Construction procurement involves securing all the goods and services needed to complete a project. The procurement process can encompass a variety of activities, including defining requirements, buying materials, evaluating bids, hiring contractors and subcontractors, and buying or leasing equipment. How you handle procurement can have a major impact on your construction schedule, building costs, and the overall success of your project.
In this post, we cover what construction procurement is, how the procurement process works, and common project procurement strategies in the construction industry.
Table of Contents
- What Is Construction Procurement?
- How Does Construction Procurement Work?
- Common Construction Procurement Methods
- Understand your project needs
What Is Construction Procurement?
Construction procurement is the process of sourcing and managing products and services for your project. The project manager works with clients, consultants, and contractors to obtain any materials, goods, or services needed to successfully complete a project. The International Organization for Standardization (ISO), a worldwide association of national standards representatives, provides a framework of guidelines that companies can use to develop their construction procurement procedures.
Procurement ensures that the proper resources are in place to finish the project on time, to specifications, and within budget. As such, a good procurement system is an essential part of any successful construction project.
How Does Construction Procurement Work?
The procurement process typically consists of three phases: the planning phase, the acquisition phase, and the contract management phase. Construction procurement involves many different stakeholders such as the client, contractors, subcontractors, architects, supplies, designers, and the procurement manager running the process.
1. Planning phase
The planning phase is the beginning stage of the procurement process, where most of the decisions are made either by the construction procurement manager, procurement team, or client. This phase may involve addressing the client’s needs, reviewing the project requirements and scope of work, pinpointing the cost of the project, or determining what services and goods you may need.
In this phase, responsibilities can include the following:
- Determining where and when the goods and services are required
- Determining which construction equipment or tools will be needed
- Creating a construction management plan
- Deciding on procurement strategies in terms of contracting and who to choose
- Sending out requests for procurement (RFP) to solicit bids
2. Acquisition phrase
The acquisition phase is the second stage of the procurement process. It is the process of selecting and signing contracts to assure that all the project’s needs are met.
In this phase, responsibilities can include the following:
- Evaluating contracts
- Contracting with the services or products that are about to be used
- Evaluating bids
- Soliciting and evaluating tender offers
3. Contract management phase
In the final phase, contract management (also called contract administration) is where the project manager ensures the construction contracts are fulfilled and handles any changes or issues that come up.
In this phase, responsibilities can include the following:
- Understanding the contents and conditions of the contracts (for example, the number and amount of products, deadlines, when the product/service will arrive)
- Confirming and processing documentation of each contract, service, or product
- Managing the contracts and navigating any issues or changes that occur
Common Construction Procurement Methods
The main role of a procurement manager is to evaluate bids, award and manage contracts, and assure that contracts are successfully completed according to the procurement schedule. There are a few common types of procurement structures in the construction industry.
Traditional (Design-Bid-Build)
As its name suggests, the traditional method is divided into three sequential phases. In the first phase, the client appoints a team to prepare the design of the new construction project and tender documents. The next phase involves hiring a general contractor through a bidding process. Much of the work in the build phase will then be subcontracted to specialists, but the general contractor is ultimately responsible for ensuring the project’s success.
- Best for: Cost certainty, time predictability
- Pros: Minimize exposure to overspend, delays, or design failure
- Cons: Not suitable for fast-track projects, risk may increase if time targets are not met or if the design is rushed
Design and Build
In this project delivery method, the client appoints a single contractor who is responsible for both design and construction. During the design phase, the contractor can use either in-house designers or consultants. During the build phase, the contract will typically hire specialists or subcontractors to execute the project. Because the general contractor is responsible for tasks during the planning, acquisition, and contract management stages of the procurement process, more risk is shifted to the contractor with this method.
While most design-and-build projects follow the same basic pattern, there are two variations:
- Develop and Construct: With this method, the client prepares a conceptual design and will hire a contractor to finish the design and take care of the construction.
- Package Deal: With this variation, the contractor provides a prefabricated building that is typically modular so its size can be adjusted. Some common examples include warehouse, factory, and uncomplicated office buildings.
This procurement the amount of people and teams that you have to coordinate with.
- Best for: Cost certainty, fast track project
- Pros: Single point of contact for client
- Cons: Tendering cost, the risk is shifted toward the contractor, not suitable for complex buildings
Management Contracting
During the planning phase of this method, the client appoints designers and a management contractor separately and pays the contractor a fee for managing the construction work. Unlike the traditional contract method, the management contractor can work alongside the design team on the design, cost, and services/products needed to complete the project. The management contractor doesn’t typically carry out the construction work, but instead relies on a project team of subcontractors and specialists to complete the construction.
- Best for: Fast track projects, complex buildings
- Pros: Design and construction work is faster
- Cons: Less cost certainty
Clients who have the time and the expertise may choose a method that has a similar concept to management contracting:
- Construction management: In this model, the client hires contractors directly while the construction manager works as a consultant. Because the construction management method requires constant client involvement, it is only suited to more experienced clients.
Design Build Finance
In this procurement model, the client awards a single contract for the design, construction, and financing of a project. The appointed design-builder will be responsible for the majority of the design, all of the construction work, the short-term financing for all or part of the project, and providing the required services for a fixed fee.
The difference between this method and the design-and-build method is that this model allows the client to defer financing either completely or partially during construction. The client may specify the maximum amount that a design-builder can use and if the project goes over that limit, the builder will be responsible for financing any excessive costs.
During the acquisition and contract management phase, the design-builder is responsible for executing the project. The actual construction work is typically carried out by subcontractors, consultants, or whoever else the design-builder chooses.
- Best for: Cost certainty
- Pros: Efficiencies of having the design-builder undertake the design and construction of the project simultaneously
- Cons: Risk is shifted to the design-builder
Understand your project needs
The lifecycle of a construction project involves a lot of steps, from pre-construction planning to evaluating bidders to project closeout. To ensure that your project comes in on time and within budget, a solid procurement plan can help you have the workers, services, and equipment you need—when you need them.
If your construction company is looking to rent equipment for your next project, BigRentz has a variety of options including excavators, skid steers, and boom lifts. We can help you get the right machine for every project, making one part of the procurement process easier.
