How to get more from the supply chain

In a heated market, clients are invariably competing in a limited and finite pool of specialist subcontractors as part of the procurement process.

Even the larger main contractors with their extensive pre-qualified supply chains struggle to use their leverage to attract the right specialist subcontractors to bid at the right price and at the right time. The power lies with the specialists and without them, “managing” main contractors cannot succeed. Making a project attractive is essential and clients who have a portfolio of future workload are clearly in a better position to entice main contractors and their supply chains when the inevitable ‘shall I bid this project’ question arises.

Clients are increasingly reluctant to become passive bystanders and a hostage to fortune as tenders are delivered late, are too high or have unacceptable terms

This leaves clients at the mercy of the market. At Future54 we are finding that our clients are increasingly reluctant to become passive bystanders and a hostage to fortune as tenders are delivered late, are too high or have unacceptable terms through a single or two stage procurement process. The outcome of this approach can be significant delays in getting a project to financial close and a lot of frustration.

So, what is the answer? For those clients that are willing to become more actively involved in the procurement process there can be clear benefits in a different type of approach. We call it “reverse engineered two-stage” and involves clients and their teams getting involved in procuring the specialist critical and/or high value packages (typically up to 80% by value) and then “folding” them into a main contract, where the balance of packages are procured. The outcome is that the main contractor provides the “contractual wrapper” and single point responsibility that funders and clients like.

There are certainly advantages to this approach. Clients get a much more open and transparent process where discussions on price, design and programme with the client’s team can be advantageous. Likewise, specialist subcontractors generally like the direct relationship with the client and the use of Project Bank Accounts (PBAs) provide certainty of prompt payment. The benefits are that the direct involvement of the client and team means expectations are better aligned - design, commercials and programme - with a much greater likelihood that we get to contractual close quicker and with less pain.

But, it is not straightforward. The approach needs a clear strategy developed at the outset and the subcontracts aligned with the main contractor so that when they are “brought together” there is no conflict. This early thought process needs the right skills but can only be a benefit.

Paul Clark, project director at consultant Future54