3 Types of Procurement: How They Impact Cabling Projects
A few blogs ago, we discussed the importance of project management during a cabling project.
Project management can make or break a cabling project—and many common problems can be avoided when project managers have some basic cable and connectivity knowledge.
To help project managers effectively oversee cabling projects, Belden is in the process of creating virtual training and education for this group of professionals. As we pull the content together, there are certain points we think are worth sharing with blog readers, too.
For example: The way cabling products are procured can impact project management. Each procurement model requires a different mindset and philosophy. To mitigate risk and achieve desired project outcomes, the project manager’s job is to understand everyone’s frame of reference in each type of procurement model.
Here, we’re covering three basic project procurement types:
- Variable (T&M and allowances)
1. Fixed-Bid/Fixed-Price Projects
In fixed-bid or fixed-price projects, there are no discussions or much opportunity for change. The client tells you: “Here’s my office layout. Here are my floorplans. Here’s my data center. Here are my cabinets. Here’s my connectivity. I need a price.”
Or you someone may simply give you a list of needed products. For example: “I need 1,000 boxes of cable, 10,000 jacks and 5,000 faceplates.”
There’s always a fixed budget to work with: $1 million, for example. From there, project managers have to work with that number to deliver all the necessary materials, labor and services. The price is set—no matter how much time and/or expense your company incurs. If the project scope changes, then those changes must be priced accordingly.
2. Variable Procurement ProjectsProjects following a variable procurement model include time-and-materials projects and project allowances.
In time-and-materials projects—also called T&M projects—you bill the customer for hours spent on the project, as well as your expenses.
These are usually projects with a hard-to-define scope, such as special projects, miscellaneous jobs or quick-turnaround projects that don’t allow enough time to go through traditional design and procurement, such as fixing three cable drops or installing a few new wireless access points.
T&M projects can also be very large projects. For instance, if the cabling for a stadium’s digital signage and giant scoreboard was forgotten about during construction, this project might require a time-and-materials approach because it needs to be done quickly.
For these types of projects, project managers must do an excellent job of tracking and justifying material and labor usage that they can refer to when questions arise. In other words: Thoroughly document what you use and what you do so you can justify what you charge.
Allowances—another type of variable procurement method—are projects with undefined scopes of work. Conceptually, everyone understands what needs to be done, but they can’t be overly prescriptive with requirements or normative guidance.
Healthcare is a great example. These projects often span several years. Because technology evolves quickly, a budget and scope for IT and OT requirements created in 2021 likely won’t address what will be needed in 2026 when the hospital finally opens its doors.
Based on projects involving similar work, experienced contractors will know that telecom infrastructure costs tend to be $X per square foot. In these instances, a cash allowance will be used. A cash allowance is a loose budget based on past experiences. The hospital tells the contractor or integrator to carry a cash allowance for things like cable pathways, for example—things that aren’t clearly defined.
Based on past experiences—and knowing it will be procured later and decisions will be delayed—the contractor can estimate that it will cost $X. Once it’s time for procurement, it may become a fixed-bid or T&M project—or even a joint-risk project (which we’ll discuss below).
Exceeding an allowance isn’t bad—it happens quite frequently. A project manager just needs to be able to justify why they went over. On the flip side, be careful if you build up that allowance and fall short. Did you miss something? Communication and making sure the right parties are involved are key to getting allowances right.
3. Joint-Risk ProjectsThis procurement method offers shared risks and rewards for all parties.
Let’s consider the healthcare example from above and assume the hospital follows a P3 (Public-Private Partnerships) approach to building, where the private sector assumes a major share of the risk in terms of financing and constructing public infrastructure.
Healthcare boards know all about delivering clinical care—but most don’t know much about building. They know they need to build a 1,000-bed hospital that can offer clinical care and outpatient services. They know it needs to be a children’s hospital with oncology and surgery departments.
Often, they’ll create a set of requirements for clinical and non-clinical operations and say, “Build a hospital based on this qualitative, descriptive guidance.”
Following the P3 approach, the hospital defines the needs of the project. Then it’s up to the partnership to come up with funding, procurement and a solution. As part of the indirect team, the project manager’s job is to come up with pricing—and that’s where it becomes about shared risks and rewards. The team lives or dies together.
Integrated project delivery, or IPD, is another approach to building. IPD and P3 both bring their own impacts to procurement.
Let’s use the healthcare example once again. If the hospital decides to follow the integrated project delivery method, they might say to you, “I have a budget of $1 million to build this hospital.” The risks and rewards are shared with everyone, including the end-user.
As the integrator or ICT contractor, maybe you can figure out a way to lower portions of the budget by changing pathway layouts. Or let’s say that architectural, structural or mechanical changes are made. This may significantly increase your costs because there will be more rooms and longer cable lengths. When you look at the big picture, however, the end-user saves money. That’s an example of shared risk and shared rewards.
If the project can be delivered for $900,000 instead of $1 million, then that shared reward is split between the owner and the construction and delivery side.
Have questions about these procurement methods or how they may impact project management? Send me a note; I’d be happy to answer them as you prepare for your next cabling project.