’re a procurement manager at a construction company and you need new
equipment, it pays to explore new technologies and the benefits and tradeoffs
they bring. For instance, some heavy electric equipment delivers higher upfront costs, but with zero emissions and
a lower cost of ownership. But they might present a learning curve to
management, labor or both.
On
the other hand, if you’re a procurement manager looking to do business with a
construction company, especially if the project is unusual, it helps to find
one with subject matter expertise in cost-, time- and material-saving
technologies like digital grade control systems, location awareness and
tracking and assistive and remote capabilities.
5. Master It All With Multi-Prime Contracting
Multi-prime
contracting is a modern procurement strategy that’s won favor because it can
help fast-track projects. Here, the procurement manager draws up separate
contracts for each process in the overall project. For instance, there might be
separate contracts for electrical installers, plumbers, earth-moving, structural
builds or repairs and any number of others.
As
the name suggests, multi-prime contracting allows procurement managers to
extract the best value from each process. In what is either an upside or a
downside, it means they have much more control and responsibility over how the
project plays out and how to coordinate everything. The same is true on the
owner’s side of things, along with the added possibility of lower costs, thanks
to reduced markups and overhead.
Procurement Paves the Way to Success
We
imagine you already appreciated the challenge and the importance of procurement
in construction. With any luck, you now have a renewed understanding of how
central a role it plays and how much variety there is in how you can tackle the
corresponding responsibilities and strategies.
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