For a project manager to successfully deliver a project, they need to have a proper construction procurement process. In the construction industry, procurement refers to the comprehensive process of sourcing, acquiring, and managing resources including materials, equipment, and services necessary for all aspects of construction projects. How firms and construction teams approach the procurement process directly impacts their operations in their projects and industry at large.
We explore all aspects of the construction procurement process, from how it works to roles and responsibilities of the project team.
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In simple terms, procurement is the process of acquiring goods and services in construction. A construction company needs to strategically approach the procurement process to maximize the efficiency of a project. A construction firm must carefully approach procurement and purchase supplies cost-effectively, considering factors like timeline, quality of project, and budget.
On critical aspect of procurement includes sourcing materials efficiently. Factors like resource availability, cost fluctuations, and changing project needs are all risks that procurement teams need to navigate. Furthermore, the purchasing process often involves contractors using trade credit or outside financing to acquire materials and services without upfront payment, helping maintain cash flow.
There are several types of procurement adopted by companies in the construction field. When selecting a long-term procurement plan, the project’s stakeholders should carefully consider the project’s business plan. When choosing a procurement plan, some critical factors are speed, cost, risks, budget, quality, and project-specific constraints.
The most common types of construction procurement and contracts for procurement are:
The most common traditional procurement method is used in the design-bid-build contract. In this traditional procurement approach, the design-bid-build method separates the design and construction phases into distinct construction phases: first, the project is fully designed, then competitively bid, and finally constructed. The contractor works under a lump sum contract and takes responsibility for carrying out the works under a building contract, making this a specific project delivery method.
This procurement method starts with the appointment of the main contractor. In design and build contracts, the client has a single point of responsibility in delivering the project. What makes this procurement method unique is that it integrates both design and construction phases under one contractor, streamlining communication and accountability. The design-build contract can follow either the single-stage tender or the two-stage tender. In a single-stage tender, the contractor submits the tender with a fixed lump sum cost. In a two-stage tender, the contractor first presents their programs, preliminaries, project team, overheads, and profits. Afterwards, the contractor is appointed to work for the client on a consultancy basis. It is here that a contractor negotiates for a fixed price for the costs of project works.
The third type of procurement is under a management contract. In this method, a construction manager is typically appointed to oversee the project, coordinate the various contractors, and ensure that the project is delivered within schedule and within budget. This is where the different contractors, all of whom the main contractor appoints, undertake procurement works. The payment terms are usually a fixed fee in the form of a percentage.
Here, a contractor with funding capabilities and expertise in design, construction, and management is appointed to design, build and operate a project. The contractor will fund the project and lease it to the client for a period. After this time elapses, the development will revert to the client.
This is similar to management contracting. The only difference is that the client is not in direct contact with the contractors. The client appoints a management team that they pay on a fee basis, and this team oversees the procurement process by the contractors. In turn, the management team is responsible for coordinating the work of different construction teams to ensure resource management is efficient and the project is smoothly executed.
The procurement manager mainly does the procurement in a construction company. The procurement manager is the logistics professional that oversees all the purchases of necessary materials for a company’s projects. The procurement manager also ensures the goods arrive on time and within budget. In addition to materials, procurement managers are commonly responsible for acquiring professional services which includes consulting, design, and engineering, all essential for project success.
There are practical skills that help a procurement manager effectively perform his tasks well. Some of these skills are analytical thinking, negotiation, communication business, and strong mathematical skills. The procurement manager has some other duties such as:
The procurement strategy involves evaluating bids and construction RFPs. The procurement manager will provide input on building materials and associated costs in preparing the proposals. During this early evaluation process, it is essential to carefully assess the project scope to ensure all requirements and objectives are clearly defined and managed. Contractors prepare a detailed estimate, compiling costs from subcontractors and other suppliers, to submit a competitive bid for the project.
Coordinating just-in-time material delivery and determining appropriate storage at the jobsite is crucial to maintain security, prevent damage or theft, and ensure smooth project execution. The procurement schedule notes down the items needed for purchasing and ensures they are delivered on-site on schedule. The procurement manager also coordinates the procurement schedules and the construction schedule to avoid project delays.
A procurement manager’s responsibilities do not end with procuring materials and services for the project. They are also responsible for contract management, change orders, submittals, evaluations, and overall project performance. Note, that during the submittals phase, it is crucial to review and approve all elements like mechanical components and key assets to ensure all key materials and parts meet project specifications before procuring and installing. Additionally, they can sometimes use the project’s data to collaborate and negotiate with vendors as contract terms and if situations change.
The design team is foundational to a successful construction procurement process. Their primary responsibility is to develop project specifications, detailed drawings, and clear design documents that define the project requirements. The combination of these documents serve as the cornerstone for the entire process, guiding the procurement team to identify the necessary materials, equipment, and services needed for the construction project.
Subsequently, a well-executed design phase is crucial here. Close collaboration between the design team and the procurement team ensures that all project requirements are accurately reflected in procurement documents, such as requests for proposal (RFPs) or invitations to bid (ITBs). Consistent communication and check-ins prevent misunderstandings and ensures that the right materials and services are sourced. By working together, they can address any ambiguities or missing information in the project specifications early on, reducing the risk of costly changes or delays once on-site construction work begins. Ultimately, the design team’s attention to detail and proactive involvement in the procurement process helps the project stay on schedule and within budget.
Contractors’ estimates are a vital part of the construction procurement process, especially when they are accurate. They provide a detailed projection of the costs associated with a construction project. Construction cost estimates are developed using the project specifications and design documents (drawings, 3D models, etc.), breaking down the anticipated expenses for materials, labor, and equipment.
For procurement managers, a deep understanding contractors’ estimates is essential to ensure the process aligns with the project’s budget, schedule, and design requirements. A thorough review of the contractor’s estimate allows procurement managers to identify potential risks, discrepancies, missing information, or aspects where costs may exceed expectations. This includes analyzing the pricing structure, scope of work, historical data, and proposed timelines to confirm they line up with the project needs.
By carefully evaluating contractors’ estimates, procurement managers can make better decisions during contract negotiations, ensuring that the final agreements support the project’s financial and operational goals. Overall, this helps prevent budget overruns and supports a transparent, efficient project delivery.
Advancements in construction procurement and preconstruction technology have transformed the way the construction procurement process is managed. Today's software solutions offer procurement managers powerful workflows to automate and streamline processes, centralize and enhance communication, and boost overall efficiency throughout the procurement process and into the construction phase.
Construction procurement technology encompasses a range of tools, including procurement and bid management software, contract management platforms, and comprehensive construction project management systems. These solutions automate routine tasks, facilitate real-time tracking of procurement activities, and provide valuable data analytics and dashboards to support decision-making. Procurement managers and teams who leverage cutting edge technology can reduce the risk of project delays, improve contract management, and ensure better coordination among project stakeholders.
Additionally, construction procurement technology can improve collaboration between design teams, contractors, suppliers, and project owners. Features such as document sharing, automated workflows, and integrated communication channels help everyone on the same page. By embracing construction procurement technology, construction companies can streamline their procurement process, minimize errors, and deliver projects more profitably.
There are a variety of construction procurement best practices essential for achieving successful project outcomes and maintaining a competitive edge in the construction industry. Particularly, procurement managers play a key role in establishing and following these best practices and maintaining consistency across the firm and projects.
One of the most important best practices, as simple is it may sound, is to define and understand clear project requirements from the outset. This involves working closely with the project team including the owner and design team to develop a robust procurement strategy and select the most appropriate procurement processes for the project’s needs. We cannot overstate the effectiveness of robust communication and collaboration among all stakeholders in order to minimizing misunderstandings and project delays.
Careful planning and resource management are at the heart of successful procurement. Procurement managers should conduct thorough market research, leverage historical data, evaluate supplier relationships, and implement a competitive bidding process to secure the best value for the project. Prioritizing contract management, subcontractor qualification, change order management, and claims management helps keep the project on track and reduces the risk of disputes.
Despite careful planning, the construction procurement process is truly complex and often faces a range of challenges. Procurement managers must be prepared to address issues such as project delays, supply chain disruptions, material price fluctuations, and cost overruns, all of which can threaten the project schedule and budget.
Managing multiple suppliers and coordinating contractor schedules can be particularly complex, especially on larger projects. Compliance expertise is critical for procurement managers here to navigate the complexities of contract management and regulatory requirements. Supply chain disruptions, whether due to material shortages or logistical issues, can further complicate the procurement process and lead to unexpected delays.
To overcome these challenges, procurement managers should develop a comprehensive procurement plan that includes risk management strategies and contingency measures. As mentioned, construction procurement technology can help streamline communication, track progress, and quickly and proactively identify issues.
Procurement is pivotal in a project’s success in both the construction and design phases. It relies heavily on the experience, market knowledge, and resources of project managers. Procurement models adopted in a project have their advantages and disadvantages depending on how they are applied. However, there are expected benefits of procurement that cut across the board, showing how vital procurement is in construction. Below are some of the benefits of procurement in construction.
The amount of time involved in the procurement of goods and services in a project affects the scheduling of critical project activities. For instance, the delivery dates of materials and completion dates of the contracted works are key dates in the project schedule, and they are directly dependent on the procurement cycle. Improper procurement will lead to delays in a project or a project falling on the critical path, thus affecting a project’s success.
Unmitigated risks are one of the pervasive causes of project failures. One of the risks in a project is project delays. However, proper procurement curbs this as it ensures that goods and services are delivered on time. The construction process, in turn, runs smoothly and is delivered in time.
Procurement improves communication between project stakeholders and external suppliers. This is because stakeholders have to conduct regular meetings and provide constructive feedback about how the procurement cycle can run smoothly. Proper communication brings more creative ideas to the table, improving the construction process.
When dealing with large projects, it is imperative that your company has someone who knows the current rates and when it is okay to make budget exceptions. Proper procurement will be able to flag high and unnecessary spending. It also takes away the bargaining process from the client as the procurement team is always ready to barter down any quote and ensure the client gets the best deal.
A good construction procurement plan maps out the managing process of a construction project. The merits of procurement in a large project are self-evident. The procurement team helps the project team know which questions should be asked, potential cost fluctuations, skills, and work scope. Construction procurement is all about managing projects for owners to build their dream projects.
