Procurement is a fascinating part of the construction process. Decisions made at this early stage will often determine the success – and profitability – of the whole project. Procurement teams have been an important part of their businesses’ responses to the pandemic, and they will be key to realising further change in the industry.
But as our recent research found, procurement teams can face significant challenges. Many businesses still depend on manual or even paper-based processes, and inevitably mistakes can be made.
A couple of months ago, leaders from across the construction industry gathered (at least virtually) for London Build to discuss what’s next for our sector. I was lucky enough to moderate a discussion with five experts on procurement to get their views on our findings and wider trends.
Here are six key insights from the session on the future of procurement – and how procurement teams can enable big changes in the construction industry.
1) It’s time to eliminate the race to the bottom
Price is of course an important issue for all procurement teams. Our research found that cost is the most influential factor for construction businesses selecting a subcontractor (38%). But our panellists were very passionate about reducing the pressure on costs – so that the industry can achieve wider change.
“Personally, I want to get rid of the race to the bottom in procurement,” explained Lorraine Casey, Preconstruction Director, London South East at Bouygues UK. “Tackling issues like sustainability is really important, but with the race to the bottom we’re just setting ourselves up for failure on these other targets.”
Lizz Robinson, Key Account Manager – Highways England at Skanska Infrastructure, was also concerned about the impact of squeezed costs on the rest of the supply chain: “For highways projects, 80% of work is typically done by subcontractors, so if the tier 1 contractor is put under a lot of financial strain through low cost bidding that historically will have be passed on to them. We have to ensure that we’re not putting businesses in an unsustainable position for the future.”
Long-term contracts, two stage procurement and governance over how contracts are awarded were all mentioned as part of the solution. But for Ben Rowe, Group Procurement Manager at VolkerWessels UK, it’s also about the role of procurement in the organisation.
“Procurement professionals know that the lowest price isn’t always best,” Ben explained. “We need to be able to influence these discussions, through well-resourced procurement teams, with a voice at the top table.”
2) We need more collaboration, and less competition
Construction businesses like to work with people they know and trust. Experience of working with a contractor previously is one of the most influential factors when owners are selecting collaborators (42%). But as Dale Sinclair, Director of Innovation – EMEA at AECOM explained, Covid-19 has shaken up those long-standing relationships, requiring a new approach.
“We all like to work with people we’ve worked with before,” Dale said. “But we’re finding that to move forward we’ll need to work with new companies, and it’s a skill in being able to get to know, trust and become comfortable with people more quickly.” Fortunately, the pandemic has given people experience of building relationships remotely, which will be useful for the future.
Beyond individual projects, Lizz at Skanska wants to see the industry focused less on competition and more on collaboration. “Alongside quality, cost has historically driven competitive advantage,” explained Lizz. “But if you procure people who succeed through one-upmanship over their peers, that’s driving uncollaborative behaviour.
“What we actually want to see is everyone improving their efficiency and reliability, so that we can pass those advantages onto our clients. And if one day we’re procured on driving value into the market, then 3% margins become 8% margins – and the whole supply chain is more sustainable.”
Ben at VolkerWessels is optimistic that change is coming: “We’re collaborating much more than 20 years ago. Big joint ventures like HS2 have helped firms to share good practice. There’s more than enough work for everyone; now it’s about learning from each other and being better together.”
3) 2021 might see the rise of sustainable procurement, but cost is a challenge
Sustainability is a growing focus for construction clients, with 41% of owners incorporating sustainability requirements into their tender invitations. All of our panellists agreed on the need for construction firms to take action on climate change, in areas from eliminating diesel vehicles to choosing sustainable building fixtures.
“We have to take responsibility for carbon emissions across the whole supply chain,” explained Lizz at Skanka.
“This has to come through procurement. If you engage with people early enough, you can put in carbon neutral solutions; we need businesses that role model that approach from the top down. There’s no time for competitive advantage: we have to take action right now.”
Ben at VolkerWessels acknowledged the issue of costs: “It’s important for companies to consider what premiums we’d be prepared to pay. Greener options are never going to be the cheapest, but at the same time you can’t go green if you’re broke. We need suppliers to articulate their solutions in a better way, explaining the added value or how green products save money throughout their lifetime.”
4) Digital transformation can’t be paused
Many construction businesses have used technology to respond to the challenges of the pandemic; over a third of main contractors have started to focus on on-site digital transformation (37%), as well as off-site tools (41%).
Lorraine at Bouygues believes that the greater use of remote technology to adapt to the new normal is “something good out of something bad” – and highlighted that it’s also positive to see firms looking to collect and use data to better forecast and manage risk.
Dale at AECOM wants to see construction businesses doing even more. “It’s great that Covid-19 has got many people onto the first rung of the digital ladder. But using Teams isn’t innovation; it’s the starter for 10,” he explained. “It’s true that when you see how many bits of tech are out there it’s hard to know where to invest. But looking for tech that can drive change today, then also what can be using in six months’ time, will be important to keep businesses improving.”
With just half of the owners and main contractors surveyed using technology to find new contractors to work with (57% and 52%) and tender comparison (57% and 50%), procurement itself could be an important area for technology investment in the future.
5) Procurement will need to evolve to enable off-site manufacturing
Off-site manufacturing is another growing area of interest in construction. Two fifths of owners are considering moving to off-site manufacturing methods (43%), due to the greater productivity, predictability and safety that it can offer.
Dale at AECOM is particularly excited by the prospect. “In the future, we’ll see a next generation of construction products that you can configure in the same way that you buy a car made in a factory. As an architect, I could configure a building like a product, while seeing the costs in real-time- and we’ll all be benefitting from the productivity that comes from manufacturing.”
But procurement itself may be a blocker to this change. A fifth of main contractors and a quarter of subcontractors report that owners’ internal procurement processes are a roadblock to adopting innovative methods like off-site manufacturing – and 26% of owners agree.
According to Dale, prefabrication will require fundamental changes. “Currently procurement is a massive piece of friction on the road to off-site manufacturing,” he explained.
“We need to look backwards from the future, and make procurement future-fit, rather than just tweaking the traditional process. It’s time for a paradigm shift, to match the paradigm shift that off-site manufacturing will represent.”
6) Diversity will be crucial for the whole industry, but there’s some way to go
Improving diversity and inclusion is a crucial priority for the whole construction industry. A member of the audience asked whether we have a good pool of diverse talent coming through to procurement – and it’s clearly an area that our panellists feel passionately about.
Lizz at Skanska was very clear: “We know it needs to be addressed. We have to improve psychological safety to make the whole industry more attractive. It’s not me being able to do the washing during the day that makes me want to work in construction infrastructure. It’s actually the fact that I’m able to be my whole self at work.
“We haven’t really got the answer yet, but over the last six months there has been a real genuine effort being made to understand where our problems are as an industry and promoting that we can and should be different.”
Dale was also excited about what young talent can do: “The jobs of the future haven’t been invented. I see a completely different industry, with new people, professions, data scientists, environmentalists, more engagement with science and engineering. The construction industry has never been exciting to school kids, but a reimagined industry can be. I’m incredibly optimistic about the more diverse industry that’s coming.”
For more insight into the state of procurement and the potential role for technology, download our full report: Connected Procurement: The Foundation of Construction Success