5 Essential steps for strategic procurement

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Hugh Watson discusses the steps involved in running a procurement contract along with ideas for planning a second or subsequent tendering process.

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To meet the increasing demand for aged and healthcare services more facilities will need to be built and extended, additional computers and other equipment will need to be procured and extra cleaning and other services will need to be provided. The challenge is to ensure that limited funds go as far as possible so providers can continue delivering high quality services to a growing number of patients.
With time and budgetary pressures, a significant information imbalance with contractors and suppliers, long lead times and a raft of unknowns, procurement projects can be daunting. There are, however, steps you can take to maximise the value of your investments and to help deliver your procurement projects on time, on budget and without costly and time wasting disputes.
1. Have the right team
Before you start any major procurement make sure you have the necessary experience and resources. If you and your team are not experienced in running procurements, there are a range of project managers and other consultants who can help. To find the right person for the right job check for experience on projects similar to your project and seek people who understand and reflect your values, priorities and objectives.
If you engage a consultant, the consultancy agreement you sign them up to should clearly set out what the consultant must do and protect your rights and entitlements. Similarly, the consultant’s remuneration should be aligned with your interests. For example, a common remuneration model on building projects is to pay the consultant a percentage of the total build costs. With this remuneration model the consultant is paid more if there are budget overruns, yet you want build costs kept to a minimum.
2. Competitive tension
After determining the optimum project delivery model and preparing a tailored contract, it is time to select a contractor or supplier. Best practice procurement would have you run a competitive tender. So, rather than using the contractor or supplier you used last time, or only asking for a price from one person, you ask a number of people to bid. Competitive tension between tenderers helps keep them “honest”, thereby achieving better value for money and a better risk allocation for you. It is unfortunately all too common that, when a contractor or supplier knows it has got the job, it will seek more than if there is a risk of losing the job to another person.
You should strive to maximise and maintain the competitive tension when you are looking for a contractor or supplier. Amongst other things you should:

• not appoint a preferred supplier until all of the technical, commercial and legal issues have been resolved to your satisfaction. It is not necessary to negotiate with all tenderers, but the option of bringing such parties back to the table should be maintained; and


• structure your tender to require tenderers to tender on the same basis to help get an “apples with apples” comparison. Clients are very good at comparing price, but unless what is being priced is the same or relatively similar (including legal and technical requirements) it is a relatively meaningless measure.

3. Selecting your project delivery model
One of the key determinants of a successful procurement project is whether it has been set up correctly from the start. That is, has the optimum framework or approach for the delivery of the project been used?
There are a range of project delivery models out there, but unfortunately clients often run their procurements the same as their previous ones, not realising that there may be ways to achieve better value and efficiencies or that the new procurement may warrant a completely different approach.
When it comes to delivering aged care building projects, for example, organisations are attached to construct only contracts. Under such contracts design responsibility is retained by the aged care organisation and the builder is only responsible for construction issues.
Aged care providers say they do this as they understandably want to ensure that their new building meets all of their residents’ needs.
There are, however, alternative procurement models which can give organisations this design control and comfort while passing additional risk and responsibility to other people. Clients seldom consider these options.
The important thing to realise is that there is no one size fits all approach to selecting the optimum project delivery model. You need to carefully think about your procurement priorities and delivery drivers and select the model that will deal most effectively with the complexities and risks on your project.
This does not mean ticking through the usual suspects of what you could do. Rather, you should turn your mind to all manner of possible delivery models. Is there, for example, something the sharing economy (that is the Ubers and Airbnbs of this world) can teach you? This is not as silly as it may seem. More and more organisations are today working out exactly what they need and concluding that it makes more sense to share their assets, resources or requirements with another similar organisation so that costs and responsibility are also shared.
The optimum project delivery model for your project will be influenced by a range of considerations, including:

• project objectives and characteristics, eg the need to “fast track” delivery and budget constraints;


• your resources, capacity and expertise in project management and contract administration;


• the degree of complexity of the project, ie “business-as-usual” versus a special “one off” procurement; and


• the potential to achieve value for money through letting multiple packages of work concurrently and taking advantage of economies of scale.

Once you have selected the appropriate project delivery model it is then important to ensure that the corresponding contract is tailored to you and your project. No two projects are the same, so project specific amendments are generally required to all contracts on all projects. Further, on building projects it must be remembered that Australian Standard form contracts, such as the AS4000-1997 construction contract, do not work “off the shelf” and that they need a large number of amendments to address recent legislative changes, to improve their clarity and operation and to provide some additional protections to the client.

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“Clients often run their procurements the same as their previous ones, not realising that there may be ways to achieve better value and efficiencies or that the new procurement may warrant a completely different approach .”

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4. Retain ownership of your project
It is essential that you retain ownership of how your projects are set up and run.
This is because contractors and suppliers are only required to build, clean or deliver what the contract specifies they must. You can have the most robust legal terms and conditions in the world, but if the technical requirements or service description does not detail exactly what you want, there is unfortunately not much you can do about it as that is the legal bargain the parties struck.
It is very important therefore that you clearly articulate in the contract what your needs, requirements and expectations are. You should not delegate this entire role to consultants, contractors or suppliers. If, for example, you are going to extend your hospital, make sure you are working hand in glove with the architect so she is designing what you actually want and need. You do not want her to go off thinking she will win the next architectural award at your expense. If you are procuring a new IT system, do not just let the equipment vendor tell you what it can supply. Instead, work out exactly what you want and ensure that your IT contract requires them to work towards that.
It is, after all, your project, and reputation and budget which are at risk, so it is up to you to ensure that it is right.
5. Manage the project after contract signing
Once a contract is signed clients commonly leave the project to pretty much run itself. However, my experience makes it clear that:

• knowing and using the contract you have signed rather than leaving it in the “bottom draw”;


• sensible and pragmatic contract administration; and


• considered communications with contractors, will help ensure that projects are delivered on time, on budget and without costly and time wasting disputes.


• This is the case irrespective of whether you have engaged an architect or other consultant to administer the contract for you. Accordingly, take the time to develop your team’s understanding of the contract and their capacity to effectively administer it.

Hugh Watson
Principal, Moores
Hugh Watson is a Principal at Moores, where he focuses on drafting and negotiating construction, supply, maintenance and other commercial agreements. Hugh also advises clients across the aged and healthcare sector on:

• procurement strategies and implementing projects to achieve efficiencies and greater value; and


• project and claims management to help deliver projects on time, on budget and without disputes.

Further reading
If you would like further advice on procurement strategies, and the structuring and implementing of projects, to achieve efficiencies and greater value, please contact Hugh Watson on (03) 98432185.