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, 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 , 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 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.