Construction Procurement: A Guide to Purchasing & Logistics

A construction project is a complex series of activities requiring a wide variety of highly specialized materials, many of which are custom-built for the specific job. The owner needs to hire a contractor team with the right experience for the project, and the contractors need to find reliable suppliers who provide materials and equipment that meet the contract specifications and project schedule. 

Procuring the labor and materials for a project can be a complicated endeavor: The selection of contractors and materials involves many more steps than simply cutting a check. In recent times, supply chain disruptions have added another layer of complexity to the procurement process, increasing lead times for many building materials. 

In this article, we’ll walk through the steps in the construction procurement process, providing a deeper look at the responsibilities and common challenges during each phase. 

The Basics of Procurement

In construction, procurement refers to the process of acquiring materials, equipment or services needed to complete a project. The procurement process involves identifying project needs, specifying requirements, and contracting the appropriate contractors and suppliers to complete a construction project. The goal of procurement management is to ensure that the necessary materials and services are obtained at the best possible price, within the required time frame, and in accordance with quality standards.

In construction, the term “procurement” can refer to the process of purchasing building materials or to the selection of contractors and subcontractors on a project. The focus of this article is on purchasing and managing logistics for materials and equipment, since the term is used most often in this context. 

Responsibilities for Procurement

In most cases, the general contractor is responsible for the procurement of materials, though it will depend on the contract, the size of the project, and other considerations. The prime contract typically puts the onus on the GC to ensure that materials and equipment are delivered and installed according to the project schedule. However, the GC usually subcontracts most of the procurement work to specialty contractors who have relationships with trade suppliers. The prime contractor will coordinate the procurement activities of their subs to ensure materials are delivered on schedule. 

On small projects, a project manager typically oversees and coordinates the procurement process. On larger projects, like commercial or public jobs, contractors often employ a procurement manager whose sole responsibility is coordinating the process. Megaprojects may employ an Engineering, Procurement and Construction (EPC) Contractor with a fully integrated team dedicated to the procurement of materials and equipment. 

On some jobs, the owner may take responsibility for procurement, typically because they can take advantage of tax breaks or negotiate special procurement agreements for some or all of the materials. 

Procurement vs. Purchasing

Though “purchasing” and “procurement” are sometimes used interchangeably, purchasing is actually just one step in the procurement process. Construction procurement is a multi-step process that covers everything from selection to approval of each project component, all the way through to delivery and installation. 

Procurement is a critical role that ties into budgeting, scheduling, and installation. Purchasing technically refers to the financial transaction — exchanging money for materials. Procurement includes selection and purchasing, but also encompasses logistics, approval, and strategy, among many other steps.  

10 Steps in Construction Procurement

Construction procurement moves through several stages for a typical job. The steps may differ slightly depending on the type of project or the delivery method employed, but the overall process will generally look similar. 

For simplicity, the steps below are based on a project using the traditional design-bid-build method of delivery. More collaborative methods of project delivery, like design-build, often enable a faster, more efficient procurement process with fewer steps.  

1. The design team creates specifications.

The design phase of a project sets the stage for the entire procurement process. Owners work with the architect and design team to produce the drawings and specification book that defines the material requirements. Contractors will need to follow the spec book closely when communicating with their vendors and suppliers to ensure they can meet the design needs.  

On most projects in the US, the spec book is organized using CSI divisions, making it easy for specialty contractors to reference the sections that are applicable to their scope of work and communicate material requirements to their suppliers. 

Public projects typically have additional procurement requirements. For example, contractors working on federal projects may need to adjust their procurement process to comply with Federal Acquisition Regulation (FAR) Small Business Programs in order to give “maximum practical opportunity” to “small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business.” 

2. Contractors estimate and bid the project.

If the owner issues an ITB or RFP to solicit bids, general contractors will need to estimate the job to prepare their proposal. They may employ an in-house estimator to do a rough order of magnitude estimate, but to gain a more accurate picture of the job costs they will typically reach out to their pool of subcontractors. The specialty contractors will, in turn, use the project specifications to secure price quotes from their pool of material suppliers or fabricators. 

The specialty contractors provide estimates to the GC, who combines them to form the basis of their own project bid. 

3. The owner and contractor agree to terms.

After the designs are complete, the owner compares bids, selects the contractors and awards the contract. The GC then signs subcontracts with the specialty contractors. 

The project’s contractual structure largely determines when the procurement process can begin for many components. For larger materials or specialty pieces of equipment, the owner may begin procurement even before the general contractor is hired. The majority of the project’s components, however, fall on the contractors to handle. 

With traditional design-bid-build projects, that means the majority of the procurement can’t begin until the designs are completed. With some other models, such as a design-build or construction manager at risk, the GC is involved earlier in the process and can begin procurement as soon as specifications for that portion of the job are complete. 

To reduce their own risk, contractors often seek to include an escalation clause in their contract. This type of clause stipulates that, if material prices rise beyond a certain amount, the owner is responsible for the cost increase. 

4. Contractors solicit bids or pricing from suppliers.

After materials and equipment have been approved, contractors can begin the solicitation process with suppliers. Selection of engineered or specially fabricated components, like structural steel or ductwork, could involve soliciting bids or quotes from multiple suppliers. Standard items like lumber or plumbing may simply be ordered from a contractor’s trusted supplier. 

Once the bids come back and the options are finalized, the general contractor can evaluate the options either on their own or in consultation with the owner and/or designers. Cost can be the primary driver during the evaluation phase, but there are other factors that can also come into play, such as availability, quality, experience of the suppliers, or sustainability of the materials. 

5. Contractors plan their procurement sequences.

After the objectives are made and the drawings are complete, planning for procurement begins. Contractors confirm lead times with their suppliers. The general contractor plans the submittal schedule to prioritize approval of items with long lead times to ensure materials and equipment are delivered to the jobsite on time.  

6. The design team reviews contractor submittals.

Before purchasing begins, the GC moves to the submittals process. During this phase, the design team reviews each component included in the procurement plan to ensure they meet the specifications laid out in the contract documents. 

This includes major structural and mechanical components, but it also involves the more minute details, such as paint colors and finishes. Everything must be approved, and that approval must be done in writing in a way that is easy to track. 

Delays in the submittal process can have a detrimental effect on a procurement manager’s ability to purchase and organize the delivery of items on time. 

7. Contractors finalize the purchase with suppliers.

Once the items are selected, contractors issue purchase orders to their suppliers, enabling them to begin fabrication or ship standard items. Specialty contractors rarely pay for materials upfront. Rather, trade credit or outside financing allow them to initiate the purchasing process without disrupting their cash flow. 

8. Suppliers deliver materials and equipment to the jobsite.

Once the materials are purchased, procurement managers must keep track of their progress and prepare to accept delivery. The contractors need to verify throughout the procurement process that their orders will be delivered on time, to the right place and in a way that is safe to offload and install. Successful procurement requires coordination of not just material delivery schedules, but also contractor schedules. For example, electrical components must be on site and ready for installation when the electrical contractor arrives. 

Receiving procured materials could involve arranging for specialty equipment for unloading and handling. Contractors may need to arrange for a forklift, scissor lift, or crane to coincide with delivery and ensure proper rigging or attachments are included on the product to enable lifting and installation.  

As a result, the procurement process includes a partial design approval, logistics for delivery up to being delivered to the field for installation. Procurement managers must also arrange storage either onsite or at an off-site facility if the delivery doesn’t specifically match the construction schedule. 

Construction management software can help track the progress of each purchased component in a level of detail never before possible. As items are being shipped, they can be tracked in real time, and the GC or project manager can use the software to help evaluate whether availability or delays could end up causing issues with project scheduling or the critical path.

9. Contractor work and materials pass final inspections.

During project closeout, final inspections are the last step in the procurement process. All work requires approval from the owner, designers, and government officials that all components were acquired and installed according to both project specifications and building regulations. 

Contractors may also need to verify delivery of any extra materials and spare parts as required in the construction documents.  

Solving Common Procurement Challenges

Procurement runs through the entire construction process, and properly managing it rewards owners and contractors in many ways. Streamlining the process and managing procurement helps reduce risk, manage budgets, and ultimately ensure overall quality control for the project. 

Ambiguous Specifications

Specialty contractors should use requests for information before starting their procurement or submittals process. RFIs allow them to gain as much clarity as possible about the materials they need for the job. For example, the design team should specify the specific plumbing fixtures and connections that should be used so nothing is left ambiguous.  

Submittal Delays

A poorly designed submittal process or lack of clear communication can delay the procurement process. Coordinating a clear communication system from the owner and design team to the people in charge of procurement maximizes quality control while minimizing delays.  

Budget Overruns

Delays in the procurement process could mean that costs suddenly spike or crews stand idle. With time being money, delays in the schedule translate to costs for the GC or owner. Properly managing a procurement process could also help keep prices down by ensuring each major component was selected competitively and transparently. Proper procurement goes a long way to avoid rework and sloppy mistakes. 

Supply Chain Disruption

Materials or equipment with long lead times should be prioritized as early as possible in the procurement process. For example, major electrical components, such as transformers often must be ordered months in advance. Proper management of the procurement process means those supply chain hiccups have less of a chance to delay a project or leave specialty contractors unable to successfully finish their phase of the job. 

Payment Delays

Specialty contractors typically purchase materials on credit with 30 or sometimes 45-day terms, meaning that payments to their suppliers are often due before they receive payment from the general contractor. Any additional delays can disrupt already tight cash flow and make it more difficult to cover labor costs or other project expenses. Cash flow management is an important part of the procurement process for specialty contractors, who often use other financing options to receive extended repayment terms that better match their billing cycles.  

Schedule Changes or Delays

Schedule changes don’t just impact a contractor’s labor schedule — changes to the trade sequence or delays on Getting the right components on the right schedule means that everyone involved in the project will have what they need in the time they need it to properly finish each aspect of the job. Having the proper components on site according to schedule means that ultimately the finished project will be more likely to meet the specifications in the original construction documents and less likely to require rework. 

Design Changes

Contractors should get approved change orders before procuring new materials if any element of the original design changes. Moving forward without proper documentation opens up avenues for unmitigated risk if those components are ultimately rejected by the owner. 

Damage to stored materials

Contractors need to properly secure all materials until they are installed. If the materials are stored onsite, the job site must be kept secure to prevent theft, vandalism, or damage from the elements. If a warehouse is used, securing the warehouse and keeping track of schedules becomes essential. The construction documents should lay out which party is responsible in the case of materials getting damaged or stolen. 

Procurement management is risk management

Construction procurement involves everything from supply chain management to logistics and even quality control. From the initial construction documents laying out what needs to be included in each project, to the final punch list and closeout with the owner, proper construction procurement ensures the necessary components are where they need to be, when they need to be, and at the cost everyone envisioned. 

Regardless of which contracting structure the job takes, properly managing the construction procurement process ensures everyone involved has what they need to get the job done right, on time, and on budget. 

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