Construction Procurement | Procurement Management

Procurement in construction is defined as the process of securing all the goods and services that are necessary to bring the construction project to completion in a timely and satisfying manner.

A construction firm carefully approaches procurement and purchases supplies cost-effectively, taking into consideration the timeline, quality of the project, and budget. 

Different construction firms use different routes by which the design and construction of a building can be procured. Whatever be the route, it must possess a strategy that satisfies the long-term objective of the client's business. 

This is dependent on the speed, cost, quality, specific project constraints, risk, asset ownership, and financing. 

Procurement Manager

A procurement manager performs the procurement in a construction company. Usually, the individual will be a logistics professional who oversees all the purchases of necessary materials for a company project. 

A procurement manager has a good role to ensure that the goods and commodities arrive on time and within the budget. 

The important skills that benefit a procurement manager are analytical thinking, negotiation, communication business, and strong mathematical skills. 

Indirect, Direct and Service Procurement

Procurement in the construction process can be direct, indirect or service procurement based on the type of goods, and type of activity.

Direct Procurement	Indirect Procurement	Services Procurement
Acquisition of goods, materials, and/or services manufacturing purposes	Sourcing and purchasing materials, goods, or services for internal use	Procuring and managing contingent workforce and consulting services
Ex: Raw materials, machinery, and resale items	Ex: Utilities, facility management, and travel	Ex: Professional services, software subscriptions, etc.
Drives external profit and continuous growth in revenue	Takes care of day-to-day operations	Used to plug process and people gaps
Comprises of stock materials or parts for production	Used to buy consumables and perishables	Used to purchase external services and staff
Establish long-term, collaborative supplier relationships	Resort to short-term, transactional relationship with suppliers	Maintain one-off, contractual relationships with suppliers

Construction Procurement Process

The construction procurement process is a series of processes that are performed to get products or services. It is formally obtained from requisition to purchase order and invoice approval.

Here comes the difference between purchasing and procuring. Purchasing is the overarching process of obtaining necessary goods and services on behalf of an organization. While procurement is the set of activities that are involved in obtaining these goods (purchasing).

The procurement process of an organization is unique to its context, and working operations. Regardless of the type of organization, every procurement management consists of three Ps. They are:

1. Process: Rules to be followed while reviewing, ordering, obtaining, and paying for goods or services. 
2. People: These are the individuals or stakeholders who have a specific responsibility in the procurement cycle. They take care of initiating or authorizing every stage of the process. With the increase in risk and value of the purchase, the number of stakeholders involved also increases.
3. Paper: This includes all the paperwork and documentation involved in every stage of the procurement process flow. These documents are collected and stored for reference and auditing reasons. 

Steps in Construction Procurement Process

Step 1: Purchase Requisition

A purchase request or purchase requisition (PR) is a written or electronic document raised by the user to the procurement team, to help fulfill the purchase. The PR specified the details of the right good, services, or works that need to be procured.

Step 2: Requisition Overview

The PR is reviewed and checked for budget availability. This review checks the genuine need for the purchase and verifies whether funding is available. Only after reviewing, the procurement process officially starts.

Step 3: Purchase Order (PO)

Approved PR becomes purchase orders (PO). The rejected PR is sent back to the requisitioner with the reason for rejection. 

Note: There is specialized Purchase Order (PO) software to perform all these activities.

Step 4: Solicitation Process

After PR approval and generation of PO, an individual procurement plan is developed by the procurement team along with the solicitation process. Solicitation is the process of seeking information, proposals, and quotations from suppliers. The scope of solicitation is dependent on the complexity of the requirement.

Step 5: Request for Quotation (RFQ)

After approving the budget, the procurement team forwards a request for quotation (RFQ) to vendors to receive and compare the bids. 

Step 6: Evaluation and Contract

The procurement team and evaluation committee review and evaluate supplier quotations to determine which supplier is the best fit. After which the perfect vendor is shortlisted.

The selected vendor is selected and performs a contract negotiation, and signing. Once the vendor accepts the PO, the binding contract is legally signed.

Step 7: Order Management

The vendor delivers the goods or services, within the stipulated timeline. After receiving the items, the purchaser examines the order or service. The purchaser informs the vendor if any issues are found.

Step 8: Invoice approvals and Disputes for payment processing

Step 9: Record Keeping

Buyers make records of purchases and invoices for bookkeeping and auditing. 

Read More: What is Construction Insurance? Who Needs Construction Insurance?