Have you ever embarked in a project that required you to order certain material or equipment? Did you need to look at the specifics of the material to determine if it will work?
Well, if that’s the case then you’re on your way to perform some procurement for construction projects then!
In this article, we will cover two types of procurement in construction.
First, will be procurement of equipment and materials to actually perform the construction work.
Second, will involve the procurement of construction itself and the different avenues available.
What is Construction Material/Equipment Procurement?
This type of procurement involves the purchasing of equipment and material that is used on a construction job site. It can be things such as Lumber, HVAC equipment, fasteners, piping, wiring, and more. These items are essential for any project to get completed and the procurement process is vital for any construction company.
As a project manager it is important to understand how your company handles the procurement process. Whether they use a procurement manager or require that the project manager orders the equipment will differ between construction companies. This should be one of the first things that you learn when you join a new company.
Understanding procurement is fairly straightforward but you need to be careful before you order material or equipment. You can’t just order anything that you think is going to work for the job. it also needs to meet the project specifications set in the contract documents.
If you don’t follow the product specifications then you can get into a lot of trouble when it comes time for inspections. The last thing you want is to rip out something you just installed. But construction can be ruthless in that sense if you don’t follow the specs or local code.
You should be coordinated with your field crew when ordering equipment. For example, when you order an air handler you need to keep in mind the configuration. This includes the placement of the coral connection, service doors, fan motor, and the fan itself.
If you don’t plan this out properly, you can create a greater headache for the field crew. In some instances it could be downright impossible without the correct configuration. That’s why there is careful planning involved during the procurement process.
Things to Consider as a Project Manager
As I previously mentioned, a company may decide to use a procurement manager or have the project manager complete orders. As a project manager you need to understand your role within the company and if this responsibility falls on you. Most companies that I’ve worked for have had a procurement manager.
I believe it is important to have a construction procurement manager because they assist the project manager in completing material acquisition. The project manager already has so many things to juggle. Having a procurement manager who can follow up regularly is beneficial to the success of a project.
Companies Without a Procurement Manager
I’m not saying that it’s absolutely vital to have a procurement manager, but it can help. It’s likely that for smaller companies the project manager will have sole responsibility of ordering equipment and material. This is understandable since the company does not have the funds for an additional person to join the team.
Companies With a Procurement Manager
Now, for companies that do have a procurement manager, you’ll need to learn how the responsibilities have been split up. For example, my former company would handle all orders over a certain dollar value by one person, the purchasing manager. Since this person had control over the company’s financials he was well trusted to complete this job.
It was nice to have this person on the team because they would constantly follow-up and provide updates on the orders. The only downside was that he would only order exactly what you asked them to. Meaning if I did not verify my order then there was a chance I would be ordering the wrong thing.
He was not to blame for any of these mistakes as well, since I was the one that put in the request. There was one incident where I failed to verify the configuration of a VFD prior to ordering. After the VFD was installed, the customer noticed that there was an issue with the configuration.
I had ordered the equipment without a bypass on it. Which meant that if the drive failed, then they had a dead air handler. We had installed this in a hospital as well, so they needed that equipment to run even if the drive failed.
Acknowledging my mistake, I went back to the vendor asking them to re-quote the same VFD. Except this time I asked them to include the bypass that should have come with the first one. I had learned a lesson this day, that you can’t rely on others to make the right selection on equipment.
I hope you can begin to see that configuration when ordering equipment is a key factor in the procurement process. If you order incorrectly, this will destroy your budget trying to fix the issue.
The company that I now work for requires that any large equipment needs to be ordered by the project manager. The procurement manager is just responsible for receiving the equipment and prepping it to go out to the construction site. The project manager should have the greatest understanding of the job, so they should order the equipment.
Procurement Manager Responsibilities
Other than just placing orders, your procurement manager needs to consider multiple things. Before they place any orders they need to keep in mind the budget and when material needs to arrive. Order too late you can risk delaying the job, especially if there are supply chain issues.
Material/Equipment Order Timing
There’s some planning that needs to take place as you need to order the equipment at the right time. As I write this article we are currently suffering from supply chain issues. As a result, some equipment is taking 30 to 40 weeks just to receive it.
That means customers are having to wait to have their construction projects completed. Contractors are having to wait before they can even begin with the construction phase. So, this is impacting everyone in the construction industry.
This also presents another challenge since you’ll need to order the rest of the material for the project. The lead time will be much shorter so you have a couple options here. Order the equipment early or try to time it based on the arrival of your long-lead items.
Keep in mind that if you order the equipment early then you need to find a place to store it. If your company does not have a warehouse then you might consider storing it at the job site. The general contractor might not be very happy with you if you choose this option.
I suggest that you try to time it within a few weeks of installing the material or equipment. This way you don’t have to worry about storage and paying the vendor for something you haven’t installed yet. You can create a construction procurement schedule based on lead times, to tell you when to order certain items.
Also, you should note that some projects do not allow you to bill for materials stored on the job site. This particularly applies to federal jobs, so your company will need to absorb this cost until the equipment is installed. Trust me, this is definitely something you don’t want to do.
There are situations where construction management on the government side will allow you to bill for material stored on-site. But this is a very rare situation and I’ve only seen it apply to an item with a high dollar value. Other than that they will reject any requests to pay for material that is not installed.
Next, as the procurement manager, they need to determine where the material/equipment will be delivered. Will the equipment be going directly to the job site or does your company require that it comes to the warehouse before going out. Before the manager issues any work orders they will need to work with the project team to determine delivery.
Depending on the equipment and if the company has a warehouse or office, they might decide to send it there. This way they can properly inspect the equipment and also prepare it to go to the job site. It’s good to identify if there’s any damage or do you fax with the equipment before it’s onsite.
You might have greater control of the surroundings at the warehouse, while a construction site is a lot more hectic. On small projects that don’t have a lot of material and equipment it might not take much room. So, keeping the equipment at the shop for a short period of time might be okay.
This traditional method may work for the simpler projects but what about the complex projects? A complex project might be one that is located in another state or Island if you live in Hawaii. You need to consider where the equipment and material will be shipped to.
If you decide to ship it to the warehouse beforehand, then this will add to the project cost. This is because you’re handling the equipment multiple times. Each time you handle the equipment this will have some impact on your project’s budget.
The less you need to handle the equipment the better, but there are exceptions to this. For example, at the time of writing this article I am managing a project in Kauai. I would like to have all the equipment sent to Kauai, but I need to send one item to Oahu first.
The reason for this is that the equipment needs some special coating to prevent it from rusting. The proper coating services do not exist on Kauai, so it needs to be sent to Oahu. If I don’t get it coded by the proper company then I risk voiding the warranty on the equipment.
I know my crew will need to handle this equipment multiple times, but in the long run it’s a small sacrifice to maintain the warranty. Just know that the best practices involve planning around the least amount of occurrences of material handling.
Software Solutions for Material/Equipment Procurement
The last thing I want to mention is the use of software for your procurement systems. Personally, I think this would be most useful when it comes to any large projects. While the definition of a large project can be subjective, I think anything over $5 million is considered a large project.
The software should help you with managing the orders, but of course will take some time to learn it. I’ve only personally used Autodesk Build for procurement management. The application has some neat features which informs the team on the equipment status.
It is also nice because you can print out reports of the equipment status to send to general contractors. The project team can gather information like if the equipment has been ordered and when it’s expected onsite. Software can be a valuable tool in the construction industry but it can also be pricey.
That’s why I mention that purchasing software to assist with procurement should only be done for larger projects. You will have additional funds to work with and you might even budget the software into the project.
Procurement of Construction Services
This type of procurement involves reaching out to a contractor to receive construction services for a project. There’s five standard construction procurement types.
- Design build
- Construction Management
- Private finance
This procurement route will see the most common use when it comes to obtaining construction services. In this case, an owner will reach out to a design team to create a set of plans for the project. Once this has been completed, this will become the contract drawings and specifications.
The owner will then look for prime contractors who will be responsible for constructing the project. The owner will need to issue an RFP and RFQ to find high quality contractors. This contractor will be responsible for the construction activities and overseeing the job to close out.
This type of project requires that the construction contractor provides the design services and performs construction as well. The owner will still need to issue an RFP for contractors to bid on the project. This type of job will require a greater level of expertise from the contractor involved.
While I was working for a general contractor, we would just contract out a design firm for the job. This requires knowledge on how things should be constructed and designed. It also requires a great understanding of the local code and meeting ASHRAE and NFPA requirements.
It places more liability on the contractor involved in the project, but there are also potential benefits for them as well. First, it results in a larger contract value, meaning the profit margin for the job will be greater. Also, since they hired the design team, they have more leverage in getting answers from them.
One of the struggles in a project is getting a response to design questions you might have. Engineers tend to be busy and might take a while to provide an answer.
With a design build project, you will go through multiple stages before the design is considered complete. So, you will be able to eliminate any design questions before the final design is even released.
This type of project would have a construction manager who is responsible for managing the job for a client. The management contractor would be the owner’s representative and hire the design firm and contractor separately for a job. They’re required to be experienced to ensure the projects proper execution and delivery to the customer.
A project like this would mean that the contractor involved with the project is providing the construction and funding. Once the project is completed, the contractor will lease out the building to the client for a certain time period. This procurement method is rare and it’s likely you won’t experience this type of project.
If there’s anything that you take away from this is that you understand how material/equipment procurement is done. Either the construction project management team will take care of the ordering or a procurement manager. Learn the process that your company uses and where the responsibility lies for you.
Make sure that you review thoroughly before you place an order for equipment, you don’t want to order incorrectly. The location for the shipment will need to be worked out with the team as well.
Lastly, is timing, ordering your equipment/material too late and you risk delaying the job. Order too soon and you might not get paid for the material if you haven’t installed anything. Timing in construction is everything.
When it comes to procurement of construction services, you should understand the design build and design-bid-build processes. If you’re working for a general contractor this will be something you will often deal with so understand it well.
From time to time you will also encounter projects that have a construction manager, but this does not apply to every project. It’s good to know that this type of project exists, so you know the role of the construction manager.
Thank you for reading.
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