Managing construction material is a critical part of ensuring the project’s success, given that contractors spend 40-70% of the project cost into buying building material. Yet, it is not uncommon to see large amounts of waste material at construction sites after the project is completed. With proper materials requirement planning, this would be preventable.

Material management is a complex process that can make or break a construction company. Effective material management helps get work completed on time, boosts profits, and ensures positive cash flow.

The aim of material management is to get the right quantity of construction and building materials from the right supplier, at the right time, right place, for the right cost.

1. Get the Right Quantity

To get the right quantity of building materials, it is essential to have a material take-off. The purpose of material take-off is to obtain an actual total quantity of materials with the correct specification that will be used in the construction project.

Once the take-off quantity is established, it will serve as a baseline to allow the person in charge to cross examine whether materials ordered by the project site are within the project’s budget. In order to prevent multiple or over-ordering from occurring, having a system that will alert the person in charge early will be useful.

2. Choose from the Right Supplier

The cost of construction and building materials should not be the sole deciding factor for choosing the right supplier. The right suppliers should have the capability to deliver the quantity of materials you require, and to do so according to the delivery schedule. Other factors to look out for when selecting a materials supplier include credit facility and after-sales support.

It is advisable to always have at least one backup supplier for every material you order for your project site. This ensures the projects will run smoothly even if your first-choice supplier was unable to deliver for some reason.

3. Purchase at the Right Time

While buying your construction materials in bulk no doubt saves money, delivering these materials before they are needed may pose a few risks such as damage and theft. Furthermore, delivering large quantities of materials in advance is unwise as you will have to bear the cost of transfer and storage. Similarly, delivering the materials too late will cost you idling and operation costs.

It is always optimum to ensure construction materials are delivered right before you need to use it. This will allow sufficient time for material inspection and reduce the risk of theft and damage.

4. Deliver to the Right Place

Most project sites are huge; moreover, contractors may have different teams working at different locations in a project site. Loading and unloading bulky material are expensive as both will incur machinery cost.

Therefore, it is important to ensure materials are being delivered to the right place. This will eliminate double handling or unnecessary storage, and ensure the quality of material is preserved, which would otherwise be jeopardised during unnecessary double handling.

5. Purchase at the Right Cost

As contractors spend most of their project value purchasing building material, it is essential to purchase them at the right cost to ensure profitability. During the material procurement stage, it is advisable to cross check with prices quoted during the tendering stage. Price comparison and negotiation skills are useful and important in obtaining the best price possible.

In summary, it is obvious how complex the material management process can be. With so many factors at play, there are bound to be mistakes here and there, which will affect the bottom line should it get out of hand.

With evolving construction software technology these days, it can be much easier to manage, especially if your company uses an e-procurement software, or a material management module in an ERP system. One such example is Speedbrick COMPOSE, a software (mobile/desktop) that streamlines your purchasing workflow. Users of Speedbrick COMPOSE have reported positive results such as increased project profits and better materials management (purchasing costs stay within the allotted budget).

Furthermore, Speedbrick COMPOSE provides several features such as historical price trends, automatic monthly material report generation, overbudget alerts, among many others. Users can prevent duplicate efforts and have increased visibility throughout the purchasing cycle, from material request to matching.

About Speedbrick Solutions

Speedbrick Solutions builds easy to use software for contractors to do more with less. Allowing contractors to monitor risks ahead of time, on mobile. Currently Speedbrick has 4 products: procurement management, revenue management, subcontractors management and business analytics dashboard.

Currently, Speedbrick is servicing contractors in Malaysia and Singapore.

The purchasing cycle in construction, from ordering materials to payment, is not easy. A well-managed procurement is often considered a major contributing factor of a successful project. Construction professionals have to source high quality materials and engage services within a specific budget, while also complying with regulations at the same time. Therefore, ensuring accuracy, timeliness and quality throughout the procurement is essential for the success of the project.

Thus, to ensure the purchasing cycle is managed effectively and smoothly, standardising and systemising the cycle should be a priority.

Doing so would decrease overall cost as there will be a decrease in waste. Furthermore, with a more standardised approach, communication among stakeholders will improve, which will decrease the risk throughout the purchasing cycle, particularly risks that have the potential of delaying project delivery and driving up costs.

The following are identifiable stages you can use to standardise your construction business purchasing cycle:

1. Quantity Take Off

Identify the budgeted quantity of all raw and prefabricated materials required for the project.

2. Material/Equipment List Approval Submission

Submit material specification details and authority certificates to client or superintending officer to obtain approval on material to be used in the construction project.

3. Material Requisition

Site raises material requisition (MR) according to site condition and work programme.

4. Material Approval

Depending on the size of contractors, this could be a multi-tier approval. Each MR should be approved by a superior before procurement.

5. Quotation Comparison

Purchasing department obtains pricing comparison on material order. Purchasers will compare the terms and pricing between multiple suppliers, and negotiate with suppliers when necessary.

6. Supplier Selection

Based on the quotations, the company will select a suitable supplier for the material.

7. Purchase Order (PO)

At this stage in the purchasing cycle, the order is placed and this becomes a contract between the organisation and the supplier.

8. Material Delivery

Supplier will deliver ordered material. During this stage, contractors will need to check that the materials are delivered according to specifications, and validate the delivery order (DO).

9. PO/DO/Invoice Matching

When suppliers provide invoice for payment, the contractor will have to ensure invoice is according to materials detailed in PO and DO.

10. Approval and Payment

Payment can only be made after the finance department has verified the invoices. Payment will be made according to the agreed credit terms.

11. Record Update

The material purchasing records will be updated. There are 3 types of data in a purchasing report that is important for management:

1. Material expenses report

2. Material quantity report

3. Whether ordered quantity is within or exceeded budget.

As mentioned before, the purchasing cycle is complex, but it plays a crucial part in the project’s success. With the number of stakeholders involved, managing them means going through a lot of MR, PO, DO and invoicing documents—all of which may involve manually recording these documents into spreadsheets reports.

It’s time-consuming and rarely sustainable in bigger budget and complex construction projects.

It is essential to have visibility and accountability on material spending, and at every step of the purchasing cycle.

This is so that mistakes or potential errors can be identified and addressed by the stakeholders, who otherwise would run the risk of making spending decisions without knowing how their decisions affect the project’s bottom line.

The best way to ensure your purchasing cycle is standardised is to use a digital procurement platform, such as Speedbrick COMPOSE. It allows all stakeholders to perform construction material purchasing tasks on one platform.

Some of its helpful features are:

• Available historical price trends

• Automatic monthly material report generation

• Seamless accounting software integration

• Overbudget alerts

With Speedbrick COMPOSE, your procurement process will be enhanced as the software

• Provides real-time actionable insights

• Increases visibility and accountability across the board, managing stakeholders efficiently

• Allows convenient and efficient procurement, also eliminating duplicate efforts

Conducting payment in the construction industry is a lot different than in others. Firstly, there must be a construction contract between the contractor and its client. Then payment is made progressively, in order to aid the contractor’s cash flow, otherwise paying in full after the work is completed will lead to financial difficulties for the contractor.

Progressive payment refers to paying the contractor according to the work completed, either on a monthly basis or between the agreed duration. Therefore, in order to receive payment from the client, the contractor has to initiate the progress claim process.

There are several stipulations or requirements involved in this claims process. Both parties will have to agree to a set date for the contractor to submit their progress claim, which usually falls on the 25th of the month. Suppose the contractor fails to submit their progress claim by the date stipulated, then they will run into the risk that the claim will not be processed until the following month.

There are several contracts in which the progress claim is used, such as when the contract is entered between:

• An employer/client and a main contractor

• A main contractor and a nominated subcontractor (NSC)

• A main contractor and subcontractor (domestic)

Each of these contracts have its own process that must be handled carefully.

Contract 1: Between an employer and a main contractor

1. Generally, the contractor will prepare his progress claim and submit it to the architect. It’s also a common practice for the employer to receive a copy.

2. The architect will then verify the work completed during the particular month and issue an interim certificate to the employer, along with a copy to the contractor.

3. The contractor then submits their tax invoice, attached with the interim certificate (for accounting purpose), to the employer for the amount stipulated on the interim certificate.

4. Upon receiving the contractor’s invoice, the employer will make the payment.

Contract 2: Between a main contractor and a nominated subcontractor (NSC)

1. The NSC will prepare his progress claim and submit it to the main contractor.

2. The main contractor will compile the NSC’s claim and submit it as part of the main contractor’s claim to the architect.

3. The architect will verify the work completed by the NSC during the particular month and issue an interim certificate to the employer with a copy to the main contractor.

4. The interim certificate is then forwarded to the NSC.

5. The NSC submits their tax invoice, attached with the interim certificate (for accounting purposes), to the main contractor for the amount stipulated on the interim certificate.

6. Upon receiving the NSC’s invoice, the main contractor will then make payment to the NSC.

Compared to the contract between the employer and main contractor, the nominated subcontractor will be the one to initiate the progress claim, and the main contractor will issue the payment. The NSC does not directly claim from the employer.

Compared to the domestic subcontractor, the nominated subcontractor (NSC) enjoys certain privileges. They are selected by the client to carry out some of the works. Moreover, the NSC also gets their progress claim certified by the architect, which is not practiced for the domestic subcontractor.

Contract 3: Between a main contractor and a subcontractor

1. The subcontractor will prepare his progress claim and submit it to the main contractor.

2. The main contractor will certify the subcontractor’s completed work, usually in accordance to the interim certificate the main contractor has received from the architect.

3. The main contractor will then send the interim certificate to the subcontractor.

4. The subcontractor submits their tax invoice, attached with the interim certificate (for accounting purposes), to the main contractor for the amount stipulated on the interim certificate.

5. Upon receiving the subcontractor’s invoice, the main contractor will then make the payment to the subcontractor.

In summary, there are subtleties among these contracts that must be monitored carefully.

The entire progress claim, interim certificate issuance and payment process will affect the cash flow in a construction company, and thus should be tracked properly.

Nevertheless, when a construction company handles a lot of projects, the team overseeing may overlook or delay the progress claim submission, which will impact the certification process. Other times, it can take the architect a long time to issue an interim certificate, which will subsequently delay the processes that follow.

Generally, there are many points of failure or delay in the progress claim process, which makes it even more important to monitor progress claims closely. This also highlights the need for a centralised payment platform, such as Speedbrick ECHO, where your team can obtain clean and simplified visualisations of the progress claims, which provides a clearer overview to all stakeholders.

Speedbrick ECHO enables you to track each project’s financial health at a glance, monitor claimed and certified progress to identify outstanding payments, and automatically generate project cash inflow reports.

There are many benefits to Speedbrick ECHO, as using this platform allows you to:

• Recognise payment risks early

• Drill down to the details of the payment

• Identify and manage potential cost overrun scenarios before they happen

• Reduce unnecessary effort and time spent processing financial information for reports

Here’s what our client said about Speedbrick ECHO:

It is so easy, I use Speedbrick to monitor all my projects’ payments. The system highlights outstanding payment for my immediate action. Now, I only need to focus on chasing outstanding payment. I no longer spend time compiling spreadsheet reports.

– Vivan, credit controller of Strong Force (M) Sdn Bhd

On the other hand, to manage your subcontractors and your payment to them, Speedbrick offers the Speedbrick ECHO+.

With Speedbrick ECHO+, you can do the following (and more!):

• Supervise and track awarded, certified, and paid subcontractors on one platform

• Maintain a directory of subcontractors

• Create and issue standardised subcon certificate summaries

• Approve, certify and pay subcon variation orders (VOs) in a central platform

• Generate and link backcharges to subcon certificates

With these features, Speedbrick ECHO+ enables you to make better decisions based on real-time insights of subcontractor performance, as well as to manage your subcons easily on a single platform.

Download a free Progress Claim template in Microsoft Excel format. This template consists of a workdone summary page and format of a typical construction project’s bill of quantity.