Construction Procurement Summit 2024: Key takeaways from panel discussion

The Construction Procurement Summit took place in Sydney last month, where I had the pleasure of facilitating a panel with some industry movers and shakers around the topic Exploring the macro trends driving new opportunities across construction supply chains.

We all know the sector is experiencing some strong headwinds with intensifying operating environments, increased costs, labour and skill shortages, more compliance and ultimately reporting, resulting in supply chains are getting more complex.

The session dug deeper into these themes, demystifying some of these challenges and how they can be navigated to realise significant opportunities ahead.  

I was joined on stage by: 

• Anthony Abbott, Procurement Manager – Australia at McConnell Dowell 

• Ro Coroneos, Principal at Praxis ESG 

• Erroll Bellchambers, National Head of Procurement at DT Infrastructure 

You can follow our conversation below: 
*Note the transcript has been edited for clarity 

Topic #1: Working with your supply chain to ensure consistent supply and quality of materials at fixed prices 

Q: It’s no secret that you can’t build a project without suppliers. What are you doing to maintain a high level of quality within that supply chain? 

Errol: At DT infrastructure, we work in such vast different industries with construction. Keeping up a high level of quality is difficult with such a large supplier base working nationally on different projects. And then we’re going offshore, and we need to make sure we’ve got the right resources to manage that so we’re dealing with quality issues offshore and before they arrive. How we manage all this really takes a multi-angled approach. 

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Q: Do you feel that standing agreements and arrangements still have value in the current environment? 

Errol: During covid, prices escalated dramatically and we saw fixed term contracts get ripped up because no one could honour it. Today, people are going out of business so it’s taking longer to negotiate rates. Even if you get rates locked in for 12 months there’s still exclusion clauses. It’s really difficult to predict costs, it requires an understanding of those markets as well as what macro trends might make those rates escalate. But I feel fixed rates are slowly transitioning back to having power, although pretty challenging at the moment. 

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Q: You can’t just pay some suppliers more to retain the supplier relationship. How do you foster relationships to ensure suppliers are prioritising your projects? 

Anthony: Our projects tend to be not where we’ve been before. So we’ve got a few strategies to make ourselves more attractive. We have to sell ourselves as a good client, we’ll go out to wherever the project is going in bid phase so that before we’ve won the project we’ve started engaging with the constructors, the subbies and the different vendors. Once we win it, we’ll run supply forums and information nights and get them involved, get them excited.  

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Q: What do delivery teams need to be cognisant of in terms of driving consistency and quality? 

Ro: It’s about the standards and the processes you have in place to ensure that the quality of delivery meets those standards. Is your team prepared? Do you spend the time upfront planning properly rather than just jumping in? Do they have the capability to be able to meet those requirements? 

Exceeding the client's expectation is important, particularly with government projects. And I think the digital aspect of how you capture data, your audit process where you look at the integrity of the products that you’re going to use on your projects, to be able to give comfort to your clients that what you’re delivering is actually going to fulfill the brief properly. 

Construction is very focused on cost. It’s very deep driver, it’s very hard to shake the change in that. But we’ve also got to think about value, and there are other factors that we’ll probably go into in the subsequent discussions that really start to shape how we better deliver projects at the end of the day. 

Topic #2: Examining the role supply chain plays in procuring more sustainable materials; achieving lower embodied carbon; implementing scope 3 initiatives and minimising waste 

Q: I think there’s a bit of an equilibrium of sustainability being a sustainability challenge as well as a supply chain challenge. How do you define sustainable materials in the context of construction procurement? 

Ro: We typically think about sustainable materials with an environmental lens - if it’s energy efficient, if it’s low carbon, if it’s going to be thinking about the life cycle of the product, waste and circularity. But there are other dimensions in sustainability. I would argue that a secure, reliable supply of your sustainable product might be a question (at the right price). If you are all competing for solar panels and you have a major infrastructure project, you’re also competing for concrete. How sustainable is your buying strategy there and getting in early and locking prices in? 

There’s also the social dimension, when we talk about materials. If we’re talking about the labour conditions and modern slavery risk or forced labour risk in the supply chain – do you do that due diligence and look down your supply chain? And importantly, engage with your suppliers to get that information, to better understand the transparency of how labour has been used in the production of your product that you’re going to use. 

And there’s the economic dimension as well. If you are sourcing locally, the impact on local communities and local livelihoods as well as the promotion of local industry and manufacturing in terms of what you are buying. 

When it comes to sustainable materials, I would argue that there needs to be a more holistic approach than just, for example, the embodied carbon. 

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Q: Considering diversity in projects (this might include complexity, geographic diversity) how do you tackle this in terms of sustainability? 

Anthony: At McConnell Dowell, we’ve been on a journey for a while, as most constructors have been. There’s legislation coming out around reporting on sustainability and targets, and everything you’re doing.  

80% of our carbon footprint is Scope 3 so we can’t do the reporting without bringing subcontractors and suppliers onboard and working with them. We’re also seeing from a client side that it’s being demanded from us. 

For example, recently we had to provide the carbon factor for all our components and if it went over what was a predetermined level, then that was priced into the bid as risk. So, we have to be a little bit careful about making sure that we’re engaging the right people. And to do that, we need to understand what our carbon footprint is. We have consultants that are helping us with some categorisation of what we’re procuring and making sure that we’re fully understanding what that is. 

Ro: I think the other thing you need to be aware of is just how equipped is your supplier to meet your sustainability mandates. You may have targets and aspirations to reach a certain level, but you can’t do that in isolation. I think the other thing is just in the commentary to be mindful of, is the engagement with your suppliers, around how they can support you to meet your target, but also how you can help them to shift the dial in terms of how they progress on their sustainability journey as well. 

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Q: What can you tell us about the stakeholder structure and the balance between ‘Is sustainability a supply chain or a sustainability matter’  

Ro: Businesses will have different takes on this. The experience that I had at Lendlease was that we had a supply chain function – it was a global function – and we had a sustainability team. Some businesses, they’ll have them running parallel but quite separate. We had the expertise within the supply chain team on sustainability. They didn’t work in isolation. It was very much embedded and interactive. But we also had category managers, for example, who understood green concrete, who knew all the detail, who understood embodied carbon, who would be able to have those conversations with those key suppliers on those issues. Very much an integrated approach. 

I think that makes it easier because you don’t have friction between the sustainability and supply chain teams, and then having to consciously get together. It’s understood, it’s embedded into the modus operandi of the organisation. That way it’s more seamless in terms of how you deliver that agenda. 

Errol: At DT Infrastructure, procurement and sustainability have to go hand in hand with procurement. Having early engagement with suppliers, clients and then with engineering. If it’s not in the designs, the clients aren’t on board with sustainable materials because it hasn’t been trialled or tested. By the time it gets to procurement, we’ve usually got our specifications, it’s already been in the design, it’s already approved. Once it gets to procurement, we can’t put up a hand and say “let’s go back to the beginning of this process and redesign everything”. We understand that now. A lot of the work we do, especially with clients, is around “look, there are other options out there, let’s explore these before we get to a final design”. Then it’s built into it, we understand what we’re procuring, we understand what suppliers are out there, and those initiatives already built into the requirements. 

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Q: How do you envision the role of your supply chain in 5-10 years' time? 

Errol: I think it’s definitely upskilling so that procurement is across enough information over a lot of different categories. 

If we’re talking about infrastructure projects, you’re buying from concrete to steel, to the small electrical parts, to signs – it’s what we buy for projects. It’s great to have someone who specialises in certain fields, but we need a lot of generalists that know a little bit about everything that we can have those conversations with suppliers around how do we get better sustainability into our products or how do we adjust the carbon. 

With us internally, it’s about how do we upskill those staff to understand the different disciplines because it’s only going to get more and heavier with reporting and requirements. 

If procurement doesn’t understand it, we can’t evaluate it. We can’t make informed recommendations to the business around which direction we should be going. I think procurement is going to definitely need to be upskilled and go along with that ride as well. 

Anthony: It’s also worth targeting Scope 1. Yes, we’re going out to our subcontractors or suppliers, but what abour our fuel? We’re putting programs in place to use EVs or hybrid vehicles where possible, or any of that sort of innovation as it comes up. And it’s growing more and more – like prioritising solar, replacing generators and where we can, we roll that out. 

Topic #3: Responsible sourcing and how to embed anti-modern slavery best practice across your supply chain 

Q: Responsible sourcing, in particular modern slavery, is a deep and largely misunderstood topic for a lot of business stakeholders, particularly in a project-led setting. What’s your view on this and can you impart some of your knowledge? 

Ro: Responsible sourcing in the construction and property context is really about setting minimum requirements. 

Modern slavery is a subset of the bigger piece on human rights and human rights risk. And that’s about the activities of your business impacts people and how are you responding to those impacts, and how are you engaging with the right stakeholders around those impacts. And yes, modern slavery is the hot issue at the moment. 

The modern slavery agenda; the legislation in Australia is about reporting disclosure. It creates a systemic change for businesses to ask the question of other businesses about how you assess and address modern slavery risk in your operation and supply chain. At the end of the day, it is about labour – labour in your direct operations or labour in the products that you use and consume. 

So, that’s setting up systems and processes and controls to mitigate that risk, to avoid that risk, to prioritise and identify your most salient risks and have a process in place for that, and to repeat that process periodically, to sense check that periodically, and then to have a response plan in place. 

Now, you could do it at an enterprise level as a whole of organisation. You could do it at a project level. You might have a modern slavery risk mitigation plan for your project. And, in fact, if your certain clients, certain institutional investors, superannuation funds, government clients – they may expect that. 

So how do you set that up and how do you then embed the way that you are vigilant about supply chain risk? 

I’ll give you an example. The property council had set up through the Property Council of Australia and informed 365. They set up a working group which has a prequalification or due diligence platform specifically on modern slavery risk for all their suppliers. I think there is now 40 property companies subscribed to this platform which has a common questionnaire. 

Imagine if you’re a small business wanting to do business with a number of organisations and getting same but slightly different questionnaire – like a hundred of them each time. What a time waster. How frustrating and how expensive that is for a small business to try and wrangle. 

Wouldn’t it be great if there could be an industry response that allows systemic change and lifting of the bar to take a consistent approach to screening for that risk and other related risks. 

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Q: We talked about being able to do responsible sourcing at different layers – for example at the enterprise, project, portfolio levels. How do you tackle it? 

Errol: We have to tackle it at an enterprise level. And then that obviously feeds down into the projects and our due diligence processes. It’s about understanding a risk-based assessment, and the number of tenders and number of suppliers we’re going out to every year. It’s about understanding geographical location risk, your commodity risk, your industry risk. How do we then do that risk in the procurement set of stage, even the early engagement stages, to identify that we might need to investigate further? 

We would get a third party or do it ourselves, do factory tours and meet those organisations to understand how they’re dealing with it, what that look like on the facade, does it look like they’re doing what they need to do or how do we help them. It comes from the enterprise level, but then flows all the way through. 

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Q: How do you measure the effectiveness of a sourcing initiative? 

Ro: This word “effectiveness” is often a very misunderstood term. Certainly, if you are a company that has to report on modern slavery every year, that’s one of the reporting criteria -  how effective have your actions been in mitigating that risk in your operations and supply chains. 

The thing with effectiveness, it’s got an evaluative dimension to it. What I mean by that is you need to look at what initiative you implemented during the, let’s say, the reporting period. You look at that initiative at the start and then you need a theory of change, which is social value/social impact language. 

You want to see what change was created as a result of that program or that initiative that you implemented. 

You look at the start, you implement and then you check at the back end. Now you could do surveys, you could do peer reviews, you could do data driven analytics, and to see what has occurred, what change has occurred. 

A lot of companies are not sure how to do that. And from the benchmarking work I’ve done so far, there’s very few companies that are actually trying to address that question. To me, that’s a capacity question. It’s about understanding how you tackle that kind of evaluative aspect when you look at the things that you’ve undertaken to mitigate supply chain risk or modern slavery risks. 

Effectiveness is what’s changed and has it gone the right way. Have you seen a difference? And if you have, you can talk about that? It can be good or bad as well. You can say it wasn’t effective, and these are the reasons why. If you’re reporting against that, that’s also valuable to convey because it means that you’re going to review and tweak whatever you’re doing or change it or pivot and do something else. 

Anthony: We’ve built our modern slavery provisions into our contracts and questionnaires, but what we were finding is when you ask people about modern slavery, they tend to tell you they don’t have any slaves! So, we thought we’d add another layer to say “we’ve asked you, this is what you’ve said, but we’re going to put in a system that draws all of the media around the world, and if anything pops up, then it will get flagged”. Two years down the track if something gets flagged, then it’ll come back to us. It’s a tool to put a bit of a safety blanket around our questionnaires. 

Brendan: You will be able to have those insights coming back and surfacing in Felix as well! 

Topic #4: Identify strategies for mapping and mitigating risks associated with global geopolitical disruptions, climate change and resource scarcity 

Q: We’ve talked about the intensifying operating environment – the construction sector is particularly prone to world events. What are some tips based on experience? 

Ro: Here’s four things you can think about doing. The first one is, how well do you know your supply chain really. Because if you’re saying “I’ve got no slaves in the supply chain”, you really don’t know your supply chain. 

I can guarantee you there will be some form of forced labour going on in everyone’s supply chain. How well do you know your supply chain? 

Second thing is, how are you prioritising the critical suppliers? Do you have a process for prioritising them? Do you know which ones are strategically important? Have you done the analytics around that? Can you put some discipline around that? Have you identified the risks from that activity about where you are sort of more exposed? Do you have too much concentration risk in a particular market? 

If you do, maybe you need to: number three – diversify your supply chain. You don’t have to change everything, but maybe just informed by steps one and two. Be very strategic and tactical. 

From my experience, whilst at Lendlease, we diversified a third of our supply chain from a particular high-risk country and that was a board decision. There was a lot of deliberation towards the board at the time about doing that - and that was a way of de-risking the concentration risk for a particular product category that we were sourcing at the time. 

Finally, number four is to engage with your suppliers. 

What is the conversation that you’re having with them about it? Can you ask them to share, for example, their audits of their supply chains? Will they do that with you? Do you have enough leverage to do it? - because this is the other challenge, of course. 

Some of the typical arguments that come up when there is resistance to be more transparent in the deeper layers is they’ll say “well, it’s IP or it’s commercial in confidence”. And immediately you’re going to hit those barriers. 

I still think that it’s about having that ongoing dialogue and that relationship and engagement on the issue. It benefits them as much as it can benefit you, but it’s not something you’re going to get an immediate black and white answer overnight. So, you can’t think about this issue in a black and white way either. 

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Q: How have some recent global events impacted, or caused you to reshape, some of your procurement strategies? 

Anthony: McConnell Dowell is dotted around the globe, but actually 90 per cent of our procurement is local to those regions. We’re limited to our exposure there.  

An example of one challenge is when the Ukraine war started – the shipping. All Russian ships were embargoed, so we lost half the shipping fleet around the world. As a result, the shipping rates went through the roof. We had to manage how we were going to continue with that, or we had to shift and/or change the route, or basically cancel and then re-look at it. 

And with the recent issues going on with Gaza, the Red Sea is closed off with some of the shipping through there, so we had to have a look at what we were shipping through there and route it around. 

You have to keep a really close eye on what’s happening overseas in those cases. 

Topic #5: Managing the intersection of regulation and innovation: Interpreting and forecasting regulatory changes to improve supply chains 

Q: How can organisations, and specifically procurement professionals, balance that need for compliance with that desire to innovate? 

Errol: It’s probably around that early engagement that I talked about earlier. A lot of our requirements are set by the client, so this sets where the innovation can flow through. How we do that with new products, new product development? A lot of R&D has to go into it on the front end. 

As an example, we’re currently working on a wind farm and wanted to change the concreted we use to green concrete, which is a higher strength profile. Means less concrete, less rigor required but it hasn’t been proven in Australia.  The cost is about 20% more, but the cost savings will then come through the program. Because it wasn’t trialled, no one wanted to risk it. At DTI Infrastructure, we build the foundation and another companies place the wind turbines on it, we have to warrant that it’s suitable for their turbines. 

As we’re still trying to do it, it’s about keeping knocking on that door - we have to keep putting it forward, talking about it, doing more research. I know one of the concrete producers is looking at a precast wind-based turbine and they’re doing a proof of concept. They’re building their own wind turbine bases, so then they can bring clients to have a look at it. 

It’s about keeping an eye the innovation there and how we can maintain those regulations, but also meet the specifications set from our clients. Then making sure we’re not bringing in heightened risk of modern slavery or human rights in that process as well. 

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Q: There’s obviously a lot a great technology out there, but in terms of compliance and managing compliance – how can technology help that balance? 

Anthony: Construction procurement is about herding cats. To get information to all the cats to make sure that they understand what’s happening - Felix is an excellent platform for that. It helps to drive compliance around where it needs to be. 

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