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What is Procurement Strategy in Construction?

20th Sep, 2019

Procurement is the acquisition of the materials, supplies or services needed to successfully operate a business or complete a project. In construction, this refers to the goods and services needed to successfully complete a build from start to finish. So, what is procurement strategy in construction? Procurement needs to be approached in a strategic way for a construction company to maximise their efficiency on each project.

A construction firm must take a carefully planned approach to procurement by purchasing the supplies required in the most cost-effective way. The procurement strategy needs to take multiple factors into consideration, like the timeline, budget and quality of the project.

Routes to Strategic Procurement

There are several different routes a company can take when it comes to strategic procurement in the construction sector. When selecting a route, the long-term objectives of the client’s business plan must be carefully considered. Key factors that will influence procurement include:

  • Speed
  • Cost
  • Quality
  • Risks and opportunities
  • Budget and financing
  • Specific constraints on the project

Some of the most commonly used procurement routes include the following:

Traditional Contract

The traditional procurement route is also sometimes known as design-bid-build. This is a single-stage project where a consultant works to develop the design in partnership with the client. After this, a contractor will be appointed under a lump-sum construction contract. In this case, the contractor may have no responsibility for any of the design, with the exception of temporary works.

Design and Build

The design and build procurement route starts with the appointment of a main contractor to design and construct the works. In this way, it gives the client a single point of responsibility for delivering the project.

A design and build project may follow either a single-stage or two-stage tender process.

  • Single-stage tender: The typical route for procuring in the construction industry, where the contractor submits a tender return with a fixed lump-sum cost. This means the complete contract can be awarded based on tenders received.
  • Two-stage tender: This route is used to allow for early appointment of a contractor, before all the information needed to calculate a fixed price is complete. During the first stage the contractor usually submits their programme, preliminaries, project team and overheads & profit. The selected contractor is then appointed under a pre-construction services agreement to work for the client under a consultancy basis. During the second stage a fixed price will be negotiated for the project works.

Management Contract

In the case of a management contract, the works will be constructed by a number of different contractors, all of whom are hired and managed by a management contractor; who is usually appointed on the basis of a fixed fee which will usually be paid a fee in the form of a percentage.

Construction Management

The process for construction management is largely similar to that of Management Contracting with the exception that within this route the Client is not in direct contractual relationships with the trade contractors as it is with the former. They appoint a management team and a construction manager on a fee basis which can be obtained in competition.

Private Finance Initiative (PFI)

A single contractor will be appointed to build, design and operate the project, in order to deliver services demanded by the public sector. This contractor will have expertise in design, construction, facilities management and funding capability. The contractor will finance the project and lease it to the client for an agreed period. After this, the development will revert to the client.

For professional, industry-leading advice on the best procurement strategy for your next project, speak to an expert at TowerEight.