Procurement in construction: What it is and how it works

Procurement in construction affects virtually every aspect of a project, from budgets and final margins to schedules and project quality. When the project manager, estimator, and field super are all making purchasing calls without talking to each other, it can quickly lead to cost overruns and eroded margins, harming project profitability. But a structured procurement process helps firms more accurately track and manage resource procurement across the entire project lifecycle, keeping them on budget and on schedule.

Understanding where procurement costs get lost in the shuffle and what it takes to track labor and material spend accurately is key. It will help contractors make smarter procurement decisions and keep projects on track. 

With this guide, finance leaders will learn how to track procurement-related expenses, budget for these costs, and catch common mistakes.

What is procurement in construction?

The construction procurement process, often called “purchasing” or “sourcing,” is the acquisition and oversight of the external resources necessary to complete a project. Items that companies generally need to procure include:

• Bulk materials (concrete, lumber, rebar, structural steel)
• Long-lead items (switchgear, custom fabrications, mechanical equipment)
• Equipment rentals (cranes, lifts, generators)
• Specialty subcontractors and trade partners
• Field labor sourced through agencies or unions
• Tools, fuel, and consumables 

Procurement is an ongoing responsibility that affects the entire project, from preconstruction planning to project delivery. 

Who manages the procurement process depends on the size of the company. Larger firms may deploy dedicated teams, while project managers often take on the role in smaller companies. 

Regardless of who makes the decisions, procurement carries real consequences that can mean the difference between profitability and financial loss. Without a clear procurement process, materials and subs land late or out of sequence, crews lose productive days, rework piles up, and margins erode fast.

Types of construction management procurement methods

The delivery and procurement methods contractors use can directly impact job costing, cash flow, and margin visibility. Here’s a look at different approaches they might use.

Delivery methods

Here are some of the most common delivery structures in construction and how they can affect procurement throughout the project lifecycle:

• Design-bid-build: On design-bid-build jobs, the project owner coordinates two separate contracts with a designer and a contractor. The designer comes up with a solution, which contractors bid on. Construction then starts after the owner awards the contractor the work. This step-by-step process makes costs more predictable, but since the design and construction processes are separate, contractors often only identify issues after work starts, leading to more costly change orders down the line.
• Design-and-build: The owner contracts with a single company that handles both design and construction. The two parties typically negotiate price and scope together, with procurement decisions falling on the contracted company. Owners typically prefer this method when speed matters more than control. Because design and construction sit under one contract, the GC can lock in major subs and order long-lead items while design is still being finalized, which compresses the schedule.
• Construction management at risk (CMAR): On CMAR jobs, the owner hires a construction manager to act as a general contractor (GC) during construction, operating under a guaranteed maximum price (GMP). The GC is responsible for covering any costs that exceed the GMP. Trade buyouts typically happen during preconstruction, so the GMP gets built up from real sub bids rather than estimates.
• Construction management agent (CM Agent): A construction manager advises the owner during the project but doesn’t directly perform construction services. Trade contracts are signed by the owner directly, with the CM advising on vendor selection and scope. This keeps control with the owner but adds administrative load on their side.
• Integrated project delivery (IPD): The owner, designer, and contractor enter into a shared contract. Major buyouts are decided jointly during design, and shared savings or overrun pools mean every party feels the result of each procurement decision.
• Job order contracting (JOC): With job order contracting, The owner hires a GC for recurring work across multiple sites based on a pre-negotiated unit price book. Each project is issued as a job order, so procurement runs against the catalog instead of restarting competitive bidding each time.

Procurement methods

During bidding or preconstruction, GCs need to source vendors, suppliers, and subcontractors. Here are some of the most common approaches and their impact on efficiency and pricing:

• Competitive bidding/open tender: The GC opens bidding to all contractors and suppliers, often selecting the lowest qualified price. This can increase competition and drive down procurement costs, but contractors will find it tricky to compare offers accurately if they don’t properly define project scope.
• Negotiated contract: With a negotiated contract, vendors skip the bidding process. Instead, GCs negotiate pricing directly with their chosen supplier. This saves GCs from spending time gathering and comparing bids, but the lack of competition can drive costs up.
• Sole source/single source: The GC procures resources from a single vendor, typically because they have a specialized offering or due to scheduling restraints. This can reduce negotiation leverage, driving up costs. 
• Selective tender (invited bidders only): The GC opens bidding to a list of pre-chosen, qualified vendors. An additional layer of vetting can provide reassurance on the quality of materials, but limited competition can lead to higher prices.
• Request for proposal (RFP): The GC evaluates vendor-submitted proposals outlining proposed schedule, skills and qualifications, and price. This allows them to choose vendors based on clearly defined value rather than just cost, but the extra hurdles may limit the number of bidders.
• Request for qualifications (RFQ): The GC evaluates vendors on capacity, qualifications, and past experience before talking price. This improves project quality, but locking in a vendor before negotiating costs can lead to higher prices. (RFQ is also commonly used as shorthand for Request for Quotation, a price-focused short-form bid for specific items.)
• Framework agreements/master service agreements: The GC awards long-term contracts to one or multiple vendors. This streamlines the procurement process, but if contractors don’t keep tabs on their vendors, they can end up paying unexpectedly higher prices.

How construction procurement management works: 5 steps

A standardized, repeatable procurement process keeps GCs on target and helps prevent costs from slipping through the cracks. Here are five steps for contractors to follow.

1. Define project requirements.

Identify what each trade scope requires based on drawings and specifications: sub prequalification criteria (insurance, EMR, bonding capacity), material schedules, equipment needs, and budget breakdowns. This establishes who can bid, what they’re bidding on, and when each scope needs to be in motion.

2. Open up sourcing and bidding.

Open up bidding and negotiations with subcontractors and suppliers. Obtain detailed schedules and price estimates to compare against project needs.

3. Select vendors and award contracts.

Compare bids against project scope and budget, then award contracts to the selected vendors. Locking in clear payment terms, retainage schedules, and lien waiver requirements now prevents disputes later.

4. Manage purchase and delivery.

Cash flow problems and late deliveries can delay projects and hurt profit margins. Manage purchase orders, assign cost codes, and approve invoices throughout the project. Manage purchase orders, code each invoice and card transaction to the right job, approve pay applications against the schedule of values, and collect lien waivers before releasing payment.

5. Monitor performance and closeout.

Track spending and progress against agreed terms and budgets throughout the project. Noticing issues like overbilled invoices or miscoded cost entries early means PMs and accounting teams can address these problems before they show up on the WIP report and hurt profit margins.

Common challenges in construction procurement

Even with a plan in place, procurement in construction may come with some challenges, such as:

• Cost overruns and price volatility: Fluctuating material and labor prices can make it difficult to estimate costs accurately, especially when factoring in volatile economic conditions and supply chain issues.
• Unclear project requirements and scope changes: Poorly defined requirements and unexpected design changes can throw off procurement schedules and lead to change orders that disrupt project costs and timelines.
• Subcontractor and supplier management: Tasks on a construction site depend on one another. For instance, workers need to finish underground rough-ins before pouring slabs. GCs need to keep task dependencies in mind while procuring materials and labor; otherwise, vendors will deliver concrete mix before the PVC pipes needed for rough-ins, and both crews have to wait around until the right materials arrive.
• Disjointed expense tracking: If companies don’t correctly file invoices, change orders, and field purchases, financial decision-makers won’t be able to identify overruns or manage expenses effectively. An integrated accounting system and process for managing per diems and reimbursements is key to tracking and managing project expenses accurately.

Close the loop between procurement and job costs

Every procurement decision eventually lands as a cost the job has to absorb: vendor invoices, supply house card swipes, and per diems for travel crews. When those costs don’t make it back to the right job and cost code quickly, the procurement choices made upstream stop being visible. By the time accounting reconciles at month-end, the margin is already set.

Miter captures that downstream spend at the job level. Forward a vendor invoice to a company-specific email address, and Bill Pay creates the bill automatically. Code each line item to a job and cost code, then pay via ACH or mailed check, with the GL entries pushing to ERPs like QuickBooks Online, Sage Intacct, and Sage 300.

Field spend works the same way. A super swiping a Miter card at the supply house can code the transaction to a job and cost code from the field, so it doesn’t sit unallocated for weeks. Reimbursements and per diems flow through the same job-cost pipeline, with approval policies governing cards and reimbursements on the rules contractors define.

A finance leader sees where procurement spend is landing in close to real time, not after the job closes.

Frequently asked questions

What is the difference between procurement methods and delivery methods in construction?

Delivery methods structure who contracts with whom, who carries design and construction risk, and when each party gets involved. Procurement methods are one piece of that puzzle: They define how GCs acquire materials, labor, and equipment.

Who is responsible for procurement in construction?

In most cases, the GC owns the responsibility of procurement. Smaller firms often rely on a single project manager, but larger companies tend to use a dedicated procurement team. 

How does procurement differ between public and private construction projects?

Public works projects have stricter procurement regulations than private jobs. For instance, some government contracts require contractors to support disadvantaged business enterprises. In these cases, contractors must put a set percentage of their budget toward working with minority business enterprises or women business enterprises. And during some projects, GCs are subject to the Buy America Act and must purchase U.S.-made iron and steel. Contracts vary, so check which regulations apply before starting the procurement process. 

Private projects let owners negotiate directly with chosen vendors and source materials freely.