Procurement’s role in capital projects

16 November 2011
It’s a well-publicised fact that investing resources into setting capital project delivery strategies early will save time and money later. However, many large-scale capital programmes still fail to be delivered to the budget, time and quality aspirations originally set. So how should procurement position itself to ensure it has the time to influence the key upfront decisions and how should capital projects be set up for success? One of the criteria to successful delivery is to agree the contract strategy upfront. Procurement’s role as value creator begins at the initial project stage as one of the key contributors to the investment case. In particular, it is a role that shapes the requirements that will be presented to, and delivered by, the market. Once the investment is approved, procurement’s place is at the forefront of contract design, determining that the correct incentives and contractual levers are embedded to drive successful delivery. Incentives should be designed to map the priorities and ensure both parties have ‘skin in the game’ and an opportunity to be rewarded for innovation. Time should also be set aside to analyse the risk profile of the project. Risks should be allocated to the most appropriate parties to manage and clear protocols set for change management once in the contract. This upfront design work should be at the forefront as procurement progresses through from contract award and into delivery. The ‘chucking over the fence’ approach of passing the contract to another function to manage is best avoided. Instead, a detailed obligations matrix and contract management plan should be co-developed so that the incoming team has the insight and knowledge required to deliver the value intended. In summary, cradle to grave procurement, integrated project teams and an understanding of commercial risk are all essential ingredients in the pursuit of commercial excellence in the delivery of capital programmes. ☛ Alaba Adedayo is director, performance improvement - supply chain and operations, Ernst & Young.
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