procurement

Changing procurement in construction

The lowest bid leads to poor results and broken teams
Thursday, December 10, 2020
by Cheryl Mah

Procurement is an integral part of a construction project, but the culture of “lowest bid” is unsustainable. The future of procurement needs to be collaborative and transparent with selection based on qualifications and experience, according to a panel of experts at this year’s Buildex Alberta.

Bill Black, president of the Calgary Construction Association, explained the current procurement process is largely a short term approach that does not consider the long term consequences.

“One of the biggest barriers is conditioning,” he said. “The procurement side has been conditioned that no one gets fired for picking the low bid. Picking the third lowest takes some explaining – someone has to defend it. The respondents are conditioned to race to the bottom faster than the other guy. These habits have been dangerously ingrained.”

That habit and conditioning and resistance on both sides is the biggest barrier, he continued, which leads to “poor results, broken teams, disenchanted participants.”

Stephani Carter, owner of EcoAmmo Sustainable Consulting, stressed collaboration allows project goals to be reached and that starts with procurement.

“Low bid places an emphasis on the bidding process… and the game is to win the bid, not to build a high-quality building. Low bid is a misconception. Owners don’t see the real cost,” said Carter, noting that 70 per cent of projects go over budget.

She went on to outline what she believes are “ideal procurement practices” including placing more weight on qualifications and interviewing, inclusivity and diversity and sharing lessons learned.

“If we are to overhaul procurement for the betterment of our project outcomes and society as a whole, we will need to innovate and share lessons learned. Fairness is not striving for three low bids,” said Carter.

Tim Coldwell, president of Chandos Construction agreed and explained how his company has integrated social procurement into their supply chain. He cited a $86 million project as an example where the project team has committed 10 per cent of the contract amount to be spent with local social enterprises at zero premium capital cost.

He said general contractors have a huge opportunity to show leadership. “The general contractor controls a lot…85 per cent of costs on projects are subbed out by the general. We as a group have been successful in moving the goal posts in terms of procurement methods.”

Marion LaRue, a principal at Dialog, also advised Canadian procurement practices need to change.

“Procurement needs to be more collaborative and needs to be valued because when we chase the fee on procurement – looking for that low fee – sometimes you’re rewarding poor performance,” she said, noting the industry in the U.S. places high value on qualifications and experience and not the fee. “People around the table drive the success of the project, not the company. You can negotiate fees with anybody within a reasonable range, but you can’t negotiate someone’s personality or experience.”

The client, contractor and design team all have to work closer together, get involved early on, to produce the desired outcome on a project versus working in silos.

“We’re never going to meet our goals of sustainability,” said Carter. “We have to – at scale, at mass – share information and learn from each other. We can’t be siloed.”

Black said the industry has to take a more holistic approach to procurement or it will face extinction.

“It’s not a competition when the loser wins. It’s managed self-destruction,” he stated. “The industry and its resources will not exist in 20 years…in any fashion that will bring you any value.”

 

Cheryl Mah is managing editor of Construction Business.

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