Three steps to delivering value through procurement management

Thu, 02/09/2017 - 10:56

By RICS Leadership

Alongside the initial brief and design, procurement management is one of the most important aspects of a project when it comes to delivering value for money for your client.

Seemingly complex, it is essential to keep your eyes on the basic principles associated with procurement management and the crucial decisions involved.  In my experience, there are three steps to procurement management. 

  1. Selecting the right procurement route
  2. Choosing the right form of contract
  3. Engaging fully with the contractor
     

1. Selecting the right procurement route

The choices have typically been grouped under three broad headings, namely ‘Traditional’, ‘Design-build’ and ‘Construction management’. Although these terms are now a little outdated, the basic routes still apply, though adapted and made hybrid by the use of target prices, two-stage and novation. I am reliably informed by Professor Will Hughes that if you take into account all the variations and hybrids there are over 15,000 permutations currently available in the procurement palette. (Professor Hughes’ procurement research is well worth a read.) If you then throw into the mix the tendering and pricing options and restrictions such as public regulations or standing orders from the board or funders, the decision can seem overwhelming.

Each route and its hybrid adaptations has its merits, and each of them is more suitable for some projects than others. In order to select the most appropriate procurement route for your project: 

  • Rank each route against your project objectives. This is far more informative than simply listing the pros and cons with no context.
  • Cost and programme each option to reflect the impact to the scheme.

 

2. Selecting the right form of contract

Contract selection is often confused with procurement route but they are very separate, albeit related, issues.

The contract is the legal document that explains the agreement which you have reached and how you will manage the project. It is the mechanism by which the agreement becomes legally binding. Each procurement route has several options for the form of contract that goes with it.

A good contract does the following:

  • Is clear, particularly with regard to uncertainty and risk
  • Is proportionate. There is little point in having a complex form of contract for a straightforward project, and vice versa
  • Facilitates the efficient management and administration of the contract in the interests of both parties
  • Gets the contract off to a good start. This means that it should always be signed before commencing the works

 

3. Engaging with the contractor

There are two main parts to a contractor’s pricing. First are the things that they can be reasonably sure about such as labour and materials. The second part comprises the unknowns, or ‘risks’ as contractors call them. A decision has to be made on how risk is to be shared between the contractor and the client. If the contractor is asked to take too much risk, they will load it into their prices and the client will pay for it, whether the risk materialises or not. In essence, packaging up some drawings and specifications with tight timescales and no dialogue will only serve to increase the price.

Your approach to contractor engagement can make or break a project. It is important to create a positive impression from the outset and ensure that all parties are enthused about the project. They say “Before you criticise someone, walk a mile in their shoes.” It is useful to look at procurement from a contractor’s perspective. Could you price and commit to the documents that you have issued them? You are asking them to price a risk and the more support you can give them the better. They need:

  • Clear and unambiguous information
  • Adequate time to assess the risk
  • Open dialogue to tease out areas of clarification
  • Time to build a rapport between the two risk sharing parties

Procurement is a complex area of project management, but it can be simplified by breaking it down into bite-sized chunks. You should use the project objectives to decide on a procurement route and contract, help the contractor price the risk, and then actively behave in a manner that builds a positive working relationship. These are essential skills to learn and hone throughout your career.

Paul Wilson is Managing Director at Provelio and RICS Executive Education subject matter expert.

Find out more about RICS Executive Education’s Leadership Development for Project Managers course and how we are supporting professionals in the built environment to position themselves as leaders in their industries on the RICS Leadership website

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