NEWS / Blog / What does procuring for value actually mean?

Blog

15 APR 2021

WHAT DOES PROCURING FOR VALUE ACTUALLY MEAN?

Hannah Vickers argues that it is just one step towards a relationship based on value

I

n reality, procuring is a single step in setting up a transparent client and market relationship on the basis of value rather than cost.

We are often quick to view procurement as the source of all client and market challenges. However, taking a step back and approaching this as an engineering problem, we are actually dealing with a complex system that can be broken down into three phases which must be aligned, as well as collectively ambitious, in order to function correctly – commercial strategy, procurement process/bid evaluation, and ongoing performance management.

In basic terms, commercial strategy defines what is being bought during the procurement transaction. Decisions will be made around scope and reward models during this phase. Are we buying an input such as time? An output like a design? Or an outcome, for example, a solution for better process efficiency in construction? This is then overlaid with the most appropriate incentives – financial, repeat business and in future data monetisation, or perhaps a combination of all three.

All of this is settled before the procurement process/bid evaluation which is effectively the shopping and checkout process. For forward thinking consultancy procurements, this should mean looking at value through three prisms: people/capability, data the consultant brings, and technology at their disposal to conduct modelling, insight or analysis. Thereby assessing the participants’ ability to add value in a comprehensive way, not just whether they have suitably qualified staff.

Finally, performance management or the execution of the contract and meaningful measurement and reward of performance. Appointing the right organisations does not guarantee performance, there will be an ongoing need to assess performance and provide constructive feedback. The more sophisticated the approach to commercial strategy and incentivisation taken, the more robust the approach to performance management needs to be for the relationship to remain balanced.

Aligning these three areas is what sets apart the client and market relationships that deliver truly transformational value. Should they be out of synch, then it is most likely that the procurement will revert to a transaction based on cost and return to the status quo, failing both parties.

While much is made of the complexity of this system, the responsibility jointly sits with ourselves as consultants, and with clients, to improve this process. It should not be left solely to procurement experts when we could be collectively engineering a better system across the three phases. Hannah Vickers

In practice how would this work at its most forward thinking?

Let us consider a hypothetical example where a client has a programme of new MMC schools to construct and commissions a high quality ‘product’ design (output model) to be reconfigured for each project across the programme if the design performs well (outcome model). The incentive structure here is based on repeat business – the consultant won’t be paid extra if their design delivers better outcomes but they will be rewarded with the reconfiguration opportunity.  

The bid assessment focuses on the three lenses: the competence and capability of the people, the additional data the consultant might be able to bring to measure and benchmark different aspects of the design to improve performance and finally the technology at their disposal to visualise the designs and deliver the reconfigurations in a productive way.  

Managing performance in this case becomes vitally important to fairly allocate the reconfiguration opportunities in a robust and transparent way. Given the commercial tension here this phase actually needs to be clearly defined with full transparency during the procurement phase.

While much is made of the complexity of this system, the responsibility jointly sits with ourselves as consultants, and with clients, to improve this process. It should not be left solely to procurement experts when we could be collectively engineering a better system across the three phases.

To help us on our journey, two new industry developments are in the pipeline. Firstly, the Value Toolkit, due to be launched 26 April by the Construction Innovation Hub, will provide  structure for clients on how to approach this across projects. Meanwhile, at ACE we will soon be sharing detailed guidance and support for our members’ and their clients on how to apply this approach to get the best from the consultancy market. Named Consultancy 4.0, I will be sharing more details of this project soon.

Hannah Vickers is chief executive of the Association for Consultancy and Engineering (ACE).

Hannah  Vickers

Hannah Vickers

Chief Executive

Hannah leads ACE, representing members across industry and government.

BLOGS THAT MIGHT INTEREST YOU