Procurement and Purchasing Methods in Construction

Procurement and Purchasing Methods in Construction

• Procurement is the process of acquiring goods and services while ensuring timely delivery of the right quality and quantity.
• Purchasing is a part of procurement and focuses on the transactional phase of buying goods and services.
• Traditional procurement methods in construction include lump sum, re-measurable, and cost reimbursement contracts.
• Lump sum contracts require the contractor to provide a fixed price for a defined project and are suitable for well-defined projects.
• Lump sum contracts can be based on drawings and specifications or bills of quantities.
• Re-measurable contracts are appropriate for projects where the design is not firm at the time of tender and rates are provided in the contractor's tender.
• Remeasurement will be carried out once the drawings are finalized and the contract amount is based on the rates provided.
• Cost reimbursement contracts are applicable to projects where time is of the essence, immediate start on site is needed, and the project completion is fixed.
• Cost reimbursement contracts include cost + fixed fee with guaranteed maximum price, cost + fixed percentage, and cost + fixed fee contracts.
• Cost + % fee is the least risky to the contractor among the three types of cost reimbursement contracts.
• Lump sum contracts have minimal client risk, fewer variations, and predictable contractor cash flow but high contractor risk.
• Procurement time can be longer for lump sum contracts, and improper details in design can lead to project disputes.