What is Procurement in Construction: A Comprehensive Guide to Essential Processes and Strategies

Written by Bridget Cooper

DateFeb 15, 2024
Reading time10 min read
Construction site

A typical construction project has five phases: design, pre-construction, procurement, construction, and commissioning. All these stages have sequential relationships, meaning project managers must complete each phase before moving to the next stage. Sometimes, the phases may overlap, with the next stage starting before the completion of the previous phase.

Whatever the case, procurement remains one of the most critical steps in construction management. This phase precedes the actual construction, and it involves sourcing building materials and supplies to ensure the successful completion of a construction project. So, what is procurement in construction, and why is it important? Let's find out.

What Is Procurement In Simple Terms?

Procurement in construction is the acquisition of goods and services to ensure the project's success within the set cost estimates and construction schedule. It entails buying or renting building materials, equipment, and labor promptly and at cost-effective rates.

Project managers are typically responsible for handling procurement in construction. Some companies or large projects may have a separate procurement manager who oversees the construction procurement process.

The procurement team works with clients, contractors, service providers, suppliers, and other project stakeholders to ensure the required resources are available before the construction begins. Any lapse in procuring construction materials, services, and equipment could result in potential cost fluctuations, project delays, and missed deadlines.

What Are The 4 Types of Procurement Methods?

There are different types of construction procurement methods. The proper procurement method depends on the project requirements and other factors. A procurement manager should consider project schedules, financing terms, project budgets, and associated costs. The following are four typical types of procurement management methods in the construction industry:

Traditional Contract

In traditional procurement, the client or property owner appoints a design team and a separate contractor to undertake the project. The designer or architect handles all building plans while the contractor oversees construction projects. The contractor may also manage subcontractors and vendors or suppliers. Both the architect and contractor report to the owner or an appointed project manager.

The traditional procurement method has several benefits. First, it has a well-defined contract that outlines the project’s scope, cost estimates, and timeline. Besides, it has lower risks for the client since the contractor is solely responsible for risk management, provided they have accurate design information. Most importantly, it utilizes lump sum contracts with various penalties for project delays.

Design and Build

In the design and build procurement process, a general contractor negotiates with the client to design and build the project. Many construction companies have architects who can design a construction project to meet the requirements and specifications of the client. The contractor only needs to negotiate with the owner on a fixed price to oversee the entire project.

The general contractor acts as the project manager, overseeing all aspects of the project. They also act as procurement managers when obtaining products and services from suppliers and other subcontractors. The primary benefit of design and build contracts is that contractors do not have to bid on construction contracts, saving time. However, finding credible full-time architects can be a challenge.

Management Contract

A management contract is a procurement option ideal for large-scale dream projects where traditional procurement strategies are not viable. In contract management, the project owner appoints a lead contractor who oversees design documents and project management.

The management contractor works with a project team and other subcontractors to oversee the successful completion of the design phases and construction process. The managing contractor also receives a lump sum contract and remains accountable for every step of the project in a building contract, including the procurement process. However, project owners or clients retain design and planning permissions.

Construction Management

Construction management is similar to management contracting. However, the lead contractor works under the supervision of a project management company. The client or property owner appoints a management company to manage the procurement strategy on a fixed fee.

The management firm may appoint several contractors and a design team to handle different tasks. If one contracted company is behind the project schedule, the management may enlist another contractor to undertake the task.

What is a Procurement Plan In Construction?

A procurement plan, or a procurement management plan, is a blueprint that defines project schedules and how to meet project specifications. Construction procurement involves outlining how to acquire the appropriate goods and services to meet the requirements of a construction job.

The document contains critical information to help project and procurement managers find and select a suitable vendor from multiple suppliers. As such, it can help with risk management when undertaking construction projects.

The plan lists all essential data, such as costs, quality, suppliers, and delivery dates. It also shows the project scope and lead times. Other vital elements include engineering deliverables, project schedules, advanced work packaging, and logistics planning.

A construction procurement plan can help a construction manager in managing resources when undertaking a construction project. It can also help a procurement manager handle other associated tasks, such as employee compensation

10 Steps in Construction Procurement

Construction procurement is a multi-step process. It involves selecting, approving, and acquiring the necessary materials and services needed for each project component. However, the entire procurement process might vary depending on the type of construction project.

The following are typical steps used by construction companies to design practical construction procurement strategies:

Defining the Specifications

All construction projects must have precise specifications and bidding requirements. Well-defined specifications set the stage for proper construction procurement. The project owner will consult the architect or design team to prepare the construction documents or a spec book and define material requirements.

Defining the specifications during the design phase prevents unwanted costs and construction delays. It ensures contractors have adequate time to find and acquire quality materials before the project commences. The construction company contracted to undertake the project will use this spec book when communicating material requirements with vendors and suppliers.

That said, the construction procurement process for public projects might vary slightly. They may have additional procurement requirements. As such, contractors may have to adjust their procurement process.

Request for Proposals

The next step in the procurement process is issuing an Invitation To Bid (ITB) or a Request For Proposals (RFP). Depending on the procurement method, a project owner might ask contractors to bid or submit proposals. The contractors may have to estimate the project's magnitude before bidding or submitting proposals.

Most contractors contact subcontractors to establish estimated job costs. Specialty contractors often use the defined specifications to obtain price quotes from suppliers and vendors. Some contractors visit the job site to approximate the size of the project before signing management contracts.

Bid Analysis

After completing the design phase and receiving bids, the project owner or client will compare bids to identify suitable contractors. The owner will have to select a reliable contractor and award a contract. They must agree on terms before the project commences further.

Some contractors often include an escalation clause when signing a contract. This clause protects them against potential cost fluctuations. The prices of materials can escalate. The owner is responsible for the price increase if the costs exceed a specific amount.

After signing management contracts, the general contractors will contact specialty contractors and sign subcontractors. The project owner might sometimes begin the construction procurement process for larger materials before enlisting a general contractor. However, the overall process depends on the construction management procurement option.

Identification of Suppliers

Before procuring materials, the management team must approve their quality and cost. Once approved, contractors can solicit bids from multiple suppliers. Comparing prices can help ensure project owners get value for money when buying materials.

After the finalization of bids, general contractors can assess available options to determine if they meet the specifications. Factors like availability, sustainability, and the vendor's experience can determine if they are the right fit for supplying materials and services.

A contractor can order standard items like plumbing and lumber from their trusted suppliers instead of spending more time searching for new vendors. Dealing with reliable suppliers prevents delays and ensures the project commences without issues.

Request for Quotations

After identifying possible vendors, the general contractor will send a request for quotations (RFQ) to shortlisted suppliers and service providers. An RFQ is a competitive document that requests suppliers or vendors to submit quotes. It contains all the information a supplier or service provider needs to submit accurate quotes.

An RFQ is essential in ensuring that a company receives a constant supply of goods or services. After the construction company or contractor receives price quotes, they can select the appropriate supplier or service provider that meets their criteria.

Confirmation of Lead Times

Lead times refer to the period a product or service must reach the recipient during a procurement cycle. Contractors calculate lead times by adding the days to acquire materials, manufacture products, and deliver the end products.

Contractors must confirm lead times with service providers and suppliers when planning their procurement sequence. Calculating lead times is vital to ensure materials or equipment with long lead times reach the construction site on time, preventing unnecessary delays.

Review of Contractor Submittals

The submittal phase is the penultimate stage before purchasing products and services begins. The design team must review and approve each item to ascertain it meets the required specifications and value engineering requirements in the contract documents. Laid-out specifications might include color shades, material finishes, and sizes.

Everything must be in writing for easy tracking and referencing. The submittal process should have no delays to prevent unnecessary downtime. If not, the procurement manager might face challenges ensuring the prompt delivery of goods or services.

Issuing of Purchase Orders

Once submittals are in writing and the design team has confirmed and approved the items, the general contractor can issue purchase orders. The supplier can begin the fabrication process or prepare items for shipping after receiving a purchase order from a contractor.

Most specialty contractors seldom pay for products upfront. They rely on outside financing or trade credit to purchase goods and services without disrupting their cash flow.

Delivery of Materials and Services

After the procurement of materials, shipping begins immediately. The role of the head of procurement is to track the progress of the products and prepare to receive them once delivered.

General contractors must verify the materials will arrive on time and at the correct address. They must also ensure that the supplier will deliver the products in a way that is safe to offload, unpack, and install.

Sometimes, the contractor may have to arrange specialty equipment for offloading and handling delivered materials. This special arrangement might include hiring a forklift or crane with proper rigging and associated attachments.

Final Inspections

The final inspections are the last step in construction procurement. The property owner, designers, and local authorities must approve that the products or services meet the highest safety standards and building regulations.

Parties Involved in Construction Project Procurement?

Construction project procurement involves a dedicated management team led by the project owner or client. The property owner retains control over design and planning permissions. Sometimes, the client can delegate these tasks to a project manager to help oversee the project and manage resources. However, the overall authority remains with the owner.

Other parties involved in construction project procurement include an architect and an engineer. The architect, engineer, and designers work as a team to ensure the plan meets building codes. The engineer can survey the land to determine if the job site is suitable for construction and safe for all workers.

Other leading parties involved in construction procurement include the construction procurement manager, general contractor, and suppliers. Contractors may enlist subcontractors to perform specific jobs like plumbing and electrical wiring.

Written by Bridget CooperUpdated on Feb 23, 2024

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