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The Role of the Procurement Manager
Make It Right is responsible for providing general contractors with all materials needed to build our LEED platinum homes; we do this as a way to control overhead margins and assure that only Cradle to Cradle reviewed products are used.
Most clients are unaware that general contractors add a 10% to 20% markup to the cost of building material. This markup is on top of their overhead and profit margins; with a project of our sizes this would lead to a significant increase on our build cost. To avoid this Make It Right decided early on to hire a procurement manager to setup supply lines through local vendors willing to carry the new products Make It Right would be using. By doing this Make It Right not only saved money by eliminating the markup but was also able to take advantage of bulk purchasing while at the same time acting as a economic stimulus to the local economy.
The Procurement Manager is also in-charge of researching building materials that would be able to standup to the rigorous Cradle to Cradle review process. Make It Right works closely with the Cradle to Cradle Institute to identify products that positively impact the environment, the people interacting with them and future generations to come.
While not every organization chooses to control their supply line or hire a Procurement Manager our decision to do so has helped us save money and assure the quality of our homes.Replies
Why do contractors add a markup?Taylor Royle posted on October 12, 2012
Taylor, think of this markup as a handling fee. It’s suppose to cover the time spent on ordering and picking up materials but honestly this work is done by their vendor. Now for the smaller contractor it does cover that expense but for the larger ones its mostly profit.
Has anyone come across the new type of spray insulation that is a combination glass bead material and spray adhesive that was applied to exterior of air conditioning ducts and required only 1/8″ thickness? It is also used for exterior wall insulation again with minimal thickness. Product was a result of NASA research.Jerry Henrich posted on October 12, 2012
What are the pitfalls to not allowing the contractors to order the products themselves? Does it often result in delays, when products don’t arrive onsite in time, for example?Kimberly Cadena posted on October 12, 2012
Having the contractor order materials doesn’t usually increase or decrease the possibility of delays occurring. Delays usually occur because of the following reason:
1. Someone forgot to order it or ordered too late
2. Manufacturer has delayed shipment
3. Contractor has fallen behind on another project and is creating the situation to allow his crew to finish the project and move on to yours.
On our project delays have been few but when they have occurred it was usually a delay caused by the manufacturer.
So, if a contractor wants a new type of material, for example, a new sconce or type of door. How would they go about getting that, since you order all of the materials onsite?Kimberly Cadena posted on October 12, 2012
We encourage our contractors to suggest materials they think would be a good fit for our homes; once they bring it to our attention we send it along a review process to make sure it meets our standards. If the product meets the criteria it would be up to Make It Right to decide if we want to implement the change.
We also closely monitor service calls to hep identify products that our not preforming as they should and that need to be replace. A good example of this would be a recent issue we had with smoke and Co2 detectors that were constantly chirping after batteries were replace and the air proved to be clean. after further investigation we learned that it was a problem with the censor and they were all replaced.
I’m a general contractor in Southern California.
There are a number of factors to consider when deciding what the best approach is to procuring materials for construction. Here are two of them.
There are costs associated with procurement regardless who does it and it depends on how tight the specifications are for those materials. Many times there will be boiler plate specs that define a product in general terms and it is up to the contractor to figure out what product will fit the spec through research, then send in submittals for approval. Often, this is a reiterative process where submittals are either rejected, (meaning try again) or are required to be revised and resubmitted. Then, if the product is not readily available it needs to be sourced. That’s more time spent. Depending on the project that 10 to 20% markup on materials may not cover the cost of the required effort, especially if you are hunting for a low cost item. So first thing to look at are the specifications. Are they explicit? Are they exact? If so, most of the work has already been done, and aside from the question of how much do you buy of something and how you get it to the site, it could make sense for the owner/developer to buy the materials.
Another couple of questions related to who buys the materials has to do with liability. Who owns the responsibility for the material or equipment if it is defective, late in delivery, no longer manufactured etc. Typically it belongs to whomever purchased it. Who assumes the risk of dealing with that and how much is that risk worth? Another issue is generalized specifications or plan notes that specify performance criteria rather than specific products, say in heating or air conditioning equipment. A contractor installs the package based on what he thought would meet that criteria but it turns out it doesn’t. Now what? Well, it’s the contractor’s contractual responsibility to make it right. If the owner/developer had the responsibility of supplying the equipment and an error was made, there would be no recourse without spending more owner money to fix the problem and increase project costs. All this is about shifting risk and determining how much worth the risk has compared with that 10 to 20% markup on the equipment. Large projects can afford to generate wonderful tight specifications, enforce tuff QC programs and have those costs amortized over a large budget. The smaller the project is however, risk management becomes a subject worth looking into.Walt Wozniak posted on December 2, 2012