Infrastructure procurement

An effective procurement strategy aligns with project goals and considers the infrastructure development life cycle to drive efficiency, reduce costs and facilitate project delivery on time and within budget.

What is procurement in infrastructure?

Procurement in utilities and infrastructure means obtaining works, supply and installation, services, materials and goods, which may include consulting and non-consulting services, and the purchase or lease of infrastructure assets. 

A streamlined and strategic infrastructure procurement process can help avoid issues in the tender process. With transparency, clear documentation and all the information held in one location, disputes can be avoided and there is clarity on project specifications.

Key aspects of infrastructure procurement

According to the OECD, in the energy infrastructure sector, 40 cents of every dollar earned is spent on raw materials and services, making procurement systems central to a company’s competitiveness. 

From conception to construction in infrastructure procurement

Planning, forecasting and strategic management of infrastructure procurement processes is critical for complex projects. Procurement planning must fully address the project scope and commercial arrangements, identify stakeholder interfaces and align with capability and capacity.

Considered strategic management prevents failure through the ‘four C’s’ of inadequate cost recovery, corruption, insufficient competition and low credibility of institutions. 

Transparency through timely disclosure and secure sharing of sensitive but critical information at tender and contract can reduce the risks of failure and ensure the sustainability of the asset and ongoing performance beyond the initial delivery. 

Best practice benchmarks for procurement will include time benchmarks, quantitative benchmarks and qualitative benchmarks. Qualitative benchmarks may include variables like adequate communication, minimising costs and effort and the completeness of planning, while quantitative include numerical targets like frequency and cost, time benchmarks set dates for particular events. 

Policies and procedures to manage risk

Robust procurement frameworks safeguard companies from mismanagement or corruption. An ideal framework is flexible and agile, unlocking the potential to respond to and harness innovation. 

The first step is to identify risks and assign significance to each. Next, prioritise each risk to ensure your risk management strategy and resources focus on the most important risks. 

Document a risk register for monitoring by the management team and board and ensure your policy, procedure and the procurement tools you select make managing risk more streamlined. 

The main steps in the risk management cycle are: 

1. Identification

2. Assessment

3. Evaluation

4. Treatment

5. Monitoring

Risk management is a continuous process, with the steps in the risk management cycle visited regularly throughout the process to ensure adaptation to new circumstances. Ongoing communication and monitoring among responsible parties is central to ensure targeted decisions are made about risk acceptance, transfer, control and avoidance. 

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Defining a procurement strategy

A procurement strategy begins with a statement of procurement objectives and an overview of the scope of works.

From here, it is necessary to define project-specific issues or characteristics that may influence the procurement model, such as the balance between innovation and control, timing  and degree of operations, scale and complexity of the project, the market capability and capacity and the internal capacity and capability to deliver the project.

Infrastructure procurement models

The project’s preferred procurement model will be established during the project planning, funding and approvals phase. When selecting the most appropriate model, consider: 

• strategic outcomes and their relationship to various aspects of the various delivery models

• project risks and characteristics

• how each model aligns to key outcomes

• the need to balance control and risk

• balance of schedule, cost and quality outcomes

• value for money. 

Traditional infrastructure procurement

Traditional infrastructure procurement separates design and  construction. Consultants design the project detail and ensure cost control, inviting contractors to submit tenders for construction works in a single-stage competitive tender.  

Design, construction, finance and operations and maintenance are each managed under individual contractual arrangements.

Advantages of this model include direct cost comparison between tendering parties to ensure a balance of quality and price, the degree of control over contractors and suppliers throughout the project and the close relationship between the design team and client. 

However, using this model results in extensive time being spent in pre-construction to develop design and tender packages. The initial investment is high and occurs before the project feasibility is established and transparency may be siloed or limited. Finally, there are multiple points of contact throughout the project. 

Public-private partnerships

Governments may form partnerships with private sector parties to design, build and operate a facility to deliver specific outputs and services. Payment is conditional on services delivered once the infrastructure is operational and remains conditional on meeting key performance indicators specified in the contract. 

This is essentially a design, build, finance and operate model as outlined below. The government may use the infrastructure to deliver public services, while the maintenance of the infrastructure remains the responsibility of the private sector. 

Design, build, finance, operate (DBFO)

This model establishes a single point of responsibility for delivering the project.  A primary contractor is responsible to design and construct the works, using either a single stage or two-stage tender process. The project budget is generally established early in the project. There is flexibility to implement a progressive design build delivery method to increase collaboration and spread risk.

Advantages of this model are lower upfront costs and improved visibility for the project costs at an early stage. The project can move more quickly than traditional methods with less time spent on documentation. 

This model will be effective where the central provider is reliable, an effective communicator and trustworthy. Unlike traditional infrastructure procurement, there is limited opportunity for like-for-like cost comparisons. 

Alternative models of infrastructure procurement

It’s worth noting that infrastructure procurement can be broken down into component parts or types of procurement that reflect the capabilities of the client and delivery partner or contractor.

For example, the project may be for design only or for construction only. A client with an expert level understanding of supplier and subcontractor procurement may use a delivery partner to supply skills and works where the scope of the project is insufficiently defined. 

Risks and financial responsibility may be distributed across the client and contractors using various structures that reflect the appropriate level of capability, control and risk management.

Roles and responsibilities

Infrastructure procurement aims to ensure that materials, services and supplies are purchased at the best possible price, while meeting quality standards and required specifications. Sourcing, negotiation, contract management and supplier relationship management are critical roles. 

Using integrated project delivery can help to improve visibility, efficiency and productivity. With a clear vision in place, the role of the architect/design team, key technical consultants and general contractor or operations manager is clear. 

Ensuring collaboration between design, construction and operations will facilitate the project timeline and ensure any roadblocks are identified early and risks are managed appropriately. 

E-procurement enables project visibility from end-to-end so any risks or roadblocks can be identified early and addressed.

Challenges faced in infrastructure procurement

Challenges to infrastructure procurement include uncertainty, early preparation and long-term planning, pricing pressures that arise from complexity, standardising best practice and overcoming disparate systems. 

Lifetime value and sustainability

Moving towards greater sustainability and resilience means clients take a ‘whole-of-life’ approach to infrastructure procurement. This means considering what is best value over the lifespan of the project, not just the lowest cost design and construction bid. 

As traditional infrastructure procurement methods do not allow for sustainable and innovative procurement, new methods that are collaborative and thoroughly consider who of project outcomes become favoured.

Strategies to improve infrastructure procurement

Improving infrastructure procurement requires clients and project companies to remove barriers to excellence while remaining competitive on costs. 

Areas for focused improvement may include: 

• Improving project briefs

• Improving risk allocation

• Procuring for innovation and sustainability

Clients and project companies must develop ways of working together that deliver better project outcomes with fewer delays. 

Project companies must take innovative approaches to stay competitive

Selecting tools that combine process efficiency with accurate, timely reporting and the tools for collaboration will be critical to project delivery and success to meet these new expectations. 

Project companies will be expected to have procurement tools and systems in place to support a collaborative process and provide high-level views of progress at each stage will provide a desirable point of difference when tendering for a DBFO project.

Future trends

Innovative and sustainable infrastructure procurement will require early engagement and collaboration, developing clear and verified project scopes and reallocating resources at the beginning of a project. 

To keep pace with infrastructure demands and new technology while meeting long-term goals, clients rely on specialised development corporations to manage the procurement and development of infrastructure projects. This approach promotes technical innovation and sustainable development. 

Demonstrating positive cultural, social, economic and environmental outcomes  is key. Informed procurement maximises technological innovation and data collection, leverages economies of scale through coordinated procurement and engages all levels of contractors to benefit from their expertise.  

Keep your project delivery competitive with a digital procurement platform 

Streamlining procurement processes promotes visibility, encourages collaboration and facilitates innovative project delivery. Avoid procurement pitfalls by removing silos with a centralised procurement system. 

With Procure, there are no more emails, duplicated work or spreadsheets. Reduce the risk of losing information or missing important details with a central source of documentation.