In an article posted on December 4, 2016 the Bangkok Post announced that the First Batch of air-conditioned NGV buses have arrived. The article reports that these buses will be delivered by December 29 following a procurement cycle that took FOURTEEN (14) years!
That’s right! The next time you complain about the time it takes to procure, remember our friends in Thailand!
That’s a ridiculous amount of time, the article is thin on details as to why it took more than a decade to buy buses, but it got me thinking about time to procure in construction.
In construction procurement time pressures can be very real. Generally speaking construction is an industry that is driven by schedules. Time literally is money when workmen are onsite with tools in hand or when you are trying to complete a tenant fit-out before lease payments come due. As such, it should be no surprise when Owner’s squeeze procurement to get done faster.
So how long should procurement take?
To answer this question, we need to consider all that happens in a procurement cycle.
Let’s assume that we are working in a geography where there are no incumbent vendors and no historical pricing. Let’s also assume that we need to procure the services of a General Contractor and the project is being delivered on a Design Bid Build delivery model with a fixed price lump sum bid.
There are several layers of strategic decision making that I’m skipping. You can read more about procurement strategies in a future article on Procurement Strategies for Construction.
Taking for granted that these strategic decisions have been well considered and accepted by the project team, here are the steps that follow:
Step 1 – Sourcing
The sourcing process is where vendors are identified for the work. In this case, we are sourcing general contractors.
Identifying general contractors in specific geographies can be challenging. There are a number of internet sources, but nothing beats word of mouth. If you have a local Architect or Engineer, they can be a great resource, but they should not be your ONLY resource.
Regardless, sourcing GC’s takes one to two weeks. This is so because it takes time to call around and research each company. Often, the time is spent waiting for call backs.
Merely identifying a vendor is not enough. You must verify that the vendor is a legitimate business and has experience doing similar work. All too often companies are added to bid lists with no pre-qualification.
Pre-qualifying a supplier is a critical part of the sourcing process. Running credit reports (and maybe even running background checks on sole proprietors) takes time, but is important to ensure you are dealing with a reputable company.
Step 2 – Development of Request For Proposal
Developing the request for proposal is another critical step in the procurement process.
This step includes developing bid forms, qualification questionnaires, instructions to bidders, scopes of work, and contract templates.
Often procurement can save time by reusing old bid forms, questionnaires, and instructions to bidders, but it’s best practice to tailor the RFP to each solicitation. Even minor modifications to these forms can make the solicitation better. Taking a few days to do this is well worth the time.
If you don’t have any old forms appropriate for the solicitation it could take one to two weeks to develop these forms.
The majority of time in this step is spent gathering the Scope of Work and the Contract Template.
Every RFP should have a well-defined Scope of Work.
No matter how skilled your Procurement person may be, the task of developing the SOW is not theirs. Technical staff such as Architects, Engineers, and Project Managers should bear the responsibility for these documents.
An experienced Procurement person may be able to point out gaps in the scope, but these documents are owned by the technical stakeholders. The time it takes for these documents to be ready can be substantial. I have waited weeks or months for a scope of work to be complete.
Legal documents are entirely the responsibility of the legal team. Procurement often has little to no input into these documents and we are at the mercy of the legal team to produce these.
If a contract template exists, it should be a mere day or so to get the right one, but if you don’t have a contract template, the time to develop one can be substantial. I have waited several months for a contract template.
All of these groups can work in parallel, so these tasks are not necessarily linear, but the time added by any of these tasks can be substantial.
Step 3 – The Solicitation
The crux of any procurement effort is the solicitation. This is the time when the Request for Proposal is sent to the bidders and quotations are received.
During this step, it’s critical to ensure that all of the bidders are given sufficient time to develop their pricing. A week is the absolute minimum I would recommend. This assumes that the solicitation is a simple one.
Complex projects or solicitations that require a lump sum price (where the bidder has to go out to solicit pricing from trades) requires two weeks or more.
Cutting this time short hurts your efforts and is likely to result in incomplete or qualified bids which expose you to change orders.
It’s also critical that you give all bidders the same amount of time. Best practice is that the bid period for all bidders begins and ends at the same time.
Step 4 – Bid Leveling and Analysis
Bid leveling is where you spend the time reviewing the content of each bid to ensure that each quotation included the same scope of work.
As previously noted, bidders may qualify their quotation which means they either exclude portions of work or place scope limitations around specific tasks. This is often done when scope is unclear or if there was insufficient time or information to provide a fixed price.
Bid leveling should be done for all of the quotations you receive. Do not fall into the trap of leveling ONLY the low bid.
Low bids may include qualifications to the quote that flip the bid results. Leveling a qualified bid could make the low guy’s number high and the high bidder low.
This process can take a fair amount of time especially if you have more than three bids to evaluate. A week is the minimum amount of time that should be allocated to this task, however, if you need to speak to the bidder to confirm certain items this could take longer.
Step 5 – Negotiations
The task of negotiation typically follows leveling and analysis. You should not attempt to negotiate with suppliers while you are leveling (although the temptation to do so is high). The reason to hold-off on such discussions is because you might not have the full scope of your negotiation posture until your analysis is complete.
This may cause you to have to go back and re-negotiate or make multiple requests. Going back to the well multiple times dilutes your negotiation leverage.
Negotiations typically take a week or more. Most of the time here is spent waiting for the bidder to respond after a revised quotation is requested.
Step 6 – Contract execution (signing)
This final step is often overlooked and many times not even completed before the work begins. It’s amazing how often both Owners and GCs fail to follow through on signing a contract. Work often begins well before the contract is fully executed. Despite all the reasons why Owner’s should never allow work to be performed without a contract, many of them do.
Contract execution can take a week or more especially if your legal team requires “wet signatures”. Electronic signature can save the time of snail-mailing the contract around which can make the process happen in hours as long as both parties make contract execution a priority.
So those are the typical steps in a procurement cycle. It’s important to note that the majority of the time in a procurement cycle is spent waiting for responses from the bidders. The next largest expenditure of time is spent getting the scope of work right and working with legal, consider this next time you squeeze your procurement team’s schedule.
A typical solicitation should take between 4 to 6 weeks, that is unless you are buying buses in Thailand.
So what is the longest amount of time you have waited for procurement? Where did you spend the majority of the time? Tell me your story.
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