Monday, August 2, 2010

Buying Strategies for Construction and FM Services

You would think that I should look forward to summer, after all it’s the vacation season and the beaches are in their prime. For many, however, this time of year is defined by budget meetings and projects that are racing to the finish line, just before the end of the Fiscal Year. And so it is these days. I’ve been carrying beach gear in my car for three months and have used it all of three times. Something is wrong with this picture!

Aside from racing to complete projects, I have been struggling with the issue of process requirements for contracting construction and services. Most organizations have strict policies in place for the purpose of protecting investment integrity and assuring maximum value, and I’ve got no problem with either. But there is a disconnect between the requirement to deliver projects rapidly (do it right now) and the requirement to comply with a strict contracting protocol (follow the rules exactly). Again, I am not against either, they just don’t always coexist very well. Having to gain pre-RFP approvals to authorize a project, then subsequently bid to multiple contractors/vendors, and then deliver the project in a severely constrained timeline can be a challenge. It is even worse when the projects or purchases are of relatively small value or when there are multiple instances in process at the same time. Welcome to my world.

But there are ways out of this dilemma. For starters, blanket purchase orders with pre-approved contractors and vendors will shortcut the delivery process. Done correctly these “investment quality contract vehicles” are even appropriate for large projects or tasks. Pre-qualifying contractors and locking in unit costs for various project elements or services enables a much faster response time. In this scenario, contractors have already run the gauntlet of approval requirements (contract agreement, labor rates, unit costs, MBE/WBE/VBE and SBA status, etc.), allowing them to respond quickly when tasked to price a project. Then it is simply a matter of selecting and executing. Some organizations are using this strategy to speed execution of large projects within very large programs where speed of execution is critical. It provides all the due diligence required, properly informs the selection process, and supports quality management.

There is a buying phenomena occurring now also. Given the economic times and difficulty accessing capital we assume that projects are being put on the back burner waiting for better times. Mostly true, but not always.

The normal model is to delay capital investment until the last responsible moment. But, just as real estate managers are renegotiating leases for longer terms (accepting more future risk) in exchange for lease rate or other concessions, some well-heeled organizations are buying construction now on future need projects to take advantage of today’s lower construction costs. This strategy is not for everyone but it is intriguing for those who have high certainty of the need. Private non-residential construction is now 35% below its late 2008 peak and still trending down. Those with the right project portfolio and the required capacity see opportunity and are acting on it.

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