In the complex landscape of contractors, suppliers, and logistical challenges, effective procurement strategies can significantly improve a project's bottom line.
This post explores best practices and strategies for procurement in construction, including using modern technology and tools like AP automation.
What is procurement in the construction industry?
Procurement in the construction industry refers to the systematic process of acquiring the goods, services, and contractors you need to complete a construction project.
That includes identifying the needs of each project, locking in any specific requirements, and managing contracts with various suppliers and contractors.
An effective procurement plan ensures that each project gets the materials it needs for a price that fits the budget, while also ensuring that those materials meet quality standards and arrive on time.
Clearly, it's a lot to balance and manage. That's why the construction procurement process is so important—and why it's so important to include procurement early.
What are the procurement methods in construction?
There are several common procurement methods that cater to different construction projects, with different needs and risk levels. Understanding these methods can help you choose the right fit for any given project.
What are the types of construction procurement?
- Design-Bid-Build: In this traditional method, the project is designed first, then bids are solicited from contractors for the final build.
- Design-Build: In this unified approach, design and construction services are contracted by a single entity.
- Construction Management at Risk: This method shifts the risk (and much of the procurement responsibility) to a construction manager that commits to completing the project within a guaranteed maximum price.
- Integrated Project Delivery (IPD): This collaborative approach brings project stakeholders from design, fabrication, and construction together under a single agreement, designed to enhance efficiency and reduce waste.
Who is responsible for construction project procurement?
The responsibility for the entire procurement process typically falls on the general contractor (GC), but this can vary based on the size of the project and various contract stipulations. The GC often subcontracts part of the procurement work to specialty contractors who maintain strong relationships with key suppliers.
In larger projects, a dedicated procurement manager may oversee the entire construction management procurement process, coordinating both material delivery and labor.
10 steps to follow best practices in construction procurement
The procurement process in construction generally unfolds in a series of steps. While different project specifications or delivery methods might cause some variation, the following ten steps outline best practices for construction procurement strategy.
1. The design team creates specifications
The entire construction process starts with the design team. They collaborate with the owner to create detailed lists of all the materials required to build the project, including any quality specifications the materials need to meet. The designer is in the best position to provide this information.
This specification document serves as a critical reference point throughout the rest of the procurement process.
2. Contractors estimate and bid on the project
Various construction companies assess the scope of the project and prepare bids based on their estimates. This often involves gathering input from subcontractors and suppliers to figure out what the full cost of the project is likely to be.
The procurement management team should solicit bids from a variety of general contractors and vet them carefully for the best possible outcome.
3. The owner and contractor agree to terms
After evaluating the bids, the owner selects a contractor and finalizes the agreement. The contract details will dictate the procurement responsibilities moving forward.
Procurement teams should play a key role in the negotiation process as well as ongoing contract management.
4. Contractors solicit bids or pricing from suppliers
With approved plans in hand, contractors kick off the process of sourcing the materials they need by soliciting bids from suppliers. This step involves evaluating cost and quality as well as price.
The project team should ensure that no final decisions are made until steps four through six are complete.
5. Contractors plan their procurement sequences
Contractors develop a procurement construction schedule, figuring out which materials will be needed, and when, throughout a construction process that may span several months or longer.
During this phase, procurement teams should be sure to note items that will have long lead times to ensure delivery will meet the project schedule.
6. The design team reviews contractor submittals
Finally, the design team reviews the submittals to ensure that the materials will comply with project specifications. Procurement management should work closely with the design team to make sure all materials specifications will be met under the procurement plan.
This key step in an efficient procurement process helps to prevent costly errors down the line.
7. Contractors finalize the purchase with suppliers
Once the final plan is approved, contractors issue purchase orders to suppliers, initiating the procurement of materials for the project.
Materials procurement should work closely with the team that's coordinating labor and equipment needs, making sure everything arrives on time with a crew that's ready to start on day one.
8. Suppliers deliver materials and equipment to the job site
Following the purchase orders, contractors oversee materials delivery, making sure suppliers deliver what they promised on time and in the correct order for installation.
The procurement team should put payment controls in place that ensure approval from key stakeholders at the job site—so shipments aren't paid for until delivery has been confirmed.
9. Materials pass final inspections
Throughout the project, inspections are conducted to verify that all materials delivered meet quality standards and specifications before they're put to use.
Payment controls should also include inspection approvals that make sure each shipment is complete and that the materials delivered are correct and meet quality specifications.
10. Project closeout
Once all materials have been delivered, inspected, and accepted, the procurement team closes out procurement for the project.
The procurement team should be sure to capture and organize any necessary documentation for warranties and maintenance.
Common construction procurement challenges
In a large, long construction project, things rarely, if ever, proceed according to plan every step of the way. No matter how well procurement is organized and planned, there are still plenty of things that can go wrong.
Here are just a few of the challenges that procurement often encounters in construction.
Missing specifications
It's easier to notice specifications that are wrong than ones that are missing. If a key specification is left off the list, materials can be ordered and delivered that won't meet the needs of the project.
Project delays
If bad weather delays work or causes damage mid-project that needs to be fixed, the changing project schedule and timeline can affect the materials delivery schedule, causing major headaches for the procurement team.
Accidental damage
If materials are damaged either in transit or at the job site, those materials need to be replaced, often with extreme time-based urgency. There can also be legal arguments over who's responsible for the damage and the resulting cost.
Supply chain disruptions
Disruptions in the supply chain—from weather, shortages, labor issues, or anything else—can cause issues at any point in that chain. If a window manufacturer doesn't get the materials it needs for its window production, the building contractor won't get its windows on time.
Payment delays
Inefficient payment processes can cause payment delays, which can make suppliers halt further shipments or deprioritize that customer in case of shortages. Procurement teams need to pay suppliers in full and on time to maintain supplier relationships and keep production on schedule.
Overpayments, mistakes, and fraud
Invoices from construction suppliers often run into the tens of thousands of dollars or more. If an invoice is paid twice, or if an invoice is paid before the materials have been delivered and approved, the mistake can be extremely costly and difficult to fix. And the potential for fraudulent invoices can easily put a project in the red.
How AP automation can help procurement in construction
Accounts payable (AP) automation can help protect against mistakes and fraud in the payment process, so materials aren't paid for until they've arrived safely and passed onsite inspection.
- Automated approval flows: Apply internal approval rules, and AP automation will send each invoice to the right people, helping to ensure that invoices are fully vetted and approved before payment.
- Three-way matching: The right AP automation tool can automatically compare purchase orders, invoices, and receiving reports to make sure what was ordered is what actually arrived, letting the team know when something isn't right.
- Checking for fraud and duplicate invoices: AP automation can also check for duplicate invoice numbers, address changes, and other anomalies that indicate mistakes or possible fraud, alerting the procurement team to take a closer look.
See how BILL Accounts Payable can help protect your project budgets against payment mistakes and even potential fraud.
From our customers
“Whereas before we had to do everything manually with billing, thanks to BILL’s three-way matching capability for NetSuite, the entry part has been almost eliminated. Paying bills is so easy—just review and approve. It’s been pretty refreshing. The new three-way matching capability has reduced our time spent on AP by up to 75%.” — aboutGolf
"When you’re trying to match data between two systems, it can introduce human error. Having BILL do it for you gives everyone more confidence that it is accurate.” — Myomo
FAQs
Here are quick, easy answers to some commonly asked questions about procurement in construction.
What is the difference between purchasing and procurement in construction?
While purchasing refers to the transactional aspect of acquiring goods or services—specifically the action of buying—procurement encompasses the broader process that includes planning, sourcing, negotiating contracts, and managing supplier relationships.
What is the role of a procurement manager in construction?
A procurement manager in construction is responsible for overseeing the procurement process, including supplier selection, contract negotiation, managing costs, ensuring timely delivery of materials, and maintaining quality control. Their role helps to manage risk and ensure project success.
What is the best procurement method in construction?
The best procurement method varies based on project requirements, complexity, and budget. While traditional design-bid-build is common for many projects, methods like design-build or construction management at risk may be more suitable for projects that require collaboration and flexibility. Each method has its advantages and should be chosen based on the specific context of the project.