8 Procurement Risks to Watch Out For in Big Projects (and Their Solutions)

Every procurement project comes with its risks. But the bigger, more complex projects can present unique issues, and with the extra time these projects can take to complete, there’s a greater chance of these issues cropping up.

For the procurement professional a big project can be a career marker, but potentially a career breaker.

Firstly, what do we mean by a “Big Project”?

Here we are referring to large-scale procurement initiatives that are characterised by several key attributes:

  1. High Cost: Depending on the industry and scope, big projects are synonymous with substantial financial investments that can span millions or even billions of dollars. For instance, there are five road and rail projects currently underway in Australia which are estimated to cost in excess of $10 Billion – WestConnex, Sydney Metro, Melbourne Metro Tunnel, Westgate Tunnel.
  2. High Complexity: Big projects are often marked by a labyrinthine structure involving numerous interconnected elements and collaborations across various departments, suppliers, and stakeholders. For example, the National Broadband Network (NBN), recognised as one of the world’s largest and most complex telecommunications projects, embodies the challenging integration of technology and infrastructure. This complexity can manifest in different forms, such as contractual agreements, quality assurance, and change management.  
  3. High Impact: Large-scale projects often resonate with substantial potential impact within the organisation and the broader community. The ripples of success or failure can have wide-ranging implications on various stakeholders, from economics to accessibility and environmental factors. Again, the National Broadband Network (NBN) signifies more than a high-speed broadband network; it’s a critical catalyst for Australia’s economy and society, empowering businesses and facilitating everyday communication. The ripples of success or failure can have wide-ranging implications on various stakeholders, from economics to accessibility and environmental factors.
  4. Long Duration: Big projects are often characterised by extended timelines spanning months, years, or even decades.  For instance, the construction of the Ord River Irrigation Scheme, an agricultural marvel, unfolded over a staggering 20-year period, reflecting the intricacies involved in such a monumental undertaking. This protracted duration introduces a unique susceptibility to fluctuations in pricing, market conditions, regulatory landscapes, and other dynamic factors that might evolve.
  5. High Visibility: Large projects are often highly visible within the organisation and potentially in the public eye. This visibility can increase the pressure on the teams involved and make the project more susceptible to criticism. The bigger the project the more visible they are, and the more susceptible to criticism.  Projects like WestConnex, Melbourne Metro Tunnel and Sydney Metro have faced allegations in the media for cost over-runs, conflicts of interest, lack of transparency and lack of due diligence which in some cases have led to enquiries into the projects.
  6. Lots of Stakeholders: In big projects, managing myriad stakeholders becomes a defining aspect of complexity, as it often involves a vast network of suppliers, contractors, governmental bodies, internal departments, investors, and sometimes even the public. The Murray-Darling Basin Plan, for example, brings to light the intricate coordination required, involving the participation of multiple state governments, the Commonwealth government, and irrigators in a shared water management plan. Ensuring alignment and cohesive collaboration among these diverse groups is a substantial part of the challenge.

These initiatives are not for the faint of heart! They demand careful planning, robust management keen stakeholder management and a deep understanding of managing competing, sometimes conflicting, demands. But with the right approach, they can also be a highlight of one’s career.

Let’s now dive into the practical insights and strategies that procurement professionals must consider when embarking on a big project. Join us as we explore how to turn these potential career markers into success stories and avoid the pitfalls that could derail your hard work.

Here’s what to look out for in ‘big’ project procurement.

1. Price Increases

Over the duration of a lengthy project, prices can and often change. This can be entirely justified, as suppliers may face various factors such as inflation, technological improvements, or changes in material costs. For instance, the National Broadband Network (NBN) saw its estimated costs double from AUD 43 billion to over AUD 90 billion, with price increases tied to materials like fibre optic cables. While these price hikes can sometimes reflect general economic trends or even positive technological enhancements, they underscore the importance of preparation and strategic planning.

Solution: Procurement teams can prepare for price fluctuation by analysing market conditions, negotiating long-term contracts with price adjustment mechanisms, and building strong relationships with suppliers to ensure ongoing communication and collaboration.

2. Contractual Issues

Contracts that are poorly structured, lack clarity or contain ambiguous terms can lead to disputes and disagreements between parties. For example the Westgate Tunnel in Melbourne has been significantly delayed by disputes involving builders, Transurban and the Victorian Government.  Without clear contractual obligations, there may be confusion regarding responsibilities, deliverables, pricing, payment terms or timelines. These issues can strain relationships, result in legal disputes and negatively impact project progress.

Solution: Thoroughly review and negotiate contract terms, clearly define responsibilities, deliverables, and pricing. Seek legal expertise when needed, communicate effectively with stakeholders, and proactively address any contractual discrepancies or potential issues.

3. Supply Chain Disruptions

Disruptions can be caused by natural disasters, political instability, trade disputes or global crises like pandemics.  According to Infrastructure Australia, disruption to supply chains caused by the COVID-19 pandemic, volatile demand and the war in Ukraine is causing delays and cost escalations for imported items, while delivery risks are being compounded by severe labour shortages that industry report as having the greatest impact on capacity.  

Such events can lead to material shortages, production delays, increased costs or the need to find alternative suppliers, impacting project timelines and objectives.

Solution: Procurement teams should diversify their supplier base, maintain open lines of communication and regularly assess supplier capabilities and risk profiles. Develop contingency plans, establish alternative sourcing options and monitor market conditions to proactively mitigate the impact of potential disruptions.

4. Quality Assurance

Inadequate quality control measures and ineffective supplier monitoring can result in substandard materials, components or services. Poor quality can lead to rework, project delays or compromised project outcomes.

Solution: Implementing robust quality assurance processes and conducting regular supplier assessments can help mitigate this risk.

5. Stakeholder Alignment

Poor communication, lack of coordination or misalignment of expectations internally, between suppliers or clients, can lead to delays, misunderstandings, and disruptions in procurement processes. It is essential to establish effective channels of communication and ensure all stakeholders are aligned on project objectives, timelines, and requirements.

Solution: Regularly engage stakeholders, clearly communicate project objectives, requirements, and timelines. Conduct periodic meetings and status updates to ensure alignment and address any concerns or misunderstandings promptly.

6. Change Management

Change management refers to effectively managing changes in project requirements, scope, or specifications. Changes in project parameters can affect procurement activities, such as altering material specifications, modifying supplier contracts or adjusting delivery timelines. Inadequate change management can lead to delays, increased costs and confusion among stakeholders.

Solution: Establish a structured change control process, including change request documentation, impact assessment, and approval workflows. Clearly communicate change procedures, responsibilities and timelines. Regularly review and update procurement plans, and maintain open communication channels with stakeholders to ensure smooth change implementation.

7. Changing personnel

Procurement is currently a revolving door of personnel. With big projects, it’s likely that teams will have to deal with new faces within and new faces on the other side of the table as well. This can cause issues if people aren’t up to speed or have different ideas on how things should be done.

Solution: Establish clear lines of communication and ensure knowledge transfer when it comes to internal changes. For new external contacts, make sure all important contracts and agreements are well documented and try to establish a rapport with more than one person in the other camp.

8. Inadequate Planning

Inadequate planning occurs when project managers fail to allocate sufficient time and resources for procurement activities. This can lead to rushed decision-making, limited supplier options, and insufficient negotiation time. It may also result in delays in obtaining necessary materials or services, leading to project schedule disruptions and cost overruns.

Solution: Prioritise thorough project scoping, conduct detailed market research and allocate sufficient time and resources for procurement activities. Collaborate closely with project stakeholders, engage early in the project lifecycle, and create robust procurement plans with clear milestones and deliverables. Regularly review and update plans to adapt to changing project needs.

Identify and nullify big project procurement risks with Comprara Consultancy

Big projects rely on their procurement teams to foresee obstacles, provide contingency plans and to generally keep things moving. They are the problem solvers and the strategy drivers. And it requires a lot of skill and resources. We’ve consulted with numerous organisations embarking on big projects and helped them establish the right frameworks and employ the right support – human and digital. We can do the same for you. If you have a big project coming up, learn how to identify the risks and how to prepare for them – give us a call now.