Learning the Process – Procurement
Procuring labor and materials is one of the most challenging aspects of project management, but in the procurement process are opportunities to mitigate cost and scheduling risks, find the best value for materials and labor, and invest in local communities. We’ve refined our process to take advantage of these opportunities, and we’d like to share the aspects that have the biggest impact on delivering better projects.
At the heart of this procurement process is the design-build delivery format and a guaranteed maximum price (GMP) contract with open book accounting. The GMP is developed as we perform due diligence, research building codes, and involve consultants such as civil and structural engineers. By consolidating every part of the project under a single agreement with a GMP and ourselves as a single point of responsibility, we effectively shift the cost risk in a project from our clients to ourselves. This aligns our interests with the client’s and establishes a strong relationship based on trust, and it also frees our clients to focus on their day jobs rather than managing the details of a project.
This trust opens the door to a value-based selection strategy for subcontractors and suppliers, where instead of selecting the lowest bidder we choose the one who is able to bring the most value to the project. This can be through a combination of cost, expertise, reliability, best fit to the specific project, and most importantly, lower risk.
Estimated cost is only part of the story – procuring labor and materials introduces risk into the project. Subcontractors may fail to perform work and suppliers may not be able to deliver. This can have major impacts on both the project budget and schedule, and as different parts of a project are dependent on each other, one failure can have cascading consequences. The expected cost of a project is the estimated price plus the chance of problems times the cost of those problems. The goal is to find a balance minimizing both cost and risk, and this is done by thoroughly vetting potential subcontractors and suppliers and relying heavily on local sourcing. Risk is unavoidable, but it can be mitigated by developing detailed construction documents for subcontractors and vendors, leaving no room for misinterpretation or omissions. This also helps to minimize risks for our subcontractors and vendors when they work on our projects.
The bidding process is competitive and transparent, and the bids are all-inclusive with no room for subcontractor change orders. This eliminates the risk of lawsuits and liens, and with the final GMP approval, the design builder bears the full risk of cost and schedule overruns. And throughout the procurement process, clients have a clear view of the value that they are getting.
Local skilled labor, steel shops, lumber yards, and other suppliers are vital partners in all of our projects. This not only keeps the majority of a project’s costs local, helping credit unions and community banks demonstrate their commitment to investing in their communities, the local knowledge also adds value to the project and further reduces risk.
The design-build process integrates subcontractors early in the process, when the design is still coming together, enabling our team to draw on their expertise and develop better plans with more accurate budgets and schedules. Local procurement gives our clients the best of both worlds – our industry-leading financial institution expertise that enables us to develop solutions to our client’s unique needs combined with the local knowledge and expertise of the subcontractors and suppliers in their own communities.
The end result is better, more resilient projects delivered with lower risk and represent an investment in the people who live, work, and bank in your community.
This blog is just one part of our “Learning the Process” series, which you can read here. Each month we release a new insight into how we make projects come together. In many cases, the innovations we’ve discovered can carry over to the work you are doing and can help you build more robust project management processes on your own team.
And if you’re looking for inspiration for your next branch project, check out our latest 2020 Branch Ideabook exploring the future of the branch in the COVID-19 era and beyond!
Download the 2020 Branch Ideabook