What is Direct Procurement?
In broad terms direct procurement in a construction project, is where the client directly procures (purchases) capital (high cost) equipment with the intention of then issuing it to the contractor for installation. Directly procured equipment is therefore often referred to as OFCI (Owner Furnished Contractor Installed).
This diverges from the typical supply chain arrangement within the construction industry whereby the contractor purchases the equipment and then installs it under the construction contract.
What are the Drivers Behind OFCI?
The choice to directly procure equipment is informed by the overarching procurement strategy of the client organisation. As is often the case, this provides an opportunity for improving value within a project, but equally can introduce additional risks.
The benefit in directly procuring OFCI equipment can be significant. It can enable a client to pre-order equipment and mitigate extended lead times, increase the client buying power across OFCI vendors and can also improve quality by utilising modular offsite manufacturing and repeatable design.
However, in circumstances where the OFCI strategy does not meet project or organisational requirements, it can also introduce risk. This could include blurring of the contractor’s responsibilities, failing to capture design or regulatory requirements and limiting the supply of equipment to a single manufacturer.
For this reason, the technical requirements of OFCI equipment require proper consideration from the outset. Details of how this equipment will interface with the systems of future projects in terms of technical requirements and contractual responsibilities will need to be established.
What are the technical considerations?
The procurement of OFCI equipment will require a technical basis routed in the strategic requirements of the organisation. Specification documents, referred to as RFP (Request for Proposal) documents, are typically issued to OFCI vendors and will describe the technical requirements for the equipment. This will allow them to develop their proposals and provide accurate prices for consideration.
The production of RFP documents can be challenging as they are required to describe equipment to be used in a future, possibly unknown project. For this reason, the overarching design strategy should be established before these documents are produced. The risk is that the OFCI equipment will not meet future project requirements, therefore direct procurement favours repeatable modular design.
Consideration should be given to technical “nice to have” inclusions in the RFP documents which can result in increased cost and may not necessarily offer value to the client. Because the OFCI equipment will form the building blocks for multiple future projects, it is important the equipment remains flexible, and complexity is minimised.
It is intended that OFCI equipment where possible will be a standard product from the vendor with only minor modifications. Bespoke solutions should therefore need to be carefully considered. Novel equipment configurations could introduce complexity and increase risk.
Typical elements that inform OFCI RFPs could include the following:
- Flexibility of design
- Appetite for risk and resilience
- Speed of installation
- Possible inventory requirements
Who is the end user?
It is often the case that the end-user of a data centre is not the client and will instead be a tenant or customer leasing the facility.
The proposed end-users/ targeted customers should be considered during the production of RFP documents as they may have specific technical requirements which will need to be implemented retrospectively.
In most cases the targeted customer requirements will form the baseline requirements within the OFCI RFP documents. Many incoming customers will have their own specific technical requirements. It maybe that the equipment can be specified with features that can be adapted to specific customer requirements with little impact. However, in some instances, speculative customer technical requirements will inflate costs and increase risk when deployed in multiple projects. In these cases, there should be a strategy for implementation in the future.
Under most circumstances specific technical requirements will not be required unless requested by the customer for a specific project. In this case there should be a plan for implementing this option, if it is a targeted customer. Where possible options should be defined in the RFP to ensure that they can be easily implemented later.
Whose design is it anyway?
A major challenge associated with direct OFCI procurement is establishing what the final design will be. This is exceedingly difficult if the potential project locations fall under multiple regions, countries or even continents each with different regulatory, legislative or climatic conditions.
It is therefore preferable that the OFCI procurement is supported with an overall scheme design to ensure that all equipment requirements are captured. However it maybe the case that each project will stand alone as a bespoke project, with different designers and contractors. Therefore it maybe the case that the interface between OFCI procurement and Construction procurement is disjointed which in turn will increase project risk. Using a responsibility matrix during the OFCI procurement process can help to mitigate this risk and will convey responsibility to stakeholders. The responsibility matrix is typically referred to by the acronym RACI (Responsible, Accountable, Consulted and Informed).
In many data centre projects, construction is procured under a design and build contract with a general contractor (GC). This conveys the responsibility for design onto the GC along with the associated risk, typically at a cost to the client. In this case it should be noted that the inclusion of OFCI equipment has the potential to undermine the design responsibility of the contractor as they have not been responsible for the selection of that equipment. Further to this, it maybe that the client attempts to reallocate this risk using more stringent contractual terms. In this case it is possible that the contractors will react to this by inflating their costs to account for this increased risk. This may negate any cost benefit associated with the direct OFCI procurement process.
JDA Technical Procurement Support
JDA have developed a wealth of experience in supporting the technical elements of OFCI procurement strategies. This blog is intended to offer an insight into direct procurement, its benefits and its pitfalls. If your organisation is looking to embark upon a direct procurement strategy and feel that you may benefit from technical support, please get in contact.