Procuring for performance: opportunity in response to market uncertainty
Procurement needs to seize the opportunity to deliver a construction industry that will meet net-zero demands, build resilience and widen opportunities in the supply chain.
Over the past two years we’ve witnessed growing challenges across our supply chains, as surging investment in construction has coincided with increasing market uncertainty, fuelled by changing social, political and economic demands as a result of Brexit, the pandemic, geopolitical tensions and the climate crisis.
Following a draft paper last year, the UK Government is due to present the new Procurement Bill to Parliament. Anticipated to come into effect in 2023, the Bill will aim to improve procurement processes in public programmes, making them simpler, more transparent and with a greater focus on social value.
Together, these market pressures alongside legislative change bring an opportunity for a radical overhaul of how we procure major projects and programmes – transforming procurement from a transactional process to a strategic driver for successful delivery.
Moving on from COVID-19
Through the pandemic, many industries demonstrated the need for procurement to adapt rapidly to changing circumstances. Routes were found to bring new services and technology into commission quickly – whether that was in vaccine production, securing high numbers of ventilators, delivering a test and trace system, or managing disruption in the supply chain to keep schedules on track.
As our economy recovers from the effects of the pandemic, we need to capture that same spirit of ingenuity.
Procurement teams are no longer having to manage COVID-19 itself, but much more significant and sustained challenges in capacity and capability which COVID-19 has highlighted. These are particularly concerning as our supply chains are forced to navigate wider global disruption and inflationary pressures.
Between current tender price inflation, which our Winter UK market intelligence report forecasts at 4.5 percent, and the recent end of the furlough scheme, high materials and labour costs and insolvencies will continue to cause problems for the construction sector.
Building greater resilience
These inflationary pressures have caused our supply chains to become increasingly vulnerable. Our own analysis suggests that, as a result of this heightened exposure, many organisations lack confidence in the capacity of their current supply chains to deliver their pipeline for the next three years.
To mitigate these risks and assuage fears around capacity, procurement teams need to focus on managing their supply chains much more comprehensively and from various perspectives.
This must include understanding the supply chain’s capacity, reviewing and monitoring risks, and most importantly collaborating with suppliers to define the most effective solution.
It is no longer viable to simply pass risk down the supply chain without consideration of who is best placed to own and manage the risk. Doing so may jeopardise successful project delivery.
COVID-19 and Brexit have already forced organisations to begin undertaking greater analysis and ownership of their supply chains to reduce risk and to help ensure that costs and timeframes are met. This trend will need to continue to grow as we recover from two years of disruption, particularly as we navigate threats from insolvencies.
We also welcome the growing recognition of the role that performance management and incentivisation play in improving resilience. Our research into organisations’ behaviours shows that the majority have developed a commercial strategy to support this.
As we prepare for the introduction of the Procurement Bill next year, leveraging incentivisation to drive the delivery of strategic outcomes – rather than outputs – will be crucial to building effective and robust supply chains.
Engaging with policy: climate and equality
Following the COP26 conference last November, all eyes are now on the next great disruptor for our industry – meeting net zero. The lessons learned throughout Brexit and COVID-19 provide the foundations for us to collectively and successfully meet those demands – and once again, procurement can play a critical role.
Considering a more diverse range of outcomes from our procurement processes will be essential in supporting Government to decarbonise the UK and build a green economy – cost can no longer be the overriding factor in making procurement decisions. That goes not just for public programmes, but also private, as investors seek to back projects with stronger green credentials.
The other major demand now being placed on project procurement is demonstrating social value. As Government seeks to implement its levelling up agenda to address regional inequalities, the Procurement Bill will add further weight to the trend.
It will reinforce the requirement for investment to not only deliver a particular asset, but to bring wider economic benefits to an area in terms of community value and skills development.
Our sector is well placed to deal with this challenge and the industry is preparing to break new ground. We have found that the majority of our organisations are already incorporating social value benefits into procurement processes.
Turning to technology
As mounting pressures – political, economic and social – cause new complexities for procurement processes, new technology offers our sector the opportunity to bring a much more forensic approach to the management of our supply chains.
For many clients, procurement is still a transaction-focused manual process with far too many steps. Technology has the potential to support them in mapping out their supply chains by value, key suppliers and processes and to assess where improvements can be made.
By investing in technology and automation to realise these efficiencies, procurement can be transformed into a more strategic function to deliver meaningful organisational change.
The next breakthrough in the process is building capability through digital technology and asset integration tools that benchmark organisations within a supply chain against peers and past performance.
Government has a key role to play in adopting standardised performance measures, including benchmarking, ensuring consistency and best practice across its programmes.
The opportunity for change
Noticeable progress is being made across procurement practices towards more balanced, resilient and digitally-led supply chains. However, there is still work to be done.
If implemented well, the Procurement Bill will help drive improvements in major government projects and programmes. Government is making substantial investment in infrastructure and, as highlighted by Programmes with Purpose, a report in partnership with the CBI, strategic procurement has the potential to be a significant contributor to improving major programme delivery.
Outside of government procurement, there is no obligation to follow the lead of the Bill. However, shareholders are demanding a wider range of socio-environmental outcomes from their investments, both to prepare for policy changes and to protect against reputational risks.
As such, we can expect that private organisations will increasingly take direction from the Bill after it is presented to Parliament later this year. As we have seen throughout the last two years, there is further evidence that procurement cannot be treated as a transactional process.
To manage the risks and obstacles we face in the coming years and to deliver successful legacies, procurement teams must focus on delivering strategic outcomes beyond cost measurements. This is not just an opportunity for the construction sector, but an imperative.