Introduction to Procurement

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1 Introduction to Procurement Why is procurement important? Client needs are unique and consequently each project meeting those needs has unique characteristics. This means that achieving the right project for the right price in the right time is a challenge. Only a minority of construction clients are regular purchasers of construction work and even then the parameters of each project are likely to vary and the priorities are likely to be different. New build projects are often complex one-offs with unique designs on unique sites. A successful outcome is achievable only where the complexity of the processes involved are recognised and addressed appropriately. Unlike the processes adopted in manufacturing, construction activities are not ongoing. The team drawn together for the project will disperse at its completion and are unlikely to form the same team again. If they do, the project will be different. In traditionally managed projects, design is largely segregated from the project construction process, which itself will need to integrate specialists from a wide range of fields of activity. The establishment of a procurement strategy is key to a successful outcome. The strategy should identify and prioritise key project objectives, as well as reflecting aspects of risk, and establishing how the process will be managed. The role of the client In such a scenario the role of the client is vital. This should include developing a strategic brief for the project that is rooted in a clearly established business case, and ensuring that necessary decisions are made and appropriate resources available to the project. Procuring construction as a business solution can have a high risk to the client organisation. Risk requires management and requires active client involvement with the assistance of a team of construction professionals at both strategic and implementation levels. Most clients will want to ensure that, as far as possible from the outset, they can achieve the solution they require within affordable cost and by an acceptable date in the future. This will be best achieved if the client seeks independent advice from the outset from an experienced construction professional who will not become part of the project team. Six key steps that a client should follow were identified in the 2002 review of the UK Construction Industry by the Strategic Forum Accelerating Change. This introduction provides simple, introductory guidance to these steps. Step 1 - Verification of need Output: Statement of business needs Achieving a successful project outcome depends upon verifying the business needs for the project being considered. This process will need to involve those stakeholders who are driving that need, those who will take the risks associated with the project and those who will be directly involved in the use of the completed facility. The objectives to be met by the project will need to be established and prioritised, and the financial, physical and programme parameters established.

2 Step 2 - Assessment of options Output: Business case Construction of a new facility is not a simple solution. It involves a range of different organisations from designers to specialist contractors and is demanding. Other solutions should be considered as part of the development of the business case for the specific project, including renting, leasing, buying an existing facility or extending or altering existing premises. Each of these will affect the client's corporate plans in different ways and may not offer the solution achievable by new construction, but they should be considered at an early stage in project development. Following the verification of business needs and the assessment of options a more detailed business case for the project should be developed. This part of the process will require return on capital investment to be considered against anticipated benefits and the impacts that project realisation will have upon the client organisation. Independent advice from a construction professional should be sought at this early stage in relation to the costs of the options being considered and any real estate values where these are part of an investment appraisal. The client will need to evaluate the likely benefits to operational efficiency and any associated balance sheet benefits of the facility being considered. These considerations will help to verify the need for the project and set down initial assessments of physical and financial impacts of the project to the client s current business. Even at this early stage initial concept designs can be developed to enable the client and the building users to begin to address how these initial designs will respond to the business needs. Independent advice At an early stage in project development it is advisable to obtain independent advice from a construction professional who is able to advise on investment appraisal, likely cost and time parameters for a particular type of project. It is good practice to select such an individual based upon his/her qualifications and previous relevant experience and to only adopt this appointment for the purpose of obtaining advice. The adviser's involvement with the project should be limited to the provision of independent advice only. Step 3 - Developing procurement strategy Output: Strategic brief The unique and bespoke nature of most construction projects increase the inherent risks. These risks include completing a project which does not meet the functional needs of the business, a project which is delivered later than the initial programme or a project which costs more than the client s ability to pay or fund. All these risks are potentially of high impact to the client s core business and the procurement strategy developed should balance the risks against those project objectives at an early stage. The primary criteria of: Time (speed or certainty of completion date) Cost (price level or cost certainty) Quality (functionality and performance) are interdependent and often in tension.

3 Most clients want a high quality functional building, fast, for a low price. This is rarely, if ever, achievable and, unless there is a priority of criteria, disappointment or worse may follow. However, sole emphasis upon one primary criteria will almost certainly have a negative effect upon the others. The nature of the client s business and the business case underpinning the project will enable consideration to be given to which of the criteria of time certainty, price or function is of the greatest importance. The identification of which factor will constitute the greatest risk to the business if it fails to be achieved will assist in the development of a weighted list of priorities. There are procurement strategies which will achieve: Certainty of cost and time for a design developed by an architect employed by the client but this is a sequential and consequently slow process. (Known as the traditional procurement process or design-bid-build). Relative speed and cost certainty but the design will be the responsibility of a contractor and consequently the client will lose some control over the design process. (Known as design-build). Relative speed for a design developed by an architect employed by the client but in this case cost is uncertain until close to completion. (Either management contracting or construction management). The establishment of an appropriate procurement strategy is a key decision if project success is to be achieved. Mistakes made at this stage may have unfortunate consequences later and it is worth taking time to ensure that the prioritisation of objectives and attitude to project risks are understood and accepted. Consideration, for example, may need to be given to the balance between the benefits associated with a relatively fast solution and the greater risk associated with fast-track procurement strategies such as design-build or management strategies. Alternatively a focus upon low capital cost may result in a longer development period or a poorer quality product than that which could be achieved where functional effectiveness was the key factor affecting strategy. In most cases the priorities of projects will fall into the areas illustrated as B, C or D in this diagram where two of the three criteria are identified as most important to project success. It is rare for the projects priorities of time, cost and quality to be equal in importance or impact. This process of aligning the prioritisation of key criteria with the business case for the project and associated decisions about risk forms the basis of the establishment of procurement strategy which forms a key stage in achieving a successful project outcome. As soon as possible after this initial stage the general parameters associated with the project will need defining, such as time constraints, budgets for all associated costs and issues which are critical to the suitability and functionality of design. At the same time the importance of the running costs of the building should be considered as this will affect the initial capital cost and may affect design and/or total programme. Where relatively low running costs are to be achieved this should be highlighted to the design team who will design for this purpose. Often the cost manager will be able to present life cycle cost calculations to enable design decisions to be made.

4 If this process is to be successfully achieved a project sponsor will need to be identified. Part of the client organisation, this individual will need to be given the responsibility and sole authority to manage the client function on behalf of the client organisation. The project sponsor will need to consult at an early stage to establish the specific functional needs of the future users of the project and to develop realistic time and cost budgets against which the client organisation will have to make on-going project decisions and will have to plan the resourcing and funding of the project. Often, and particularly with complex projects, this function is delegated in part or in whole to an experienced project manager, who will see the project through all its phases from initiation to commissioning. Though some experienced clients will have such skills within their organisation, for most this will constitute a consultant appointment. Step 4 - Implementing procurement strategy Output: Selection of the project team Since all projects will go through phases involving design, costing, planning, construction and commissioning they will involve appointing consultants and constructors. The selection of the most appropriate project team is the second key process in terms of likely project success. Traditional business practice of selecting on the basis of lowest price is not likely to prove the most successful strategy when the risk of a badly designed project of poor quality delivered late can result. The selection of project team members should be made on the basis of quality as well as price. Advice (from, for example the client s independent adviser) is available to assist in this process to ensure sensible competition between experienced professionals. Early appointments are likely to include designers and cost managers. The client sponsor will need to manage the process of communicating the parameters established and the functional and design needs for the project. This will enable a concept design to be produced and costed and then developed through an iterative process reflecting the development of the project brief. Design time and construction time are a direct consequence of design complexity and the logic of the construction process. Whilst early designs will help to develop a suitable solution, early estimates of time and cost are likely to be unreliable until the design is at a much more advanced stage. The temptation to be optimistic in relation to programme or project cost should be resisted if disappointments are not to be experienced at a later stage. No client welcomes unpleasant surprises resulting from over-optimism at an early stage no matter what the motives. Design development will depend upon the chosen procurement strategy. Traditional design-bid-build strategies will require design to be effectively completed prior to contractor selection. This does allow the design to be signed off by the client and enables reasonable cost control to be achieved but means that the design team is usually under time pressure which can result in expensive changes occurring during the construction process with consequential delays. Adequate time allowance should be made for design but can be frustrating for a client wishing to progress. Where the contractor is given the responsibility to develop the design, as in a design-build strategy, the design will progress at a pace reflecting the needs of the construction process. In this case the client rarely has the ability to influence the design itself once the briefing process has been completed. Similarly, where a strategy is adopted which positions the constructor as a manager of trades or specialist sub-contractor firms, the clients consultant designer must ensure that design matches the

5 pace dictated by the pace of the appointment of these trades. In these cases design is closely associated with how the project is achieving the objectives established and consequently is less likely to be characterised by late changes. Unfortunately, in these cases, this does mean that cost is uncertain until the last trade is let. Design-build and management strategies consequently allow the design process to overlap the construction process and will achieve a relatively early completion. Such projects are associated with high time priority projects. Step 5 - Project delivery Output: The business solution Once the project team has been selected the project can progress through the development of initial design work and the preparation of drawings and documents which will illustrate the project, define standards to be met and allocate responsibilities (and consequently risk). During this period the client sponsor has the particular responsibility of ensuring that the design process is consistent with the Strategic Brief; that the client organisation is kept informed; that an appropriate funding framework is put in place to ensure payments can be made (which often do not meet the usual trading conditions of the client s core business); that land purchase is completed on time where appropriate and that an internal decision-making system is in place to avoid design delays. The construction phase, which will deliver the business solution developed through consultation and design, will progress under the management of the project manager (where appointed) or the project team. During this part of the process the client organisation will need to adapt its own processes to ensure that it is able to make decisions when they are required and make payments in accordance with the different terms and conditions of contracts used in the procurement of construction work. Step 6 - Post project review Output: Captured learning A post-completion assessment by those stakeholders involved at the outset will enable both the client organisation and the project team to learn from the experience, and to assess whether the initial project objectives have been fully achieved. This is particularly useful if future projects are planned or where initial stakeholders have not been directly involved with the project during its development. Further help Visit the Constructing Excellence website at Acknowledgment: This information was originally supplied by Construction Best Practice in As Construction Best Practice no longer exists the information has not been updated, however, much of it is still relevant. Construction Best Practice has been replaced by Constructing Excellence visit

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