Construction Procurement: Process, Methods & Strategies

Having outstanding designs and the most qualified workforce are invaluable assets. However, if the necessary materials and services do not arrive on time, your project will experience significant delays, and even the most successful construction work will not be completed. While the design phase is the most advanced stage of the project, the most critical and fundamental stage of any construction work is the procurement phase.

While many perceive this as simple purchasing, nothing is further from the truth. Construction procurement is the multi-faceted strategic procedure of acquiring all the necessary resources, be it materials, services, or workforce, to complete a construction project.

Understanding the meaning of procurement in construction is fundamental for developers and project managers. Construction procurement framework is the defining structure of a project buy-out, risk sharing mechanisms, and most importantly, whether or not a project is completed on time and within budget. This guide will help explore and understand the intricacies of construction procurement within the scope of the United States.

Those with little experience may think that procurement involves purchasing other companies’ supplies. However, industry veterans recognize the construction procurement process as the delicate cycle that it is, commencing long before the first shovel is picked up.

The procurement process construction industry standards generally assume a linear sequence, with modern approaches introducing flexibility into the following stages:

• Planning and Scoping: Determining what is going to be purchased and when, with precision.
• Sourcing and Soliciting: Identifying probable suppliers and contractors, and bidding.
• Evaluating and Selecting: Evaluating proposals not only with respect to cost, but capability, and other safety history.
• Contracting: Finalizing the transaction.
• Contract Management: Making sure the vendor fulfills the promise.

Building a strong procurement strategy in construction is pivotal. In New York or Pennsylvania, where there is a public bidding law, the regulatory environment assumes a strict framework of steps to be followed. However, there is no strategy in the private sector, and that leads to cost overruns.

One of the most significant changes in the industry is the practice of Early Procurement Involvement (EPI). Because of this tactic, suppliers and specialty contractors are invited to join discussions in the design phase.

Rather than waiting for a complete design to start the bidding process, the procurement team gets involved to provide insight about the availability and constructability of items. This approach to value engineering minimizes risk and avoids the frustration of specifying a material that is either too expensive or unfeasible.

An owner’s decision on the delivery method for a project is one of their most important. There are numerous methods of construction procurement, and each comes with a unique risk element and structure of contractual relationships.

When looking at construction industry standards procurement methods, one has to consider the tradeoff between a desire for cost certainty and other elements, such as speed of delivery or design flexibility. There are a few primary building procurement methods used in the United States:

This method is the most prevalent, especially in the public sector.

• Process: The owner contracts an architect to complete the design of the project in its entirety. After the design is finished and fully complete, contractors are invited to bid on the construction of the project.
• Optimum use: This method is most suitable for a project in which the scope is clearly defined and where price competition is the most important consideration.
• Regional Context: Such examples might include government work, including Florida Department of Transportation infrastructure projects and California school district expansions.

Procurement techniques within construction are evolving to prioritize speed, and Design – Build is at the forefront.

• How it works: The owner secures one contract with one entity (the Design – Builder) who is responsible for both the design and construction.
• Best for: Owners who prefer a single point of accountability and would like the project to be completed in a shorter timeframe.
• Regional Context: There is a noticeable increase in the use of this model for private commercial projects in the rapidly growing regions of Texas and Nevada, where speed-to-market is often of greater importance than having the lowest first bid.

• How it works: A construction manager acts as a consultant to the owner during the design phase, and then transitions to the role of general contractor during the construction phase, guaranteeing a maximum price (GMP).
• Best for: Complex projects that require a higher level of management and certainty around costs.

A newer, highly collaborative model where the owner, architect, and contractor sign a single multi-party agreement, sharing both risks and rewards.

While the selection of a contract method is the fundamental strategy, the tactical level is often determined by the choice of construction material procurement.

Procurement of construction materials has become a highly volatile undertaking. We have been witnessing the skyrocketing prices of basic materials: lumber, steel, and copper. Material procurement in construction extends beyond a simple vendor search; it encompasses logistics, supply chain resilience, and timing.

Successful procurement managers have assumed the role of traders, especially in the construction materials sector. Locking in prices early or bulk purchasing is effective against inflation. But geography is a significant factor in your strategy.

• Florida: Due to the transport weight, sourcing concrete and aggregates is usually local. However, prices can spike due to high demand recovering from hurricanes.
• Pennsylvania: Being a historically strong region for steel production, there is likely to be advantageous logistics in sourcing structural steel from there, as opposed to importing.
• California: Environmental regulations will affect how you source. You may have to prioritize local sourcing, the “Buy Clean California” act, because you will be required to not only cut costs but also reduce your carbon footprint.

To control these variables, you may consider the following.

• Identifying Long Lead Items: You will need to identify and buy materials early that have lead times over 20 weeks (e.g., switch gear, elevators) before the general contractor is mobilized.
• Supplier Trading: In this tight marketplace, you may have to rely on your established relationships with suppliers in Texas and Nevada to have your materials delivered on a Tuesday instead of waiting over a month.
• Warehousing: If the prices are reasonable, and the site is not ready, you may find it worthwhile to pay for off-site storage, as it is typically cheaper than waiting to buy at a higher price in the future.

Construction procurement is not solely an administrative function. The financial performance of your project is influenced by how you procure services and materials, whether you are constructing a high-rise in New York or a logistics center in Nevada.

Your process selection, whether it’s the Design-Build or Traditional approach, needs to be aligned with the project objectives as well as the governing local authorities. As time progresses, we anticipate the implementation of digital procurement tools and the adoption of sustainable sourcing to become best practices, particularly in California and New York, which are tightly regulated and progressive.

When moving from reactive purchasing, with the transactional mindset of an opportunistic buyer, to an anticipatory procurement strategy, the foundation for success is strengthened.

Need to refine your procurement strategy for your next project in TX, CA, NV, NY, FL? Consulting with a procurement specialist or construction lawyer familiar with local regulations is a recommended first step. Contact Acon Engineering.