Article

Procurement is getting a bad rap these days. It should.

Michael Worth Michael Worth

With headwinds facing New Zealand's economy and the construction industry in particular, procurement has come under fire lately. Much has been made of the impossible position construction companies are put in when bidding for work - the ferocious competition to win a bid, lock in fixed pricing several years out, and hope to manage the cost control to make a slim margin. While a number of more sophisticated procurement approaches exist - and to be fair, some leading organisations in New Zealand are employing them - for others a tender bash with effectively lowest cost conforming is the main mode. 

In the wrong hands, the RFx approach leads to excessively onerous conditions, which causes a mis-pricing of risk and a mistaken belief that risk can be outsourced. Tender documents in general tend to describe what and when and how much in exhausting detail, but often miss the who and the why - the things that will make or break a successful delivery of value. During the development of strategic partnering relationships, companies can struggle to assess, select for and use the human centred elements critical for the delivery of value and ultimate success of a supplier relationship. 

Advocates of procurement find it much easier to write technical specifications, punch out legal boilerplates, requests for qualifications and certifications and the like, instead of employing more sophisticated approaches. Many consider 'who' and the 'why' aspects to be intangible, hard to measure or evaluate. I would argue that not only can they be, but there are proven methodologies. 

So what’s to be done? Three things can help. 

1  Select people with the propensity to partner

  • Make sure you base your selections on management competencies, shared value sets and demonstrated ability to bring and deliver innovation
  • Consider the sources of intangible value

2  Establish value before committing 

  • Get some real commercial expertise
  • Utilise more advanced techniques to identify and validate value ahead of the deal, and how it will be realised
  • Consider all the sources of value you want realised including workforce development, sustainability and social procurement aspects

3  Manage risk 

  • Rather than outsource risk you can identify it and price it during the procurement process
  • Risk can then be managed by the parties most capable of managing it

The challenges facing the construction sector aren’t insurmountable as some might have us believe. There are solutions if government agencies are willing to listen and take advice on what direction they need to be heading. A change in thinking will be needed if we are to pull the construction industry out of its current crisis; the problem is, are the industry leaders willing to act?