Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Construction Procurement — The Ultimate Guide for 2024
Key takeaways
- Construction procurement refers to sourcing labor or materials that will be used in your business projects.
- Construction procurement operations can help companies save time, lessen risks, and access cost savings.
- Strategic sourcing, with the help of technology, is one of the best ways to find the right supplier in construction procurement.
In the previous year, the construction industry constituted four to seven percent of the total Gross Domestic Product (GDP) of the European Union, which signifies its impending importance in our world today. Since construction procurement is a fairly new concept, we’ve created a guide to help you navigate it.
What is Construction Procurement?
In its simplest terms, Construction procurement is all about sourcing labor and buying materials. It is involved in the construction of a project in a timely and efficient manner. This is vital in starting a project as it lays out the overall process of a project from its development to its construction.
It is not an easy task for procurement managers. The procurement manager must source quality materials that will be used in the construction. In addition to that, the materials should match the budget that they requested from the finance department.
Simultaneously, they must ensure that all government restrictions and guidelines are complied with to avoid any penalties or violations of the law.
If all of these are met, it will be developed smoothly which will make the project successful. So, how do you manage it?
Construction procurement management is defined as the art and manner of securing the needed goods and services for a project. It is about maintaining the highest level of value for the project.
It is similar to how you manage a contract. However, in this case, the owner of the project does not contact other contractors. Rather, it appoints a management team to supervise the procurement process.
The Importance of Construction Procurement
The construction procurement is important to execute the project accordingly. It plans out the costs, quality, suppliers, and timeline of the project. Ensuring that the project is on track with the plan will carry it out successfully.
This helps the company to build its dream projects. It ensures that the projects will be managed the way they want them to be.
Who is Responsible for Procurement in Construction Management?
In Construction procurement, qualified contractors employ procurement managers to handle and manage construction procurement. The procurement manager is responsible to supervise bidding, purchases, budget, schedules, and employee compensation.
Additionally, procurement managers have other responsibilities assigned to them which depend on the size of the company and the scope of the project. This includes creating a strategic plan, evaluating contracts, requesting proposals, Managing resources, and monitoring the schedule of the delivery of the items.
Steps in Construction Procurement
Many professionals follow these common steps during the construction procurement process:
This part of Construction Procurement is where all the plans are created and laid out to execute the project.1. Creation of Procurement Management Plan
2. Procurement Process
The procurement manager sources out the supplier. This is where the bidding and evaluation of potential suppliers for the project will be selected.
3. Awarding of the Contract
The procurement manager will award the contract after the supplier is selected. This is where the procurement manager and the supplier sign the contract to bind themselves to complete the project.
4. Monitor the construction
The procurement manager and his or her team must monitor the construction of the project. This is to ensure that all the agreed terms in the contract are fulfilled.
Their agreed stipulations in the contract must have been strictly complied with so that the expected outcome of the project is met.
5. Contract Closing
Of course, after the completion of the project, the contract is closed. This is where the supplier has fulfilled its obligation. On the other hand, the buyer has paid all its remaining balance to the supplier.
Kindsof Construction Procurement
It usually needs a specific contract that suits it well when the company is engaged in a long-term project. It must know the types of contract that suits it well knowing the factors such as quality and budget.
The following are the different kinds of construction procurement:
The contractor only takes responsibility for the works negotiated in the contract. A traditional contract is mostly a lump-sum contract. Also, there are some instances where design and construction are separated. When there are various changes in the design, the cost may rise.
Although in traditional contracts, the design is finished before the contractor is appointed. Traditional contracts may be slow but it suits even inexperienced clients.1. Traditional Contract
2. Management Contract
Management contracts constitute different contractors which are contracted by the management contractor. In a management contract, the company directly contracts the contractor to build the project.
It usually covers both the pre-construction and construction activities when negotiating with the clients. The important aspect of a management contract is the quality and cost of what they put forward.
3. Construction management Contract
Construction management contracts are the same as management contracts. The difference lies in their actions. In construction management contracts, the client is not directly contracted with the contractors.
The construction management contract is like an agent while the management contract is acting as the principal.
4. Design and Build Contracts
The main contractor is assigned to make the design and construction of the project in this contract. This is the opposite of the traditional contract where there is a different person who designs and constructs the project.
However, some clients see this to be applicable if the design is not the main point of the project. Nevertheless, It is favored by most government for publicly funded projects.
5. Private Financing
Private financing is less common than the other four that we discussed earlier, but it is still an alternative for clients with poor financial backgrounds.
In this contract, the contractor bears all the risks until the project is completed. The risks are only transferred to the client once the construction project is finished.
The Benefitsof Construction Procurement
Construction procurement keeps the project’s focus on track. Procurement is vital in construction to successfully finish the project.
The following are the aspects of construction procurement that help a company:
The construction procurement helps the project to be successfully constructed at the agreed time. It also enables the timely delivery of the needed materials to finish the project.
With construction procurement, nothing is getting delayed that is crucial for the success of the project.1. Ends at the Right time
2. Lessen the Risks
All things have risks and no one can avoid them. Although there is a risk, construction procurement lessens its effects that may damage the project. One of the risks in a project is delays. It assures that all the needed materials will be delivered on time.
Risks may pose a great threat to a project if there is no plan that can mitigate its effects. It handles the risks and makes sure that the project will be successful.
3. Minimize Expenses
Proper construction procurement will eliminate the risk of spending high when sourcing quality materials.
Having a plan that will ensure that you will get the best rates will minimize the expenses. The excess in the budget can be used for other purposes that will enable the growth of the company.
Finding the Right Supplierin Construction Procurement
There are ways to find the right supplier that will match your budget and the quality of materials you expect to have. One of the ways in finding the right supplier is traditional sourcing.
Most things in traditional sourcing are done manually. The company assigns personnel to go to a factory or check the marketplace to procure the materials needed for the project.
The company may source more suppliers although it may take weeks or months to inspect all the needed materials. Nevertheless, the decision lies within the scope of the company which may have inaccuracies in procuring the materials.
On the other hand, another way to find the right supplier is through strategic sourcing. Strategic sourcing mostly utilized the use of technology.
Strategic sourcing is more reliable than traditional sourcing as it uses data-driven technologies to make the right decisions. Click here to have an in-depth understanding of what strategic sourcing is.
Procurement Expert’s Insights on Construction Procurement
For this article, we asked an experienced procurement expert to share her insights to help answer common questions about construction procurement.
Nesrin Chabbah
Senior Lead Buyer
LinkedIn Profile: linkedin.com/in/nesrin-chabbeh
1. What do most people get wrong about construction procurement?
“In construction contracts, misinterpreting terms can be costly. Experience doesn’t guarantee understanding, and reliance on industry norms can lead to trouble. Legal experts emphasize scrutiny regardless of familiarity with the parties. Building trusted relationships is crucial. This article highlights five commonly misunderstood terms in construction contracts, stressing the need for precision and awareness in contractual matters.”
2. What should people know about construction procurement if they are planning to start working on this?
“For those starting in construction contracting, understanding the intricacies of contracts is fundamental. Familiarity with common misconceptions and legal nuances is crucial. Building strong relationships with the parties involved and consulting legal experts for guidance can prevent costly misunderstandings. Always scrutinize contracts, prioritize clarity, and align terms with your project goals and legal protection. Education and preparation are key to successful navigation in the construction contract landscape.”
3. From your experience, what is the most important thing you learned about construction procurement?
“The critical lesson in construction contracts is meticulous attention to detail. Precise terms, clear language, and legal comprehension are vital. Avoid assumptions and misunderstandings through precise contract drafting and communication. Well-structured contracts are the bedrock of successful projects, aligning all parties and minimizing risks.”
4. What tips can you give them about construction procurement?
“Understand construction contract terms well; legal consultation is key. Clarify roles, communicate effectively, and nurture relationships with stakeholders. Review and update contracts as needed. Prioritize education for better contract management skills and industry awareness.”
5. Can you give us an example of construction in procurement or how you sourced materials for a certain project?
“During a past project, we initiated by obtaining a comprehensive product chart and technical details. This information guided our procurement decisions. We first contacted our existing supplier and then explored potential suppliers, meticulously assessing their proposals. After a thorough evaluation, we selected suppliers that matched our project needs and awarded them contracts. Throughout the construction phase, we maintained vigilant oversight, coordinating procurement for smooth progress. As the project reached completion, we efficiently finalized contracts, verifying all terms were fulfilled, ultimately contributing to a successful outcome.”
In Conclusion
Properly managing procurement is a crucial aspect of any construction project. From evaluating potential suppliers to acquiring the necessary materials, every step must be carefully planned to ensure the project’s overall success.
Managing procurement in construction is not just a bureaucratic task; it is the backbone of the construction industry’s success. An effective procurement process can help reduce risks, control costs, maintain quality, and foster positive relationships between all project stakeholders.
Therefore, procurement managers must approach their roles with diligence, foresight, and a commitment to best practices to safeguard the success of construction projects.
Frequentlyasked questions
What is construction procurement?
Construction procurement refers to sourcing labor or materials that will be used in your business projects.
Do businesses need construction procurement?
Businesses may choose not to use it but it is much better to apply it so that your project will be on track and executed effectively.
What kind of construction procurement is more effective?
There is no specific construction procurement constant to be used because it depends on the project you will carry out.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
