Procurement Update – The role of strategic procurement

Constructing Excellence

The Constructing Excellence Procurement Group met in September and were joined by Steve Bratt, Chief Executive of the Electrical Contractors Group and lead for the Construction Leadership Council’s Business Models workstream.  The group then explored how far the scope of procurement should reach.

CLC Business Models

The CLC  Business Models Workstream Business Models » Construction Leadership Council has provided a range of guidance for all parts of the supply chain in response to the COVID crisis. That guidance is still available and relevant. The group is now working on Phase 2 that focusses on fair practices such as prompt payment, fair contracts and retentions.  Phase 3 focuses on longer term culture change.  This builds on initiatives such as the Value Toolkit and Project 13.  This will require buy in and a collective approach from the entire supply chain.

Retentions

There are 2 approaches to retentions currently being explored:

  • International underwriters association looking at what would happen if you were to ban retentions
  • Get It Right Initiative looking at how you incentivise good behaviour by looking at the level of defects at practical completion. The view being that minimising defects should negate the need for retentions.

Issues remain around what to do in the event of contractor insolvency. Different approaches are being employed across the home nations.  Members had concerns about the work arounds that are currently influencing market behaviour and the less scrupulous practices that are driving behaviours.  It was agreed that these practices need to be irradicated.  This requires a cultural change including upholding of professional standards, protection and respect for whistle-blowers and  educate clients. In many instances cash retentions is the cheapest form of surety and is very much open to abuse, particularly across the lower ends of the supply chain.

 

The role of strategic procurement?

The group debated the role of procurement and how far the scope of the Constructing Excellence Procurement Group should extend.

In its simplest form procurement is defined as ‘ the process by which an organisation buys the products or services it needs from other organisations.’ However in a construction context procurement goes so much further than simple transactions.

The CE procurement group believe that strategic procurement underpins the commercial operation of construction firms and project delivery.

  • Strategic procurement aggregates demand and provides the market and suppliers with the information and certainty they need to invest in capacity and capability.
  • Strategic procurement drives better outcomes – as demonstrated by the Value Toolkit the decisions that are made early in the project have a huge influence on project outcomes.  For example using strategic projects to maximise social change, tackle climate change and develop local supply chains.
  • Strategic procurement sets the conditions for better relationships with project partners including fair payments, incentivising performance, unlocking innovation and delivering to time cost and quality.

Unfortunately procurement is too often viewed as a purely operational function and not viewed as strategic.

Policy levers such as the Construction Playbook and tools such as the Value Toolkit support a more strategic approach to procurement and help translate policy goals into procurement based on trust and mutual cooperation.

Unfortunately many client organisations, particularly local authorities, do not have the capabilities to drive value through the procurement process.    Members of the NACF have been demonstrating best practice in delivering value through procurement and look forward to the outcome of the review of construction frameworks as a way of driving better competences and best practice through frameworks.

 

Many of the issues reside within smaller projects, particular where decisions are made on a project by project basis, rather than as a cohesive programme.  Many larger projects have considerable scrutiny and can invest in capability to procure effectively.

The group has identified key roles around driving better procurement on small transactions (transferring knowledge from larger, better supported projects to smaller projects and clients and ensuring that best procurement practice flows through the supply chain.

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