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A Quick Guide To Construction Project Procurement

  • By ProcureDesk
  • February 25,2024
  • 10 min read

A Quick Guide To Construction Project Procurement

construction project procurement

Considering the competitive landscape of the construction industry, cost reduction is not just a desire for companies like you. It’s a need.

Although there’s a lot of pressure to stay ahead, having an effective construction project procurement can slash your costs significantly by at least 8-10%.

In this blog, we’re going to cover the basics you need to know about construction project procurement and how you can lower your construction costs with the right procurement strategies.

If you’re looking for a P2P solution to handle your construction costs better, you might want to explore our tool ProcureDesk. We have a team of experts who can walk you through how this works. Click here to see it in action

What Is A Construction Project Procurement?

Construction project procurement refers to the process of acquiring the necessary goods, services, and resources required to complete a construction project.

It involves all the activities from identifying project needs, selecting appropriate suppliers or contractors, negotiating contracts, to managing supplier relationships throughout the project lifecycle.

Here are the key steps involved in a construction project procurement:

1. Identifying project requirements
2. Selecting procurement method
3. Soliciting bids or proposals
4. Evaluating bids or proposals
5. Negotiating contracts
6. Awarding contracts
7. Managing supplier relationships

Having an effective construction project procurement is very important to make sure your projects are completed on time, within budget, and follow the required quality standards.

Related: How To Implement A Procurement System Integration And Its Use Cases

What Is The Procurement Process Of A Construction Project?

The procurement process of a construction project typically involves several design stages, each with its own set of tasks and considerations.

Let’s dive into the typical procurement process for a construction project:

Project Planning And Needs Identification

In this stage of construction procurement, the focus is on laying the groundwork for a successful project execution.

It begins with the design team clearly defining the project’s scope, objectives, and requirements to outline what will be achieved and how.

Next, it involves identifying the specific goods, services, and resources needed, including materials, labor, and support services.

Additionally, budget constraints and timelines are established to ensure financial feasibility and progress within specified timeframes.

Finally, a procurement strategy is devised to determine how goods and services will be acquired, whether through competitive bidding, negotiations, or other methods. This stage serves as the blueprint for subsequent project activities, ensuring alignment with organizational goals and efficient resource utilization throughout the construction process.

Let’s talk about an example.

Say, your company is bidding during the construction process of a new building then the project requirements would depend upon the scope of services you are providing.

For example, you are just doing design or both design and construction is in the scope of work.

There are two common types of costs which are involved in this phase

Design costs: This includes the cost of architectural design services or any other services that are required to complete the project.

These might be in-house resources or outside vendors depending upon the size of your organization.

Material costs: These costs include the cost of material, labor, etc. which is required for any given project.

The idea of the planning phase is to identify all the cost elements related to the project.

A potential next step is to assess the specific requirements for that project.

For example, how many units of material you would need, what equipment you need to rent for this job or how much labor would be required to manage the project? These are some things that should be considered by the assigned construction manager.

Supplier/Contract Identification

The stage is crucial in construction procurement, involving thorough research and evaluation to find suitable partners for the project.

The construction procurement managers need to begin with extensive research into potential suppliers, contractors, and vendors, seeking out those with the necessary expertise and resources.

Recommendations and referrals from trusted sources are sought to further narrow down the options.

Evaluating the qualifications, experience, and capabilities of potential suppliers is then undertaken, considering factors such as past performance, technical expertise, financial stability, and adherence to safety standards. This stage ensures that only qualified and reliable partners are selected, laying a strong foundation for the successful execution of the construction project.

Request For Information

In the stage of issuing Request for Information (RFIs) during construction procurement, the aim is to gather essential details from potential suppliers concerning their capabilities, experience, and level of interest in the project.

RFIs serve as a means to collect comprehensive information that aids in understanding the potential suppliers’ suitability for the project’s requirements.

Subsequently, the responses received are carefully analyzed and evaluated to narrow down the list of potential suppliers, ensuring that only those who best meet the project’s needs and standards are considered further.

This process streamlines the selection process by the procurement team, facilitating the identification of the most qualified and compatible partners for the construction project.

Request For Proposal (RFP) Or Invitation To Tender (ITT)

In the procurement process of a construction project, the development and issuance of Request for Proposals (RFPs) or Invitations to Tender (ITTs) marks a pivotal stage.

This involves the project manager making sure that comprehensive design documents clearly articulate the project’s requirements, specifications, timelines, and evaluation criteria.

These documents serve as a roadmap for potential suppliers or contractors, outlining exactly what is expected from them. Within the RFPs or ITTs, specific details are provided regarding the project scope, technical specifications, milestones, and quality standards.

Additionally, pricing structures, payment terms, and any other relevant information are explicitly requested.

By effectively communicating these details, project stakeholders can ensure that potential suppliers fully understand the project’s needs and can submit proposals that align closely with expectations. This stage is critical for soliciting competitive bids and ultimately selecting the most suitable supplier or contractor for the construction project.

Bid Evaluation And Selection

In the procurement process of a construction project, evaluating received bids or proposals is a pivotal step that involves scrutiny and analysis.

Bids or proposals are assessed based on various criteria such as cost, quality issues, experience, and compliance with project requirements. This is an important element in the entire procurement process to make sure everyone is on the project schedule.

This evaluation process entails conducting comprehensive technical evaluations, financial assessments, and financial risk analyses to ensure that each bid aligns with the project’s objectives and specifications. You want to make sure that you consider risk allocations.

Technical evaluations focus on assessing the proposed methodologies, materials, and approaches to ensure they meet the project’s technical requirements.

Financial assessments involve comparing the proposed costs against the project budget and evaluating the overall value for money.

Additionally, risk analyses identify potential risks associated with each bid and evaluate the bidder’s ability to mitigate them effectively.

Based on the evaluation results, the preferred supplier or contractor is selected, considering factors such as competence, reliability, and alignment with project goals. This selection process is critical path for ensuring that the chosen supplier or contractor can deliver the required goods or services while meeting quality standards, budget constraints, and project timelines.

Negotiation And Contracting

Following the selection of the preferred supplier or contractor in the construction procurement process, the negotiation stage is initiated to finalize the favorable terms and conditions of the agreement.

Negotiations involve discussions between the project stakeholders, construction teams, and the selected supplier or contractor to reach mutually acceptable terms.

However, make sure you don’t get too stuck in this process as you still want to ensure the timely delivery of your project team.

This includes negotiating pricing, payment terms, delivery schedules, and other contractual obligations such as warranties, performance guarantees, and dispute resolution mechanisms. Both parties aim to ensure that the terms of the agreement are fair, reasonable, and reflective of the project’s requirements and constraints.

Once negotiations are concluded and agreement is reached, the next step is to formalize the terms in a contract agreement. This involves drafting a detailed contract document that outlines all the agreed-upon terms, conditions, and specifications. The contract agreement serves as a legally binding document that governs the relationship between the project owner and the supplier or contractor.

After the contract agreement has been drafted, reviewed, and approved by both parties, it is executed through signatures or other formal acceptance processes. Execution of the contract signifies the formal commencement of the contractual relationship between the project owner and the supplier or contractor.

For example, you might have in-house resources for design or architecture services or you might be using a third-party contractor for this.

If you are a general contractor, then, of course, you would have different sub-contractors performing the job.

For materials, you might have existing vendors from which you source the material.

Alternatively, if this is a new material then you probably have to find sources of supply.

The other point to note here is that even if you have existing vendor relationships, it might be worthwhile to negotiate the cost for each project.

It could be that increased scope can provide you with better price points. For some materials, the demand and supply situation keeps on changing, so it doesn’t hurt to check the market every time you have to source the materials.

Contract Administration

In the phase of contract administration in construction procurement, procedures are established to effectively manage the contractual relationship between the project owner and the supplier or contractor.

This is the part of construction management where you will be handling management contracts for the complex projects you’re working on.

This includes implementing systems for project monitoring and performance management to ensure that the project progresses according to plan.

Supplier performance is closely monitored to assess adherence to contractual terms, including quality standards, timelines, and deliverables. Additionally, project milestones are tracked to gauge progress and identify any deviations from the agreed-upon schedule.

Should any issues, disputes, or changes arise during the project, they are promptly addressed through open communication and resolution mechanisms outlined in the contract agreement.

Supplier Relationship Management

In the construction procurement process, maintaining ongoing communication and collaboration with suppliers or contractors is essential for project success. This stage ensures that your construction operations and different construction phases in your process move smoothly.

This involves establishing channels for regular interaction to discuss project progress, address any concerns or grievances, and ensure alignment with project goals.

Building positive relationships with suppliers or contractors is crucial, as it fosters trust, transparency, and effective problem-solving.

Addressing any issues or grievances promptly helps prevent potential disruptions to the project timeline or quality standards.

Project Closeout And Evaluation

Your construction procurement plan should always include your project closeout and evaluation. This step focuses on ensuring that the project is completed by the agreed-upon specifications and timelines.

This involves a thorough review of the final deliverables to verify compliance with contractual requirements, including quality standards and technical specifications.

Once the project is completed, a post-project evaluation is conducted to assess performance, identify lessons learned, and make improvements for future larger projects.

This evaluation process helps in recognizing areas of success and areas for improvement, enabling project stakeholders to refine processes, enhance efficiency, and optimize outcomes in future construction endeavors.

This step is very critical because this is where we realize the cost savings by effectively managing the purchasing process.

Through an effective execution of the purchasing process:

  • You can control the cost by purchasing only what is required.
  • You can control costs by purchasing from the preferred vendors at the preferred price.
  • You ensure that you are getting the volume discounts by levering the various volume price tiers.

Related: Exploring Procure-to-Pay Common Use Cases And Their Pros and Cons

What Are The 4 Types Of Procurement In Construction?

In construction, there are several procurement methods or approaches that project owners can choose from based on their specific needs, preferences, and project requirements. While there can be variations and hybrid methods, the four primary types of procurement commonly used in construction are:

Traditional Procurement

Also known as Design-Bid-Build (DBB), this is the most common and traditional method.

It involves the project owner hiring an architect or designer to create detailed plans and specifications.

Subsequently, the owner invites competitive bids from contractors based on these plans, and the contractor with the lowest bid is awarded the contract. The contractor then carries out the construction according to the specified design.

Design And Build (D&B)

In this procurement method, the project owner contracts with a single entity, usually a design-build firm or contractor, to handle both the design and construction aspects of the entire project.

This approach offers the advantage of single-point responsibility, as the design-builder is responsible for both the design and construction phases, streamlining communication and potentially reducing project management delivery time and costs.

Construction Management

Construction Management involves hiring a professional construction manager or management team to oversee and coordinate the entire construction process on behalf of the project owner.

The construction manager works collaboratively with the project owner, architects, engineers, and contractors to manage the construction project, including procurement of subcontractors, scheduling, cost control, and quality assurance.

Integrated Project Delivery (IPD)

Integrated Project Delivery is a collaborative approach that involves the early involvement of key project stakeholders, including the owner, architect, contractor, and sometimes subcontractors and suppliers.

IPD fosters collaboration, risk-sharing, and mutual benefit among all project participants. It emphasizes shared goals, collective informed decision making, and continuous communication throughout the project lifecycle, to optimize project outcomes, reduce waste, and maximize value.

Each procurement method has its advantages, disadvantages, and suitability depending on factors such as project complexity, timeline, budget, and desired level of owner involvement.

Project owners may also opt for variations or hybrids of these procurement methods to tailor the approach to their specific project requirements and preferences.

What Are The Benefits Of A Construction Project Procurement?

Construction project procurement offers several benefits to project stakeholders, including the project owner, contractors, suppliers, and other parties involved.

Some of the key benefits of construction project procurement include:

  • Cost Efficiency: Effective procurement practices can help optimize the project by preventing extra costs. This can be done by ensuring competitive pricing, minimizing waste, and identifying cost-saving opportunities throughout the project lifecycle.
  • Quality Assurance: Through rigorous vendor selection processes, detailed specifications, and performance monitoring, procurement helps ensure that materials, equipment, and services meet quality standards and project requirements.
  • Risk Management: Procurement strategies can help mitigate risks associated with project delays, cost overruns, and quality issues by establishing clear contractual terms, identifying and managing risks proactively, and fostering collaboration among project stakeholders.
  • Timely Project Delivery: By streamlining procurement processes, selecting reliable suppliers and contractors, and establishing realistic timelines, procurement contributes to timely project completion, reducing delays and associated costs.
  • Innovation and Expertise: Engaging with suppliers, contractors, and consultants with specialized expertise and innovative solutions can enhance project outcomes, drive efficiency, and foster continuous improvement in construction practices.
  • Stakeholder Satisfaction: Effective procurement practices contribute to stakeholder satisfaction by ensuring that project objectives are met, quality expectations are fulfilled, and budgets are managed effectively.
  • Transparency and Accountability: Procurement processes promote transparency and accountability by documenting project requirements, soliciting competitive bids or proposals, and adhering to ethical and regulatory standards throughout the procurement lifecycle.
  • Flexibility and Adaptability: Procurement allows project stakeholders to adapt to changing project requirements, market conditions, and stakeholder needs by providing flexibility in selecting vendors, adjusting project scope, and managing project risks effectively.
  • Sustainable Practices: Procurement can facilitate the adoption of sustainable construction practices by sourcing environmentally friendly materials, selecting contractors with green building expertise, and incorporating sustainability criteria into procurement criteria.

Overall, effective construction project procurement plays a crucial role in achieving project success by optimizing costs, ensuring quality and timeliness, managing risks, fostering innovation, and enhancing stakeholder satisfaction.

A Framework For Procurement Cost Management In Construction

This section is focused on the execution phase of procurement management in construction.

Essentially, how a product or service is purchased from external vendors to fulfill a customer’s job.

We will focus on the typical issues we see during the execution phase of the procurement and how that leads to savings leakage or cost overruns.

Following are some recommendations on how companies can leverage to increase the efficiency of the procurement process during the execution phase

Integrating Quote To Cash Cycle

It is not uncommon for companies to have different systems for the different stages of the customer life cycle. For example from the initial quote to the billing and receiving payment from the customer.

Let’s break the process into individual steps

1. Creating a quote for the customer

You might have one system for creating the quotes for customers’ jobs and sending them to the customer.

In some cases, you might have a Master Services Agreement (MSA), and every time you need to do a job, you need to submit a quote for approval.

If you are manually sending the quotes for approval, it would be difficult to later track the approvals or what price you have quoted.

In case you have different rates for different customers, then you would probably need to ensure that the rates you have in the contract are quoted on the job quote.

You also need to maintain the proper markups for materials. Your contract might allow you to charge a markup or you do markup irrespective.

So the first step is to ensure that the quote is correct in terms of pricing and quantity and you are accurately tracking customer orders

2. Creating a work order

The next step is to create a work order so that work can be scheduled and the required services can be rendered. This generally includes issuing purchase orders to vendors for materials or services required to complete the job.

Doing this ensures that the construction schedule is spot on as well.

In this step, you need to ensure that data is entered correctly, especially for the services so that you can recover the cost with margins.

3. Creating a purchase order

This step includes creating the purchase order for materials or services you need to complete the construction project.

The biggest challenge here is to ensure that you keep the cost under or equal to what you have quoted the customer.

Let us explain with the help of an example.

Assume that you have quoted customer materials for $100,000. However, when you order the products, you are ordering many types of material – for example, concrete steel or wood.

So how do you make sure that the cost of the purchase orders doesn’t exceed the cost of materials you have quoted to the customer?

The short answer is that you need to meticulously track the cost for each order and line quoted on the quote.

We cover more about this in the later sections

4. Billing the customer

The next step is to invoice the customer. The invoicing could be over time based on the agreed milestones with the customer.

5. Reconciling the Sales order with Purchase order and billing

In the end, you need to ensure that quotes, purchase orders, and billing have the same amount, minus the margins you have added to the quote.

If there is a discrepancy you are probably losing money on the project.

As you can see there are so many different steps in the execution of procurement methods for a construction project.

If all the above steps are managed in different systems, chances are you would land up with a lot of issues because of the data not being in sync.

The best way to reduce the chances of errors is to have a system that can capture a lot of steps or at least integrate between different systems so that it is easy to automatically move the data between systems.

Details Budgets For Projects

One of the main reasons projects are over budget during procurement in construction is because of the lack of detailed budgeting at the project line level.

We are not suggesting that companies don’t track budgets related to projects. But we are suggesting that the budget details might not be granular enough for you to track items that went over budget.

Let’s say you are in a bidding process for a new construction project. You did the scoping exercise and responded to the request for a quote from your customer.

Assuming you win the project, you probably would set up a budget for the project. Let’s say 200,000.

Now let’s say instead of a high-level budget, you had a detailed line-level budget created for the project.

Let’s say out of the $200,000 total cost, you are spending 100,000 on materials and 100,000 on the services/labor associated with the project.

At the end of the project, you can calculate the actual money you spent on the project, if you are under, you are doing great but what if you went over?

Then you have to dig down, find invoices, and calculate where you spent more money than budgeted.

How about a proactive approach?

Let’s play this out again.

Instead of having a generic budget line for material, let’s say you have a detailed breakdown of different line items you are going to purchase for the project. For example

Concrete: $40,000

Floor tiles: $40,000

Other Misc materials: $20,000

So now we have 3 budget lines instead of one budget line.

Now imagine that every time you want to purchase something, you are using this budget, and the moment you go over the budget, you will immediately know the line item where you went over.

This not only gives you proactive control over purchases but also helps you troubleshoot the root cause of why you went over budget.

For example, you went over budget because you ended up paying more than what you expected to pay for materials.

Or it could be that you underestimated the material requirements.

Once you know the root cause, you can come up with different mitigation strategies for future projects.

For example, in cases where you paid more than what you have budgeted for – you could negotiate a deal with the vendor that the pricing is not going to change for a fixed timeframe.

Alternatively, you could bid on the project and choose the vendor with the best cost/value.

Linking Projects To Purchases

The next step in the framework is to link the projects to the purchasing process.

We talked about setting up detailed budget lines in the last step, but setting up a budget is not of much value if it is not linked to the actual purchases.

There are two main benefits of linking purchases to the project/ project budget lines.

You Get Instant Visibility

Since all purchases are linked to the projects, you can get instant visibility into the project spending at any point in time. For example, how much spend we have on open orders or how much is already invoiced.

This also helps you to forecast whether you are going to run out of the budget before the project is complete.

Let’s say you are working on a project which is going to last for 6 months.

2 months into the project and you have consumed 80% of the budget.

That might be an indication that you would probably need more money than allocated in the budget. This might not be true in case you would do the material purchase upfront.

You Can Proactively Control Costs

The second benefit of linking projects to purchases is that you can proactively control the cost and hence prevent the project from going into a budget overrun scenario.

Let’s assume that you have a purchasing cost control mechanism in place so that all purchases need to be approved before the order can be placed with the vendor.

If your budgets are linked to purchases, you should be able to check if the purchase is under budget or not.

If not, you can ask questions and see what can be done to keep the cost low.

Also, you can see how much of the budget is consumed, so that you are in a better position to forecast the spending.

Spend Analysis For Cost Reduction Opportunities

In the previous section, we talked about the framework companies should follow to better track the cost against the purchases.

In this section, we will talk about strategies companies can follow to reduce the overall cost of the materials or services being purchased.

The previous section was more focused on the process, this is more on the specific tactics for cost reduction. So for example, these strategies won’t help if you have a poor planning process.

Unit Cost Analysis

This is the most basic technique for reducing the cost of the construction material or services being purchased to complete the project.

At a very basic level, the idea is to look at the current spending and find opportunities for cost reduction.

There are a couple of opportunities here for cost reduction

1. Reduce the Unit cost

Let’s assume you purchase certain widgets for construction projects.

If you look at the cumulative spend over a year, you would see that in aggregate you are probably purchasing a large quantity.

Once you have the total quantity, check if the demand is consistent over the years, in other words, you have the same or similar spending year on year for this widget.

If the demand is projected to be consistent, then see if you are purchasing these items from one vendor or multiple vendors.

Based on the locations, you might be purchasing these items from different vendors.

So the opportunity here is to consolidate the spend to a few vendors and get better overall pricing.

You can probably go to a national vendor who can serve all the different locations.

Vendor consolidation is beneficial for many reasons

  • You have one vendor to deal with me instead of multiple vendors, so collaboration becomes easier.
  • You can work with a vendor over the long term to identify collaboration opportunities that could lead to cost reduction for both of you.
  • You normally get a volume discount because you can aggregate the spend and get better volume discounts

2. Optimize the order quantity

Sometimes, it is not feasible to change the existing vendors. Or you are in a situation where there are only limited supply options.

If that is the case, then you might want to look at purchasing a larger quantity at one time.

Most of the vendors can give you volume discounts if you purchase items in bulk.

It reduces the shipping cost for them, but the drawback for you is that now you are sitting on a large inventory and that could be an issue for working capital.

If cash flow is not an issue for your company, then you could use bulk purchases to reduce the overall unit cost.

3. Review your product specifications

A very common scenario we see is that the construction crew has brand preferences for materials.

We all have brand preferences, and that could be influenced by our past experiences or influenced by the vendor’s persuasion techniques!

It is often helpful to use specifications instead of brand names while sourcing these products.

So instead of saying, we need GE 100W bulbs, you could say we need 100W bulbs which would last for 100 days.

Of Course, this is a very simple example.

You probably need to work with your SME (Subject Matter Experts) to identify the exact specification of the material.

This approach would certainly help you find low-cost alternatives for the products without compromising on the quality of the materials you are purchasing.

Related: How To Improve Purchasing Experience Using Vendor Catalogs

4. Eliminate certain supply chain partners

In certain cases, it might help you to eliminate certain supply chain partners.

In most cases, manufacturers sell the product through their preferred partners, also called “Distributors”.

Distributors charge a markup on the manufacturer’s cost for the value added in the process.

On top of it, some manufacturers don’t even have a direct channel so they do rely on their supply chain partners to ship the product to end consumers.

If your volume is high enough, you might be in a position to go directly to the manufacturer and reduce the cost. Generally, you can save at least 3-5% of the cost.

This approach makes sense if

  • You have a high purchase volume.
  • You can purchase in bulk
  • You have enough cash flow to fund the large inventory.

Shipping Cost

Often companies focus on the unit cost of the material and not so much on the freight cost, which is charged by reliable suppliers to deliver the product.

But that could easily add up to 10% or more of the total purchase cost.

To better understand your shipping cost, you would need to pull the shipping cost information from the vendor invoices.

It is ideal to pull the last 12 months so that you can understand annual trends.

Some points you should consider

  • How often material is being delivered?
  • From where the product is being delivered. Cost is not just determined based on the volume but also on the distance.

Once you have this data, you could look at opportunities to reduce the cost.

Here are a couple of suggestions to reduce the cost.

Use the landing cost for your cost analysis and not the unit cost.

Let’s say your existing vendor has a warehouse that is 100 miles away. You asked for quotes from other vendors and you found a local vendor who is just 10 miles away.

So even though the unit cost is the same, you should look at the total landing cost.

Maybe the local vendor can ship often and offer free shipping.

That not only leads to lower inventory, that leads to lower overall costs.

Markup Analysis

Most of the construction companies out there charge a 10% markup on the materials they use in the construction jobs.

For example, you purchased a certain widget for $10 and you charge your customer $11 to cover up your overheads.

If the material is a significant portion of the project procurement spend, then the 10% markup can add to a significant portion of your project profit margins.

The challenge though is ensuring that you always bill the right cost to your customer.

Since most companies have multiple systems for a quotes, purchase orders, and customer billing, the process is error-prone.

To ensure that you can accurately bill your customers you should look at an integrated Quote to cash cycle.

What do we mean by that?

Imagine a system that allows you to easily create customer quotes from predefined catalogs. The catalogs have your pricing with markup for materials and services.

That way, you ensure that you are always sending the correct quotes to your customers.

The customer now has the opportunity to review the quote and approve it within the system itself.

Once the quote is approved, you can create a sales order and convert that into a purchase order.

You can send one or multiple purchase orders to the respective vendors.

Once the product is delivered, you can then convert the sales order into a customer bill and invoice the customer.

If all modules are integrated, then it is easy for information to flow and you can eliminate the chances of any error due to data entry from one system to another.

Moreover, you can capture the right markup.

Reduce Inventory Levels

Do you carry Inventory so that you can complete customer jobs on time?

If yes, then you might want to look at reducing the inventory to the minimum or implementing a JIT model.

There are two benefits of reduced inventory.

Lower Working Capital Requirements

If you carry less inventory, your working capital is low.

And sometimes you might be able to fund the purchase of materials from customer advance payments.

The only reason you want to carry inventory is to ensure that you complete jobs in a timely fashion but if the jobs you work on have a long lead time, then it doesn’t make sense to carry a lot of inventory.

Lower Inventory Carrying Cost

The Inventory carrying cost is the cost of holding the inventory. This includes the warehouse cost, insurance cost, and other costs related to managing inventory.

Generally, this cost is around 20% of the inventory value. So let’s assume you are carrying $100,000 worth of Inventory, then the Inventory carry cost is approx. $20,000.

So look at your supply chain and see if it makes to carry less or no inventory at all.

How Can ProcureDesk Help With Your Construction Project Procurement

Our tool ProcureDesk has a Cost Management Dashboard feature that can help you get a comprehensive overview of your expenses.

Our Spend Management Dashboard consolidates all your spending data in one centralized location, making it easier to understand your expenses for every design phase in your construction projects.

Spend Dashboard

Effectively managing your company’s financial dynamics involves monitoring monthly spending trends to understand purchasing behaviors.

Simultaneously, tracking payment terms across vendors provides an avenue for negotiating better terms—an essential strategy for boosting cash flow.

As the scale of your operation, capitalize on opportunities to settle invoices earlier than agreed terms, unlocking valuable early payment discounts. Utilize the open order report for a comprehensive overview of open commitments, detailing open purchase orders, invoiced amounts, and pending invoices.

Armed with information, your strategic spending planning becomes more informed and efficient, contributing to overall financial excellence.

If you’re looking for a P2P solution to handle your construction costs better, you might want to explore our tool ProcureDesk. We have a team of experts who can walk you through how this works. Click here to see it in action


What Is Procurement Management?

Procurement management is the process of acquiring the necessary goods, services, and resources required to complete a project.

It involves careful planning, sourcing, negotiating, contracting, and managing suppliers or contractors to ensure that project objectives are met effectively and efficiently.

Procurement management encompasses activities such as identifying project needs, selecting suppliers, negotiating contracts, monitoring supplier performance, and addressing any issues or changes that arise during the procurement process.

Who Is Responsible For Construction Project Procurement?

The responsibility for construction project procurement typically lies with the project owner or client.

However, depending on the procurement method and project structure, various parties may be involved in procurement activities.

For instance, in traditional procurement, the project owner is primarily responsible for procurement, while in design-build or construction management contracts, the responsibility may be shared with the design-builder, construction manager, or other project stakeholders.

Regardless of the specific critical roles and responsibilities, effective communication, collaboration, and coordination among all parties involved are essential for successful construction project procurement.

Who Are The Parties Involved In Construction Project Procurement?

Construction project procurement involves multiple parties, each with specific roles and responsibilities. The main parties typically involved in construction project procurement include:

  • Project Owner/Client: The entity that initiates the construction project and is ultimately responsible for its success. The project owner defines project requirements, selects procurement methods, and manages relationships with suppliers or contractors.
  • Design Professionals: Architects, engineers, and other design professionals responsible for creating project plans, specifications, and designs.
    Contractors/Builders: Construction companies or contractors responsible for executing the construction work according to project specifications and timelines.
  • Suppliers/Subcontractors: Suppliers provide materials, equipment, and supplies needed for construction, while subcontractors perform specialized construction tasks under the direction of the main contractor.
  • Construction Managers: Professionals or firms hired to oversee and coordinate construction activities, manage subcontractors, and ensure project delivery within budget and schedule constraints.
  • Procurement Specialists: Individuals or teams responsible for managing procurement processes, including sourcing, negotiating contracts, and monitoring supplier performance.
  • Legal and Financial Advisors: Legal and financial experts who provide guidance on contractual matters, risk management, and financial planning related to construction project procurement.
  • Regulatory Authorities: Government agencies or regulatory bodies responsible for enforcing construction regulations, permitting, and compliance with building codes and standards.
  • Other Stakeholders: Other parties involved in the project, such as lenders, insurers, consultants, and community representatives, may also play a role in construction project procurement, depending on the project’s scope and context.

The Bottomline

There are two main things you need to do to increase your profit margins,

One, Implement a cost control framework.

This includes an end-to-end quote to cash cycle which ensures that the information flows seamlessly through the systems and you are accurately billing your customers.

The second aspect of that is to have detailed project budgets so that you can easily track spending against different cost elements and take corrective action where required.

Second, you should reduce your unit cost for products and services

You can look at your past purchasing history and see if you can negotiate better rates for the materials you purchase frequently. Even if you can negotiate a 5% reduction, that is a straight increase in your profit margins.

Now it is your turn, what are you doing to increase your profit margins?


What you should do now

Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.

  1. Claim your Free Strategy Session. If you’d like to work with us to implement a process to control spending, and spend less time matching invoices, claim your Free Strategy Session. One of our process experts will understand your current purchasing situation and then suggest practical strategies to reduce the purchase order approval cycle.
  2. If you’d like to know the maturity of your purchasing process, download our purchasing process grader and identify exactly what you should be working on next to improve your purchasing and AP process.
  3. If you’d like to enhance your knowledge about the purchasing process, check out our blog or Resources section.
  4. If you know another professional who’d enjoy reading this page, share it with them via email, Linkedin, Twitter.