Responsibility in Purchasing

In the construction projects market, it is not unusual for the Purchasing area (or Procurement) to find itself under pressure to obtain results with no help from other areas. It seems as if asking Purchasing for something as vague as “concrete” should suffice to put things on track.

Actually, the procurement of goods and services is more a team effort than the sole responsibility of the Purchasing area. It is important to consider the specific responsibilities and capabilities of the Purchasing area: to timely put the requested goods or services on the specified location under the best commercial conditions.

“…to timely put the requested goods or services on the specified location under the best commercial conditions.”

That is already a lot. Purchasing needs to develop lists of approved suppliers depending on the goods or services needed and verify their capabilities, prepare tender packages, manage and answer technical and commercial questions, prepare comparison charts, negotiate commercial conditions and issue appropriate purchase orders or agree on contracts. And all this must be done on time considering that the Purchasing personnel is not, and could not be, technical specialists in all the several good and services they need to handle.

So, how can the purchasing specialists successfully fulfill their scope of work? The answer is with method and organization and involving other key areas from their organization.

The first key area is the “User” area. This User area needs to be clear in the scope of the supply needed. Therefore, it is essential that the User area develops a full and detailed scope of work/supply document describing with absolute clearness their request.

But that is not the end of the User area’s responsibility. In fact, the User area is in charge of some other sections of what the tender package will be: supervising standards, schedule, payment recognition procedure and target prices.

The supervising standards are crucial in construction projects, those standards define how the site crew, or production crew, would verify the physical work done on site, or what kind of access to the supervisor, or expeditor in case of goods, would be required.

Schedule requirements are easily forgotten in some cases. For concrete or reinforcing steel supply for example, it is critical to prepare a schedule showing the quantities needed on site as time progresses. This allows the suppliers to better assess their capabilities, the optimal way they can serve the project and offer the most economical alternative.

Suppliers of course would like to know the process they need to follow to get recognition about their work. Therefore, a document stating the payment recognition criteria should be prepared by the User area to be part of the tender package. That document shall define the
list of different items or services required, their corresponding units of measure, as well as the criterion for an item to be considered delivered.

In construction projects, as well as in other professional areas, it is vital to know how much we can spend. Obviously, any Purchasing area should be committed to obtain the lowest price with technical support and best commercial conditions, but it is highly recommended to have a target price in order to be in the position of assessing the suppliers’ proposals. This is important because that information is useful, not only as a “superior limit” for awarding suppliers or subcontractors, but because it helps to evaluate if some proposals are too low to be considered as professional and trustable or if our organization has a problem with its own cost estimates and the amount considered in its own contract is
inadequate. The target prices document is, therefore, internal to the organization and serves as an important reference to the Purchasing area, but it is not part of the tender package to be issued to the bidders.

Then, we have the Engineering area, in charge of the engineering package containing: drawings (blue prints), technical specifications, data sheets and all technical details to ensure the service or product is completely described and defined without a doubt.

Quality assurance and quality control (QA/QC) requirements should be fully disclosed to all bidders as part of the tender package, so QA/QC department is in charge of preparing a specific document for any tender. QA/QC requirements can have a strong impact in prices, and suppliers need to be aware of those requirements in advance to prepare trustable proposals. Failure in understanding QA/QC requirements is a source of risk and disputes in a construction project, but those problems are easily prevented by means of a well- prepared QA/QC requirements document for the tender process.

Construction projects are sources of health, safety, and environment (HSE) risks. HSE department is in charge of preparing a specific document to be part of the tender package. This is especially important for construction services and, depending on the type of project, there are different types of HSE risks that need to be addressed as per any applicable law. Law is quite severe regarding HSE in construction environments and the protection of the personnel working on site is of paramount importance, so the HSE document should consider the applicable law on the site jurisdiction.

The Legal area is in charge of preparing and providing a draft contract, especially useful for services. In the case of goods, the legal document can be limited to clauses intended to be included in the general or special purchasing conditions. The use of clear legal
requirements and draft contracts allows proposals better to fit the purpose and reduce the arising of disputes during the execution of the services.

At last, but not least, the Purchasing area is in charge of the Commercial Conditions, both general and special and the Purchase Order template. The Commercial Conditions are developed in close coordination with the Finance and Administration area and Legal area, and should cover topics such as period of valorization, payment time, type of disbursement, guaranties, and so forth.

Below is a chart showing the proposed purchasing package sections and responsibilities:

As shown, the User area is in charge of integrating the first eight sections, from Scope of Work up to Target Prices, and submit them to Purchasing.

Purchasing is in charge of preparing the Commercial Conditions and the Purchase Order Template and compiling those sections with the packages received from the User area and the Legal area. Then the Purchasing area prepares the suppliers list and the tender process including bidders invitation, proposals evaluation and comparison, award recommendation to management, final negotiation, and deal finalization with the awarded supplier.

As a consequence, it is clear that the purchasing process is indeed a team effort and there is no way a Purchasing area can effectively deliver appropriate goods and services without the key inputs from other areas of the organization, especially the User area.
The User area must be aware of its own importance and responsibilities. Without a proper scope of work and sufficient detail, including time of supply requirements, no Purchasing area would be able to succeed.

In times of change, when agility and economy are needed at all levels, the use of specialized services provides that precise mix of capacity, effectiveness and efficiency that organizations need to succeed.

At DC&R we are able to meet these requirements with professional solvency and the experience of more than 25 years in complex engineering and construction environments for heavy industrial markets of high demand such as mining, gas & oil, or energy, as well as for infrastructure and commerce.

DC&R also offers technical assistance services to businesses that need to interact with engineering and construction companies, from tender and project management to contract administration.