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Procurement Methodologies for the Construction Sector

As competition in the construction market intensifies, establishing a procurement department is a key process for creating and managing contacts in construction projects. Purchasing activities cover the entire process from the determination of needs to the end of the project, and can become an ideal model for integrating the strategic direction of the organization.This article attempts to examine the best practices for procurement in the Construction sector. Let us differentiate the terminologies of PP Organogram.

The purchasing process refers to the purchase of goods, services and equipment from another organization in a legal and ethical manner. Purchasing involves managing the sourcing process, as well as the order management process. Procurement involves the strategic implementation of Purchasing.

Procurement’s active interaction with both internal customers and the external suppliers, through Supplier Relationship Management. The organogram outlines illustrate the difference between Procurement and Purchasing.

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Chart taken from SIPMM: https://publication.sipmm.edu.sg/six-procurement-best-practices-construction-industry/

Procurement by Requirements

Procurement is the acquisition of suppliers that provide goods and services in accordance with the buyer’s requirements. Procurement activities are required to ensure timely and reasonable access to the required items. In the manufacturing business, the procurement department is particularly necessary, in this business, a large number of raw materials and components must be regularly obtained.

The main goal of the procurement department is to purchase items that meet the buyer’s quality specifications to create a delivery flow to the buyer’s premises to minimize the investment in raw material inventory, while still ensuring on-demand supply of goods and reducing the amount of cash invested in inventory.

The procurement department must know the suppliers of such goods in order to be able to make purchases without wasting time.

Mild Steel Hollow Section | Square, Rectangular, Circular | Metal ...
Image taken from: https://www.metalsupplies.com/wp-content/uploads/2016/11/mild-steel-hollow-section.jpg

Procurement Selection Criteria

Public agency satisfaction with buildings and the procurement methods adopted are a primary issue that is often raised when considering the delivery of a capital works. Therefore, it is important to evaluate the clients’ criteria, importance and then seek performance to meets the criteria. All public sector agencies require their construction to be completed on the time, within budget and to the highest quality. However, some the public sector agencies emphasize that certain criteria are more important than others. Although such standards can be widely used as a guide to help decision makers to initially understand the basic attributes of a specific procurement system.

EPC - Engineering Procurement Construction Service in ...
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General Contracting

General contracting is a commonly and widely used form of procurement in the construction industry. There are three forms of general contracting, Lump Sum contract; Measurement contract; and Cost Reimbursement contract. When awarding a contract, price certainty can be ensured. Usually this method allows the client to obtain the best price through competitive bidding. It also makes the contract changes relatively manageable.

Men and woman meeting with Engineers and supervisors are standing reading the blueprints at the construction site.
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Design-Bid-Build

The traditional design-bid-build method aims to ensure the best price for a given construction project. The owner or owner’s representative works with the architect/engineer to design the project. The design plan is a public advertisement, inviting any interested contractors to bid. On the bid opening day, the construction contract will be awarded to the bidder with the lowest response. This method is favoured by contractors and designers because it allows open competition and can produce the best price. For relatively easy-to-understand and thoroughly designed projects, this process works well. However, if there is a critical time frame that needs to be met, or the project is particularly complex and the risks or variables are unknown, the public owner may prefer to use one of several alternative methods.


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References

Chit Ngu Wah Christina, DPSM. (2020). “Essential Criteria to Evaluate Construction Supplier”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/essential-criteria-evaluate-construction-supplier/#Quality,_Cost,_and_Delivery_(QCD), accessed 20/06/2020.

Francesca Nicasio. (2019). “Supplier Relationship Management”. Retrieved from: https://www.vendhq.com/blog/supplier-relationship-management, accessed 20/06/2020.

Keith Jones. (2017). “Choosing the Right Construction Procurement Method”. Retrieved from: http://www.procureware.com/choosing-right-construction-procurement-method, accessed 20/06/2020.

Li Jieqi Gloria, DPSM. (2020). “Methodologies for Construction Procurement”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/methodologies-for-construction-procurement, accessed 20/06/2020.

Ng Shi Yun, PDPM. (2018). “5 Key Criteria for Supplier Evaluation in the Construction Sector”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/5-key-criteria-supplier-evaluation-construction-sector, accessed 20/06/2020.

Steven Bragg. (2019). “Purchasing Definition”. Retrieved from: https://www.accountingtools.com/articles/what-is-purchasing.html, accessed 22/06/2020.

Vivien Cheah Khar Wai, DPSM. (2019). “Six Procurement Best Practices for the Construction Industry”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/six-procurement-best-practices-construction-industry, accessed 22/06/2020.

Ting Houng Xue, DPSM
Ting Houng Xue, DPSM
Ting Houng Xue has several years of experience in the specialised field of procurement for the construction industry. She is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). She completed the Diploma in Procurement and Supply Management (DPSM) on June 2020 at SIPMM Institute.
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