From the most complicated urban multi-use development to a single-family renovation, procurement is a key player in the success of any build. For construction industry pros, it’s not just about sourcing materials and staying on schedule—it’s about profitability.
How companies organize their procurement team and the technology they choose to manage the process can make a huge difference in building project costs.
This blog will walk you through the different methods of procurement in construction and share best practices to help you set up the perfect solution for your company.
What Is the Construction Procurement Process?
Procurement is the process of securing products and services needed to complete a construction project on time and within budget. It is handled by a project manager and typically includes the following five areas of responsibility:
- Define project requirements.
- Solicit bids for and select services.
- Buy or lease supplies and equipment.
- Monitor construction contracts, potential cost fluctuations, and completion schedules.
- Resolve conflicts with budgets, timelines, or quality, among other issues.
The key to procurement process success is using the right strategy and procurement technology to make sure materials and services are high quality and available on the job site when required.
The Benefits of Construction Project Procurement
Having a dedicated, well-trained construction procurement system is an immeasurable benefit to any building operation. It is the one area of the company that has as its sole function the evolution of a construction job from idea to completion, ideally under budget and ahead of schedule. In fact, many companies receive bonuses based on reaching preset goals.
It is important that a construction operation has a comprehensive, easy-to-use system to help the project team manage procurement. A disconnected system that doesn’t have seamless integration among functions can cause havoc on construction projects and cause mistakes, the need to re-forecast, costly change orders, and budget overages.
The good news is that construction procurement is accessible to any-sized company. A good solution will have an easy-to-understand dashboard and will allow you to:
- Merge schedules into one project schedule.
- Sharing contracts.
- Manage change orders.
- Perform cost analysis.
Check out this specific construction solution for more information on how to streamline processes, ensure compliance, minimize risk, address schedule changes, adhere to budgets, and improve communication in real-time across teams on any type of construction project.
Who Is Responsible for Procurement in Construction Management?
Most qualified contractors employ a procurement manager to handle construction procurement. This person or team is the logistics lead who oversees bidding, purchases, schedules, and budgets, including other areas, such as employee compensation. Procurement managers have a host of responsibilities depending on the size of the company and the scope of the project, but at a minimum, they:
Create a Strategic Procurement Plan
While many companies have a procurement plan in place, there are always “unknowns” that pop into projects. Because of this, the procurement manager must keep a goal in mind and be ready to accommodate shifts in deliveries, scope, or schedules by having redundant systems or extra time built into the construction schedule.
Managers must always have a backup plan, particularly during times of supply disruption. By being strategic at the outset, procurement managers can have multiple hiccups on a job but still achieve a satisfactory result.
Evaluate Contracts, Requests for Proposal, and Bidding
Many procurement managers spend a good deal of time creating requests for proposal and bidding, and contract management. Today’s tough construction work climate with its tight labor supply and supply chain disruptions demands these proposals be reviewed carefully. In addition, new reporting metrics, like ESG (Environmental, Social, and Governance) can add a layer of complexity to the project scope.
Manage Resources and Schedules
The construction procurement manager must create and adhere to complex schedules for both people and materials. The primary purpose for keeping on top of these schedules is to make sure the workforce has what it needs to move the build forward. Technology to manage this allows managers to create a schedule that comprises the entire construction timeline that can be alteredif materials or the build are delayed.
The most important aspect about a construction procurement process, then, is monitoring. If managers can see what is happening in real-time they can quickly adjust or update the entire schedule to reflect the reality on the ground. It also gives them time to create solutions to make up for project delays.
What Are the Types of Procurement in Construction?
While many procurement methods exist, companies who want expedited, quality work that comes in on budget need to carefully consider which options work best. The most important factors are:
- Financing terms
- Risk tolerance
Here is a look at the main types of procurement for construction services:
Design-Bid-Build (or Traditional Contract)
In a Design-Bid-Build project delivery method, the owner conceives a design with an architect. Then, the architectural drawings are bid out. The winning general contractor operates under a flat fee and is responsible for the construction contract, including overseeing subcontractors and building the project. It is the contractor's responsibility to bring the project in on time and on budget.
One upside for this approach is that typically the owner warrants the design documents, so if there are mistakes in them, it is between the client and the architect to work out a solution and pay the associated costs. On the downside, because owners and architects create the design without construction contractor input, ideas for value engineering aren't included in the initial design.
Design and Build
In the Design and Build process, a contractor consults with the owner and negotiates a fixed price to design and build the project. The upside of this approach is that the client has to deal with only one entity (the contractor), which is why it is often referred to as one-stop shopping. The downside to this scenario for contractors is that the responsibility for the design portion of the build has been shifted to the contractor, which can add cost to a job.
In a Management Contract scenario, different contractors take on various functions for a fixed fee (typically a percentage of the total job cost). This is often used on large projects. There is one Managing Contractor of the group who oversees design, construction documents and project management. This lead contractor earns a higher payout than the other awarded contractors but takes on more accountability than the other contractors.
This path is similar to a Management Contract. In this case, though, the owner doesn't contact the other contractors but rather appoints a management team to oversee the procurement process on a fee basis. An example of the upside of this would be a scenario like a large commercial project where three drywall companies are scheduled due to the volume of work required. If one contractor falls behind schedule, another can take up the slack.
A contractor with deep pockets can parlay his credit and skill set in this scenario. The contractor will design and build a building or complex and then lease it to the client for a period of time. This idea works for owners or clients who want to build a project or have a tight deadline and don’t have the capital to make it happen.
New ideas for procurement in construction hold promise. One idea, called Progressive Design-Build, brings the contractor into the design earlier than in the typical Design and Build model. Others include public-private partnerships that combine Design and Build with a variety of options for procurement, operations, maintenance, and financing.
Integrated Project Delivery is another example that is gaining traction. In this procurement method, parties create a collaboration in the design and building processes where all team members share in the risk and reward equally.
It's self evident that solid construction procurement process is a key player in bringing both small projects and large-scale dream projects to life. Once a project is conceived, only a company with a sophisticated procurement capability can move the build from idea into reality.
Achieving a quality, on-time project that comes in on budget is in great demand, and it’s also achievable with the right tools for the job. Learn about exactly what you need to seamlessly perfect your company’s procurement potential and increase the new construction your team can handle while lowering costs and using fewer resources.
What are the types of procurement in construction?
There are many variations to a building contract. They differ in scope, costs, and are suited to different types of construction projects, Generally, they fall into five categories: Traditional Contract (also known as Design-Bid-Build), Design and Build, Management Contract, Construction Management, and Private Finance.
How do you develop a procurement strategy?
A good single point construction procurement process strategy centers on two words: Simplify and Centralize. Information control is the strategy that is missing in most procurement strategies. Construction documentation, in particular, must be accurate and accessible to aid project managers. Construction software solutions exist that act like a construction task catalog, allowing a company to track contracts, labor, and equipment to minimize cost, and save time, among other construction-related applications. Solving these efficiency issues on your construction project means you are set for procurement success and the ability to take on more projects.