Procure value

Getting your procurement strategy right will set the scene for how much value you will be able to drive through your project. Get it right and value will flow. Get it wrong and every time you seek to drive value you will be faced with countless obstacles and constraints.

When considering value the following quotation by John Ruskin provides a timely reminder of the importance of looking beyond lowest initial price when procuring services, products and, importantly, partners:

“There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person’s lawful prey.

It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.

The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”

John Ruskin (1819-1900)

When procuring services, products and partners you should consider the following:

Develop the right procurement strategy

The procurement phase of any project is probably the most crucial because it is at this stage that key decisions around value and how much can be gained, are made. It is also the stage at which key partners and suppliers are normally appointed.

You should consider:

  • Use a well-established model to set out your procurement strategy (link to OGC)
  • Make sure you consult your key stakeholders as you develop the strategy as you will need their “buy in” to any proposals
  • The Rethinking Construction movement has long recognised that it is people that deliver projects not ‘contracts’, so whilst the selection of the appropriate contract is important, the team that is assembled will ultimately be the delivery vehicle for the project
  • Select the right partners carefully.
  • There can be a lack of expertise within client organisation to develop the most appropriate procurement methodology and process. You should study good practice which has been used to deliver other projects for example the CEWales Best Practice Programmes (link to Demonstration and Exemplar Projects on CEW website). You should include these considerations whilst developing your procurement strategy. You should speak to other clients too.
  • Focus on outcomes. Be clear about what outcomes you want your project to deliver be they economic, environmental or social. Incorporating this approach in your strategy from an early stage will ensure greatest value is delivered
  • Consider long terms partnerships to support continuous improvement. There is much evidence that where there are effectively managed long term contractual arrangements, significant benefits accrue. These include the opportunity of continuous improvements by learning lessons from previous projects. In addition, significant savings can be made by reducing the number of ‘start-ups’ and by visibility of a longer term programme enabling key elements to be procured on a larger scale. Frameworks can achieve these results but only if they move beyond a ‘select list’ approach into truly collaborative alliances which will be designed to enable best practice to be shared across the programme of work.
  • Reducing the number of contractual interfaces, ensuring that suppliers get paid on time, encouraging innovation, visibility of programmes and involvement in progress meetings are all areas where suppliers can add considerable value to the final outcomes. A supply chain strategy incorporated in the procurement process will not address all these issues but will set a framework for ensuring that they are dealt with.
  • Set performance management criteria in your procurement strategy. This should be set out at the earliest possible stage. Measures should be team based (not excluding client performance) and ensure that corrective measures are incorporated in the process. This will ensure that the approach is positive and improvement oriented.
  • Be clear in your pursuit of continuous improvement. Even if there isn’t a framework or alliance in place, the team should carry out sufficient research to ensure that lessons and experience from other similar projects are brought into the current one. This approach will maximise opportunities for innovation. (link to CEW website demos/exemplars)
  • A willingness to innovate should be explored with potential delivery partners as part of the selection process. This will not only yield benefits in terms of new ideas but the ability to overcome obstacles and operate in a flexible cooperative manner

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Select partners and involve the contractor early (ECI)

  • Selecting the right partners is essential to delivering value as it is people rather than processes that deliver value. To achieve the best chance of success, three key elements need to be balanced namely: ‘value for money’, ‘quality’ and ‘customer requirements’. It is essential therefore that the selection methodology embraces the competencies necessary to fulfil these criteria.
  • For ‘value’, a robust financial appraisal is required which focuses on outcomes and outturn costs (including operating costs) not price alone.
  • In order to achieve a ‘quality’ product; a qualified and experienced assessment team should make the decision based on written submission, interview of the key personnel and previous experience. The questions for the written ‘quality’ submission should be focussed and relevant and not merely cut and pasted from previous documents.
  • The requirements of the ‘end-user’/customer are absolutely paramount and the selection team must ensure that these are taken fully into consideration, ideally by representation on the selection panel.
  • The timing of the procurement of key elements is essential. Depending on the complexity of the project, a procurement model which facilitates early contractor involvement is to be recommended. This will assist in dealing with buildability issues and the identification and allocation of risk.
  • Consider bringing in key supply chain members early too. This is often overlooked in the procurement process – or just not considered. Even where there is a highly collaborative arrangement between the client and the principle delivery partners this approach can disappear further down the supply chain and yet this is where the majority of the work is carried out and where the value is often locked up.
  • Reducing the number of contractual interfaces, ensuring that suppliers get paid on time, encouraging innovation, visibility of programmes and involvement in progress meetings are all areas where suppliers can add considerable value to the final outcomes. A supply chain strategy incorporated in the procurement process will not address all these issues but will set a framework for ensuring that they are dealt with.

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Identify risks to delivering value

  • Establish a risk register specifically for the procurement process and link it to the client’s assessment of value.
  • Identify and focus on those areas of highest risk to your delivery of value and develop strategies to address these risks
  • Involve stakeholders in this process and ensure that they understand the implications and consequences of any of these risks arising

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Focus on quality as well as cost

The procurement process must ensure that throughout both the construction and ‘in-use’ phases sustainable benefits are created:

  • Environmental, incorporating low energy and low carbon solutions
  • Social benefits in terms of skills and training and benefits to the community
  • Economic in terms of the local economy

Selecting the right partners is essential to delivering sustainable solutions. To achieve the best chance of success, three key elements need to be balanced namely: ‘value for money’, ‘quality’ and ‘customer requirements’. It is essential therefore that the selection methodology embraces the competencies necessary to fulfil these criteria.

  • For ‘value’, a robust financial appraisal is required which focuses on outcomes and outturn costs (including operating costs) not price alone.
  • In order to achieve a ‘quality’ product; a qualified and experienced assessment team should make the decision based on written submission, interview of the key personnel and previous experience. The questions for the written ‘quality’ submission should be focussed and relevant and not merely cut and pasted from previous documents.
  • The requirements of the ‘end-user’/customer are absolutely paramount and the selection team must ensure that these are taken fully into consideration, ideally by representation on the selection panel.

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Focus on the needs of the customer/end user

Customer focus is one of the key drivers of the “Rethinking Construction” movement for change and improvement. However, once everyone gets embroiled in the process of planning, design and delivery it’s so easy to lose sight of the most important party to the project – the customer.

You should consider:

  • Involving the end user at as many scoping and decision making meetings as possible
  • Including the end user as the key stakeholder
  • Including the end user in all relevant communications

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