Supply chain management in

construction

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.

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 Definitions
• Constructing excellence “the linkage between
companies that converts a series of basic materials
or services into a finished product for the
construction client”
– Includes all parties
• First tier suppliers- direct contact with clients
• Second tier- Subcontractors and suppliers
• Drive for improvement through more integrated
procurement processes.

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.

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 Benefits
• Incentive to manage out waste
– Reduced real cost
– Greater certainty of out-turn cost

• Better value to clients

• Greater confidence in budgeting future
turnover
• Ring fenced profit
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.
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 Benefits

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.
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 Take up??
• Category management
– Cat 1= frequent working relationship
– Cat 4= applied and being considered
• Construction online prequalification system
• Difficulties
– Price can be a strong driver
– New entrants
– Post tender negotiation
– Separation between construction team and
preconstruction team
• Lip service paid to scm principles by all parties, impossible to
maintain demand

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.
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 Rise and rise of subcontracting
• Types
– Listed
– Named
– Nominated
– Domestic
• Relationships determined by
– Main contract procurement route
– Type of service offered
– Specificity
• Ease of replacement
• Level of bilateral dependency
• Information provision

• Reduction in overheads- estimating and planning

• Reduce need for specialist knowledge

• Risk transfer

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.
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 Construction Industry Scheme

• CIS
– Introduced 2004, effective 2007
– Allows payments to be made gross of tax
– Gross status
• Type of business
• Turnover
• Tax compliance
– Subcontractor – returns to HMRC
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.
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 Liquidity
• Trade references
– Stability of company
– A “good” risk for credit
• Bonds
– Legal agreement
– Surety
• Exposure considered as a secured loan
• Fixed or floating charge over assets
– When is the bond released and impact on working
capital??

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.
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 Getting to contract

• Enquiries and send outs

– Development of package
• Measurement and specification (cost/benefit)
• Drwgs and interfaces
• Standardised method?
• Subcontractor selection
– Qualification
– Tender list compilation
– Invitation and submission
– Assessment and acceptance
© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.
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 Tender acceptance?
• Placing of subcontract
– Resend outs
– Additional discounts
– Dutch auctions
• Protection of overheads
– Increase specificity by developing stronger bilateral relationships
– Ensure enforcement of “partnerships”
– Easier if subcontractor has more muscle
• Technology e.g. mechanical and electrical subcontractor- difficult
to replace
• Price- repeat business has led to discount that is difficult to beat
• Working relationship- subcontractor

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.
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 Getting paid
• Terms of payment

• Timing of applications

• Retentions and defect liability

• Liabilities and accruals

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.
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