January 25, 2023 | Procurement Strategy Blogs
Like many other industries, the construction sector has seen a slump in recent times. Rising inflation, high input costs, raw material and labor shortages and weak consumer sentiment have compounded the problems of the industry.
How can construction companies counter these challenges and stay competitive?
Well, they can begin by streamlining construction procurement.
In this article, we'll explore the challenges and types of construction procurement We will also learn how to develop a construction procurement strategy and best practices.
Construction procurement is a critical component of any successful construction project. It is the process of identifying, selecting, and engaging the right suppliers, contractors, and other entities to deliver the construction project on time and within budget.
The process includes the evaluation of tenders, negotiation of contracts, and the management of relationships with suppliers.
The construction procurement process can be complex and time-consuming. It requires a comprehensive understanding of the project scope, the resources and materials required, and the capabilities of potential contractors. It also requires an effective procurement strategy to ensure the selection of a contractor who can deliver on the project requirements.
There are several types of construction procurement that can be used in different scenarios. The type of procurement used will depend on the project scope and budget, available resources, and the needs of the client.
• Traditional procurement: This type of procurement involves the client selecting a contractor and negotiating a contract. The contractor is then responsible for sourcing and managing the materials and suppliers to complete the project. This type of procurement is suitable for smaller projects with low-risk and limited complexity.
• Design-bid-build procurement: In this type of procurement, the client selects a designer to develop the plans for the project. The designer then seeks bids from contractors to complete the project. The client then selects the contractor with the lowest bid to complete the project. This type of procurement is suitable for larger projects with a longer timeline.
• Design-build procurement: In this type of procurement, the client contracts with a single design-build firm to complete the entire project. The firm is responsible for designing and building the project. This type of procurement is suitable for projects with a tight timeline or limited budget.
• Construction management procurement: In this type of procurement, a construction manager is hired to oversee the project. The construction manager is responsible for managing the project, selecting subcontractors, and managing the budget. This type of procurement is suitable for complex projects with multiple contractors and different phases.
Construction procurement can be a complex and challenging process. Here are some of the most common challenges associated with construction procurement:
• Time management: Construction procurement requires the client to manage their timeline and ensure the project is completed on time. This can be a challenge if the client does not have enough resources or expertise to manage the process.
• Budgeting: Construction procurement requires the client to manage their budget and ensure the project is completed within the allocated budget. This can be a challenge if the client does not have experience in budgeting and cost estimation.
• Contractor selection: Selecting the right contractors is vital to succeed in construction procurement. The client may not have enough experience in evaluating contractors and selecting the right one.
• Managing relationships: Construction procurement requires the client to effectively manage relationships with multiple contractors and suppliers. This can again be a challenge for less experienced clients.
Here are some of the benefits of the construction procurement process:
• Cost savings: Construction procurement enables the client to select cost-effective contractors and materials for the project. This can help the client reduce costs and ensure the project is completed within budget.
• Quality control: Construction procurement helps to select the best contractors and materials for the project. This can help ensure the project is completed with high-quality materials and workmanship.
• Accountability: Construction procurement helps to negotiate contracts with contractors and suppliers that include performance standards and deadlines. This can make contractors and suppliers accountable for their work.
• Risk management: Construction procurement can help minimize the risk of delays, defects, and other issues that can arise during the construction process.
Developing an effective procurement strategy is essential to ensure a successful construction project. A procurement strategy should include the goals, objectives, and timeline for the project, as well as the criteria for selecting contractors and suppliers. It should also include a budget and risk management plan.
The procurement strategy should be developed with input from the client, contractor, and suppliers. The strategy should be reviewed and adjusted as needed throughout the project to ensure it remains aligned with the client's goals and objectives.
The construction procurement process typically involves the following steps:
• Project evaluation: The client evaluates the project scope, timeline, and budget to determine the type of procurement that is best suited for the project.
• Tender evaluation: The client evaluates tenders from contractors to determine which one is the best fit for the project.
• Contract negotiation: The client negotiates a contract with the selected contractor.
• Contract execution: The contractor and suppliers execute the contract and begin work on the project.
• Project management: The client manages the project to ensure it is completed on time and within budget.
Here are some of the best practices for construction procurement:
• Develop a procurement strategy: Developing an effective procurement strategy is essential for the success of a construction project. The strategy should include the goals, objectives, and timeline for the project, as well as the criteria for selecting contractors and suppliers.
• Evaluate tenders: Evaluating tenders from contractors is an essential step in the procurement process. It is important to evaluate the tenders based on criteria such as cost, quality, and timeline.
• Negotiate contracts: Negotiating contracts with contractors and suppliers is essential to ensure the project is completed on time and within budget. It is important to negotiate contracts that include performance standards and deadlines.
• Manage relationships: Managing relationships with contractors and suppliers is essential to ensure the project is completed on time and within budget. It is important to develop clear lines of communication and establish a system for resolving disputes.
Procurement can play a key role in construction. It can help a business deal effectively with the current challenges.
With the right strategy and tools, construction procurement can be managed effectively to ensure successful outcomes.