Quality over quantity is a simple and well-understood concept, but it’s one that is difficult to reconcile with today’s price-sensitive corporate environment. Dubai is an attractive place to do business, with low barriers to entry and significant business opportunities and in many industries this translates into a very competitive marketplace.

The high levels of competition increasingly result in products and services becoming commoditised, putting a downward pressure on prices. But while it makes commercial sense to capitalise on competition and the related low costs, treating certain products and services as a commodity can often result in longer term issues and related costs that far outweigh the initial cost savings.

The construction industry is a great example of this. There are significant projects, both progressing and in the pipeline. The size and scale of these can be significant in comparison to many other locations throughout the world. These significant projects attract competition from multinationals and established local businesses and competition is fierce.

Right balance

In construction, like in many other industries, there are various tensions within the project objectives that need to be considered when developing the procurement strategy. Trade-offs are required to find the right balance between the various stakeholder objectives.

I see different approaches across different regions and, in the UAE, cost considerations are often weighted far more significantly than other factors. But this focus on minimising initial capex is often misaligned with the wider objectives of the project stakeholders.

With commercial developers for example, there can be significant financial incentives to getting projects finished quickly, thus accelerating the income stream that comes from the completed asset. Conversely, delays can increase interest payments and impact commercial viability.

This can quickly offset the apparent capex savings that can be made from selecting contractors and suppliers with the lowest tender cost, but who turn out to have insufficient capacity or resources to deliver on time or to the desired level of quality.

Lack of cash flow

This is particularly relevant for complex projects, where basing the final selection on price point alone will often result in:

Project delays, as the tenderer struggles to mobilise subcontractors and procure long lead materials, usually due to a lack of cash flow and administrative delays in procuring bonds and guarantees;

Poor quality control, as less qualified and ultimately lower cost site management personnel are deployed to the project;

Demotivated site operatives, often as a result of being overworked or receiving delayed salary payments;

Unprofessional (or non-existent) HSE protocols, increasing the risk of injury (or worse) to those involved in the project, with knock-on effects to the project and developer’s reputation; and Increased installation and quality issues, resulting from all of the above and causing prolonged snagging and commissioning durations, ultimately delaying handover and impacting end-user satisfaction levels.

The long-term implications of these issues are conceptualised in the term Cost of Poor Quality (COPQ). These costs can impact all levels of the supply chain, but have a particular impact on clients and end users, who must to live with the issues over the long term — plus the resulting reputational damage.

Tangible actions

Determining procurement strategy and ultimately product or supplier choice needs to be based on a wide range of factors. How you weigh up the importance of these different factors will be based on your business’ priorities and strategy. Businesses cannot lose sight of the importance of using the correct balance of criteria that fits the strategic direction of the business.

Selecting the lowest priced tender might initially appear to represent good value, but will this provide the most appropriate solution for your business? Have the long-term implications been factored into the evaluation process and are there whole life cost implications between different options that need to be considered?

We recently completed a very demanding project in the hospitality sector in Dubai, during which this very issue needed to be addressed. The project had exceptionally challenging time constraints but also had a very demanding budget.

After a fast-track competitive tendering process, there were two clear front-runners to take on the main contractor role — one that had proposed a particularly competitive price and another that was more expensive, yet significantly more experienced in delivering this specific type of project.

Track-record

Ultimately, in selecting the contractor, the likelihood of achieving the aggressive completion date together with track-record of producing the desired quality was factored into the analysis and the more expensive contractor was awarded the project, with savings achieved in other areas of the project to offset the additional expenditure. The result has been a successful project, completed quickly and to a high level of quality, with minimal snagging issues and an early launch of the venue.

This is just one of many examples of the benefits that come from taking a holistic view on vendor selection and related procurement strategy. While cost is almost always an important consideration, and in some cases is essential to project viability, it is also important to ensure the right level of technical competencies, product quality, personnel and service levels exist as part of the offer.

Important decisions

Quality over quantity, or in this case cost, is an age old lesson that too many of us forget when making important procurement decisions. While a cost focus may support short-term financial viability of any given project, there can be significant wider implications that will ultimately impact the success of any investment in the long term.

Businesses must adapt their procurement strategy to reflect the complex business world that we live in, which in turn will help achieve sustainable, long term profitability rather than focusing purely on short-term profit.

The writer is regional Director at the construction and property consultancy, Thomas & Adamson.