Published on 20th March 2023
Procurement is a crucial aspect of any construction project. It is the process of obtaining goods, services, and works from external sources. Procurement in the construction industry can be a complicated process, and choosing the right procurement method is critical for project success.
Construction procurement involves the acquisition of goods, services, and works for a construction project. Procurement includes the entire process of acquiring goods and services, from the initial concept to the final delivery. It is a critical component of project management, and procurement managers play a vital role in ensuring that the procurement process runs smoothly.
Construction procurement is the process of acquiring the necessary goods and services required for a construction project. It involves sourcing, purchasing, and coordinating the delivery of materials, equipment, and labor required to complete a project.
Construction procurement can be a complex and time-consuming process, involving numerous stakeholders and strict deadlines. It typically involves the development of a detailed construction contract that outlines the project scope, schedule, budget, and other important details.
Effective construction procurement is essential for the successful delivery of any construction project. Here are some reasons why:
There are several procurement methods available for construction projects, and choosing the right one can make a significant difference in the success of the project. The procurement route is the way in which the procurement process is carried out. Each procurement route has its advantages and disadvantages, and choosing the right one depends on several factors, including project size, complexity, and the client's preferences.
In this guide, we will discuss the basics of construction procurement methods, including the procurement route, construction contract, project management, and public procurement.
Procurement route, also known as the procurement strategy or procurement method, refers to the approach taken by a construction project team to purchase construction services, materials, and equipment. It outlines the sequence of activities and steps taken to achieve a specific project goal. The procurement route is determined by a number of factors, such as project size, complexity, client requirements, and budget.
The procurement route can be divided into two broad categories: traditional procurement and design and build procurement. Traditional procurement routes typically involve separate design and construction contracts, while design and build procurement routes involve a single point of responsibility for design and construction. There are also hybrid procurement routes that combine elements of traditional and design and build procurement.
Let’s understand each of these three procurement routes.
In the traditional procurement system, the project owner hires separate contractors for design and construction. The contractors are responsible for their own scope of work and report to the owner or a representative. This route is best suited for simple projects with well-defined scopes and where cost certainty is a top priority.
Traditional Procurement Route is classified in the following ways.
Pros:
Cons:
Example: A local government agency wants to construct a new public library. They hire an architect for the design work of the building and then put the construction work out to tender, awarding the contract to the lowest bidder.
In design and build procurement, the project owner hires a single contractor or construction procurement manager responsible for both design and construction. This route is best suited for a complex project where time and cost certainty are important factors.
Design and Build Procurement Route is classified in the following ways.
Pros:
Cons
Example: A developer wants to build a new office tower. They hire a design and build contractor who is responsible for designing the building and constructing it to completion.
Hybrid procurement combines elements of both traditional and design-build procurement routes. It involves the appointment of a lead consultant to manage the design team and coordinate the project. This route is best suited for medium to large-scale projects with complex design requirements.
Hybrid Procurement Route is classified in the following ways.
Pros:
Cons:
Example: A hospital wants to construct a new facility. They hire a lead consultant to manage the design team and put the construction work out to tender, awarding the contract to the lowest bidder.
Let's discuss different procurement methods that are popular in the construction industry.
In a Design-Bid-Build project delivery method, the owner hires an architect or design firm for the design phase. 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 of 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.
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 or project manager of the group who oversees the design process, 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 contract 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.
Public procurement managers are familiar with “best value” procurement in the context of professional services, but this method is much less common in the context of public works procurement. In Best Value Source Selection, contracts are awarded to the provider with the best combination of performance qualifications and price.
Value is clearly a subjective term, but it can be quantified through multiple, weighted criteria and judged by a panel of evaluators. It is important to determine non-price criteria and their relative importance based on the context of the bid: the type of project, scale, and required completion date.
Public procurement is acquiring goods, services, and works by public authorities. Public procurement in the construction industry is subject to specific rules and regulations to select the best supplier or contractor. These rules and regulations are in place to ensure that public procurement is fair, transparent, and competitive.
Choosing the appropriate procurement method is critical in the construction industry. Choosing the right procurement route, construction contract, and project management can make a significant difference in the success of a construction project. Procurement managers play a vital role in ensuring that the procurement process runs smoothly, and public procurement is subject to specific rules and regulations to ensure fairness and transparency.
