Despite the economic challenges that markets all over the globe continue to face, many industries—including basic materials, oil and gas, and utilities—have large-scale projects in the works. Over the next four years, for example, the top ten mining companies together plan to spend more than $200 billion on capital projects related to spending categories such as machinery, infrastructure, and engineering services.
Such capital projects are typically very large investments, often representing more than 10 percent of a company’s annual revenue, depending on the industry. Notably, too, external capital spending can represent 80 percent or more of a project’s total budget. Many companies have established dedicated capital-procurement functions and have put project-specific procurement teams in place. Those companies regularly update their supply strategies for important equipment and service categories and clearly define core processes such as cost escalation estimation and claims management (the process of negotiating paybacks related to changes in project plans, unexpected cost increases, or quality problems). Standard project procedures and handbooks mandate that project compliance be monitored closely. (See the sidebar “The Dos and Don’ts of Capital Procurement.”)