Determining a procurement strategy involves identification of risk, and assessment of the most appropriate party to manage these risks. While generic, procurement strategies are often modified by contractual relationships to suit a client's objectives.
Traditionally, procurement was based on established design-tender-construct mechanisms. This was brought about by hierarchy of professional advisors, supported by adversarial contracts. Very little scope existed for other methods of procuring a project.
Today, clients have become more sophisticated with their requirements. Their knowledge of industry operations and methods of procurement have also increased in order for them to meet corporate goals. International experience and better information systems mean that clients now have a dynamic relationship with the industry.
The Latham, Levene and Egan reports have revolutionised the industry's approach to procurement. It has now become a strategic issue in itself – the key to improving the construction process. Procurement means individuals and companies being aligned to the strategic visions of the project and client.
Within other industries the role of the purchasing function has also been elevated. Companies now realise that the efficiency with which resources are purchased can affect profit margins even more than the product's selling price.
Supply chain management and logistics are the tactics for successful procurement. The first step is to understand the client, as their degree of experience will dictate the way they approach the project.
Generally speaking an experienced client will:
By contrast, the inexperienced client will:
Procurement systems for building services
The role of the building services industry in procurement is changing. Historically, the industry invested in product development and the production of components, while playing a subservient role within the project process. It now finds itself focusing on supply chain assembly and leading the project implementation process.
A supply chain depends on a virtual network. Individual suppliers and contractors must deliver a complete product to the client. In other words, building services must be delivered as a product.
In essence, procurement strategies come in four main types: separated systems, integrated systems, management oriented systems, and product-based systems.
Supply chain management and logistics are the tactics for successful procurement
Separated systems describe the traditional method of dividing the design and construction activities between constructors and consultants. These arrangements are declining in popularity due to the separation of parties and their inherent adversarial nature. HM Treasury Procurement Guidance Note 5 has practically banned these systems for government work.
In integrated systems, the responsibility of design and construction rests with one organisation. These are typically used for simple design and build contracts such as factories. Integrated procurement is currently favoured by the Government, characterised by the MOD's prime contracting methodology.
In management oriented systems, the overall management for design and construction is given to one organisation, which then co-ordinates the others. Typical arrangements are construction management and management contracting, the main difference being the contractual arrangement between the sub-contractors and the client.
As the name suggests, product-based procurement systems treat the building as a product, where the client operates in the facility on a pay-per-use basis. The supplying contractor is charged with designing, building and financing the entire project. This normally also includes end maintenance and management of the building.
The responsibility of ensuring the project meets the needs of the client remains with the contractor. The Private Finance Initiative, public/private partnerships, design-build-operate, and many other variations describe this approach to procurement.
The difference between these strategies results from the way risk is apportioned between the parties and the amount transferred from the client. With financial risk, product-based strategies allow complete risk transfer to the contractor, including future maintenance and operating costs. The client only pays a user charge, which is often linked to the operating function of the building.
The importance of constructors' knowledge is also affirmed in terms of buildability. This is combined with an assessment of the likely complexity of the project. Each individual element must be considered, as simple structures can often have complex services – call centres for example.
The time to develop, construct and commission a building will depend on the sequence of individual trades. Timing of traditional arrangements cannot be modified without considerable penalties.
In this case, management-based procurement allows greater flexibility due to the direct relationship between the contractors and client. The overall time available for the project and critical completion dates will dictate the choice of procurement system.
The final element within the procurement strategy is the choice of contract. Tailored contracts allow the final proportioning of risk and clear definition of responsibilities. Gone are the days of adversarial contracts where all risks were transferred to the lowest level. Modern contracts are based on proper apportioning of risk, and fairness in responsibility.
With the trend for main contractors and major suppliers to be involved from day one, services contractors find themselves as the principal contractor, with the consulting engineer acting as the principal advisor.
Indeed, for complex projects where the services account for the majority of costs and risk sources, it is only right that building services professionals should lead the entire team. However, this will require a major change in building services contracting.
Developing procurement skills
Undertaking the role of principal advisor or prime contractor requires a diverse set of skills. General business and managerial skills must be combined with very specific skills of risk management and business case strategy. Traditionally these are not areas with which building services engineers are conversant.
In a drive to improve its own procurement methodology, the Government has begun a programme of assisting its staff to achieve these skills. Published as guidelines within the HM Treasury Procurement Guidance Note 1, it is made clear that two particular skills need to be developed: management and technical abilities.
The management skills required to successfully advise clients on procurement strategy can be divided into two categories; the desirable and the essential.
Desirable attributes include team building, facilitation, essential attributes, decisiveness, the ability to challenge, good communication, motivational skills, interviewing and negotiation skills, assertiveness and the ability to set objectives.
Technical abilities that need to be developed vary between roles. Certain skills or competencies will need to be obtained in depth in order to carry out practical tasks. Whereas with other skills, only basic knowledge may be required in order to gain an understanding of their implications on the project or strategy.
The other essential competency is a full understanding of the CAM Regulations, which have serious legal ramifications in any project.
Developing a procurement strategy
Best practice themes
Over the next 18 months, Building Services Journal will be working with the Building Services Research and Information Association (BSRIA) to provide best practice advice on the following themes:Source
Building Sustainable Design
Postscript
Chris Marsh is manager of the Best Practice Group at the Building Services Research and Information Association (BSRIA)
