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Most development risk is priced in long before the first tender return. Early appraisal work decides whether a scheme is worth pursuing at all.
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Cost & commercial management · 4 min read
Procurement strategy in a changing market
Choosing the contract is choosing who carries the risk, and what you will pay for the privilege.
Procurement is a commercial decision about risk allocation, not an administrative step between planning and site start.
Match the route to the risk you want to hold
Design and build transfers construction risk at a price and reduces the client's control over specification. Traditional procurement retains design control and the associated design risk. Two-stage tendering buys contractor input early at the cost of reduced price tension at the second stage.
None of these is inherently correct. The right route depends on how well defined the design is, how much programme certainty the funding structure requires, and how much cost variance the developer can absorb.
Price tension depends on the market you tender into
In a busy market, contractor capacity is the constraint. Tender lists need to be shorter, better qualified and engaged earlier, and the return period needs to be realistic. A rushed tender in a constrained market returns qualified, inflated or withdrawn bids.
In a softer market, wider competition can deliver genuine value, but the lowest number carries its own risk. Financial standing, workload and the quality of the bid's assumptions should be assessed alongside price.
Test the tender, not just the total
Tender analysis should isolate where bidders differ: preliminaries, programme, provisional sums, qualifications, inflation allowances and risk pricing. A spread of ten per cent between bids usually reflects different assumptions rather than different efficiency.
Unresolved qualifications carried into a contract become change events within months. They should be closed out before award, in writing, with a value attached.
Inflation and risk need an owner
Fixed-price contracts do not remove inflation; they price it. Where volatility is significant, a defined indexation mechanism can be cheaper than an unquantified contractor allowance.
The same applies to ground conditions, statutory connections and long-lead items. Risk allocated to the party best able to manage it is usually the cheapest allocation available.
In short
- Select the procurement route from the risk profile, not from habit.
- Qualify the tender list to match current market capacity.
- Analyse the composition of bids, not only the headline total.
- Close out qualifications and price risk explicitly before award.
Project management
Keeping commercial control through delivery
Cost certainty on site comes from disciplined change control, honest reporting and decisions taken at the right time.
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