Taking the heat out of procurement

John Robbins

Managing Director, USA and North America Head of Real Estate

North America

Construction clients often overlook the rising risk of cost escalations as booming markets such as New York begin to overheat – even though tactical tools exist to cool hotspots

This year’s survey has revealed New York City and Seattle are beginning to overheat. What tactical tools can property owners and developers use to mitigate the risk of cost escalation in such markets?

As demand outpaces supply and pushes prices to record highs, overheating markets suffer a range of dangerous cost escalation problems, from labour shortages to rocketing costs of commoditised building materials and contractor cost mark-ups. But many market players seeking to build in this hot landscape often remain far too cool about the risks.

The threat of cost escalation is very real indeed, but fortunately so are some tried and tested practical procurement tactics to avoid overspending or reduce the risk it poses.

Good governance

Reduce uncertainty by addressing how best to control and manage project costs well in advance, keeping control of the project schedule and maximising stakeholder engagement.

Direct manufacturer engagement

Reduce handling charges and simplify the coordination of purchase by going straight to the source manufacturer rather than through an intermediary.

Contingency control

Establish watertight rules around contingency drawdown that stop contractors ignoring cost overruns. Exclusive relationship-building While long-term associations with contractors can be beneficial, don’t get complacent – make sure good value is achieved from longstanding relationships. Outside perspectives can help with this.

Site logistics controls

Centralising how site logistics are developed, bought and managed can provide real cost efficiencies compared to buying them in separately through individual trade contractors. Smart timing Well-planned procurement and a keen understanding of the market will help in taking advantage of fluctuations in the prices of essential commodities rather than having them dictate the costs.

Procurement and claims